Nestle Waters North America, Inc. v. Bollman

• Decision Date: 12 October 2007
• Docket Number: No. 07-1031.,07-1031.
• Citation: 505 F.3d 498
• Parties: NESTLE WATERS NORTH AMERICA, INC., Plaintiff-Appellant, v. Donald P. BOLLMAN and Nancy G. Bollman, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

505 F.3d 498

NESTLE WATERS NORTH AMERICA, INC., Plaintiff-Appellant, v. Donald P. BOLLMAN and Nancy G. Bollman, Defendants-Appellees.

No. 07-1031.

United States Court of Appeals, Sixth Circuit.

Argued: September 10, 2007.

Decided and Filed: October 12, 2007.

ARGUED: Adam H. Charnes, Kilpatrick Stockton, Winston-Salem, North Carolina, for Appellant. Jon R. Muth, Miller Johnson, Grand Rapids, Michigan, for Appellees. ON BRIEF: Adam H. Charnes, Kilpatrick Stockton, Winston-Salem,

North Carolina, John M. DeVries, Douglas A. Donnell, Fredric N. Goldberg, Mika, Meyers, Beckett & Jones, Grand Rapids, Michigan, for Appellant. Jon R. Muth, Monica C. Inhulsen, Miller Johnson, Grand Rapids, Michigan, for Appellees.

Before: BOGGS, Chief Judge; and MARTIN and SUTTON, Circuit Judges.

OPINION

BOGGS, Chief Judge.

Nestle Waters North America, Inc. ("Nestle") appeals from the district court's dismissal of its claims against Donald and Nancy Bollman ("the Bollmans"). Nestle had sought declaratory and injunctive relief regarding its rights to certain subsurface waters that the Bollmans had deeded to it. Notably, the deed in question was silent regarding arbitration. In response, the Bollmans contended that the dispute fell within the scope of an arbitration clause that the parties had included in the initial contract that established their business relationship. Although questions regarding the scope of arbitration clauses are familiar, the question of whether and when an arbitration clause in one contract encompasses a dispute arising out of a related agreement is less common in our case law. In the present case, we conclude that the parties intended that the arbitration clause in the contract establishing and defining their relationship should govern the present dispute; therefore, we affirm the judgment of the district court.

I

The Bollmans own approximately 868 acres of real property in Mecosta County, Michigan, which contains several fresh water springs and an aquifer. On December 21, 2000, Nestle and the Bollmans signed a Purchase and Sale Agreement (PSA), in which Nestle agreed to purchase certain property rights from the Bollmans. The PSA divided the 868 acres into two parts: the Sanctuary and the Property. In exchange for consideration of $5 million, the Bollmans would: (1) deed certain subsurface intervals beneath the Property and all of the water rights related to the Property to Nestle as specified in a Subsurface and Water Rights Deed (the "Deed") and lease the Property to Nestle under specified terms (the "Lease"), (2) grant Nestle easements of ingress to and egress from the Property across the Sanctuary and rights of way necessary for Nestle to use the Property (the "Easement"), and (3) enter into Land Use Restriction Agreements setting forth restrictions on land use with respect to both the Property and the Sanctuary. The form of each of these documents was attached to the PSA as an exhibit and "made a part" of the PSA. Following the execution of the PSA, the parties executed the Deed, Lease, Easement, and Land Use Restriction Agreements as required, and Nestle began drilling and pumping water.

Later, the Bollmans and Nestle began to disagree regarding the permissibility of Nestle's pumping. The Bollmans presented Nestle with a copy of a Petition for Arbitration that the Bollmans intended to file with the American Arbitration Association. In their draft petition, the Bollmans characterized their dispute as "arising out of" the PSA. The Bollmans asserted that the Deed conveyed to Nestle rights to "water from any and all water sources" on the Property and that Nestle "had determined that the original well locations were inadequate to produce the gallons per minute it desired." Nestle then drilled an additional well, which resulted in the "groundwater zone of contribution" and "surface area contributing to the zone of contribution" both extending off the Property to the east. In other words, the additional well drew from "not only sources on the Property, but also from water sources on the Sanctuary to the east which, but for the pumping, would never flow beneath the Property or vent from springs on the Property." Asserting that Nestle's ability to pump out subsurface water under the Sanctuary amounted to acquisition of "property rights for which [Nestle] did not bargain or pay," the Bollmans' draft petition sought a declaration that Nestle was limited to water sources that would naturally "vent from springs on the Property." There is no indication that the Bollmans actually filed the Petition for Arbitration.

