Rosenblum v. Travelbyus.Com Ltd.
| Decision Date | 06 August 2002 |
| Docket Number | No. 01-4272.,01-4272. |
| Citation | 299 F.3d 657 |
| Parties | Michael H. ROSENBLUM, Plaintiff-Appellant, v. TRAVELBYUS.COM LIMITED, a foreign corporation, Travelbyus Incorporated, a foreign corporation, and Bill Kerby, a foreign citizen, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Kenneth J. Merlino (argued), Power, Rogers & Smith, Chicago, IL, for Plaintiff-Appellant.
Matthew S. Miller (argued), Romanyak & Associates, Chicago, IL, Richard J. Prendergast, Chicago, IL, for Defendants-Appellees.
Before RIPPLE, DIANE P. WOOD and EVANS, Circuit Judges.
Michael H. Rosenblum sold his travel publication business to Travelbyus.com in July 2000. Under the terms of an employment agreement executed at the time of the sale, Mr. Rosenblum continued to work at his former company. The agreement governing the sale required that a payment be made in December 2000. When that payment was not made, Mr. Rosenblum brought this action against Travelbyus.com, Ltd., Travelbyus.com, Inc. and Bill Kerby (collectively "Travelbyus")1 for breach of contract and fraud. The district court determined that this dispute was governed by an arbitration clause in the employment agreement and granted Travelbyus' Rule 12(b)(6) motion to dismiss. Mr. Rosenblum now appeals from that dismissal. He submits that the arbitration clause in the employment agreement does not govern this dispute because the disagreement arose solely under the acquisition agreement governing the purchase and sale of Mr. Rosenblum's business. For the reasons set forth in the following opinion, we reverse the judgment of the district court and remand this case for proceedings consistent with this opinion.
Michael H. Rosenblum was the principal owner of Muffin Communications, Ltd. Muffin was a travel-related media business that, among other things, produced a travel magazine. In the spring and summer of 2000, Mr. Rosenblum negotiated the sale of Muffin to Travelbyus, a Canadian corporation that operates a travel-related website. Mr. Rosenblum agreed to sell Muffin to Travelbyus for a total price of $7 million this agreement was memorialized in a contract that was executed on July 20, 2000 ("Acquisition Agreement").
The Acquisition Agreement provided that Mr. Rosenblum was to receive a total of $7 million in cash and Travelbyus stock in exchange for Muffin. Mr. Rosenblum received $300,000 in cash at the closing and was due to receive the balance on December 15, 2000. According to the Agreement, Mr. Rosenblum was to receive one million shares of Travelbyus stock on December 15. At the time the agreement was executed, the stock was trading around $6.70 per share. The Agreement provided that, if the stock fell below $6.70 per share, Mr. Rosenblum would receive a combination of cash and stock equal to $6.7 million on December 15. The contract left the precise combination of cash and stock to Travelbyus' discretion.
As a condition precedent to the Acquisition Agreement, the parties also executed the Employment Agreement on July 20, 2000. Under the terms of that agreement, Mr. Rosenblum agreed to work for Travelbyus in the position of Senior Vice-President of Muffin, which continued its corporate existence after the sale to Travelbyus. In that capacity Mr. Rosenblum would develop travel-related content for Travelbyus and receive a salary of $125,000 per year. The Employment Agreement included a broad arbitration clause. The arbitration clause, in pertinent part, states: "Except for any matters for which this Agreement expressly provides otherwise, any matter in dispute under or relating to this Agreement shall ... be finally resolved by binding arbitration." R.12, Ex.B § 15.
Both the Acquisition Agreement and the Employment Agreement contain merger clauses. Article 1.4 of the Acquisition Agreement states: "This Agreement together with the other agreements and documents to be delivered pursuant to this Agreement constitute the entire agreement between the Parties pertaining to the subject matter hereof and supersede all prior agreements ... whether oral or written...." R.3, Ex.A art. 1.4. The Employment Agreement provides:
This Agreement constitutes and expresses the whole agreement of the parties hereto with respect to the employment of the Executive by the Company and with respect to any matters or things herein provided for or hereinbefore discussed or mentioned with reference to such employment. All promises, representations, collateral agreements and understandings relative thereto not incorporated herein are hereby superseded and cancelled by this Agreement.
