Cara's Notions, Inc. v. Hallmark Cards, Inc.

• Decision Date: 31 March 1998
• Docket Number: No. 97-1696.,97-1696.
• Citation: 140 F.3d 566
• Parties: CARA'S NOTIONS, INCORPORATED, d/b/a Cara's Hallmark, Plaintiff-Appellee, v. HALLMARK CARDS, INCORPORATED; Hallmark Marketing Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

140 F.3d 566

CARA'S NOTIONS, INCORPORATED, d/b/a Cara's Hallmark, Plaintiff-Appellee, v. HALLMARK CARDS, INCORPORATED; Hallmark Marketing Corporation, Defendants-Appellants.

No. 97-1696.

United States Court of Appeals, Fourth Circuit.

Argued January 28, 1998.

Decided March 31, 1998.

ARGUED: Thomas Dean Myrick, Smith, Helms, Mulliss & Moore, L.L.P., Charlotte, NC, for Appellants. Charles Henry Rabon, Jr., Kilpatrick Stockton, L.L.P., Charlotte, NC, for Appellee. ON BRIEF: Jackson N. Steele, Kilpatrick Stockton, L.L.P., Charlotte, NC, for Appellee.

Before MURNAGHAN, NIEMEYER and MOTZ, Circuit Judges.

Reversed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge NIEMEYER and Judge MOTZ joined.

OPINION

MURNAGHAN, Circuit Judge:

Cara's Notions, Inc., operates two Hallmark stores. The first store is the subject of a "Trademark License Agreement" between Hallmark Cards, Inc., and Betty and Jerald Gibson, the owners and officers of Cara's Notions. The second store is the subject of an "Account Agreement" between Hallmark Cards, Inc. and Hallmark Marketing Corporation (collectively "Hallmark"), and Cara's Notions, Inc., itself. We are called upon in this case to determine whether a broad arbitration clause in the Account Agreement mandates arbitration of a dispute between Cara's Notions, as plaintiff, and Hallmark, as defendant, regarding the first store.

The district court denied Hallmark's motion to compel arbitration because there was no arbitration clause in the first contract. In so doing, the district court failed to recognize that the parties to the two contracts differ, neglected to consider the actual language of the arbitration clause when interpreting the contracts and declined to defer to the strong federal policy favoring arbitration of disputes. We reverse.

I.

In 1984, Roberta Gibson was given permission by Hallmark to become a Hallmark retailer. In November of 1984, Roberta Gibson opened Cara's Hallmark Shop at Town Center Shopping Center in Charlotte, North Carolina ("Store I").

In 1990, Betty Gibson and her husband Jerald Gibson ("the Gibsons"), bought Store I from Roberta Gibson. Hallmark approved the Gibsons as the new owners of Store I. Hallmark Cards, Inc. signed a "Trademark License Agreement" with the Gibsons ("Contract I"). Contract I provided that Betty and Jerald Gibson could use the "Hallmark" trademark without paying royalties and that the Gibsons would abide by certain guidelines for the trademark use. The contract made no mention of arbitration of any disputes.

At some point in the next few years, the Gibsons incorporated Cara's Notions, Inc., the plaintiff. The Gibsons jointly owned Cara's Notions; Betty served as president and Jerald as secretary and treasurer. The record does not reflect when Cara's Notions was incorporated or whether there was any novation substituting Cara's Notions for the Gibsons as parties to Contract I.

In 1994, the Gibsons wanted to purchase a second Hallmark shop, in Concord, North Carolina ("Store II"). The Gibsons completed an application on behalf of Cara's Notions, Inc. In May of 1994, Hallmark and Cara's Notions entered into a "Hallmark Account Agreement" ("Contract II"), permitting Cara's Notions to operate the second Hallmark store in Concord. Contract II detailed Hallmark's and Cara's Notions' responsibilities regarding the sale and display of Hallmark products. Contract II also contained an arbitration clause which provided:

Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, or any aspects of the relationship between Hallmark and Retailer,¹ or the termination thereof, shall be settled by binding arbitration under the United States Arbitration Act in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof.

Since then Cara's Notions, Inc., has operated both Store I and Store II.