As the Bollmans indicated in their draft Petition for Arbitration, the PSA contains an arbitration clause. The clause states that "any controversy or claim (`Dispute') arising out of this Agreement between PBE and GSWA (`Disputing Parties'), which cannot otherwise be resolved by the Disputing Parties themselves, shall be settled by arbitration by a neutral arbitrator mutually acceptable to PBE and GSWA...."¹ The arbitration clause further specifies both the procedure for selecting the arbitrator and the substantive qualifications that the arbitrator should possess, including at least fifteen years experience practicing law, "with expertise in water utility operations, water rights, and the process of deciding disputes and interpreting real estate contracts."

By contrast, the other documents vary significantly regarding arbitration. The Deed does not include an arbitration clause. The Lease includes the same detailed arbitration clause as the PSA. The Easement does not include an arbitration clause. The Land Use Restriction Agreements for the Sanctuary and Property contain identical arbitration clauses, stating that "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach of this Agreement, shall be settled by arbitration in Grand Rapids, Michigan[,] in accordance with the Rules of Arbitration of the American Arbitration Association...." Unlike the PSA's arbitration clause, the Land Use Restriction Agreements' arbitration clauses do not specify the qualifications of the arbitrator or provide the same level of detail as the PSA arbitration clause.

On August 11, 2006, Nestle filed its declaratory judgment action after receiving the Bollmans' draft Petition for Arbitration. In its complaint, Nestle argued that the Bollmans' allegations contradicted the plain language of the broad grant of rights contained in the Deed, which Nestle attached to its complaint.² Accordingly, Nestle sought a declaration that the Bollmans' claims lacked merit and an injunction preventing the Bollmans from interfering with Nestle's rights to continue withdrawing water. Nestle's complaint did not refer to the PSA or any of the other agreements.

The Bollmans moved to dismiss Nestle's complaint or, in the alternative, to stay the action and compel arbitration. After briefing, but without a hearing, the district court found that the dispute fell within the scope of the arbitration clause in the PSA and granted the motion to dismiss. Nestle filed a timely notice of appeal.

II

A district court's decision whether to compel arbitration under the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., is reviewed de novo. Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir.2003). Similarly, the district court's decisions regarding the arbitrability of a particular dispute are reviewed de novo. McMullen v. Meijer, Inc., 355 F.3d 485, 489 (6th Cir.2004).

III

Before compelling arbitration, a court must determine whether a dispute is arbitrable, "meaning that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of the agreement." Javitch, 315 F.3d at 624; see Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 85, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002); AT & T Techs. v. Commc'ns Workers, 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); United Steelworkers v. Saint Gobain Ceramics & Plastics, Inc., No. 05-6851, 505 F.3d 417, 2007 WL 2827583, at *1 (6th Cir. Oct.2, 2007) (en banc). In this case, neither the validity of the arbitration clause in the PSA nor the application of the FAA is disputed. Rather, the sole issue is whether Nestle's action for declaratory judgment is within the scope of the PSA's arbitration clause. Although it is a close question because both parties' arguments rely on controlling principles of contract and arbitration law, we conclude that the action is within the scope of the arbitration clause.

This appeal presents two issues. The first issue is whether Nestle's claim arises primarily out of the Deed or the PSA. If Nestle's claim arises primarily out of the PSA, then the arbitration clause in the PSA obviously applies. If it arises primarily out of the Deed, as the district court found, then the second issue is whether the arbitration clause nevertheless encompasses the dispute.

A. The Basis of the Dispute

Although the Bollmans' arguments in their draft Petition for Arbitration and, to a lesser extent, the arguments in Nestle's district court complaint, range beyond the Deed, the only dispute before the district court was the claim presented in Nestle's complaint. The district court correctly found that although "the complaint seeks a declaration that is broader than the claim based on the Deed, the allegations in the complaint are limited to the Deed." Although there is no case law squarely on point, the district court's finding comports with the traditional notion that a plaintiff is master of his claim.

In their draft petition, the Bollmans asserted that the Deed limits Nestle to extraction and consumption of "water from any and all water sources" on the Property. Although "water sources" is nowhere defined in any of the documents, the Bollmans looked to the use of the term in the PSA, Lease, and Land Use Restriction Agreements as evidence of the allegedly restrictive meaning of the term....