585 F.2d 39 (3rd Cir. 1978), 77-2566, Becker Autoradio United States, Inc. v. Becker Autoradiowerk GmbH

Docket Nº:Inc., Max Egon Becker and Roland Becker, in No. 77-2566.
Citation:585 F.2d 39
Party Name:BECKER AUTORADIO U.S.A., INC. v. BECKER AUTORADIOWERK GmbH and Max Egon Becker and Becker Electronics, Inc. and Lothar Amanda and Roland Becker and Mercedes-Benz of North America, Inc., Appeal of BECKER AUTORADIOWERK GmbH, Becker Electronics,
Case Date:July 17, 1978
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

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585 F.2d 39 (3rd Cir. 1978)



BECKER AUTORADIOWERK GmbH and Max Egon Becker and Becker

Electronics, Inc. and Lothar Amanda and Roland

Becker and Mercedes-Benz of North America, Inc.,

Appeal of BECKER AUTORADIOWERK GmbH, Becker Electronics,

Inc., Max Egon Becker and Roland Becker, in No. 77-2566.

Appeal of MERCEDES BENZ OF NORTH AMERICA, INC., in No. 77-2567.

Nos. 77-2566, 77-2567.

United States Court of Appeals, Third Circuit

July 17, 1978

Argued June 7, 1978.

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Norman R. Bradley, Philadelphia, Pa., William Schurtman, Peter R. Engelhardt, New York City, for appellants Becker Autoradiowerk GmbH, Becker Electronics, Inc., Max Egon Becker and Roland Becker; Saul, Ewing, Remick & Saul, Philadelphia, Pa., Walter, Conston, Schurtman & Gumpel, P. C., New York City, of counsel.

Robert J. Spiegel, Spencer Ervin, Jr., R. Mark Armbrust, Philadelphia, Pa., for appellant Mercedes-Benz of North America, Inc.; Gratz, Tate, Spiegel, Ervin & Ruthrauff, Philadelphia, Pa., of counsel.

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Samuel P. Lavine, John P. Quinn, Carl T. Bogus, Steinberg, Greenstein, Gorelick & Price, Philadelphia, Pa., for appellee.

Before ADAMS, WEIS and GARTH, Circuit Judges.


GARTH, Circuit Judge.

This appeal concerns the arbitrability of a dispute between defendant Becker Autoradiowerk GmbH ("BAW"), a West German manufacturer of automobile radios and accessories, and plaintiff Becker Autoradio U.S.A., Inc. ("Becker U.S.A."), a Pennsylvania corporation and BAW's exclusive American distributor. The district court denied BAW's motion to stay judicial proceedings and compel arbitration. We reverse.


On July 1, 1974, BAW entered into a written, two-year Exclusive Distribution Agreement (the "1974 Agreement") with Becker U.S.A. 1 This contract, written in German and subscribed to in Ittersbach, West Germany, granted Becker U.S.A. the exclusive right to sell Becker automobile radios and accessories (art. 1). The 1974 Agreement provided for termination on June 30, 1976 (art. 11(1)). The contract also provided in article 11(5) that:

In the event that the parties to the agreement should wish to extend the collaboration beyond June 30, 1976, this shall be subject to negotiations not later than 6 months prior to the expiration of the agreement.

Becker U.S.A. and BAW engaged in extensive negotiations concerning renewal of the 1974 Agreement, but were unable to agree on terms, and the contract apparently expired on June 30, 1976.

On February 1, 1977, Becker U.S.A. commenced this diversity action against BAW, Becker Electronics, Inc. (a Delaware subsidiary of BAW), Max Egon Becker and Roland Becker (representatives of BAW), Lothar Amanda (Executive Vice President of Becker Electronics), and Mercedes Benz of North America, Inc. (a customer of BAW). Count II of the amended complaint (the only count directly relevant to this appeal) alleged that BAW, through its representatives Max Egon Becker and Roland Becker, orally promised that BAW would renew the 1974 Agreement "on the same terms as the existing (I. e., the 1974) Agreement" for a five year term, provided that plaintiff fulfill certain conditions, Viz (1) continue to promote satisfactorily the sales of BAW radios; (2) open a branch office in Chicago; (3) establish at its expense Becker radio exhibits during 1975 and thereafter; and (4) perform without compensation certain administrative functions for Becker Electronics' avionics division in Paramus, New Jersey. Becker U.S.A. further alleged that, relying on these assurances, it performed these tasks, but that its distribution rights were not renewed. 2

