Third Millennium Technologies, Inc. v. Bentley Systems, Inc.
| Decision Date | 21 August 2003 |
| Docket Number | CASE NO. 03-1145-JTM. |
| Parties | THIRD MILLENNIUM TECHNOLOGIES, INC., Plaintiff, v. BENTLEY SYSTEMS, INC., <I>et al.,</I> Defendants. |
| Court | Kansas Supreme Court |
The court now considers a Motion to Compel Arbitration and to Dismiss or Stay Proceedings Pending Arbitration (Doc. 4) filed by defendants Bentley Systems, Inc. (Bentley), Warren Winterbottom, and George Church. Plaintiff Third Millennium Technologies (3MT) filed a response (Doc. 8), and the defendants filed a reply. (Doc. 10.) 3MT also submitted a motion for oral argument on the matter. (Doc. 9.) Defendants' motion is GRANTED, and Plaintiff's motion is DENIED, for reasons set forth herein.
Plaintiff Third Millennium Technologies (3MT) was a reseller of Bentley software products for several years. (Doc. 5 at 3.) In 1998, Bentley and 3MT entered into an agreement, the MicroStation Value Added Reseller (MVAR) Agreement, that purported to define their business relationship. See id. exh. A, MVAR Agreement at 1. The MVAR Agreement included a broad arbitration clause. See MVAR Agreement ¶ 11.11. In 1999, the parties entered into a Bentley Integrator Agreement, which specifically referenced the MVAR agreement and amended some provisions thereof. Both the MVAR Agreement and the Integrator Agreement granted 3MT the right to sell and service Bentley software products, established a compensation plan, and defined both parties' obligations under the relationship. Contemporaneous with execution of the Integrator Agreement, Bentley acquired roughly a 20% interest in 3MT, as well as the right to name a representative to 3MT's board of directors. (Doc. 5 at 4.)
While their relationship may have had pleasant beginnings, it apparently began to sour by early 2002. (Doc. 3 ¶ 16.) Ultimately, the parties could not agree on new terms, and the Integrator Agreement was allowed to expire in January, 2003. (Doc. 5 at 5.) 3MT brought the present action alleging that among other things, Bentley's conduct during the course of the relationship amounted to a breach of fiduciary duty, breach of trust, and tortious interference with business relationships. (Doc. 3.) Defendants filed the instant motion seeking to enforce the arbitration provision contained in the MVAR agreement. Defendants ask that the present action be stayed or dismissed, and that the court issue an order compelling 3MT to arbitrate according to the terms of the arbitration agreement. (Doc. 4 at 1.)
A magistrate may rule on non-dispositive matters. See 28 U.S.C. § 636(b)(1)(A). The district courts that have considered the nature of an order to stay proceedings pending arbitration and to compel arbitration have concluded that these are non-dispositive orders. Torrance v. Aames Funding Corp., 242 F. Supp. 2d. 862, 865 (D. Or. 2002); Herko v. Metro. Life Ins. Co., 978 F. Supp. 141, 142 n.1 (W.D.N.Y. 1997); see also Touton, S.A. v. M.V. Rizcun Trader, 30 F. Supp. 2d 508, 509 (E.D. Pa. 1998) (). In Herko, the court discussed the matter in detail and concluded that, because the parties must return to the district court to have the arbitration award confirmed, modified, or vacated under 9 U.S.C. §§ 9-11, the district court retains jurisdiction even during the arbitration. Herko, 978 F. Supp. at 142 n.1. Accordingly, the order to stay proceedings and compel arbitration was non-dispositive and within the magistrate's authority. See id.
Like Herko, the arbitration clause in the MVAR Agreement allows either party to have the arbitration award confirmed in a federal district court under 9 U.S.C. § 9. See MVAR Agreement ¶ 11.11 (). See also P & P Industries, Inc. v. Sutter Corp., 179 F.3d 861, 866-68 (10th Cir. 1999). Furthermore, 9 U.S.C. §§ 10 and 11 authorize any party to proceed in federal district court to have the arbitration award vacated or modified. Under all these circumstances, the district court retains authority to review the arbitration award once arbitration has been completed.
The Tenth Circuit used virtually the same rationale as Herko to conclude that "a stay of a federal suit pending arbitration is not a final order under 28 U.S.C. § 1291." Pioneer Props., Inc. v. Martin, 776 F.2d 888, 891 (10th Cir. 1985). Like Herko, the Tenth Circuit based its holding on the fact that the federal courts retained authority to review the arbitration award under 9 U.S.C. § 10. Id. Although Pioneer Properties did not deal directly with a magistrate's authority to stay proceedings or compel arbitration, its reasoning was virtually identical to Herko, and clearly confirms that orders to stay proceedings and compel arbitration are non-dispositive because they do not terminate all proceedings in the federal courts.1 Therefore, a federal magistrate judge does have authority to rule on a motion to stay proceedings and compel arbitration, since this amounts to a nondispositive pre-trial matter.
