Silkworm Screen Printers, Inc. v. Abrams

• Decision Date: 09 April 1992
• Docket Number: No. 91-1631,91-1631
• Parties: NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit. SILKWORM SCREEN PRINTERS, INCORPORATED, Plaintiff-Appellee, v. Robert ABRAMS; Limited Genco International; James Y. Chen; Limited Amchi Trading; Limited Eastern Commodities, Defendants-Appellants. . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1256

978 F.2d 1256

NOTICE: Fourth Circuit I.O.P. 36.6 states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Fourth Circuit.

SILKWORM SCREEN PRINTERS, INCORPORATED, Plaintiff-Appellee, v. Robert ABRAMS; Limited Genco International; James Y. Chen;

Limited Amchi Trading; Limited Eastern

Commodities, Defendants-Appellants.

No. 91-1631.

United States Court of Appeals, Fourth Circuit.

Argued: April 9, 1992

Decided: November 4, 1992

Appeal from the United States District Court for the District of South Carolina, at Charleston.

David Michael Collins, BUIST, MOORE, SMYTHE & MCGEE, for Appellants.

Peter Wieler Fudali, SANDLER, TRAVIS & ROSENBERG, P.A., for Appellee.

Edward M. Joffe, SANDLER, TRAVIS & ROSENBERG, P.A., Frank Cisa, WOODDY, BARGMANN, CISA, STYLES & DODDS, for Appellee.

D.S.C.

VACATED AND REMANDED.

Before NIEMEYER, Circuit Judge, BUTZNER, Senior Circuit Judge, and WARD, Senior United States District Judge for the Middle District of North Carolina, sitting by designation.

BUTZNER, Senior Circuit Judge:

OPINION

Robert Abrams, Genco International, Ltd., James Y. Chen, Amchi Trading, Ltd., and Eastern Commodities, Ltd., appeal an order of the district court denying their motion to dismiss an action brought by Silkworm Screen Printers, Inc., for breach of contract, actual and constructive fraud, negligent misrepresentation, and unfair trade practices. Silkworm seeks compensatory and punitive damages. The motion to dismiss is predicated on the claim that the controversy should be arbitrated. Abrams and his codefendants also appeal the district court's denial of their motion to stay Silkworm's action pending arbitration.

Jurisdiction for Silkworm's action is based on diversity of citizenship, 28 U.S.C. § 1332. Appellate jurisdiction is based on 9 U.S.C. § 16(a) (1990), which allows appeals of orders denying arbitration or denying stays of proceedings at law pending arbitration. See Jerke v. Brooks, 875 F.2d 71, 73-74 (4th Cir. 1989) (discussing 9 U.S.C. § 15 which has since been recodified as § 16). The district court also denied the defendants' motion to dismiss for lack of personal jurisdiction; as the parties recognize, this aspect of the district court's order is not appealable.

We vacate the portion of the district court's order that denied dismissal of the complaint and a stay pending arbitration and remand for further fact finding and proceedings consistent with this opinion.

I

Eastern Commodities, designated as "seller," and Silkworm, designated as "buyer," contracted to purchase black cotton t-shirts manufactured in China. James Y. Chen, an officer of Amchi, signed the contract on behalf of Eastern Commodities. Thomas Pickhardt, an officer of Silkworm, signed on behalf of Silkworm. Silkworm claims that when the first shipment of shirts arrived at the Port of Charleston, South Carolina, the defendants failed to provide the necessary documents for the shirts to clear customs. Moreover, according to Silkworm, the shirts failed to conform to specifications.

The Eastern Commodities-Silkworm contract provided"sellers to present original contract with PRC Mfgrs. which forms a part of this contract." The defendants contend that this provision refers to the contract between Shenzhen Foreign Trade Group and Queenkit. The Shenzhen-Queenkit contract contains a broad form arbitration clause:

All disputes arising from the execution of, or in connection with this contract, shall be settled amicably through friendly negotiation. In case no settlement can be reached through negotiation, the case shall be submitted to the Foreign Economic & Trade Arbitration Commission of the Chinese Council for the Promotion of International Trade, Beijing, for arbitration with its procedural rules of procedure. The arbitrable award is final and binding upon both parties.

Chen identified Queenkit as a Hong Kong trading company that contracted with Shenzhen for some of the t-shirts and delivered 1,580 dozen. He identified Montage as another Hong Kong trading company that also contracted with Shenzhen for some of the t-shirts and delivered 13,000 dozen. The manufacturers, Chen testified, were affiliated with Shenzhen, and the Shenzhen-Queenkit contract was the standard China manufacturers' contract that the purchase agreement incorporated.

