Johnson v. Polaris Sales, Inc.

• Decision Date: 04 April 2003
• Docket Number: No. 02-CV-185-B-S.,02-CV-185-B-S.
• Parties: Gregory W. JOHNSON, et al., Plaintiffs v. POLARIS SALES, INC., et al., Defendants
• Court: U.S. District Court — District of Maine

257 F.Supp.2d 300

Gregory W. JOHNSON, et al., Plaintiffs v. POLARIS SALES, INC., et al., Defendants

No. 02-CV-185-B-S.

United States District Court, D. Maine.

April 4, 2003.

COPYRIGHT MATERIAL OMITTED

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Daniel J. Bernier, Phillips & Bernier LLC, Waterville, ME, for Plaintiffs.

Timothy C. Woodcock, Weatherbee, Woodcock, Burlock & Woodcock, Bangor, ME, for Defendants.

ORDER

SINGAL, Chief Judge.

A dealer of all terrain vehicles ("ATVs"), snowmobiles and watercraft sued the manufacturer and distributor of those products to recover damages resulting from alleged misrepresentations and various equitable and contractual harms. Presently before the Court is Defendants' Combined Motion to Dismiss and to Compel Arbitration (Docket # 5). For the following reasons, the Court GRANTS Defendants' Motion.

I. BACKGROUND

Plaintiff Johnson Marine & Rec., Inc. ("Johnson Marine"), formerly known as Johnson's Power, Inc., is a Maine corporation with its principal place of business in Pembroke, Maine. Plaintiffs Kimberly¹ and Gregory Johnson are the owners and operators of Johnson Marine. Defendant Polaris Industries, Inc. ("Polaris Industries"), a Minnesota corporation with its principal place of business in Minneapolis Minnesota, manufactures personal sporting craft. Defendant Polaris Sales, Inc. ("Polaris Sales"), also a Minnesota Corporation with its principal place of business in Minneapolis, Minnesota, markets and distributes Polaris products.

Beginning in the early 1990's, Johnson Marine and Polaris Industries entered into a series of annual agreements authorizing Plaintiffs to sell Polaris products. The parties last contracted for the period spanning April 1, 1998 to March 31, 1999 ("Dealer Agreement" or "Agreement"). Under the terms of the 1998-1999 Dealer Agreement, Polaris Industries agreed to sell Polaris snowmobiles, ATVs and watercraft along with related parts, accessories, oil and clothing to Johnson Marine. Johnson Marine, in turn, agreed to purchase Polaris products and sell them to consumers subject to numerous additional obligations, including warranty and servicing provisions, financing arrangements and advertising requirements. Also included in the Dealer Agreement was an arbitration clause.² Although the Agreement expired by its terms on March 31, 1999, Plaintiffs continued to sell products on behalf of Polaris Industries until September of 2000.

Sometime in 1998 Johnson Marine's business began to decline. In light of Pembroke's proximity to the Canadian border, Plaintiffs contend that Johnson Marine sales suffered because Canadian dealers sold Polaris products to American customers at Canadian prices. According to Plaintiffs, Defendants made a number of representations between November 1998 and April 2000 that they would not permit the cross-border sales to continue. Defendants allegedly sought to curb this practice by fining Canadian dealers who sold to American consumers and paying a portion of this money to American dealers who reported the unauthorized sales. Plaintiffs contend that Johnson Marine purchased additional Polaris products in reliance upon these representations and was ultimately driven out of business when sales continued to decline due to unchecked cross-border competition.

As a result of these events, Plaintiffs brought suit in Superior Court for Washington County on October 8, 2002, alleging various contractual, equitable, statutory and common law tort claims against Defendants. Defendants removed the action to this Court on November 27, 2002 pursuant to 28 U.S.C. § 1441 (1994) (Docket # 1). Defendants presently seek to compel arbitration on all of Plaintiffs' claims and dismiss or, alternatively, stay the action pending arbitration pursuant to the terms of the Dealer Agreement (Docket #5).

II. DISCUSSION

The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., embodies a "strong policy in favor of rigorously enforcing arbitration agreements." KKW Enters., Inc. v. Gloria Jean's Gourmet Coffees Franchising Corp., 184 F.3d 42, 49 (1st Cir.1999) (citing Perry v. Thomas, 482 U.S. 483, 490, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987)). Section 4 of the Act provides that 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 ... for an order directing that such arbitration proceed in the manner provided for in such agreement."³ 9 U.S.C. § 4 (1999). Arbitration remains a matter of contract, however, and "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, ___, 123 S.Ct. 588, 591, 154 L.Ed.2d 491 (2002) (quoting United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960)) (internal quotations omitted).

