Rcm Technologies, Inc. v. Brignik Technology, Inc.

• Decision Date: 19 March 2001
• Docket Number: No. CIV. A. 00-2951(SSB).,CIV. A. 00-2951(SSB).
• Citation: 137 F.Supp.2d 550
• Parties: RCM TECHNOLOGIES, INC., Plaintiff, v. BRIGNIK TECHNOLOGY, INC., Stephen P. Blatnik, and Brigitte O'Brien, Defendants.
• Court: New Jersey Supreme Court

137 F.Supp.2d 550

RCM TECHNOLOGIES, INC., Plaintiff, v. BRIGNIK TECHNOLOGY, INC., Stephen P. Blatnik, and Brigitte O'Brien, Defendants.

No. CIV. A. 00-2951(SSB).

United States District Court, D. New Jersey.

March 19, 2001.

Steven Kudatzky, Helen Heifets, Bazelon Less & Feldman, P.C., Marlton, NJ, for Plaintiff.

Henry M. Price, Lowenstein Sandler, P.C., Roseland, NJ, Timothy D. Kelly, Jennifer L. Frisch, Kelly & Berens, P.A., Minneapolis, MN, Attorneys for Defendants.

OPINION ON MOTION TO COMPEL ARBITRATION

BROTMAN, District Judge.

Plaintiff brought claims of breach of contract, fraud, unjust enrichment, and negligent misrepresentation against Defendants in the Superior Court of New Jersey. After removing the case on the basis of diversity of citizenship, Defendants ask this Court to compel arbitration and stay the legal proceeding. For the reasons stated below, Defendants' motion will be granted.

I. FACTUAL BACKGROUND

This dispute arose out of the 1998 sale of Defendant Brignik Technology, Inc. ("BTI"), a computer consulting firm, to Plaintiff RCM Technologies, Inc. (RCM). On September 15, 1998, Defendants Stephen Blatnik and Brigitte O'Brien, BTI's owners, entered into an asset purchase agreement whereby RCM agreed to buy BTI for $6 million. RCM paid $3 million of the purchase price up front. The remaining $3 million was subject to certain post-closing adjustments, based on performance targets set forth in the purchase agreement, and payment was to be deferred to one year after closing.

Two provisions of the purchase agreement are at issue here. First, in paragraph 5.23 of the agreement, BTI represented that its closing net operating income ("CNOI") was not less than $1.1 million. Second, in paragraph 10 of the agreement, the parties agreed to submit to mandatory and binding arbitration any dispute that "arises as to interpretation of this Agreement."

Defendants requested payment of the deferred consideration on October 6, 1999. The next month, RCM responded that it had doubts about whether the CNOI was in fact $1.1 million or greater and that it intended to conduct an audit. RCM also stated that it would withhold the deferred consideration until the matter was resolved. On April 21, 2000, BTI served an arbitration claim on RCM. RCM filed the instant complaint on May 12, 2000.

II. DISCUSSION

A. Legal Standard

Section 2 of the Federal Arbitration Act ("FAA") states:

A written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such a contract ..., or the refusal to perform the whole or any part thereof, ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

9 U.S.C. § 2. This section is a "congressional declaration of a liberal federal policy favoring 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). FAA § 4 enables a litigant to petition a federal district court to force a reluctant party into arbitration, provided the court would otherwise have jurisdiction over the controversy. 9 U.S.C. § 4. Finally, FAA § 3 authorizes the court to stay the legal proceeding once it has compelled arbitration. 9 U.S.C. § 3.

As a matter of contract, no party can be forced to arbitrate a dispute unless that party has entered into an agreement to do so. AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986). FAA § 4 therefore requires that, before compelling an unwilling party to arbitrate, the court engage in a limited review to ensure that the parties' dispute is arbitrable — i.e., that a valid agreement to arbitrate exists and that the specific dispute falls within the substantive scope of that agreement. Id. at 649, 106 S.Ct. at 1418-19; PaineWebber Inc. v. Hartmann, 921 F.2d 507, 510 (3d Cir. 1990).

In light of the federal policy favoring arbitration agreements, "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." Moses H. Cone, 460 U.S. at 24, 103 S.Ct. at 941. Thus, there is a presumption of arbitrability "in the sense that `[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" AT & T Technologies, 475 U.S. at 650, 106 S.Ct. at 1419 (quoting Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960)). Nevertheless, while "[g]enuine interpretive disputes" should be resolved in favor of arbitrability, "a compelling case for nonarbitrability should not be trumped by a flicker of interpretive doubt." Hartmann, 921 F.2d at 512-13.

