Evans v. Bldg. Materials Corp. of Am.

• Decision Date: 05 June 2017
• Docket Number: 2016-2427
• Citation: 858 F.3d 1377
• Parties: Stephen F. EVANS, Roof N Box, Inc., Plaintiffs–Appellees v. BUILDING MATERIALS CORPORATION OF AMERICA, dba GAF–ELK Corporation, Defendant–Appellant
• Court: U.S. Court of Appeals — Federal Circuit

858 F.3d 1377

Stephen F. EVANS, Roof N Box, Inc., Plaintiffs–Appellees

v.BUILDING MATERIALS CORPORATION OF AMERICA, dba GAF–ELK Corporation, Defendant–Appellant

2016-2427

United States Court of Appeals, Federal Circuit.

Decided: June 5, 2017

Gregory N. Stillman , Hunton & Williams LLP, Norfolk, VA, argued for plaintiffs-appellees. Also represented by Wendy Cohen McGraw .

John Dennis Murnane , Fitzpatrick, Cella, Harper & Scinto, New York, NY, argued for defendant-appellant. Also represented by Robert Scott Pickens ; Justin J. Oliver , Washington, DC.

Before Reyna, Linn, and Taranto, Circuit Judges.

Taranto, Circuit Judge.

In September 2009, Roof N Box, Inc. (RNB) and Building Materials Corp. of America d/b/a GAF–ELK Corp. (GAF) entered into an agreement under which GAF would promote RNB's "Roof N Box" product, a three-dimensional roofing model, to building-construction contractors affiliated with GAF. The agreement contains a provision that requires the parties to submit disputes "arising under" the agreement to arbitration. GAF terminated the agreement after about a year, and the validity of that termination is not at issue.

In March 2016, RNB, together with its founder and president, Stephen Evans, brought the present suit against GAF based on GAF's activities in marketing its own product that competes with the Roof N Box product. The complaint alleges design-patent infringement under federal law as well as trade-dress infringement and unfair competition under federal and state law. GAF moved to dismiss or stay the action pending arbitration based on the 2009 agreement's arbitration provision.

The district court denied that motion. GAF appeals. Because GAF's assertion that the arbitration provision covers the claims stated in the complaint is "wholly groundless," a standard that GAF accepts as applicable in this case, we affirm.

I

Mr. Evans is the inventor of the "Roof N Box" product, a three-dimensional roofing model designed to be used by a seller of roofing products and services to display roofing components when making a sales pitch to a homeowner. According to Mr. Evans and RNB, the Roof N Box product allows a salesperson to remove or replace the layers of roofing on the model while explaining the roofing layers, their functions, and their terminologies. In June 2007, Mr. Evans filed a design patent application for the model, which issued as U.S. Design Patent No. D575,509.

In September 2009, RNB entered into a promotional agreement with GAF. GAF agreed to promote the Roof N Box product to GAF's network of certified contractors who installed roofing on residential and commercial structures. RNB agreed to sell the Roof N Box product at discounted prices to the GAF contractors and to pay GAF five percent of the total amount that RNB received from those sales. RNB also agreed to maintain the confidentiality of GAF's proprietary information. Unless terminated, the agreement was to remain in effect until September 1, 2016, and would thereafter automatically renew for additional two-year renewal periods.

The 2009 agreement contains an arbitration provision, which states: "If any dispute or disagreement arises under this Agreement," and the "dispute or disagreement cannot be settled[,] ... then such dispute or disagreement shall be submitted to final and binding arbitration in accordance with the rules of American Arbitration Association ... unless otherwise agreed to, in writing, by both Parties." J.A. 84. The agreement also contains what GAF characterizes as a survival clause, which states: "[T]ermination for default ... [shall not] constitute a waiver of any rights or remedies of the non-defaulting Party including, without limitation, the right of the non-breaching Party to seek damages for breaches occurring during the Initial Term or any Renewing Term." J.A. 80. GAF terminated the agreement in 2010.

In March 2016, Mr. Evans and RNB sued GAF in the Eastern District of Virginia. See Complaint, Evans v. Bldg. Materials Corp. of Am. , No. 1:16–cv–282–GBL–IDD (E.D. Va. Mar. 14, 2016), ECF No. 1. The complaint states the following claims: Counts I and II for, respectively, direct and induced patent infringement under 35 U.S.C. § 271(a) and (b) ; Count III for unfair competition and trade-dress infringement under 15 U.S.C. § 1125(a) ; Count IV for unfair competition and trade-dress infringement under state common law; and Count V for unfair competition under N.J. Stat. § 56:8–2. The complaint alleges that, after the termination of the 2009 agreement, GAF manufactured and sold an infringing roofing model that competed with the Roof N Box product. GAF does not dispute that it developed and sold a promotional roofing product.