R.12, Ex.B § 19. Both contracts also include noncompete agreements, which prevent Mr. Rosenblum from competing with Travelbyus for two years after his employment ceases.
In the months following the execution of the contracts, Travelbyus' stock decreased significantly in value. On December 15, 2000, when Travelbyus was required to make the final payment to Mr. Rosenblum, its stock was trading at far less than the $6.70 per share price at which it was valued in the summer of 2000. Travelbyus failed to make any payment, and Mr. Rosenblum brought this action alleging breach of contract and fraud.
Mr. Rosenblum's complaint alleged that Travelbyus breached the Acquisition Agreement and engaged in a pattern of fraudulent conduct designed to acquire Muffin's business relationship with Mobile Media Entertainment. The Acquisition Agreement was attached to the complaint. Travelbyus responded with a Rule 12(b)(6) motion to dismiss the complaint for failure to state a claim upon which relief can be granted. Travelbyus attached the Employment Agreement to its motion and submitted that the Employment Agreement's arbitration clause barred Mr. Rosenblum's action. Travelbyus sought dismissal of the case or, in the alternative, a stay of proceedings pending the outcome of arbitration.
The district court granted Travelbyus' motion and dismissed the action. The court held that "the employment agreement is incorporated by reference into the acquisition agreement, the two agreements are clearly interrelated and are explicitly part of the `entire agreement.'" R.17, Dist. Ct. Op. at 1. The court further concluded that "[t]he arbitration provision here is a broad one: it covers all matters relating to the employment agreement." Id. Thus the court found that the dispute at issue here was covered by the arbitration provision and dismissed Mr. Rosenblum's complaint.
Mr. Rosenblum advances two interrelated procedural arguments that must be addressed before we consider the principal issue in this appeal. He contends that the district court erred in considering the Employment Agreement at all. He submits that, because the Employment Agreement was not referenced in his complaint, the court should not have considered it on a Rule 12(b)(6) motion. Mr. Rosenblum further contends that, once the district court decided to include the Employment Agreement in its deliberations, it should have converted Travelbyus' Rule 12(b)(6) motion to a motion for summary judgment. Had it done so, Mr. Rosenblum continues, the court should have denied the motion because of Travelbyus' failure to comply with Local Rule 56.1 and because Mr. Rosenblum's uncontested Rule 56.1 statement of facts created genuine issues for trial.
As a general rule, on a Rule 12(b)(6) motion, the court may consider only the plaintiff's complaint. Rule 10(c) provides, however, "[a] copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes." Fed.R.Civ.P. 10(c). This court's precedent makes clear that this rule includes a limited class of attachments to Rule 12(b)(6) motions. Wright v. Assoc. Ins. Cos. Inc., 29 F.3d 1244, 1248 (7th Cir.1994). This exception is "aimed at cases interpreting, for example, a contract." Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir.1998). "The court is not bound to accept the pleader's allegations as to the effect of the exhibit, but can independently examine the document and form its own conclusions as to the proper construction and meaning to be given the material." 5 Wright & Miller, Federal Practice & Procedure: Civil 2d, § 1327 at 766 (1990).
Although Mr. Rosenblum did not refer explicitly to the Employment Agreement in his complaint, that agreement nevertheless falls within the exception. From Travelbyus' point of view, the contract under review is the combination of the Acquisition Agreement and the Employment Agreement. In moving to dismiss on the ground that the contract, read in this matter, requires that the parties resort to arbitration, Travelbyus is entitled to take the position that Mr. Rosenblum has appended only a part of the relevant instrument and to append what it contends is the remainder. It would have been impossible for the district court or for this court to evaluate the disagreement between the parties without having all of the documentation. It is impossible to render the necessary adjudication without reference to the Employment Agreement. See Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir.1993).
We turn now to the central controversy in this appeal: whether the Employment Agreement's arbitration clause governs this action for breach of the Acquisition Agreement. The district court concluded that this arbitration clause did govern a dispute under the Acquisition Agreement and dismissed the case in favor of arbitration. Mr. Rosenblum submits that, although the Employment Agreement was a condition...
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