Opinion
Civil Action No. 99-CV-326-H
September 13, 1999.
MEMORANDUM OPINION
This action arises from a series of contractual agreements between Plaintiffs and Defendant Protection One Alarm Monitoring, Inc. ("Protection One") for ongoing purchases and sales of alarm system customer accounts. Under the agreements, which are substantially identical, Protection One agreed to purchase certain alarm system accounts after Plaintiffs sold the accounts to customers and installed the equipment. Protection One would then continue to monitor the installed alarm systems and provide other services.
Plaintiffs filed a complaint pleading the following common law and statutory claims: (1) breach of contract; (2) misrepresentation or fraud in the inducement; (3) violation of the Kentucky Consumer Protection Act, Ky. Rev. Stat. Ann. §§ 367.170, 367.220 (Michie 1996); (4) violation of the Kentucky antitrust laws, Ky. Rev. Stat. Ann. § 367.175 (Michie 1996); (5) violation of the Kentucky Business Opportunities Act, Ky. Rev. Stat. Ann. § 367. 815 (Michie 1996); and (6) violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 (1994). In lieu of answering the complaint, Protection One moved to stay the proceedings in this case pending arbitration of the claims pursuant to 9 U.S.C. § 3 (1994). They point to virtually identical language in Paragraph 12.15 of each of the agreements under which "any controversy or claim or dispute arising out of or relating to this Agreement or the breach, termination, enforcement, interpretation or validity thereof, including the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by arbitration." In response, Plaintiffs admit these arbitration clauses, but claim that they are not applicable to the statutory claims.
Although the substantive law of various states governs most of these causes of action, Plaintiffs' three state statutory claims only identify the relevant Kentucky statutes. Plaintiffs allege the existence of "analogous state laws in each state in which Plaintiffs reside."
The Federal Arbitration Act ("FAA") mandates that, when presented with "any issue referable to arbitration under an agreement in writing for such arbitration," the federal courts shall "stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement." 9 U.S.C. § 3 (1994). Plaintiffs do not dispute that their two state common law claims are referable to arbitration under the agreements. Causes of action for breach of contract are clearly "claim[s] . . . arising out of or relating to th[ese] Agreement[s] or the breach . . . thereof," so the Court shall stay them pending resolution of the arbitration proceedings. Plaintiffs' misrepresentation or fraud-in-the-inducement claims are related to the underlying agreement to buy and sell alarm system accounts, not to the agreement to arbitrate any later disputes. Where the fraud claims are of the former type, they arise under and are related to the contract and its validity. See ND Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d 722, 728-29 (8th Cir. 1977); cf. Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 325 (6th Cir. 1998) (where a litigant does not allege fraud relating specifically to the arbitration clause, there is no procedural unconscionability in allowing arbitration). Therefore, the fraud claims will also be stayed.
Plaintiffs do object to Protection One's motion to stay in regard to the complaint's statutory claims; they argue that such claims are "beyond the scope of an arbitration clause." This argument may be broken into two propositions—that the particular arbitration clause in Paragraph 12.15 of each of the agreements does not reach the statutory claims, and that, if it does reach the claims, the Court should not enforce it. The Court disagrees with both assertions.
First, Plaintiffs have contractually agreed to arbitrate their statutory claims. The antitrust, RICO, consumer protection, and business opportunities claims are all of the same basic genre: They allege that, by breaching specific terms of the agreements and by failing to live up to representations made during the negotiations of the contracts, Protection One violated state and federal statutes. Such claims are well within the scope of the arbitration clause. Each of the claims arises out of or relates to the agreements, their breach, their interpretation, or their validity. The agreements are the only basis for the lawsuit, and as such the statutory claims are subject to arbitration as voluntarily agreed by the parties.
Second, absent legislative direction to the contrary, the Court will enforce the parties' agreements to arbitrate the statutory claims. In the past generation, the judiciary has continuously recognized the federal law's preference for arbitration. Directly adverse to Plaintiffs' arguments are several Supreme Court decisions allowing arbitration of statutory claims arising from business transactions. In fact, the Court has specifically affirmed stays of RICO actions—one of Plaintiffs' four specific statutory causes of action—pending arbitral decisions:
See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985) ("The preeminent concern of Congress in passing the Act was to enforce private agreements into which parties had entered, and that concern requires that we rigorously enforce agreements to arbitrate."); Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983) ("The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.").
It is by now clear that statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA. Indeed, in recent years we have held enforceable arbitration agreements relating to claims arising under . . . the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. . . .Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991); see Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 238-42 (1987) (RICO). The McMahon decision conclusively confirms the arbitrability of Plaintiffs' RICO claims. See McMahon, 482 U.S. at 238-42. Moreover, the Supreme Court determined that statutory claims are not different in kind from common law claims, and only a contrary legislative intent will prevent recognition and enforcement of arbitration agreements:
By agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum. It trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration. We must assume that if Congress intended the substantive protection afforded by a given statute to include protection against waiver of the right to a judicial forum, that intention will be deducible from text or legislative history. Having made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (1985) (citation omitted).
The Court is aware of no decision determining whether the Kentucky legislature intended to prevent arbitration of claims under its antitrust, consumer protection, and business opportunities statutes, and no such intent is discernable from the text of the statutes. Even if the statutes expressly forbade arbitration of such claims, it is well established that, pursuant to the Constitution's Supremacy Clause, the FAA preempts all attempts by states to render claims under their statutes non-arbitrable. See U.S. Const. art. VI, cl. 2; Southland Corp. v. Keating, 465 U.S. 1, 10-16 (1984); Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Therefore, the three state statutory claims are arbitrable.
Rather than dispute the applicability of these cases, to support their argument against arbitration of their statutory claims Plaintiffs cite only Feasent v. City of Youngstown, 70 F.3d 900 (6th Cir. 1995). However, the Court does not believe that Feasent determines the result here. First, the Feasent arbitration agreement was narrower than that at issue here, covering only the "interpretation and application" of the contracts, not their validity, enforcement, or breach. Second, the Feasent district court found that overtime calculations were not covered by the narrow arbitration clause, whereas in the instant case the Court finds that Plaintiffs' statutory claims are squarely within the arbitration agreements' scope. Third, the agreement in Feasent was a union collective bargaining agreement rather than a standard business contract. A recent Supreme Court decision concludes that, where statutory employment rights of individual workers are at stake, unions cannot bind members to arbitration procedures absent a clear and unmistakable waiver, if at all. See Wright v. Universal Maritime Serv. Corp., 119 S. Ct. 391, 396 (1998). That decision was careful to distinguish labor contracts from other agreements for purposes of determining the scope and enforceability of an arbitration clause. See id. at 394-97. The Court believes that the many recent Supreme Court decisions allowing arbitration for statutory claims regarding business transactions provide much better guidance in the instant circumstances.
Plaintiffs also cite, in passing, three Supreme Court decisions. See McDonald v. City of West Branch, Mich., 466 U.S. 284 (1984); Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728 (1981); Alexander v. Gardner-Denver Co., 415 U.S. 36 (1974). Each of these cases addresses the question whether claims may be heard by the federal courts after final disposition of the claims in an arbitration proceeding, not whether claims are referable to arbitration under contractual agreements or whether a federal action should be stayed pending arbitral resolution. They do nothing to advance Plaintiffs' objection to Protection One's motion to stay.
The Court will enter an order consistent with this Memorandum Opinion.
ORDER
Defendant has moved to stay these proceedings pending arbitration between the parties. Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendant's motion to stay these proceedings is GRANTED.