Chen testified that Eastern Commodities had contracts with Queenkit and Montage for the shirts. Chen also testified that he presented the Shenzhen-Queenkit contract to Pickhardt and that he discussed the arbitration clause with him. He did not present the Shenzhen-Montage contract or the Eastern Commodities contracts with Queenkit and Montage. Eastern Commodities had no contract with Shenzhen; it dealt with the two Hong Kong trading houses.

Pickhardt executed an affidavit in which he denied that the Shenzhen-Queenkit contract was ever presented to him or to anyone else at Silkworm. He asserted that neither arbitration nor an arbitration clause was ever discussed with him or anyone at Silkworm, and he claims that Silkworm never agreed with any of the defendants to arbitrate matters arising out of the purchase of the t-shirts. Silkworm also contends that Shenzhen trading group is not a manufacturer, so the Shenzhen-Queenkit contract does not comply with the provision in the Eastern Commodities-Silkworm contract incorporating the China manufacturers' contract.

The district court did not resolve the conflicting testimony of Chen and Pickhardt or the dispute over whether the Shenzhen-Queenkit contract was the China manufacturers' contract mentioned in the Silkworm-Eastern Commodities agreement. Instead, the court said in its oral opinion:

I just don't feel that there is-as ambiguous as it is, as limited as it is, that on a motion to dismiss on the grounds that they're bound to arbitration. They disputed it. There is a dispute about it. It's conflicting and ambiguous, and I'm going to overrule the motion to dismiss on that ground.

Later in the oral opinion, the court said that, although it had held arbitration was inapplicable, it might reconsider this decision. Nevertheless, it denied a stay of the proceedings and set the case for trial. The defendants then noted their appeal.

II

Courts must address questions of arbitration "with a healthy regard for the federal policy favoring arbitration." Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983). In view of this policy, the district court should not have denied arbitration or a stay pending arbitration without resolving the conflicting evidence about the agreement to arbitrate.

The obligation to arbitrate must be based on a contract. Par-Knit Mills, Inc. v. Stockbridge Fabrics & Co., 636 F.2d 51, 54 (3d Cir. 1980). One cannot be required to arbitrate in the absence of agreement to do so. Peoples Security Life Ins. Co. v. Monumental Life Ins. Co., 867 F.2d 808, 813 (4th Cir. 1989). A duty to arbitrate can be based on the doctrine of incorporation. Maxum Foundations, Inc. v. Salus Corp., 779 F.2d 974, 978 (1985). Nevertheless, before the China manufacturers' contract could be incorporated, the purchase contract required Eastern Commodities to present the manufacturers' contract to Silkworm. This was a condition precedent to incorporation of the manufacturers' contract and to Silkworm's obligation to arbitrate.

Title 9 U.S.C. § 4 authorizes a district court to empanel a jury to determine whether the parties agreed to arbitrate. By submitting the question of arbitration to the court without the intervention of a jury, Silkworm waived a jury. Its waiver, however, did not compromise its demand for a jury on other triable issues. The issues at this stage of the proceedings are (1) the credibility dispute between Chen and Pickhardt and (2) whether the Shenzhen-Queenkit contract is the China manufacturers' contract to which the Eastern Commodities-Silkworm contract refers.

The burden of proving an agreement to arbitrate rests upon the party seeking arbitration. In re Mercury Construction Co., 656 F.2d 933, 939 (4th Cir. 1981), aff'd by implication sub nom. Moses H. Cone Memorial Hospital v. Mercury Construction Co., 460 U.S. 1, 29 (1983); Chastain v. Robinson-Humphrey Co., Inc., 957 F.2d 851, 854 (11th Cir. 1992). On remand Eastern Commodities and its codefendants have the burden of proving that Silkworm entered into a contract to arbitrate the disputes arising out of the purchase of the t-shirts.

III

In addition to denying that it agreed to arbitrate, Silkworm raises other objections, which the district court did not address. The same situation confronted us in In re Mercury Construction Co., 656 F.2d 933 (4th Cir. 1981). In that case we reversed the district court's order that denied arbitration, and we also disposed of objections to arbitration that the district court had not considered. Upon review the Supreme Court approved this procedure:

Title 28 U.S.C. § 2106 gives a court of appeals some latitude in entering an order to achieve justice in the circumstances. The Arbitration Act calls for a summary and speedy disposition of motions or petitions to enforce arbitration clauses. The Court of Appeals had in the record full briefs and evidentiary submissions from both parties on the merits of arbitrability, and held that there were no disputed issues of fact requiring a jury trial before a § 4 order could issue.

Moses H. Cone Memorial Hospital, 460 U.S. at 29.

We will follow this precedent. The parties have fully briefed and argued the issues raised by Silkworm's objections to arbitration. The material facts are not in dispute, and resolution of the issues presents only questions of law.

IV

Silkworm protests that arbitration in China would be"unreasonable." It relies primarily on The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 18-19 (1972), in which ...