Fastener Corp. of Am. v. Asheboro Elastics Corp.
| Decision Date | 25 June 2013 |
| Docket Number | 1:12-CV-1296 |
| Court | U.S. District Court — Middle District of North Carolina |
| Parties | FASTENER CORPORATION OF AMERICA, Plaintiff, v. ASHEBORO ELASTICS CORP., ET AL., Defendants. |
The plaintiff, Fastener Corporation of America ("FCA"), filed suit in Davie County Superior Court alleging that defendant Telas Elásticas, S. de R.L. ("TESA") breached a broker's agreement with FCA after FCA successfully arranged a sale of TESA to defendant Asheboro Elastics Corp. ("AEC"). FCA alleges that defendants AEC and Telas Elásticas Adquisición Sociedad de Responsabilidad Limitada ("TESA Acquisitions") are also liable for TESA's breach because TESA Acquisitions agreed to assume TESA's liabilities under the Purchase Agreement and because AEC's assertion of complete ownership and control of TESA Acquisitions renders it liable under the doctrine of piercing the corporate veil. (Doc. 7 at ¶¶ 20-21.) The defendants removed the case to this Court and filed motions to compel arbitration and to dismiss. (Docs. 16 and 18.) FCA filed a motion to remand. (Doc. 26.) The motion to compel arbitration will be granted because FCA is equitably estopped from avoiding the arbitration provision in the Purchase Agreement. Consequently, the motion to remand will be denied because this Court hasfederal question jurisdiction under 9 U.S.C. § 201 et seq., and the motion to dismiss will be left for the arbitrators to decide.
There are a number of things the parties agree about, and the Court will set those out without further citation to or discussion of the legal principles involved. The parties agree that this Court has jurisdiction to decide the motion to compel arbitration pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as implemented by the Federal Arbitration Act and codified at 9 U.S.C. § 201 et seq. The parties agree that if the motion to compel arbitration is granted, then the motion to remand should be denied and the motion to dismiss should be decided by the arbitrators. The parties agree that if the motion to compel arbitration is denied, the Court must decide the fraudulent joinder issue in the motion to remand.
The following facts are undisputed for purposes of these motions. In the spring of 2011, TESA asked FCA if it would solicit potential buyers for TESA's business. (Doc. 7 at ¶ 6.) On April 15, 2011, TESA and FCA entered into a 90-day contract ("April Contract"), under which FCA agreed to promote the sale of TESA to a list of three specific corporations that did not include defendant AEC or any other defendant. (Id. at ¶ 7.) TESA agreed to pay FCA a 10-percent commission if a sale was completed. (Doc. 20-1 at 5.) This contract was in writing and contained an agreement to arbitrate any "disputes or disagreements in the interpretation, compliance and performance" of the contract. (Id. at 9.) The contract also contained a provision that it could only be extended in writing. (Id.)
The April Contract expired with no sale, (Doc. 7 at ¶ 8), and there is no evidence FCA continued its efforts to sell TESA to any of the three named potential purchasers or anyone else. Neither party sought to extend the contract, and it was not extended.
About three months after the April Contract expired, TESA's general manager and president, Victor Wilson, sent an email to Charles Mays, the president of FCA, offering FCA a 5-percent commission if FCA promoted the sale of TESA to AEC. (Doc. 7 at ¶ 8; Doc. 20-2.) Mr. Wilson was in Honduras and Mr. Mays was in North Carolina. From the language of the email, one would infer that there had been some conversations between Mr. Wilson and Mr. Mays about this beforehand, (see Doc. 20-2), but there is no evidence before the Court about any such conversations. The email stated in its entirety:
By return email, Mr. Mays accepted on FCA's behalf. (Id.) His response stated in its entirety:
Neither email mentioned arbitration and neither explicitly adopted or incorporated the terms of the April Contract. As noted supra, Mr. Wilson's email did reference the reduction of the commission "from the precious [sic] contractual 10% to 5%." (Id.)
