PPG Industries, Inc. v. Webster Auto Parts, Inc.
| Decision Date | 20 October 1997 |
| Docket Number | No. 1356,D,1356 |
| Citation | 128 F.3d 103 |
| Parties | PPG INDUSTRIES, INC., Plaintiff-Counter-Defendant-Appellant, v. WEBSTER AUTO PARTS INC.; Anthony Puleo, and Patricia Puleo, Defendants-Counter-Claimants-Appellees. ocket 96-7429. |
| Court | U.S. Court of Appeals — Second Circuit |
Linda L. Morkan, Hartford, CT (Frank F. Coulom, Jr., Robinson & Cole, Hartford, CT), for Plaintiff-Appellant.
Dominic Fulco III, Wethersfield, CT (William J. O'Sullivan, Baker & Fulco, Wethersfield, CT), for Defendants-Appellees.
Before: WINTER, PARKER and PHILLIPS *, Circuit Judges.
Appellant PPG Industries, Inc. ("PPG") filed two collection actions against two of its distributors. In the first action (the "Premium action"), PPG sued appellee Webster Auto Parts, Inc. ("Webster"), Premium Paint Company, Inc. ("Premium"), and Anthony and Patricia Puleo. In the second action (the "Webster action"), PPG sued Webster and the Puleos alone. In both actions, the appellees filed counterclaims against PPG. PPG filed a petition to compel the arbitration of the counterclaims asserted by Webster in the Webster action. The United States District Court for the District of Connecticut (Robert N. Chatigny, Judge ) denied the petition, finding that PPG waived its right to arbitration in the Webster action because it (1) failed to appeal an order denying arbitration in the Premium action; (2) engaged in discovery in the Premium action; (3) moved for summary judgment on counterclaims asserted in the Premium action. In addition, the district court found that ordering the matter to arbitration at this late stage would prejudice Webster. We agree that PPG's conduct in both the Premium and Webster actions was inconsistent with its contractual right to compel arbitration and that Webster was prejudiced by this conduct. Accordingly, we affirm the district court's order.
PPG is a Pennsylvania corporation that manufactures and sells automotive refinish coating products. In 1988, Webster, a Massachusetts corporation, began serving as a distributor of PPG products. Anthony Puleo was the president and sole shareholder of Webster. In 1990, Puleo incorporated Premium in Connecticut to serve as a distributor of PPG products. Puleo was also the president and sole shareholder of Premium. On January 17, 1991, PPG entered into a contract with both Webster and Premium entitled "PPG Automotive Refinish Jobber Agreement" (the "Jobber Agreement").
To secure the inventory that they purchased on credit from PPG, Premium and Webster entered into security agreements with PPG, giving PPG a security interest in their inventory and equipment. In addition, Puleo and his wife, Patricia, personally guaranteed Webster's debts to PPG, Puleo executed a separate guaranty of debt on behalf of Premium, and Webster guaranteed payment for any PPG products sold to Premium.
The Jobber Agreement that PPG maintained with Webster and Premium contained an arbitration clause. That arbitration clause specifically exempted collection actions from its reach. The clause provided, in relevant part, the following:
A. Except for suits to enforce the provisions of Article VI [re. trademarks] or to collect on a delinquent account, any controversy or claim between the parties as to the provisions of this Agreement shall, upon written request of either party, immediately be referred jointly to the respective managements of each party for decision....
B. After exhausting the procedures set forth above, any controversy as specified in A above may be submitted for binding arbitration by either party....
PPG alleges that in October 1993, Puleo announced that he had begun selling the product line of one of PPG's competitors and would not be paying Webster's or Premium's outstanding debts. On October 21, 1993, PPG filed a collection action in the United States District Court for the District of Connecticut (Dorsey, J.), naming Webster, Premium, and both Puleos as defendants (the "Premium action"). As part of this action, PPG executed a writ of replevin, and the Hartford County Sheriff's Department, together with PPG's counsel and several PPG employees, took possession of Premium's inventory and equipment. On November 10, 1993, PPG filed a second collection action in Massachusetts state court, naming only Webster and the Puleos as defendants (the "Webster action"). The defendants in the Webster action removed the case to federal court in Massachusetts.
