Sandvik v. Advent Internaitonal Corp., III-A

Citation220 F.3d 99
Decision Date27 April 2000
Docket NumberGPE-III,EURO-ITALIAN,III-B,No. 00-5063,III-C,III-A,CO-INVESTMENT,00-5063
Parties(3rd Cir. 2000) SANDVIK AB, V. ADVENT INTERNATIONAL CORP; ADVENT INTERNATIONAL GMBH; GLOBAL PRIVATE EQUITY III L.P.; GLOBAL PRIVATE EQUITYL.P.; GLOBAL PRIVATE EQUITYL.P.; ADVENT PGGM GLOBAL L.P.; ADVENT PARTNERSLP; ADVENT PARTNERS (NA)L.P.; ADVENTDIRECT INVESTMENT PROGRAM L.P.; ADVENT EUROPEANPROGRAM L.P.; ADVENT PARTNERS L.P.; RALF HUEP; GLOBAL PRIVATE EQUITYL.P. ADVENT INTERNATIONAL CORP.; GLOBAL PRIVATE EQUITY III L.P.; GLOBAL PRIVATE EQUITYL.P.; GLOBAL PRIVATE EQUITYL.P.; ADVENT PGGM GLOBAL L.P.; ADVENT PARTNERSLP; ADVENT PARTNERS (NA)L.P.; ADVENTDIRECT INVESTMENT PROGRAM; ADVENT EUROPEANPROGRAM L.P.; ADVENT PARTNERS L.P. GLOBAL PRIVATE EQUITYL.P., APPELLANTS Argued:
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

On Appeal From the United States District Court For the District of Delaware (D.C. Civ. No. 99-cv-00486) District Judge: Honorable Roderick R. McKelvie

Robert B. Davidson, Esquire (argued) Baker & McKenzie 805 Third Avenue New York, NY 10022 Thomas Peele, Esquire Baker & McKenzie 815 Connecticut Avenue, NW Washington, DC 20006 Counsel for Appellants

William P. Quinn, Jr., Esquire (argued) Brian T. Feeney, Esquire Morgan, Lewis, & Bockius Llp 1701 Market Street Philadelphia, PA 19103-2921 Arthur G. Connolly, Jr., Esquire Connolly, Bove, Lodge & Hutz 1220 Market Street P.O. Box 2207 Wilmington, DE 19899-2207 Counsel for Appellee

Before: Becker, Chief Judge, Barry and Bright* Circuit Judges.

OPINION OF THE COURT

Becker, Chief Judge

This appeal arises under the Federal Arbitration Act ("FAA"), 9 U.S.C. S 1 et seq. It requires that we consider the enforceability of an arbitration clause in a putative contract between Sandvik AB, a Swedish manufacturing corporation, and Advent International Corporation, which is an equity investment firm based in the United States and incorporated in Delaware, and its associated investment funds for the sale of certain Sandvik subsidiaries to a joint venture company to which Advent would contribute capital. When Advent communicated that it did not view itself as bound by the agreement, Sandvik filed a suit in Delaware state court, and that suit was removed to the District Court for the District of Delaware. Though denying that it was bound by the contract--Advent contends that the agent who signed the agreement on its behalf lacked authority to do so and that it had so notified Sandvik--Advent moved to compel arbitration under an arbitration clause contained in the agreement. Sandvik objected, contending that the validity of the arbitration clause depended on the validity of the agreement and that that question had to be determined by the District Court. The District Court denied the motion to compel, reasoning that the existence of the underlying contract, and thus the arbitration clause with it, was in dispute.

This appeal presents the anomalous situation where a party suing on a contract containing an arbitration clause resists arbitration, and the defendant, who denies the existence of the contract, moves to compel it. Two issues are presented. The first question pertains to our jurisdiction. Sandvik contends that this interlocutory appeal falls outside the FAA's interlocutory appeal provisions because the District Court has not reached a final conclusion on the validity of the arbitration clause. We conclude that this argument is misplaced for three reasons. First, the statute's plain language contemplates interlocutory appeals from orders of the sort entered by the District Court. Second, other parts of the statute evince clear Congressional intent that challenges to refusals to compel arbitration be promptly reviewed by appellate courts. Third, the issue that the District Court must decide in determining whether the arbitration clause is valid is closely bound with the underlying dispute as to whether an overall contract was entered into by the parties. It is precisely this sort of appeal that the FAA's interlocutory appeal provisions were designed to address. We thus have appellate jurisdiction.

