American Recovery Corp. v. Computerized Thermal Imaging, Inc.

• Decision Date: 03 September 1996
• Docket Number: No. 96-1207,96-1207
• Citation: 96 F.3d 88
• Parties: AMERICAN RECOVERY CORPORATION, Plaintiff-Appellee, v. COMPUTERIZED THERMAL IMAGING, INCORPORATED; David B. Johnston, Defendants-Appellants, and Richard V. Secord; Looper, Reed, Mark, and McGraw, Incorporated; Donald R. Looper; Fluor-Daniel, Incorporated, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 88

96 F.3d 88

AMERICAN RECOVERY CORPORATION, Plaintiff-Appellee, v. COMPUTERIZED THERMAL IMAGING, INCORPORATED; David B Johnston, Defendants-Appellants and Richard V. Secord; Looper, Reed, Mark, and McGraw Incorporated; Donald R. Looper; Fluor-Daniel Incorporated, Defendants.

No. 96-1207.

United States Court of Appeals, Fourth Circuit.

Argued May 6, 1996.

Decided Sept. 3, 1996.

ARGUED: Wayne Lee Emery, Warsaw, Virginia, for Appellants. Lovida Hardin Coleman, Jr., Sutherland, Asbill & Brennan, Washington, DC, for Appellee. ON BRIEF: Jay Y. Mandel, Sutherland, Asbill & Brennan, Washington, DC, for Appellee.

MURNAGHAN, WILLIAMS and MOTZ, Circuit Judges.

Vacated and remanded by published opinion. Judge WILLIAMS wrote the opinion, in which Judge MURNAGHAN and Judge MOTZ joined.

OPINION

WILLIAMS, Circuit Judge:

Computerized Thermal Imaging, Incorporated, and David B. Johnston (collectively, CTI) appeal from the district court's denial of their motion for a stay pending arbitration. Relying on Mediterranean Enterprises v. Ssangyong, 708 F.2d 1458 (9th Cir.1983), the district court held that American Recovery Corporation's (ARC) claims against CTI neither arose out of nor related to the consulting agreement that contained the arbitration clause upon which CTI based its motion. Concluding that the district court used the improper legal standard for determining whether ARC's claims were arbitrable, we hold that ARC's claims against CTI relate to the consulting agreement. Accordingly, we vacate the district court's order denying CTI's motion for a stay pending arbitration and remand the case to the district court for further proceedings.

I.

CTI was a member of a consortium of business firms that formed a joint venture for the purpose of installing thermal imaging, hospital services, and related medical technology in a network among the hospitals and medical centers in the Peoples Republic of China. CTI retained ARC, a corporation that specializes in facilitating national and international transactions and joint ventures, to provide assistance in seeking the services of a professional communications engineering firm for the project.

ARC and CTI memorialized their compact in a consulting agreement. The agreement provided that ARC would introduce representatives of a professional communications engineering firm to CTI or another member of the consortium with the ultimate goal of persuading the engineering firm to provide its services to the consortium in conjunction with the China venture. In addition to the consulting agreement with CTI, ARC entered into noncircumvention agreements with two engineering firms, Fluor-Daniel and Parsons Engineering, which prevented those engineering firms from negotiating with the consortium except through ARC. In the consulting agreement, CTI acknowledged the existence of the noncircumvention agreements and agreed not to enter into any agreements with engineering firms except in compliance with the consulting agreement and the noncircumvention agreements. Additionally, the consulting agreement contained an arbitration clause that provided that "[a]ny dispute, controversy, or claim arising out of or related to this Consulting Agreement shall be resolved by binding arbitration." (J.A. at 132.)

The consulting agreement was later amended to provide incentives to ARC to secure funding for the China project through the sale of medical identification cards. Finding itself in need of additional financing, CTI requested that ARC enter negotiations with Electronic Data Systems (EDS) to contribute capital in addition to systems management and systems integration services for the China project. Through the efforts of ARC, CTI obtained the capital it sought from EDS. Although Richard V. Secord, director, president, and one-third shareholder of ARC, informed ARC that he was negotiating with CTI for an amendment to the consulting agreement to compensate ARC for these efforts, ARC alleges that it never received compensation from CTI.

Shortly after the negotiation with EDS, Secord resigned as a director and officer of ARC and entered into a personal services agreement with CTI. Pursuant to that agreement, Secord assisted CTI in obtaining a letter of intent from Fluor-Daniel to assist in the China project, which ARC alleges is in violation of the noncircumvention and consulting agreements.

