Hinson v. JUSCO CO., LTD.

• Decision Date: 04 November 1994
• Docket Number: No. 2:94-1983-18.,2:94-1983-18.
• Citation: 868 F. Supp. 145
• Court: U.S. District Court — District of South Carolina
• Parties: Steve M. HINSON, E. Gwyn Deaver, and Joseph J. Haynes, Plaintiffs, v. JUSCO CO., LTD., a Japanese Corporation; Jusco (U.S.A.), Inc., a Delaware Corporation; Laura Ashley Holdings PLC, a United Kingdom Corporation; Laura Ashley (U.S.A.) Inc., a Delaware Corporation; and Revman Industries Inc., a Delaware Corporation, Defendants.

868 F. Supp. 145

Steve M. HINSON, E. Gwyn Deaver, and Joseph J. Haynes, Plaintiffs, v. JUSCO CO., LTD., a Japanese Corporation; Jusco (U.S.A.), Inc., a Delaware Corporation; Laura Ashley Holdings PLC, a United Kingdom Corporation; Laura Ashley (U.S.A.) Inc., a Delaware Corporation; and Revman Industries Inc., a Delaware Corporation, Defendants.

No. 2:94-1983-18.

United States District Court, D. South Carolina, Charleston Division.

November 4, 1994.

Joseph C. Wilson, IV, Robert H. Hood, Carl E. Pierce, II, Charleston, SC, for plaintiffs.

William C. Cleveland, Thomas S. Tisdale, Jr., Charleston, SC, James E. Lady, Columbia, SC, for defendants.

ORDER

NORTON, District Judge.

This matter is before the court on the September 15, 1994 Motion of Defendants Revman Industries Inc. and Laura Ashley Inc. for a Stay of Proceedings Herein Pending Arbitration. The court held a hearing on this matter on October 31, 1994.

I. BACKGROUND

Plaintiffs were corporate executives with Revman Industries Inc., ("Revman") a New York-based linen company with operations in South Carolina that was formed with the backing of Laura Ashley Holdings PLC ("Laura Ashley-UK") to produce merchandise for Laura Ashley shops. Plaintiffs began their employment with Revman by signing Employment Agreements in August 1988 with Revman's predecessor, Dash Industries Inc. These Employment Agreements, which were drafted by counsel for Laura Ashley-UK, contained arbitration clauses providing that "any controversy or claim arising out of or relating to this Agreement ... shall be settled by binding arbitration in the City of New York in accordance with the Rules of the American Arbitration Association." (Employment Agreement ¶ 12.) The Employment Agreements provided a term of employment from August 15, 1988 through January 31, 1992.

In 1989, Laura Ashley-UK caused its United States subsidiary, Laura Ashley (U.S.A.) Inc. ("Laura Ashley Inc."), to wholly acquire Revman. (Compl. ¶ 13; Defs.' Mem. Supp.Mot.Stay at 6.)

In 1990, Laura Ashley-UK, facing financial difficulties, sought out a Japanese partner to provide cash. In late 1990, JUSCO Co., Ltd. ("JUSCO-Japan") offered to purchase fifteen percent of the equity of Laura Ashley-UK and agreed to have its subsidiary, JUSCO (U.S.A.) Inc. ("JUSCO-USA"), purchase nearly half of Laura Ashley Inc.'s interest in Revman.¹ (Compl. ¶ 16.) At the same time, Revman, at the direction of JUSCO-Japan and Laura Ashley-UK, sold one percent of its shares to each of the Plaintiffs. (Compl. ¶ 17; Defs.'Mem.Supp.Mot.Stay at 6.)

On November 26, 1990, Plaintiffs and Revman executed Amendatory Agreements, which among other things, extended the terms of employment from January 1992 through January 1994, increased each Plaintiff's base salary, and provided for stock and cash bonuses. The Amendatory Agreements did not alter the effect of the arbitration clause in the Employment Agreements.²

At the end of 1993, JUSCO-USA and Laura Ashley Inc., which together owned virtually all Revman shares at the time, were considering a sale of their interests in Revman to various third parties. (Defs.'Mem.Supp.Mot.Stay at 5.) On December 24, 1993, Plaintiffs and Revman executed Change of Control Agreements, which acknowledged the following conditions then in existence: (1) Plaintiffs' terms of employment were to expire on January 29, 1994; (2) Laura Ashley Inc. and JUSCO-USA had decided to sell Revman and were actively seeking a buyer; (3) Plaintiffs' assistance and cooperation were considered necessary; (4) Revman intended to offer Plaintiffs new employment contracts to take effect on January 30, 1994; and (5) Revman wished to provide for Plaintiffs in the event their employment was terminated or their conditions of employment changed adversely in the change of control. (Change of Control Agreement at 1.) The Change of Control Agreements, which were drafted by Laura Ashley-UK, contained no arbitration clause, but specified that the Employment Agreements were "deemed to continue until the earlier of a Change of Control or April 30, 1994."³ (Change of Control Agreement ¶ 8.) The Change of Control Agreements also provided that, in case of conflict, its provisions "supersede the conflicting provisions of the Employment Agreement." (Id. ¶ 12.)