The second question is whether the District Court was correct in refusing to compel arbitration. Advent argues that the arbitration clause is severable from the contested agreement under the doctrine announced by the Supreme Court in Prima Paint Corp. v. Flood & Conklin Manufacturing. Co., 388 U.S. 395 (1967). Advent agrees that it is bound by the arbitration clause even though it claims never to have bound itself to the underlying contract. Sandvik rejoins that cases establish that when a party claims not to have even signed a contract, the district court must first determine whether a valid arbitration agreement was signed. This is a close question, but we conclude that Sandvik has the better of the argument. Even under the severability doctrine, there may be no arbitration if the agreement to arbitrate is nonexistent. Advent's concession that the arbitration clause is binding has only a limited effect, because Advent denies the legal validity of the act that brought the arbitration clause into effect--i.e., the signing of the agreement. As a result, Advent's recognition of the arbitration clause is essentially an offer to be bound, and not a manifestation of an underlying binding contract. We will therefore affirm the District Court's order denying the motion to compel.

I.

The parties do not dispute the relevant facts as recited in the District Court's opinion, which we summarize as follows. Plaintiff Sandvik is a Swedish corporation that has its primary place of business in Sandviken, Sweden. It produces specialty industrial goods. Defendant Advent International Corporation is a Delaware corporation headquartered in Boston, Massachusetts. It is a private equity investment firm with offices around the world. Advent is also general partner in a number of limited partnerships ("Advent Funds") that perform Advent's investment operations. The Advent Funds are also defendants in the case.

In early 1998, Sandvik decided to divest itself of three subsidiaries, Sandvik Sorting Systems, Inc., CML Handling Technology S.p.A., and CML K.K. (collectively, "Sandvik Sorting"), and entered into negotiations with Advent. During the negotiations, Advent's principal representative was Ralf Huep, general manager of Advent GmbH, which is based in Germany, and a director of Advent's British affiliate.

In September 1998, Advent, through one of its investment funds, Global Private Equity III L.P. ("GPE"), executed a Letter of Intent outlining proposed terms for the acquisition of Sandvik Sorting. The letter provided that while Advent conducted its due diligence review of Sandvik's records, Sandvik would not entertain bids from other prospective purchasers. Later that year, Advent proposed a structure for the transaction, suggesting that Sandvik maintain a minority stake in Sandvik Sorting by investing in the post-acquisition enterprise. To accomplish the goal, Advent proposed a new joint venture company that would purchase Sandvik Sorting from Sandvik.

On February 16, 1999, a Joint Venture Agreement ("JVA") was executed. Huep signed on behalf of the Advent Funds. He executed the agreement as "an attorney-in-fact without power-of-attorney." The agreement bound the parties to form International Sorting Systems Holding B.V., to contribute capital to the new company, and to direct the company to enter into a Share Purchase Agreement that would provide for the company's purchase of all of Sandvik's interest in Sandvik Sorting. The JVA also contained a mandatory arbitration clause, providing that "[a]ny dispute arising out of or in connection with this Agreement and/or any agreement arising out of this Agreement shall, if no amicable settlement can be reached through negotiations, be finally settled by arbitration in accordance with the rules of the Netherlands Arbitration Institute."

On April 30, Advent, in a letter written by Huep, notified Sandvik that Advent Funds did not intend to honor the JVA. Huep stated that he signed the JVA without proper authorization from Advent, and that the agreement was therefore not binding.1 Sandvik sued, bringing claims for breach of contract, fraud, reckless misrepresentation, and negligent misrepresentation. The suit, brought in Delaware state court, was removed to federal court pursuant to 9 U.S.C. S 205, which permits removal from state courts when the subject matter of the case relates to an arbitration agreement under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("CREFAA"), to which both Sweden and the United States are signatories. See CREFAA, opened for signature June 10, 1958, 21 U.S.T. 2517 (entered into force by the United States, Dec. 29, 1970). Advent Funds then moved to compel arbitration under the FAA. The District Court refused, reasoning that it lacked authority to enforce the arbitration agreement until it determined whether the parties entered into a binding agreement. Appellants (collectively hereafter referred to as "Advent") filed a timely notice of appeal.2 There are no questions of fact before us, and our review of all legal issues is plenary.

II.

This matter arises under Chapter Two of the FAA, which implements the CREFAA. Article II S 3 of the CREFAA provides that

[t]he court of a Contracting State, when seized of an action in a matter in respect to which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Section 206 of the FAA allows district courts to issue orders to compel arbitration, see 9 U.S.C. S 206, as does a similar provision in Chapter One of the FAA, see id. S 4.

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