In assessing whether a dispute falls within the scope of an arbitration clause, the court's focus "is on the `factual allegations in the complaint rather than the legal causes of action asserted.'" Mutual Benefit Life Ins. Co. v. Zimmerman, 783 F.Supp. 853, 868 (D.N.J.1992) (quoting Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir.1987)); see also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 622 n. 9, 105 S.Ct. 3346, 3351 n. 9, 87 L.Ed.2d 444 (1985). "If the allegations of the complaint involve matters covered by the parties' underlying agreement, the claims must be arbitrated, regardless of the legal labels ascribed to the claims." Zimmerman, 783 F.Supp. at 868.

In this case, the parties do not contest that a valid arbitration agreement exists between them. The sole issue before the Court is whether it may say with "positive assurance" that Plaintiff's claims fall outside the scope of that agreement. The parties have chosen to analyze separately the fraudulent inducement claims (fraud and negligent misrepresentation) and the unjust enrichment claim, and the Court will do the same. Thereafter the disposition of the breach of contract claim must also be determined.

B. Fraud and Negligent Misrepresentation Claims

Defendants rely on Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), for the proposition that claims of fraud in the inducement of a contract are subject to arbitration. In Prima Paint, the Supreme Court construed a portion of FAA § 4, which reads, in relevant part:

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.

9 U.S.C. § 4. The Court interpreted this provision to mean that "if the claim is fraud in the inducement of the contract itself ... the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of contracts generally." Prima Paint, 388 U.S. at 403-04, 87 S.Ct. at 1806. Defendants contend that this pronouncement mandates arbitration of Plaintiff's fraud and negligent misrepresentation claims, since Plaintiff does not allege fraud in the inducement specific to the arbitration clause.

The rule of Prima Paint is of limited application, however. The contract in that case contained a clause providing for arbitration of "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof." Id. at 398, 87 S.Ct. at 1803. In contrast to that broad provision, the clause at issue in this case provides only for arbitration of disputes that "arise[] as to interpretation" of the contract. Courts have consistently drawn a distinction between "narrow" clauses covering disputes "arising under" a contract and "broad" clauses covering disputes "arising under" as well as "relating to" the agreement. See, e.g., Pennzoil Exploration & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir.1998); Mediterranean Enters. v. Ssangyong Corp., 708 F.2d 1458, 1463-64 (9th Cir.1983); Carro v. Parade of Toys, Inc., 950 F.Supp. 449, 453 (D.P.R.1996); Michele Amoruso E Figli v. Fisheries Dev. Corp., 499 F.Supp. 1074, 1080 (S.D.N.Y.1980).¹ The Court in Prima Paint held that in the case of a broad clause, FAA § 4 mandates that allegations of fraud in the inducement of the entire contract be decided by arbitrators, not a court. Carro, 950 F.Supp. at 453. But Prima Paint does not require arbitration of a fraudulent inducement claim where parties have specifically ruled out such a result by agreeing to a narrow arbitration clause. See id.; Figli, 499 F.Supp. at 1080. The limited nature of the Prima Paint holding is consistent with the language of FAA § 4 and evident, albeit not explicit, in the Supreme Court's analysis. Section 4 mandates court-ordered arbitration only to the extent that it is "in accordance with the terms of the agreement." 9 U.S.C. § 4; Prima Paint, 388 U.S. at 404 n. 11, 87 S.Ct. at 1806 n. 11. Accordingly, after construing FAA § 4, the Court also reviewed the arbitration clause and determined that it was broad enough to encompass a fraudulent inducement claim. See Prima Paint, 388 U.S. at 406, 87 S.Ct. at 1807. Because the arbitration clause at issue here is substantially narrower than the clause in Prima Paint, the Court declines to compel arbitration of the fraudulent inducement claims on the basis of that case.

Taking a different tack, Plaintiff argues that the instant arbitration clause is at least as narrow as clauses in several cases in which courts deemed fraudulent inducement claims inarbitrable. See Midwest Window Sys. v. Amcor Indus., Inc., 630 F.2d 535, 535 (7th Cir.1980) (...