Donaldson Co., Inc. v. Burroughs Diesel, Inc.

• Decision Date: 16 September 2009
• Docket Number: No. 08-2705.,08-2705.
• Citation: Donaldson Co., Inc. v. Burroughs Diesel, Inc., 581 F.3d 726 (8th Cir. 2009)
• Parties: DONALDSON COMPANY, INC., Plaintiff-Appellee, v. BURROUGHS DIESEL, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

581 F.3d 726

DONALDSON COMPANY, INC., Plaintiff-Appellee, v.BURROUGHS DIESEL, INC., Defendant-Appellant.

No. 08-2705.

United States Court of Appeals, Eighth Circuit.

Submitted: August 26, 2009.

Filed: September 16, 2009.

Michael Goss, Joseph F. Yeckel, St. Louis, MO, for appellant.

Reed Waller Sugg, Bryan Patrick Cavanaugh, St. Louis, MO, Roger James Magnuson, Minneapolis, MN, Richard M. Dye, Robert A. Miller, Jackson, MS, for appellee.

Before SMITH, GRUENDER, and BENTON, Circuit Judges.

BENTON, Circuit Judge.

Donaldson Company, Inc., a nonsignatory, seeks to compel arbitration against Burroughs Diesel, Inc., a signatory to an agreement with an arbitration clause.The district court ordered arbitration.Burroughs appeals.Jurisdiction being proper under 28 U.S.C. § 1291, this court reverses and remands.¹

I.

In 1999, Burroughs signed a Dealer Full Service Agreement with Western Star Truck Sales, Inc. Western Star manufactured trucks that it sold to Burroughs for resale.A third party, Donaldson, supplied two parts of the air intake system in the trucks.The Dealer Agreement did not mention Donaldson.It contained an arbitration provision that

any controversy or claim arising out of or in connection with this Agreement, its construction, interpretation, effect, performance, nonperformance, termination, or consequences thereof, or any transaction contemplated hereby, however characterized as a matter of law (whether in contract, tort or otherwise), ... shall be settled by arbitration in St. Louis County, Missouri....

Dealer Agreement¶ 31.The Agreement provided that it "shall be governed by and construed in accordance with the laws of the state in which Dealer's principal place of business, as designated in Paragraph 6 hereof, is located, and such laws shall be applied and control any arbitration conducted pursuant to Paragraph 31 hereof."Id.¶ 34.²

The engines failed in several trucks purchased from Burroughs.In November 2001, the buyers sued Donaldson, "Western Star Trucks," and Burroughs in Mississippi state court.In February 2002, Burroughs cross-claimed against Donaldson and Western Star.The cross-claim, referring to Donaldson and Western Star collectively as "Cross-Defendants," did not distinguish between them in terms of the misconduct alleged.Western Star answered the cross-claim, raising arbitration as an affirmative defense, and serving a copy on Donaldson.

Two days later, Western Star sued, in the U.S. District Court for the Eastern District of Missouri, to compel arbitration.Neither Burroughs nor Western Star notified Donaldson of the arbitration proceedings in Missouri.

In Mississippi, Donaldson answered the cross-claims, conditionally raising an arbitration defense: "If there is an arbitration agreement between Western Star Trucks and Burroughs, then the cross-claim is barred by that agreement and the cross claim should be dismissed and all issues should be resolved by arbitration."Donaldson raised other affirmative defenses, including "lack of privity" and the lack of a "legal, contractual, or other relationship" between Donaldson and Burroughs.

In December 2002, the Missouri federal court granted Western Star's motion to compel arbitration, relying on the arbitration clause in the Dealer Agreement.SeeWestern Star Truck Sales, Inc. v. Burroughs Diesel, Inc.,No. 4:02-cv-457, slip op. at 9(E.D.Mo.Dec. 2, 2002).Burroughs then dismissed its Mississippi cross-claim against Western Star.

In August 2007, Burroughs moved to schedule trial on its cross-claim against Donaldson in Mississippi.Soon thereafter, Donaldson alleges, it first learned of the Missouri arbitration order.In October 2007, Donaldson moved to compel Burroughs to arbitrate in the Missouri federal court, citing that court's 2002 arbitration order in the Western Star-Burroughs case.

In Missouri, Donaldson argued that, although it was not a party to the Dealer Agreement, arbitration was required because: (1) Burroughs's claim was premised on and presumed the existence of the Agreement; and (2) Burroughs previously alleged that Western Star and Donaldson acted in concert.Burroughs responded by moving for summary judgment, which was denied.The federal court granted Donaldson's motion to compel arbitration, enjoining Burroughs from proceeding in Mississippi court.³

II.