On April 20, 2012, TESA's shareholders sold 80 percent of TESA's stock to TESA Acquisitions, a Honduran entity formed by AEC for the purpose of buying TESA's stock, for $1.00. (Doc. 20-3 at 5.) TESA Acquisitions also received an option to purchase the remaining 20 percent of TESA's shares for $150,000 if and when certain conditions were met. (Id.) The Purchase Agreement between TESA and TESA Acquisitions contained an arbitration provision. (Id. at 14.) The parties agree that this transaction gave rise to a commission under the October agreement between TESA and FCA, though the terms and conditions of that contract and its form, as well as the amount of the commission due, are disputed.
Courts favor arbitration and interpret arbitration provisions broadly, especially in the international context. See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985). However, a party cannot be required to arbitrate a dispute that it has not agreed to submit to arbitration. AT&T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 648 (1986). "The burden of proving an agreement to arbitrate rests upon the party seeking arbitration." Silkworm Screen Printers, Inc. v. Abrams, 978 F.2d 1256 (table), 1992 WL 317187, at *3 (4th Cir. Nov. 4, 1992). The law is well-settled as to what a party moving to compel arbitration must show:
To state a claim to compel arbitration under the [Federal Arbitration Act], [a party] must allege (1) the existence of a dispute between the parties, (2) a written agreement that includes an arbitration provision which purports to cover the dispute, (3) the relationship of the transaction, which is evidenced by theagreement, to interstate or foreign commerce, and (4) the failure, neglect or refusal of [the opposing party] to arbitrate the dispute.
Whiteside v. Teltech Corp., 940 F.2d 99, 102 (4th Cir. 1 991).
The defendants rely on two written agreements to arbitrate: the April 2011 Contract and the 2012 Purchase Agreement. As to each, FCA concedes the existence of the first, third, and fourth elements but disputes the existence of the second element: a written agreement that includes an arbitration provision which purports to cover the dispute.
The April Contract, wherein TESA and FCA agreed that FCA would attempt to sell TESA to three listed potential buyers, contains an arbitration agreement. (Doc. 20-1 at 9.) However, the defendants' initial reliance on the April Contract is misplaced for two reasons: first, the April Contract had expired, and second, the arbitration provision in the April Contract does not cover the present dispute.
It is well-established that when a contract terminates by its own terms and the dispute between the parties did not arise out of that contract, then the arbitration clause in that contract does not come into play. See Va. Carolina Tools, Inc. v. Int'l Tool Supply, Inc., 984 F.2d 113, 117 (4th Cir. 1993); Nat'l R.R. Passenger Corp. v. Boston & Maine Corp., 850 F.2d 756, 762 (D.C. Cir. 1988) (). That is the case here.
By its own terms, the April Contract was in effect for 90 days, (Doc. 20-1 at 9), and terminated in July 2011. (Doc. 7 at ¶ 7.) It specifically stated that "[t]his Agreement will be legally terminated due to the expiration of the [90-day] term . . . , unless the request for anextension . . . is delivered and the extension agreement is executed by both parties." (Doc. 20-1 at 8.) It is undisputed that no party requested extension, and thus the April Contract terminated.
The October emails did not extend the April Contract. By its terms the April Contract had expired and the only method of extension authorized by the contract - stated twice, in Paragraph 9 and again in Paragraph 12 - was not followed. (Id. at 8-9.)
Moreover, the April Contract did not cover a sale of TESA's assets to the ultimate buyer, TESA Acquisitions, or any other defendant. The arbitration agreement in the April Contract did not purport to require arbitration of all disputes between the parties and was limited to "disputes or disagreements in the interpretation, compliance and performance of this agreement." (Id. at 9.) The April Contract only covered a sale to one of three other specifically named potential buyers. (Id. at 4.) Because the current dispute did not in any way arise out of the April Contract, which concerned other potential buyers and not AEC or TESA Acquisitions, the arbitration provision in the April Contract does not cover the instant dispute.
The defendants also contend that when the parties reached an agreement at the end of October for FCA to attempt to broker a sale to AEC, the terms of the April Contract were incorporated into that new agreement except as expressly modified by the...
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