Opinion
No. 53054-2-I
Filed: November 29, 2004 UNPUBLISHED OPINION
Appeal from Superior Court of Snohomish County. Docket No: 02-2-06990-6. Judgment or order under review. Date filed: 08/20/2003. Judge signing: Hon. Linda C Krese.
Counsel for Appellant(s), John Arthur Jr Bender, Ryan Swanson Cleveland PLLC, 1201 3rd Ave Ste 3400, Seattle, WA 98101-3034.
Counsel for Respondent(s), Kate Adams, Attorney at Law, 1201 Pacific Ave # 1900, PO Box 1315, Tacoma, WA 98401-1315.
Lucy R Clifthorne, Attorney at Law, 1201 Pacific Ave Ste 1900, Tacoma, WA 98402-4315.
James A. Krueger, Attorney at Law, 1201 Pacific Ave Ste 1900, Tacoma, WA 98402-4315.
A broad arbitration clause creates a presumption that disputes under the contract are arbitrable. If an otherwise collateral claim implicates issues of contract construction, then the dispute falls within the scope of the arbitration agreement. Here, the contract between Precision Husky and Mountain Equipment contains a broad arbitration clause, and the four claims at issue all implicate the parties' respective rights and obligations under the agreement. All four claims are therefore arbitrable.
Collins Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16, 20 (2d Cir. 1995); see also Norcom Elect. Corp. v. CIM USA Inc., 104 F.Supp.2d 198, 203 (S.D.N.Y. 2000).
Id.
BACKGROUND
In April 2001, Precision Husky and Mountain Equipment entered into a dealer agreement under which Mountain Equipment was to act as a reseller of certain industrial recycling equipment manufactured by Precision Husky. The parties agreed that Alabama law would govern, and that all disputes 'relating in any way' to the agreement would be governed by the Federal Arbitration Act and resolved by binding arbitration in Alabama, Precision Husky's home state.
Clerk's Papers at 222.
In May, 2001, Mountain Equipment ordered a new machine called a Pro Grinder 5100 from Precision Husky, at a cost of $258,666. Mountain Equipment then sold the Pro Grinder to a third party for $100,000 in cash and trade-in goods. According to Precision Husky, Mountain Equipment requested credit from Precision Husky for the difference between the value of the new grinder and the amount Mountain Equipment received in cash for it.
Precision Husky extended the credit and accepted a promissory note for the outstanding amount, secured by the traded-in goods and other equipment. The collateral included a used Pro Grind 5000 tub grinder, a Caterpillar D6D dozer, and a Caterpillar 966C wheel loader. Precision Husky filed UCC-1 financing statements on the loader, the dozer, and the used tub grinder. When Mountain Equipment defaulted on the note, Precision Husky seized the loader.
In May 2002, Precision Husky sued Mountain Equipment, its president, Jim Bride, and his son, Kelly Bride. The suit alleged breach of the dealer agreement, default on the note, and misrepresentation, and sought damages and injunctive relief. Mountain Equipment counterclaimed, alleging breach of the agreement, tortious interference, unlawful seizure, and unlawful filing of a security interest.
Precision Husky claims that the complaint erroneously sues 'Jim and Kelly Bride, husband and wife' and that Kelly Bride is actually Jim's son.
Precision Husky moved to compel arbitration. The court granted the motion as to the direct contract claims, but stayed arbitration of four claims the court believed were 'not sufficiently germane to the subject matter . . . to require the arbitration . . . in Alabama': tortious interference; unlawful seizure; unlawful UCC filing; and default on the promissory note. Precision Husky appeals.
Clerk's Papers at 7.
DISCUSSION
The Federal Arbitration Act manifests "a liberal federal policy favoring arbitration agreements." Contract language defines the scope of disputes subject to arbitration. A clause encompassing any dispute 'relating to' a contract is broader than language covering only claims 'arising out' of a contract. The question of whether an issue is arbitrable is reviewed de novo.
EEOC v. Waffle House, Inc., 534 U.S. 279, 289, 122 S. Ct. 754, 151 L. Ed. 2d 344 (2002) (quoting Gilmer v. Interstate /Johnson Lane Corp., 500 U.S. 20, 25, 111 S. Ct. 1647, 114 L. Ed. 2d 26 (1991)). There is also strong public policy in Washington favoring arbitration. See McClure v. Davis, Wright, Tremaine, 77 Wn. App. 312, 314-15, 890 P.2d 466 (citing Herzog v. Foster Marshall, Inc., 56 Wn. App. 437, 443, 783 P.2d 1124 (1989)).
Id.
See Mediterranean Enter., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) (citing Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 398, 87 S. Ct. 1801, 18 L. Ed. 1270 (1967)); McClure, 77 Wn. App. at 314-15.
In re The Jean F. Gardner Amended Blind Trust, 117 Wn. App. 235, 237, 70 P.3d 168 (2003), review denied, 150 Wn.2d 1029 (2004).
The arbitration clause in the parties' agreement provides as follows: Manufacturer and Distributor both agree and acknowledge that this Agreement involves an interstate sale of the equipment purchased hereunder, with a substantial effect upon interstate commerce, and that the Federal Arbitration Act applies to and governs disputes between the parties relating in any way to the subject of this Agreement. In the event of any dispute or controversy of any kind between Manufacturer and Distributor concerning this Agreement, or the equipment sold pursuant hereto, or any warranties or representations or performance failures relating in any way to the equipment or condition or performance of the equipment, or damages of any kind involving said equipment, the parties agree that the same shall be resolved by binding arbitration in Birmingham, Alabama by a panel of three arbitrators under the rules and procedures of the American Arbitration Association.
Clerk's Papers at 222 (emphasis added).