This court reviews "de novo a district court's grant of a motion to compel arbitration."3M Co. v. Amtex Sec., Inc.,542 F.3d 1193, 1198(8th Cir.2008)."A court must grant a motion to compel arbitration if a valid arbitration clause exists which encompasses the dispute between the parties."Id.The parties agree that paragraph 31 of the Agreement is a valid arbitration clause between Western Star and Burroughs.They dispute whether Donaldson can enforce the arbitration clause against Burroughs.Donaldson was not a party to the Agreement, and relies on the doctrine of equitable estoppel in the arbitration context.See, e.g., Dominium Austin Partners, LLC v. Emerson,248 F.3d 720, 728(8th Cir.2001).

Donaldson contends that since equitable estoppel is the basis, the proper standard of review of the district court's grant of arbitration is abuse of discretion, citing Grigson v. Creative Artists Agency, L.L.C.,210 F.3d 524(5th Cir.2000).The circuits are split.SeeSunkist Soft Drinks, Inc. v. Sunkist Growers, Inc.,10 F.3d 753, 756-57(11th Cir.1993)(reviewing de novo the district court's order compelling arbitration, which invoked equitable estoppel, and labeling the equitable estoppel issue a "question of law");Bouriez v. Carnegie Mellon Univ.,359 F.3d 292, 294(3d Cir.2004)("We exercise plenary review over the District Court's order compelling arbitration," where the district court invoked equitable estoppel).But seeGrigson,210 F.3d 524, 528("Accordingly, whether to utilize equitable estoppel in this fashion is within the district court's discretion; we review to determine only whether it has been abused.");Brantley v. Republic Mortg. Ins. Co.,424 F.3d 392, 395(4th Cir.2005)("District court decisions determining the scope of arbitration agreements are generally reviewed de novo....However, in cases such as the present one, the arbitration order does not rest on a term of the contract, rather upon the application of equitable estoppel.We review such equitable estoppel decisions for abuse of discretion.")(internal citations omitted).

Generally, courts review de novo a district court's grant of a motion to compel arbitration.See, e.g., 3M Co.,542 F.3d at 1198.There is no reason to depart from the de novo standard here.Where a district court grants arbitration, its application of equitable estoppel presents at least mixed questions of law and fact.In this circuit, mixed questions of law and fact are reviewed de novo.See, e.g., Sargent v. Commissioner,929 F.2d 1252, 1254(8th Cir.1991);Cooper Tire & Rubber Co. v. St. Paul Fire & Marine Ins. Co.,48 F.3d 365, 369(8th Cir.1995).

A.

Donaldson, in its petition for rehearing, argues that Mississippi law, not federal law, should apply based on the choice-of-law provision in the Agreement."This court reviews a district court's choice of law determination de novo."Am. Home Assurance Co. v. L & L Marine Serv., Inc.,153 F.3d 616, 618(8th Cir.1998).

The Federal Arbitration Act"create[s] a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act."Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765(1983).But "when deciding whether the parties agreed to arbitrate a certain matter ..., courts generally ... should apply ordinary state-law principles that govern the formation of contracts."Hudson v. ConAgra Poultry Co.,484 F.3d 496, 500(8th Cir.2007), quotingFirst Options of Chicago Inc. v. Kaplan,514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985(1995).Thus, state contract law governs the threshold question of whether an enforceable arbitration agreement exists between litigants; if an enforceable agreement exists, the federal substantive law of arbitrability governs whether the litigants' dispute falls within the scope of the arbitration agreement.Daisy Mfg. Co., Inc., v. NCR Corp.,29 F.3d 389, 392(8th Cir.1994);Fleetwood Enters. Inc. v. Gaskamp,280 F.3d 1069, 1073(5th Cir.2002).

The Supreme Court has ruled that state contract law governs the ability of nonsignatories to enforce arbitration provisions.Arthur Andersen LLP v. Carlisle,556 U.S. ____, 129 S.Ct. 1896, 173 L.Ed.2d 832(2009)."[A] litigant who was not a party to the relevant arbitration agreement may invoke § 3[of the Federal Arbitration Act] if the relevant state contract law allows him to enforce the agreement."Id."`State law' ... is applicable to determine which contracts are binding under § 2 and enforceable under § 3`if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally.'"Id., quotingPerry v. Thomas,482 U.S. 483, 493, n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426(1987).SeeMoses H. Cone,460 U.S. at 22, 103 S.Ct. 927("The Act provides two parallel devices for enforcing an arbitration agreement: a stay of litigation in any case raising a dispute referable to arbitration, 9 U.S.C. § 3, and an affirmative order to engage in arbitration, § 4.").State law principles allowing "a contract to be enforced by or against nonparties to the contract," including "assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel," govern issues concerning the enforceability of contracts generally.Carlisle,556 U.S. at ____, 129 S.Ct. 1896.Thus, these state law principles control whether a nonparty to an arbitration agreement can enforce the agreement under sections 3and4.

B.

The issue in this case is whether Donaldson, a nonsignatory, can enforce the...