All the defendants moved, under the federal Arbitration Act, 9 U.S.C. §§ 3 and 206, to stay Becker U.S.A.'s action in the district

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court and to compel arbitration. BAW relied on article 13(2) of the 1974 Agreement, which provided:

The Arbitration Court domiciled in Karlsruhe (Federal Republic of Germany) shall have sole jurisdiction with regard to all disputes arising out of and about this agreement. The Arbitration Court shall determine its procedures according to the Rules of Procedure of the International Chamber of Commerce, Paris. The arbitral award shall have the effect, with respect to the parties, of a legally valid court judgment. 3

Article 13(2) also gave BAW (but not Becker U.S.A.) the option of suing in court for breach instead of submitting the dispute to arbitration. Under this provision if BAW elected to sue in court, it was required to do so in a court in the United States and subject to American law. Additionally, article 13(2) contains an express covenant by Becker U.S.A. not to "bring suit against BAW, based on any alleged claim whatsoever under this agreement before any court other than the arbitration court in Karlsruhe."

The other defendants have contended that if a stay pending arbitration were granted as to BAW on Count II, the proceedings on Counts I and III should be stayed as well. On appeal Becker U.S.A. "does not take issue with the request of all defendants that should the action against BAW be stayed pending arbitration, the entire action be stayed." Appellee's Brief at 16 n.5.

In support of their motion, the defendants argued before the district court that the dispute was one "arising out of and about" the 1974 Agreement and was therefore governed by the arbitration clause, and that consequently they were entitled to a stay by reason of § 9 and § 206 of the Arbitration Act. 4 The district court disagreed. In an opinion and order dated October 5, 1977, the district court denied the motion for a stay, 5 ruling that BAW's alleged obligation to renew the distribution agreement arose not from the 1974 Agreement, but rather from a separate and distinct oral agreement. 6 The court held that disputes arising out of this independent oral contract were not subject to the arbitration clause of the 1974 Agreement. All the defendants except Amanda have appealed. 7

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There has been much discussion by the parties concerning the applicability of German law or Pennsylvania law in the resolution of this dispute. It may well be that the question of which law is to be applied will have to be answered in deciding the merits of the underlying controversy. However the case before us presents only the issue of the Arbitrability of that controversy. When a contract involves "commerce", as this one does, whether a "suit or proceeding is referable to arbitration . . . under an agreement (to arbitrate)" pursuant to the federal Arbitration Act, 9 U.S.C. § 3, or to the Convention on Recognition and Enforcement of Foreign Arbitral Awards, Art. II, P 3 and 9 U.S.C. § 206, is clearly a matter of federal substantive law. Thus, the question of whether, in contracts involving commerce, there is an agreement to arbitrate an issue or dispute upon which suit has been brought is governed by federal law. Concomitantly, questions of interpretation and construction of such arbitration agreements are similarly to be determined by reference to federal law. See Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lecopulos, 553 F.2d 842, 845 n.4 (2d Cir. 1977); Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 404-05 (2d Cir. 1959), Cert. granted, 362 U.S. 909, 80 S.Ct. 682, 4 L.Ed.2d 618, Cert. dismissed, 364 U.S. 801, 81 S.Ct. 27, 5 L.Ed.2d 37 (1960); Singer Co. v. Tappan Co., 403 F.Supp. 322, 328-29 (D.N.J.1975); Litton, RCS, Inc. v. Pennsylvania Turnpike Commission, 376 F.Supp. 579, 585 (E.D.Pa.1974), Aff'd, 511 F.2d 1394 (3d Cir. 1975); Bigge Crane and Rigging Co. v. Docutel Corp., 371 F.Supp. 240 (E.D.N.Y.1973); Aberthaw Construction Co. v. Centre County Hospital, 366 F.Supp. 513, 514 (M.D.Pa. 1973), Aff'd, 503 F.2d 1398 (3d Cir. 1974). As the court in Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir. 1972), stated, "(o)nce a dispute is covered by the (federal Arbitration) Act, federal law applies to all questions of (the arbitration agreement's) interpretation, construction, validity, revocability, and enforceability." Cf. The...

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