In July 1995, CTI filed a declaratory judgment action in the United States District Court for the Southern District of Texas seeking to have the court declare that Secord's personal services agreement with CTI did not violate the terms of his stockholder's agreement with ARC and that CTI owed no compensation to ARC under the consulting agreement. On CTI's motion, that lawsuit was dismissed for lack of jurisdiction before responsive pleadings were due from ARC. In September 1995, CTI refiled an identical lawsuit in the same district; ARC successfully moved the district court to dismiss this suit, again on jurisdictional grounds, before any discovery had taken place.

Later that month, ARC filed a ten-count complaint in the United States District Court for the Eastern District of Virginia against CTI, Secord, a law firm that formerly represented ARC (Looper, Reed, Mark, and McGraw), and Donald R. Looper, the lawyer who negotiated Secord's personal services agreement with CTI. On November 1, CTI filed a notice of arbitration pursuant to the arbitration clause of the consulting agreement for the three claims ¹ ARC asserted against it: (1) that CTI induced Secord's breach of his fiduciary duty to ARC; (2) that CTI induced Fluor-Daniel's breach of the noncircumvention agreement; and (3) under a theory of quantum meruit, that CTI owed ARC compensation for securing financing from EDS for the China venture. Also on November 1, CTI filed a motion to dismiss ARC's Virginia complaint for lack of personal jurisdiction and improper venue. The district court later denied this motion.

After receiving notice of the arbitration filing on November 10, ARC informed CTI and the arbitrators of its intent not to participate in the arbitration proceedings and, on November 22, filed its first discovery requests in the Virginia action. On December 6, CTI answered ARC's complaint, raising arbitration as an affirmative defense, and filed a motion pursuant to the Federal Arbitration Act to stay proceedings pending arbitration, see 9 U.S.C.A. § 3 (West 1970) (providing for a stay of proceedings in the district court upon any issue which is referable to arbitration under a written arbitration agreement). After the district court denied the motion to stay, reasoning that ARC's claims were not within the scope of the arbitration clause, CTI timely filed this appeal, see 9 U.S.C.A. § 16(a)(1)(A) (West Supp.1996) ("An appeal may be taken from an order refusing a stay of any action under section 3 of this title....").

Before us, CTI raises three issues: (1) whether the district court erred in denying CTI's motion to stay proceedings pending arbitration; (2) if we determine that the district court erred in denying the stay, whether CTI waived its right to the stay pending arbitration; and (3) if we determine that the district court erred in denying the stay and that CTI did not waive its right to that stay, whether we should remand this case to the district court with the direction to stay the non-arbitrable claims pending the resolution of the arbitration proceedings. We address each of CTI's contentions in turn.

II.

CTI contends that the district court erred in denying its motion to stay proceedings pending arbitration. In contesting the ruling of the district court, CTI argues that the district court incorrectly concluded that the claims ARC asserts did not fall within the scope of the arbitration clause of the consulting agreement. We review de novo the district court's conclusions regarding the arbitrability of the disputes between ARC and CTI. See Kansas Gas & Elec. Co. v. Westinghouse Elec. Corp., 861 F.2d 420, 422 (4th Cir.1988). After briefly reviewing the governing principles that guide a court in determining whether a dispute is arbitrable, we find that the district court applied the incorrect legal standard in reaching its decision and conclude that each of ARC's claims falls within the scope of the arbitration clause of the consulting agreement.

A.

Whether a party has agreed to arbitrate an issue is a matter of contract interpretation: "[A] party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960). Nevertheless, the Supreme Court has announced its "healthy regard for the federal policy favoring arbitration" and has explained that the Federal Arbitration Act, 9 U.S.C.A. §§ 1-16 (West 1970 & Supp.1996), "establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone Memorial Hosp. v. Mercury Constr. Co., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). To that end, "the heavy presumption of arbitrability requires that when the scope of the arbitration clause is open to question, a court must decide the question in favor of arbitration." Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 867 F.2d 809, 812 (4th Cir.1989). Thus, we may not deny a party's request to arbitrate an issue "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Warrior & Gulf Navigation Co., 363 U.S. at 582-83, 80 S.Ct. at 1353. Having established our principles for review, we turn to CTI's arguments.

B.

As an initial...