Federal cases set forth the analysis when interpreting this kind of broad language. In Old Dutch Farms Inc. v. Milk Drivers and Dairy Employees Local Union, the Second Circuit held that a dispute arises out of or is related to the subject matter of the contract, and is subject to arbitration, if it raises an issue the resolution of which requires a reference to or construction of some portion of the contract itself.
359 F.2d 598, 601 (2d Cir. 1966).
Recent cases have expounded on the Old Dutch rule, and use the following test for deciding the arbitrability of collateral claims:
[I]f the arbitration clause is broad, there arises a presumption of arbitrability; if, however, the dispute is in respect of a matter that, on its face, is clearly collateral to the contract, then a court should test the presumption by reviewing the allegations underlying the dispute and by asking whether the claim alleged implicates issues of contract construction or the parties' rights and obligations under it. If the answer is yes, then the collateral dispute falls within the scope of the arbitration agreement; claims that present no question involving construction of the contract, and no questions in respect of the parties' rights and obligations under it, are beyond the scope of the arbitration agreement.
Collins Aikman, 58 F.3d at 23.
All four of the claims at issue, even if considered clearly collateral to the contract, present questions in respect of the parties' rights and obligations under the agreement.
The Promissory Note, UCC Filing, and Seizure
These claims all stem from Mountain Equipment's failure to pay for equipment it purchased under the dealer agreement, and implicate Precision Husky's right to set the terms of sale and receive payment. Paragraph 5 of the dealer agreement provides as follows:
The prices to be paid by you will be our current list prices in effect on the date of shipment to you, subject to any applicable discounts, charges and terms of sale, all as specified in our Price List and Schedules of Discounts, as issued from time to time. It is understood however, that we may, without notice, make changes in prices, discounts, charges, terms of sale and design of products covered hereby and may discontinue the sale of any product, and shall not be liable for doing so. All invoices must be paid in accordance with their terms.
Clerk's Papers at 220 (emphasis added).
Precision Husky's efforts to collect on an alleged unpaid invoice is an effort to enforce rights under the agreement.
That Mountain Equipment executed a promissory note as consideration, and Precision Husky seeks to collect on that note, does not mean that the dispute is not related to Precision Husky's rights under the agreement. While the note is a separate contract, it may fairly be considered a special term of sale as contemplated by the agreement. The fact that the promissory note does not itself include an arbitration provision is, under these circumstances, irrelevant. The dispute over the promissory note is directly related to Mountain Equipment's obligation to pay Precision Husky for equipment purchased under the dealer agreement.
See Collins Aikman, 58 F.3d at 21 (claims arising out of later contracts without arbitration clauses are arbitrable to extent they allege conduct violating earlier contract containing arbitration clause).
The same analysis applies to the dispute over whether Precision Husky properly filed security interests in the various items of equipment and seized the loader. It is of no consequence that the security items were not purchased from Precision Husky under the dealer agreement. The heart of the matter is whether those items were, as collateral, part of the terms of sale for the Pro Grinder 5100. This dispute clearly relates to the subject matter of the agreement.
Mountain Equipment itself relies upon the agreement, contending that 'the Dealer Agreement does not allow Precision Husky to obtain a security interest in equipment being sold.' If Mountain Husky is correct, then this dispute is an issue squarely related to the subject matter of the agreement.
Tortious Interference with Business and Contractual Relations Mountain Equipment makes two nearly identical claims under different legal theories. Under the heading 'Breach of Contract,' Mountain Equipment claims that Precision Husky breached the agreement by 'interfering with the Defendants' sales of equipment, by attempting (and perhaps succeeding) in selling equipment directly to Defendants' customers and potential customers.' Under the heading 'Interference with Business and Contractual Relations,' Mountain Equipment contends Precision Husky 'has interfered and continues to interfere with the Defendants' attempts to sell equipment to its customers and others, thereby damaging the Defendants.' Mountain Equipment argues that the tort claim is wholly unrelated to the agreement. But Mountain Equipment also contends that identical conduct constitutes a breach of the agreement.
Clerk's Papers at 266.
Id.
Labels do not control. Parties cannot escape contract arbitration simply by casting their claims in terms of tort:
[C]ourts must 'focus on the allegations in the complaint rather than the legal causes of action asserted. If the allegations underlying the claims Qtouch matters' covered by the parties' agreement, then those claims must be arbitrated, whatever the legal labels attached to them.'
Norcom, 104 F.Supp.2d at 203-04 (quoting Collins Aikman, 58 F.3d at 20-21).
The two claims are founded on the same allegations, and clearly depend upon interpretation of the contract and Mountain Equipment's right to be the preferred distributor of Precision Husky equipment in the state of Washington. However cast, these claims are arbitrable.
Waiver
Mountain Equipment asserts a cross-appeal in its response brief, claiming the trial court erred when it failed to find that Precision Husky waived its arbitration rights and the forum selection provision of the agreement. But Mountain Equipment failed to file a notice of cross-appeal of the superior court's order compelling arbitration in Alabama. In fact, Mountain Equipment failed to file any notice of cross-appeal at all. Under RAP 5.1(d), a notice of cross-appeal is essential 'if the respondent seeks affirmative relief as distinguished from the urging of additional grounds for affirmance.' The order compelling arbitration in Alabama is not subject to our review.
Phillips Building Co., Inc. v. An, 81 Wn. App. 696, 700 n. 3, 915 P.2d 1146 (1996).
Mountain Equipment contends that Precision Husky appeals from an order refusing to compel Jim Bride to submit to arbitration. This is not correct; that issue was disposed of in a separate order that has not been appealed.
We reverse and remand for an order compelling arbitration consistent with the terms of the agreement and in accordance with this opinion.
BECKER, J. and GROSSE, J., Concur.