Flender Corp. v. Techna-Quip Co.
| Decision Date | 06 January 1992 |
| Docket Number | TECHNA-QUIP,Nos. 89-2781,89-3045 and 91-1268,s. 89-2781 |
| Parties | 121 Lab.Cas. P 10,081 FLENDER CORPORATION, Plaintiff-Appellant, v.COMPANY and Robert J. McGuire, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Michael T. Reid (argued) and Thomas F. Roche, Halfpenny, Hahn, Roche & Marchese, Chicago, Ill., for plaintiff-appellant.
Alan S. Madans (argued), Daniel Cummings and John Dalton, Rothschild, Berry & Myers, Chicago, Ill., for defendants-appellees.
Before RIPPLE and KANNE, Circuit Judges, and NOLAND, Senior District Judge. *
Flender Corporation (Flender) terminated its sales agency agreement with Techna-Quip, Inc. The agreement contained an arbitration clause. After the district court denied Flender's application to stay arbitration, the arbitrator determined that Flender had breached the sales agency agreement. The district court confirmed the arbitrator's decision and later approved the damages due under the arbitrator's award. Flender now appeals. For the following reasons, we affirm.
In 1978, Robert McGuire became a sales representative for Flender, a manufacturer of power transmission equipment and related products. At that time, McGuire was doing business as Technadyne, Inc., though McGuire subsequently began doing business as Techna-Quip, Inc. Despite the name of these entities, neither was actually a corporation. In 1979, McGuire signed a written sales agreement between the unincorporated Techna-Quip, Inc. and Flender. In 1980, Techna-Quip, Inc. was incorporated by McGuire and Donald Koenig; each man owned half of the corporation's stock. McGuire continued to handle the Flender account; Koenig represented other manufacturers.
In 1984, Techna-Quip, Inc. and Flender entered into a Sales Agency Agreement (the Agreement), which engaged Techna-Quip, Inc. to act as Flender's sales agent in a nine-state territory. The Agreement had a three-year term, required six months' notice of nonrenewal and provided for Techna-Quip to be compensated on a commission basis. The Agreement also included an arbitration clause:
Any controversies or claims relating to any aspect of this agreement, or to its breach, or to the relationship created shall be settled by arbitration under the rules of the American Arbitration Association in the State of Illinois.... The parties agree to abide by the arbitrator[']s decision and also that a judgment may be entered upon his award in any court having jurisdiction.
A non-assignment clause also was contained in the Agreement:
This Agreement is personal to the parties and may not be assigned to any person, firm or corporation.
Because neither party gave notice of nonrenewal, on February 1, 1987, the Agreement automatically renewed for three additional years.
In January of 1987, McGuire and Koenig decided to dissolve the corporation, Techna-Quip, Inc. They intended the dissolution to be effective April 1, 1987. Both McGuire and Koenig intended to form sole proprietorships with each retaining the accounts he had handled at Techna-Quip, Inc. In February 1987, Flender was informed of the forthcoming dissolution. Walter Bogaerts, Flender's vice president of sales and marketing, told McGuire, Tr. Vol. 6 at 5.
McGuire later was informed that Flender's new president wanted all Flender representatives to have short-term contracts. McGuire told Flender that he would renegotiate his existing contract (the renewed three-year contract), but also stated that a six-month notice for termination and a two-year term were his minimum requirements. Flender executives reviewed McGuire's offer and also discussed the then-renewed 1984 Agreement. They apparently concluded that, because the contract could not be assigned to any person, the contract would terminate upon the dissolution of Techna-Quip, Inc. Flender then offered McGuire a one-year contract, which McGuire rejected. Several other contracts were proposed by each party, but Flender and McGuire were unable to reach any agreement.
On June 4, 1987, Flender decided to break off further negotiations with McGuire. Flender advised McGuire that it considered the dissolution of Techna-Quip, Inc. to have terminated all agreements between Flender and Techna-Quip, Inc. Techna-Quip, Inc. was paid commissions on all orders received by Flender prior to April 1, 1987. McGuire was paid commissions on all orders received by Flender from April 1, 1987 through June 4, 1987. Techna-Quip, Inc. was formally dissolved on June 8, 1987; McGuire continued doing business as Techna-Quip Co.
Techna-Quip Co. (now operating as a proprietorship) filed an arbitration claim against Flender, claiming that Flender had wrongfully terminated the Agreement over two years before its expiration date. Flender then filed suit in the Northern District of Illinois in an attempt to enjoin the arbitration. Flender contended that its Agreement with Techna-Quip, Inc. had terminated when the corporation dissolved and that the dispute was not arbitrable under the Agreement.
In February of 1988, the district court denied an application by Flender to stay the arbitration. In April of 1988, Flender again moved to enjoin the arbitration, and the court again denied Flender's application. The court then stayed further proceedings until the conclusion of the arbitration and directed the parties to arbitrate.
The parties proceeded with the arbitration. McGuire testified that neither Flender nor any other manufacturer had ever indicated any interest in whether his business was a corporation or some other kind of entity. He also stated that the understanding in the industry is that the representative cannot sell his business to another firm with which the manufacturer is not familiar. "Selling his stock in Techna-Quip, Inc. to a stranger thus would have violated the no-assignment clause, but McGuire's change of the form of his business did not." Appellee's Br. at 9. Flender continued to adhere to its position that the dissolution of Techna-Quip, Inc. terminated the Agreement and rendered the present dispute not subject to arbitration.
On November 4, 1988, the arbitrator issued his award. He found that the contract of February 1, 1984 had been extended for an additional three-year term on February 1, 1987. He rejected Flender's argument that Techna-Quip, Inc.'s dissolution terminated the contract. Instead, the arbitrator found that Flender had "by the words and conduct of its employees agreed that Robert McGuire could succeed" to Techna-Quip, Inc.'s position under the contract. The award ordered Flender to pay McGuire commissions on all sales within the territory through January 31, 1990, and to supply documentation necessary to verify the accuracy of the payment.
The district court confirmed the arbitration award on July 14, 1989, and ordered Flender to produce documents from which commissions could be calculated. Subsequently, based on the parties' agreement, the court entered judgment for damages.
Flender challenges both the district court proceeding that resulted in the direction to the parties to arbitrate their dispute and the arbitrator's award itself.
In challenging the district court proceedings, Flender contends (1) that the district court improperly required the arbitrator to determine whether the dispute was subject to arbitration and (2) that if the district court did decide the issue of arbitrability, it decided it wrongly.
Section 4 of the Arbitration Act governs the proceedings by which a district court may compel arbitration. It states, in pertinent part:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days' notice in writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided by the Federal Rules of Civil Procedure. The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.
Flender is correct in stating that the district court was required to decide whether the dispute was arbitrable. However, his assertion that the district court left the issue to the arbitrator is clearly contradicted by the record. The governing legal principle is, as Flender suggests, clear. As Judge Wood noted in Wilson Wear, Inc. v. United Merchants & Manufacturers, Inc., 713 F.2d 324, 327-28 (7th Cir.1983), the doctrine of severability announced by the Supreme Court in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), requires that the court focus solely on the arbitration clause and determine whether there is an agreement to arbitrate the underlying dispute. If the court determines that the underlying dispute is within the ambit of the arbitration agreement, resolution of that dispute is for the arbitrator. Accord Great Am. Trading Corp. v. I.C.P. Cocoa, Inc., 629 F.2d...
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