In deciding a motion to stay proceedings and a motion to compel arbitration, the court follows a procedure similar to that used in ruling on a motion for summary judgment. Phox v. Atriums Mgmt. Co., 230 F. Supp. 2d 1279, 1282 (D. Kan. 2002); Klocek v. Gateway, Inc., 104 F. Supp. 2d 1332, 1336 (D. Kan. 2000). As the parties seeking to compel arbitration, the defendants bear the initial burden of showing that they are entitled to arbitration. Phox, 230 F. Supp. at 1282. If the defendants satisfy this requirement, then the burden shifts to 3MT to show a genuine issue for trial, as provided under 9 U.S.C. § 4. See id.
Although Section 4 of the FAA calls for a hearing (and perhaps a jury trial) when the parties disagree over whether there is an agreement to arbitrate, or whether one party has failed to comply with the agreement,2 9 U.S.C. § 4, the courts that have interpreted this language have adhered to traditional requirements for hearings and juries. Hence, a court need not hold a hearing when the issues involve only questions of law. Cincinnati Gas & Elec. Co. v. Benjamin F. Shaw Co., 706 F.2d 155, 159 (6th Cir. 1983); Int'l Union of Operating Eng'rs, Local Union No. 139 v. Carl A. Morse, Inc., 529 F.2d 574, 581 (7th Cir. 1976). Similarly, the party opposing arbitration can't obtain a jury trial without producing some evidence upon which a jury could find for him. See Dillard v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 961 F.2d 1148, 1154 (5th Cir. 1992). Since Kansas considers the interpretation of unambiguous contract terms to be a question of law, Reimer v. Waldinger Corp., 265 Kan. 212, 214, 959 P.2d 914, 916 (1998), a hearing will only be required if 3MT raises genuine issues of material fact regarding whether the parties agreed to arbitrate the claims 3MT raises in this suit.
In order to be enforceable, any agreement to arbitrate must be in writing. 9 U.S.C. § 2. The court finds that MVAR Agreement ¶ 11.11 constitutes a written agreement between Bentley and 3MT to arbitrate disputes "arising under or related to" the MVAR Agreement. (MVAR Agreement ¶ 11.11.) Although the FAA does not require that agreements to arbitrate be signed, the fact that both parties signed the MVAR Agreement provides further evidence that they assented to, and intended to be bound by, the terms of the agreement, including the arbitration clause.3 (Doc. 4 exh. A, MVAR Agreement at 14.) Furthermore, paragraph 1 of the Integrator Agreement specifically stated, "The MVAR Agreement, as amended and supplemented by this agreement, comprises the `Bentley Integrator Agreement.'" . Accordingly, the court further finds that the parties incorporated the MVAR Agreement, including the arbitration clause, into the subsequent Integrator Agreement.4 Thus, the court finds that Bentley and 3MT entered into a written agreement to arbitrate disputes arising under or related to the MVAR Agreement and the Integrator Agreement. Furthermore, the court finds nothing in the arbitration clause that would otherwise render it unenforceable. See Shankle v. B-G Maint. Mgmt. of Colo., Inc., 163 F.3d 1230, 1234 (10th Cir. 1999); Cole v. Burns Intern. Sec. Services, 105 F.3d 1465, 1482 (D.C. Cir. 1997).
In order to complete the inquiry under sections 3 and 4 of the FAA, the court must determine whether the disputes at issue fall within the scope of the arbitration provision. See 9 U.S.C. §§ 3-4. Because federal policy favors arbitration, any ambiguities regarding the scope of the agreement to arbitrate should be resolved in favor of arbitration. Mastrobuono v. Shearson Lehman Hutton, Inc. 514 U.S. 52, 62, 112 S. Ct. 1212, 1218, 131 L. Ed. 2d 76 (1995); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765 (1983); Williams v. Imhoff, 203 F.3d 758, 764 (10th Cir. 2000). Moreover, disputes concerning "whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court" to decide. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 592, 154 L.Ed.2d 491 (2002).
The arbitration clause contained at MVAR ¶ 11.11 has a broad scope, reaching not only those disputes "arising under" the MVAR, but also those disputes, controversies or claims "related to" the agreement. MVAR ¶ 11.11. See P & P Industries, Inc. v. Sutter Corp., 179 F.3d 861, 871 (10th Cir. 1999), citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 398, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967). The court has...
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