Personal Sec. & Safety Systems v. Motorola Inc.

• Decision Date: 01 July 2002
• Docket Number: No. 01-11040.,01-11040.
• Citation: 297 F.3d 388
• Parties: PERSONAL SECURITY & SAFETY SYSTEMS INC.; Richard R. Jaffe, Plaintiffs-Appellees, v. MOTOROLA INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

297 F.3d 388

PERSONAL SECURITY & SAFETY SYSTEMS INC.; Richard R. Jaffe, Plaintiffs-Appellees, v. MOTOROLA INC., Defendant-Appellant.

No. 01-11040.

United States Court of Appeals, Fifth Circuit.

July 1, 2002.

Eric William Buether (argued), Christopher M. Joe, McKool Smith, Dallas, TX, for Plaintiffs-Appellees.

W. Wendell Hall, Fulbright & Jaworski, San Antonio, TX, Brett Christopher Govett (argued), Fulbright & Jaworski, Dallas, TX, for Defendant-Appellant.

Appeal from the United States District Court for the Northern District of Texas.

Before JOLLY, JONES and BARKSDALE, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Motorola, Inc. appeals the district court's denial of its motion to compel arbitration of claims raised by Personal Security and Safety Systems, Inc. ("PSSI"). In 2000, PSSI filed suit against Motorola alleging that Motorola breached a stock purchase agreement with PSSI and made fraudulent misrepresentations during the negotiations leading up to the agreement. Although the stock purchase agreement did not include an arbitration clause, Motorola moved to compel arbitration based on a provision in a licensing agreement that was executed alongside the stock purchase agreement as part of a broader contractual arrangement. The district court initially granted Motorola's motion, but it later reconsidered its decision and denied the motion.

The central issue in this appeal is whether PSSI's claims under the stock purchase agreement fall within the scope of the broad arbitration provision in the licensing agreement. We hold that the licensing agreement's arbitration provision governs claims arising out of the stock purchase agreement because the agreements were executed together as part of the same overall transaction and therefore are properly construed together. We further hold that a forum selection clause in the stock purchase agreement does not operate to preclude arbitration of claims arising out of that agreement. Accordingly, we reverse the district court's denial of Motorola's motion to compel arbitration and remand to the district court for entry of an order staying the litigation and requiring the parties to submit their dispute to binding arbitration.

I

The underlying dispute in this case stems from Motorola's abortive strategic investment in PSSI. Before its demise in 1999, PSSI was a small start-up company engaged in the development and sale of specialized security systems — primarily a "Personal 911 System" that allowed individuals to summon help from within a limited geographic area by means of a wireless communications device. Although it had made substantial progress in developing the technology for the Personal 911 System by 1997, PSSI did not have sufficient capital to complete development of the system or to install the system at customer sites. At about the same time, Motorola was in the process of developing a similar localized security system for use in the hospitality industry, but its technology was significantly less developed than PSSI's technology.

Seeing an opportunity for collaboration, Motorola initiated discussions with PSSI in June 1997 concerning a possible investment in PSSI that would give Motorola access to PSSI's technology. On December 17, 1997, PSSI and Motorola executed three agreements in connection with this investment: a Stock Purchase Agreement, a Product Development and License Agreement, and a Shareholders Agreement. Each of these agreements played a particular role in the overall transaction.

Under the Stock Purchase Agreement, Motorola agreed to provide twelve million dollars in financing in return for a convertible debenture and a nine percent equity stake in PSSI. The financing was to come in three parts. First, Motorola paid PSSI one million dollars in cash and forgave a one million dollar interim loan that it had provided to PSSI during the negotiations. Second, Motorola loaned PSSI five million dollars to finance the development of the existing Personal 911 System. Third, Motorola agreed to provide up to five million dollars to finance the installation of the existing Personal 911 System at customer sites once PSSI secured purchase contracts for the system.

Under the Product Development Agreement, the parties agreed to collaborate on the development of new communications technologies based on the existing PSSI system. The Product Development Agreement also defines in detail the parties' respective rights to existing intellectual property and to any new, jointly-developed intellectual property. The Shareholders Agreement, which is not directly at issue in this litigation, defines shareholder rights.