During the early months of 1994, JUSCO-Japan and Laura Ashley-UK sought buyers for their subsidiaries' shares in Revman. Eventually, they agreed that JUSCO-USA would purchase the remaining shares held by Laura Ashley Inc. Defendants allegedly agreed to consummate the transaction without notice to Plaintiffs and without their consent in violation of the Shareholders Agreement.

On April 30, 1994, Plaintiffs' terms of employment ended. Plaintiffs claim this lapse in employment contract terminated their employment under terms that entitle them to stock, cash, and various other termination benefits. In May, they sought bonus shares and severance benefits from Revman, which refused to pay at the direction of the other Defendants. Defendants claim that Plaintiffs' termination occurred under circumstances that excused Revman from paying severance benefits.

Plaintiffs are suing Revman, as well as Laura Ashley Inc.,⁴ Laura Ashley-UK, JUSCO-USA, and JUSCO-Japan for breach of contract, breach of fiduciary duty, interference with contractual relations, conversion, and various other causes of action. JUSCO-Japan, JUSCO-USA, and Laura Ashley-UK assert lack of in personam jurisdiction. Defendants Revman and Laura Ashley Inc. move for a stay of all proceedings pending arbitration of Plaintiffs' claims, pursuant to 9 U.S.C. § 3.⁵ The court postponed the personal jurisdiction motion pending resolution of the arbitration issue.

II. ANALYSIS

The Federal Arbitration Act provides:

If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

9 U.S.C. § 3. The plain words of this section mandate that arbitrability "be decided on an issue-by-issue basis, without regard to the way that the issues are grouped into claims." Summer Rain v. Donning Co./Publishers, 964 F.2d 1455, 1460-61 (4th Cir.1992).

Defendants argue that Plaintiffs' basic dispute is arbitrable and that their assertion of thirteen causes of action against five defendants is designed to conceal the arbitrable nature of the dispute. The gist of the Complaint, Defendants argue, is that Defendants deprived Plaintiffs of rights to which they were entitled under their Employment Agreements. Thus, the claims "arise out of" or "relate to" the Agreements and are subject to the Agreement's arbitration clause.

Plaintiffs claim that the arbitration clause in the Employment Agreements cannot govern this dispute, because (1) these claims arise under a separate contract after the Employment Agreements ended, and (2) the claims are outside the scope of the arbitration clause, even if the clause were held to have survived the expiration of the Employment Agreements. (Pls.'Mem.Opp.Mot.Stay at 14.)

The court is guided in determining the arbitrability of this dispute by a congressional policy favoring liberal construction of arbitration agreements. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). "Questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.... The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability." Id. at 24-25, 103 S.Ct. at 941.

A court asked to stay litigation pending compulsory arbitration must engage in a four-step inquiry:

First, it must determine whether the parties agreed to arbitrate; second, it must determine the scope of that agreement; third, if federal statutory claims are asserted, it must consider whether Congress intended those claims to be non-arbitrable; and fourth, if the court concludes that some, but not all, of the claims in the case are arbitrable, it must then determine whether to stay the balance of the proceedings pending arbitration.

Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 844 (2d Cir.1987).

Applying the first prong of the test, it is clear from the face of the Employment Agreements that the parties agreed to arbitrate. What is less clear is the scope of that agreement. Plaintiffs argue that this dispute arises out of the Change of Control Agreements and the Shareholders Agreements, but not out of the Employment Agreements. Plaintiffs say the arbitration clause in the Employment Agreements cannot govern issues that arise strictly from these subsequent contracts. This court disagrees with Plaintiffs' framing of the dispute. Plaintiffs' relationships with Revman were founded on the Employment Agreements. The Change of Control Agreements, which Plaintiffs want to govern this dispute, were not meant to displace the Employment Agreements, but rather to supplement them with additional benefits. By the very terms of the Change of Control Agreements, the Employment Agreements remained in effect until the earlier of April 30, 1994 or a change of control, which in fact occurred after April 30, 1994.

Plaintiffs make much ado about Paragraph 12 of the Change of Control Agreements, which provides: "In case of conflict, the provisions of this...