In May 2016, GAF moved to dismiss or stay the action pending arbitration, invoking the 2009 agreement's arbitration provision. See Defendant's Motion to Dismiss or, in the Alternative, To Compel Arbitration and Stay Proceedings, Evans , No. 1:16–cv–282–GBL–IDD (E.D. Va. May 13, 2016), ECF No. 13. The district court denied the motion. See Memorandum Opinion & Order, Evans , No. 1:16–cv–282–GBL–IDD (E.D. Va. July 6, 2016), ECF No. 32. The court held that the arbitration provision did not cover the claims in the complaint because GAF terminated the agreement before the parties' dispute arose. Id. at 5–8. In the alternative, the court held that the claims were outside the scope of the arbitration provision. Id. at 8–10.

GAF appeals. We have jurisdiction under 28 U.S.C. § 1292(c)(1). See Microchip Tech. Inc. v. U.S. Philips Corp. , 367 F.3d 1350, 1354–55 (Fed. Cir. 2004).

II

GAF argues that the district court erred by (1) deciding whether the claims of the complaint were arbitrable rather than reserving that issue for the arbitrator and (2) determining that the claims were not arbitrable. We review the denial of a motion to dismiss or stay an action pending arbitration under the law of the relevant regional circuit. Qualcomm Inc. v. Nokia Corp. , 466 F.3d 1366, 1371 (Fed. Cir. 2006). The Fourth Circuit prescribes de novo review. Am. Recovery Corp. v. Computerized Thermal Imaging, Inc. , 96 F.3d 88, 91 (4th Cir. 1996).

The parties dispute the standard that the district court should have applied in determining whether to decide the issue of arbitrability itself or instead refer that issue to arbitration. Although the parties agree that Fourth Circuit law governs, they disagree as to the standard the Fourth Circuit would have applied. GAF argues that the Fourth Circuit would have applied, in this case, a standard under which the court may reject arbitration if and only if the assertion of arbitrability is wholly groundless. Appellant's Br. 18–19; Oral Argument 15:28–32 ("The standard here is: Is what we are saying wholly groundless? And we believe it is not, your honor."). In contrast, Mr. Evans and RNB argue that a court may reject arbitration based on its analysis of the claims and the arbitration provision, even if it does not find the assertion of arbitrability to be so weak as to be wholly groundless. Appellees' Br. 11–12.

We need not resolve that dispute. We accept for purposes of this appeal the "wholly groundless" standard, which GAF has accepted both expressly at oral argument and at least implicitly in its briefs.¹ Applying that standard, we conclude that the district court correctly rejected arbitration here because GAF's assertion of arbitrability is wholly groundless. That conclusion requires affirmance of the district court's decision not to refer the issue of arbitrability to the arbitrator and, simultaneously, the district court's denial of the motion to dismiss or stay the case pending arbitration. And it does so without regard to the district court's conclusion that the termination of the 2009 agreement rendered the arbitration provision inapplicable to the present dispute.²

Whether GAF's assertion of arbitrability is wholly groundless depends on the scope of the language of the arbitration provision. Here, the relevant arbitration provision reaches only claims "arising under" the 2009 agreement. GAF accepts that, for such language, Fourth Circuit precedent directs the focus to "whether the claims at issue have a direct nexus to the contractual obligations, and more specifically, whether the claims are ‘related to the interpretation and performance of the contract itself.’ " Appellant's Br. 25 (quoting Am. Recovery , 96 F.3d at 92–93 ). Such "arising under" language is narrower in scope than language, such as "relating to," under which a claim may be arbitrable if it has a "significant relationship" to the contract, regardless of whether it arises under the contract itself. Long v. Silver , 248 F.3d 309, 316–17 (4th Cir. 2001) ; Am. Recovery , 96 F.3d at 92–93 ; J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A. , 863 F.2d 315, 321 (4th Cir. 1988).

Fourth Circuit law stresses that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Am. Recovery , 96 F.3d at 92 (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Co. , 460 U.S. 1, 24–25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) ). Thus, a court "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.’ " Id. (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co. , 363 U.S. 574, 582–83, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) ). We follow those principles in reviewing the complaint in this case.

Counts I, II, and III state claims for patent infringement, trade-dress infringement, and unfair competition related, not to GAF's carrying out of its obligations established by the 2009 agreement, which concerned GAF's promotion of RNB's products, but rather to GAF's making and selling of its own competing roofing products. Those claims do not involve any issue "related to the performance or interpretation of the contract itself." See Appellant's Br. 25....