In May 1999, PSSI completed development of its Personal 911 System, and several customers committed to purchase the system. Relying on the terms of the Stock Purchase Agreement, PSSI asked Motorola to provide it with financing to install the system at the customer sites. When Motorola refused to disburse the requested funds, PSSI filed a complaint in federal district court alleging that (1) Motorola's refusal to provide financing constituted a breach of the Stock Purchase Agreement and (2) Motorola made fraudulent representations during negotiations to induce PSSI to enter into the agreement. Invoking the arbitration provision in the Product Development Agreement, Motorola filed a motion to stay the proceedings and to compel arbitration.¹ The district court ultimately denied Motorola's motion, and Motorola now appeals pursuant to 9 U.S.C. § 16.² The proceedings in the district court have been stayed pending the appeal.

II

The primary issue in this appeal is whether the arbitration provision in the Product Development Agreement applies to PSSI's claims arising under the Stock Purchase Agreement. Motorola argues that PSSI's claims fall within the broad scope of the arbitration provision because the Stock Purchase Agreement and the Product Development Agreement were executed together as part of the same transaction and therefore must be construed together. PSSI responds that the two agreements are independent, freestanding contracts. Because PSSI's claims rely solely on the Stock Purchase Agreement and because the arbitration provision in the Product Development Agreement does not expressly apply to claims arising under other agreements, PSSI maintains that the arbitration provision does not reach claims under the Stock Purchase Agreement. Instead, PSSI argues that the forum selection clause in the Stock Purchase Agreement controls, and the claims stated in its complaint must be litigated in a court located in Texas.

The district court agreed with PSSI and denied Motorola's motion to compel arbitration. We review de novo the district court's denial of a motion to compel arbitration. See OPE Int'l LP v Chet Morrison Contractors, Inc., 258 F.3d 443, 445 (5th Cir.2001).

A

We begin our inquiry by outlining the basic principles that inform federal law in this area. The Supreme Court has made it clear that the Federal Arbitration Act, 9 U.S.C. § 3, establishes a "liberal policy favoring arbitration" and a "strong federal policy in favor of enforcing arbitration agreements." Texaco Exploration and Prod. Co. v. AmClyde Engineered Prod. Co., Inc., 243 F.3d 906, 909 (5th Cir.2001) (citations and internal quotation marks omitted). Of course, this general policy is not without limits. Because arbitration is necessarily a matter of contract, courts may require a party to submit a dispute to arbitration only if the party has expressly agreed to do so. See AT&T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); see also Volt Info. Sciences, Inc. v. Bd. of Trustees, 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) ("[The FAA] simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.").

To ascertain whether the parties have agreed to arbitrate a particular claim, we must determine: "(1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement." OPE Int'l, 258 F.3d at 445 (citations and internal quotation marks omitted). In view of the policy favoring arbitration, we ordinarily "resolve doubts concerning the scope of coverage of an arbitration clause in favor of arbitration." Neal v. Hardee's Food Systems, Inc., 918 F.2d 34, 37 (5th Cir.1990); see also Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (same). As a consequence, a valid agreement to arbitrate applies "unless it can be said with positive assurance that [the] arbitration clause is not susceptible of an interpretation which would cover the dispute at issue." Neal, 918 F.2d at 37 (internal citations and quotation marks omitted). With these principles in mind, we now turn to the arbitration provision in this case.

B

Motorola and PSSI agree that the Product Development Agreement contains a valid arbitration provision and that there are no external constraints that preclude arbitration of PSSI's claims. Thus, the central question is whether the arbitration provision covers the claims — arising solely out of the Stock Purchase Agreement — alleged in PSSI's amended complaint. Stated in terms of the applicable caselaw, the question is whether we can say "with positive assurance" that the arbitration provision in the Product Development Agreement is not susceptible of an interpretation that would cover those claims.

We start, as always, with the language of the arbitration provision itself. Paragraph 14.2 of the Product Development Agreement provides, in relevant part:

[T]he parties hereby agree to resolve by binding arbitration any and all claims, demands, actions, disputes, controversies, damages, losses, liabilities, judgments, payments of interest, penalties, enforcement of settlement agreements,...