PPG sought nearly identical relief in both actions. In the Premium action, PPG sought $206,575 from Premium for inventory that Premium purchased from PPG; $29,444 from Webster for inventory that Webster purchased from PPG and an additional $206,575 as guarantor of Premium's debt; and both debts from the Puleos. In the Webster action, PPG sought $29,444 from Webster for inventory that Webster purchased from PPG; $206,575 from Webster as guarantor of Premium's debt; and both debts from the Puleos. Thus, the only difference between the two actions was that in the Premium action, PPG named both Premium and Webster as defendants and replevied Premium's inventory and equipment, whereas in the Webster action, Premium was not named and there was no replevin.
From October 1993 until early February 1994, the following occurred in the Premium action: In late October 1993, Premium noticed the depositions of three PPG employees. PPG moved for a protective order to stay the taking of these depositions. The district court denied this motion, and the depositions went forward.
On December 3, 1993, Premium filed an amended answer that raised six counterclaims against PPG. These counterclaims alleged that (1) PPG's replevin of Premium's inventory and equipment effected a de facto termination of the Jobber Agreement, in violation of the notice-and-cure provision of the Jobber Agreement; (2) the Jobber Agreement was really a franchise agreement governed by the Connecticut Franchise Act, and PPG breached that act by failing to provide Premium with sixty days' notice of termination; (3) PPG breached the implied covenant of good faith and fair dealing; (4) PPG tortiously interfered with Premium's business relations with customers and another supplier; (5) the seizure of Premium's inventory and equipment, accomplished in concert with various state actors, constituted a violation of due process actionable under 42 U.S.C. § 1983; and (6) PPG's wrongful conduct violated the Connecticut Unfair Trade Practices Act.
On December 13, 1993, Webster filed an amended answer that raised four counterclaims against PPG. Those counterclaims were the same as Premium's first, second, third, and sixth counterclaims, set forth above.
On January 12, 1994, PPG filed a petition to compel arbitration in the Premium action. 1 This petition was filed simultaneously with five responsive pleadings, including: (1) an answer to the fifth counterclaim; (2) a motion to dismiss the fourth counterclaim for failure to state a claim; (3) a motion for partial summary judgment as to the fifth counterclaim; (4) a motion to dismiss the state law counterclaims for lack of subject matter jurisdiction; and (5) a motion to strike the counterclaims.
On January 31, 1994, PPG filed a motion entitled "Plaintiff's Motion to Stay Discovery Pending Resolution of Plaintiff's Motion to Dismiss and Motion to Strike." On February 8, 1994, the district court denied this motion.
On February 10, 1994, PPG filed an answer to the Webster counterclaims. The answer contained two affirmative defenses, neither of which mentioned arbitrability.
Also in February, the Webster action was transferred from Massachusetts to federal district court in Connecticut. In addition, the defendants moved to have the Webster and Premium actions consolidated.
Following the district court's February 8, 1994, denial of its motion to stay discovery, PPG commenced discovery in the Premium action. On April 6, 1994, PPG served interrogatories and a document production request upon Webster, as well as a subpoena duces tecum upon Webster's accountant. PPG sought information regarding Webster's attorney's fees; its lost profits and goodwill; the diminution of the business's value; and lost earnings.
On May 2, 1994, PPG filed a petition to compel arbitration in the Webster action.
On July 15, 1994, the district court denied the motion to compel arbitration in the Premium action on the grounds that PPG had waived its right to arbitrate. Judge Dorsey found that PPG had "substantially invoked the litigation process by filing the complaint, seeking a prejudgment remedy, participating in discovery, and seeking additional time to respond to the counterclaims." In addition, he noted that, contemporaneously with the petition to compel, PPG filed four dispositive motions addressed to the merits of Premium's counterclaims. Finally, Judge Dorsey noted that enough time had passed for waiver to apply, that the defendants would be prejudiced by compelled arbitration at this late stage of the litigation, and that arbitrating only the counterclaims would subject the defendants to piecemeal resolution of the entire dispute.
PPG moved for reconsideration of this order. While its motion for reconsideration was pending, discovery continued in the Premium action. In addition, both the Premium and the Webster actions were transferred to Judge Chatigny. In the Premium action, both sides moved for partial summary judgment.
In August 1994, Webster filed an updated objection to PPG's petition to compel arbitration in the Webster action, on the grounds that the denial of the petition in the Premium action should be binding on the parties.
In March 1995, Judge Chatigny denied PPG's motion for reconsideration of the district court's denial of PPG's petition to compel arbitration in the Premium action.
In August 1995, the Premium and Webster actions were consolidated before Judge Chatigny.
On March 22, 1996, Judge...
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