In early 1995, the landlord at Store I notified the Gibsons that they would have to move the store because a grocery store in the shopping center intended to expand into its space. The Gibsons claim that Hallmark promised that it would help them find a new location for their Store I. The Gibsons further claim that they suggested a new location to Hallmark, in a shopping center called "The Village at University Place." According to the Gibsons, Hallmark representatives inspected the center and decided it was a favorable location for a Hallmark store, but instead of helping the Gibsons get a lease at that location as it had promised, Hallmark negotiated a lease at the Village at University Place for itself.

In December of 1996, Cara's Notions filed a complaint in state court against Hallmark, alleging that Hallmark's taking of the new location for itself breached the duty of good faith and fair dealing, was an unfair and deceptive trade practice, usurped an opportunity of the principal and was an illegal misrepresentation. Cara's Notions sought actual and punitive damages against Hallmark. Hallmark removed the case to federal court and moved to compel arbitration, asserting that the arbitration agreement in Contract II covered this dispute between the parties.

Believing that matters regarding Store I were governed only by Contract I and that matters regarding Store II were governed only by Contract II, the district court denied the motion to compel arbitration. The court held that "[b]ecause Contract I does not contain an arbitration clause, this matter regarding Store I is not subject to arbitration." The district court held that the arbitration clause in Contract II did not modify the relationship created by Contract I because it believed that the first contract's merger clause required any modification to be "in writing with a specific reference to Store I." It further held that the arbitration clause in Contract II did not apply directly to matters regarding Store I because "the boilerplate contract [II], in its introduction, specifically states that the contract is in reference to Store II," and because the merger clause in Contract II uses the singular term "a Hallmark account" instead of a plural term such as "accounts," thus "specifically limit[ing] its scope to Store II." Significantly, the district court did not address the language of the arbitration clause itself in denying its effect in this case.

Hallmark has appealed the dismissal of its Motion to Compel Arbitration and its Motion to Dismiss or in the Alternative to Stay Proceeding Pending Arbitration.

II.

A.

The Arbitration Act requires a federal court to grant a motion to stay a proceeding pending the arbitration of "any issue referable to arbitration under an agreement in writing for such arbitration." 9 U.S.C. § 3. Because the examination of the scope of an arbitration agreement is primarily a task of contract interpretation, we review a district court's determination of the arbitrability of a dispute de novo. See Summer Rain v. Donning Co./Publishers, Inc., 964 F.2d 1455, 1459-60 (4th Cir.1992). However, "in applying general state-law principles of contract interpretation to the interpretation of an arbitration agreement within the scope of the [Arbitration] Act, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration." Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 475-76, 109 S.Ct. 1248, 1254, 103 L.Ed.2d 488 (1989) (quoted in Summer Rain, 964 F.2d at 1460).

B.

A straightforward examination of the two contracts reveals that the district court erred in refusing to compel arbitration of this dispute. The plaintiff in the case is Cara's Notions, not the Gibsons. The only contract between Cara's Notions and Hallmark is Contract II, which contains an extremely broad arbitration clause: "Any controversy or claim arising out of or relating to ... any aspects of the relationship between Hallmark and Retailer ... shall be settled by binding arbitration...." The "Retailer" is defined in the contract as Cara's Notions. The instant conflict certainly relates to an aspect of the relationship between Hallmark and Cara's Notions. Therefore Contract II mandates arbitration of this dispute.

C.

The district court concluded otherwise, however. In defense of the district court's decision, Cara's Notions asserts that Contract II was intended to apply only to claims or controversies regarding Store II, not those regarding Store I. Cara's Notions further asserts that the instant conflict arose solely out of the relationship between Hallmark and Store I, and therefore is governed by Contract I (which contains no arbitration clause).² Cara's Notions points out that a court may not require a party to "submit to arbitration any dispute which he has not agreed so to submit," AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (quoting United Steel-workers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960)) (internal quotation marks omitted), and argues that because Hallmark chose to deal with each of its stores separately and assigned them each a different account number, it may not "bootstrap" the requirement to arbitrate found in Contract II into the present dispute, arising from Contract I.

In determining "whether the arbitration clause in Contract II applies to matters regarding Contract I," the district court exhaustively analyzed numerous parts of the two contracts, but did not address the language of the arbitration clause itself. First the district court analyzed the merger clause found in Contract I. That clause provides that:

This agreement supersedes all prior oral or written representations and constitutes the entire understanding between...