Arkcom Digital Corp. v. Xerox Corp.

• Citation: 289 F.3d 536
• Decision Date: 10 May 2002
• Docket Number: No. 01-1998.,No. 01-2000.,01-1998.,01-2000.
• Parties: ARKCOM DIGITAL CORPORATION, Plaintiff-Appellant/Cross Appellee, v. XEROX CORPORATION, Defendant-Appellee/Cross Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

289 F.3d 536

ARKCOM DIGITAL CORPORATION, Plaintiff-Appellant/Cross Appellee, v. XEROX CORPORATION, Defendant-Appellee/Cross Appellant.

No. 01-1998.

No. 01-2000.

United States Court of Appeals, Eighth Circuit.

Submitted: December 12, 2001.

Filed: May 10, 2002.

Michael J. Ptak, argued, Little Rock, AR, for appellant/cross-appellant.

Charles L. Schlumberger, argued, Little Rock, AR, for appellee.

Before LOKEN and BYE, Circuit

Judges, and BOGUE,^* District Judge.

LOKEN, Circuit Judge.

After Xerox Corporation terminated Arkcom Digital Corporation as an authorized Xerox service agent, Arkcom filed suit in Arkansas state court alleging breach of contract and violations of the Arkansas Franchise Practices Act, Ark. Code Ann. §§ 4-72-201 et seq (AFPA). Xerox removed the action and moved to compel arbitration. The district court¹ granted the motion and dismissed Arkcom's complaint without prejudice. Arkcom appeals. We have jurisdiction to review a final order compelling arbitration. See 9 U.S.C. § 16(a)(3). Our task is to review the district court's decision to determine "whether there is a valid agreement to arbitrate and whether the specific dispute at issue falls within the substantive scope of that agreement." Larry's United Super, Inc. v. Werries, 253 F.3d 1083, 1085 (8th Cir.2001). We conclude the dispute is arbitrable. As that is the only issue properly before us, we affirm without deciding other issues raised by the parties on appeal.

The parties' Authorized Service Agent Agreement (the "Agreement") defined "Covered Disputes" to include those "arising out of or related to the ... termination of this Agreement" and provided that "a Covered Dispute ... will be decided through arbitration." The arbitration provision prohibited the arbitrator from awarding any remedy barred by the Agreement's Limitation on Liability provision:

Neither party ... shall have any liability to the other for (1) any punitive damages; or (2) any lost profits based upon a timeframe of more than six months (with "lost profits" to be defined as 10% of the total amount paid by Xerox under this Agreement for the 6 month period preceding the claim) ... or any other indirect, special, exemplary, incidental, or consequential damages.

Arkcom's complaint alleged that the Agreement created a franchise relationship and sought relief expressly authorized by the AFPA — actual damages, attorney's fees, and costs of suit. See Ark.Code Ann. § 4-72-208. In opposing Xerox's motion to compel arbitration, Arkcom argued: (1) Arkansas law applies, even though the Agreement provides that Covered Disputes "shall be governed by the law of New York State;" (2) Arkcom is a franchisee entitled to AFPA remedies; and therefore (3) the parties' agreement to arbitrate is unenforceable because it prohibits the arbitrator from awarding remedies expressly authorized by the AFPA. Xerox countered by arguing (1) New York law applies, therefore the AFPA does not; (2) even if Arkansas law applies, the Agreement did not create a franchise; and (3) even if the AFPA applies, any conflict based on availability of remedies does not affect arbitrability. Though the parties have argued all these issues on appeal, "a court compelling arbitration should decide only such issues as are essential to defining the nature of the forum in which a dispute will be decided." Larry's United Super, 253 F.3d at 1085.

Because arbitration is a matter of contract, the first question is whether the parties have agreed to arbitrate the dispute at issue. Arkcom concedes, as it must, that this contract termination dispute falls within the scope of the Agreement's arbitration provision. The parties agreed to arbitrate all Covered Disputes, defined to include those arising out of termination of the Agreement. This general agreement to arbitrate also encompasses Arkcom's claims under the AFPA. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (the rule resolving doubts in favor of arbitration applies "where a party bound by an arbitration agreement raises claims founded on statutory rights"); Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (compelling arbitration of claims brought under the California Franchise Investment Law).

Arkcom argues that the agreement to arbitrate is nonetheless unenforceable because it frustrates the purposes of the AFPA by precluding the arbitrator from awarding remedies expressly authorized by the AFPA — actual damages in addition to lost profits, attorney's fees, costs of litigation, and treble damages in the case of fraud. See Ark.Code Ann. §§ 4-72-207, -208(a), (b). Where the parties have agreed to arbitrate a dispute, that agreement is enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.

The Supreme Court has repeatedly held that the FAA preempts (i) state laws that "require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration," Southland, 465 U.S. at 10, 104 S.Ct. 852; and (ii) state laws that condition the enforceability of arbitration agreements on requirements "not applicable to contracts generally," Doctor's Assocs. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996). See generally Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). However, this case raises a different issue. The AFPA does not purport to reject or condition arbitration as a forum for the resolution of franchise termination disputes. Rather, Arkcom alleges that this particular agreement to arbitrate is unenforceable because it conflicts with essential rights and remedies conferred by the state statute.

This issue has frequently been raised by parties seeking to avoid arbitration of federal statutory claims that fell within the scope of their agreements to arbitrate. In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), for example, the Supreme Court rejected the contention that federal statutory age discrimination claims are not arbitrable and enforced an agreement to arbitrate such a claim. However, citing earlier decisions enforcing agreements to arbitrate statutory antitrust, RICO, and securities laws claims, the Court cautioned:

In these cases we recognized that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum."

500 U.S. at 26, 111 S.Ct. 1647, quoting Mitsubishi Motors, 473 U.S. at 628, 105 S.Ct. 3346. The Court also rejected a contention that the arbitration remedies available in Gilmer were not broad enough to further the purposes of the federal age discrimination statute, noting that the applicable arbitration rules there did "not restrict the types of relief an arbitrator may award." Id. at 32, 111 S.Ct. 1647.

The Supreme Court's caution that an agreement to arbitrate federal statutory claims may not abrogate substantive statutory rights places in sharper focus the question Arkcom raises here — whether contractual limitations on an arbitrator's remedial authority may be applied to override broader statutory remedies. The few federal circuits to address the issue are divided as to its procedural consequences. Arkcom relies on decisions holding that an...