"[A] gateway dispute about whether the parties are bound by a given arbitration clause raises a `question of arbitrability' for the court to decide." Howsam, 537 U.S. at ___, 123 S.Ct. at 592. Thus, a court must decide all questions of "arbitrability" before the parties can proceed to arbitration of the underlying dispute. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995); AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986). However, judicial determination of arbitrability may be circumvented through contract. First Options, 514 U.S. at 949, 115 S.Ct. 1920; AT & T, 475 U.S. at 649, 106 S.Ct. 1415. If the contracting parties provide clear and unmistakable evidence of an intent to arbitrate arbitrability, such threshold determinations are removed from the province of the court. First Options, 514 U.S. at 949, 115 S.Ct. 1920; AT & T, 475 U.S. at 649, 106 S.Ct. 1415. Courts apply state law principles of contract formation when determining whether the parties are bound by an arbitration clause. First Options, 514 U.S. at 944, 115 S.Ct. 1920; Sleeper Farms v. Agway, Inc., 211 F.Supp.2d 197, 200 (D.Me.2002). Here, the parties have specified that Minnesota law governs the interpretation of the Dealer Agreement.⁴ See Agt. at § 20(D).

Arbitrability questions are generally of two types. An arbitrability issue arises where the parties to a contract dispute the existence of a valid arbitration agreement or the substantive scope of that agreement. See Javitch v. First Union Sees., Inc., 315 F.3d 619, 624 (6th Cir. 2003); Me. Sch. Admin. Dist. Number 68 v. Johnson Controls, Inc., 222 F.Supp.2d 50, 53 (D.Me.2002). In the present case the parties dispute both the existence of the Dealer Agreement and whether the Canadian dealer dispute falls within the reach of the Agreement's arbitration clause. Thus, the Court must resolve two arbitrability questions before compelling arbitration under Section 4:(1) whether a valid arbitration agreement exists; and (2) whether the parties have agreed to arbitrate the present dispute.

A. Existence of an Arbitration Agreement

Plaintiffs maintain that Gregory and Kim Johnson did not sign the Dealer Agreement and thus cannot be bound by its terms. Additionally, they assert that Defendant Polaris Sales is not a signatory to the Agreement. Thus, Plaintiffs contest the viability or existence of an agreement to arbitrate as between Defendant Polaris Sales and all Plaintiffs and as between Defendants and Gregory and Kim Johnson.⁵ The existence of a written agreement to arbitrate between the parties is a prerequisite to the compulsion of arbitration under the FAA.⁶ 9 U.S.C. § 4 (1999); MCI Telecomms. Corp. v. Exalon Indus., Inc., 138 F.3d 426, 429-30 (1st Cir.1998); Sleeper Farms, 211 F.Supp.2d at 200. Accordingly, the Court must first address the merits of Plaintiffs' nonsignatory arguments before considering the scope of the Dealer Agreement arbitration clause.

Although the FAA requires a preexisting agreement to arbitrate, the Act does not require that every party personally sign the written arbitration provision. McCarthy v. Azure, 22 F.3d 351, 355-56 (1st Cir.1994). Nonsignatories may be obligated by or benefit from arbitration agreements signed by others under principles of contract or agency law. Id. at 356. In the instant case, two theories of equitable estoppel are relevant to determining whether the nonsignatory parties are bound by the Agreement. See E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187, 199 (3d Cir.2001) (discussing two theories of equitable estoppel); Mag Portfolio Consult, Gmbh v. Merlin Biomed Group Llc, 268 F.3d 58, 61-62 (2d Cir. 2001) (same).

The first theory addresses Defendant Polaris Sales' nonsignatory status. "[A] court will `estop a signatory from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement that the estopped party has signed,' and the signatory and nonsignatory parties share a close relationship."⁷ MAG Portfolio, 268 F.3d at 62 (citing Thomson-CSF, S.A. v. Am. Arbitration Ass'n, 64 F.3d 773, 779 (2d Cir.1995)); see also Choctaw Generation L.P. v. Am. Home Assurance Co., 271 F.3d 403, 406 (2d Cir.2001). Here, the Court considers Polaris Sales' close affiliation with the signatory Defendant, Polaris Industries, Polaris Sales' marketing and sales relationship with the signatory Plaintiff under the terms of the Dealer Agreement as well as the inseparable nature of the allegations directed at Defendants. In light of these facts, the Court finds that Polaris Sales may seek to compel arbitration of signatory Johnson Marine despite its nonsignatory status. See Simitar Entm't, Inc. v. Silva-Simitar Entm't, Inc., 44 F.Supp.2d 986, 993 n. 5 (D.Minn.1999) (finding a nonsignatory entitled to compel arbitration).

The second theory is relevant to signatory Polaris Industries' efforts to compel...