Thomson-CSF, S.A. v. American Arbitration Ass'n

• Decision Date: 24 August 1995
• Docket Number: D,No. 1565,THOMSON-CS,S,1565
• Citation: 64 F.3d 773
• Parties: A., Plaintiff-Appellant, v. AMERICAN ARBITRATION ASSOCIATION, Defendant, Evans & Sutherland Computer Corporation, Defendant-Appellee. ocket 94-9118. Second Circuit
• Court: U.S. Court of Appeals — Second Circuit

Page 773

64 F.3d 773

THOMSON-CSF, S.A., Plaintiff-Appellant, v. AMERICAN ARBITRATION ASSOCIATION, Defendant Evans & Sutherland Computer Corporation, Defendant-Appellee.

No. 1565, Docket 94-9118.

United States Court of Appeals,Second Circuit.

Argued April 18, 1995.

Decided Aug. 24, 1995.

Fredrick E. Sherman, Jones, Day, Reavis & Pogue, New York City (Steven C. Bennett, Jones, Day, Reavis & Pogue, New York City, David J. Hensler, A. Lee Bentley, Hogan & Hartson, Washington, DC, on the brief), for plaintiff-appellant.

Dana H. Freyer, Skadden, Arps, Slate, Meagher & Flom, New York City (Daniel J. Fish, Skadden, Arps, Slate, Meagher &amp Before: MESKILL, ALTIMARI, and CALABRESI, Circuit Judges.

Flom, New York City, on the brief), for defendant-appellee.

ALTIMARI, Circuit Judge:

Plaintiff-appellant Thomson-CSF, S.A. ("Thomson") appeals from a judgment entered in the United States District Court for the Southern District of New York (Keenan, J.), denying its request for declaratory and injunctive relief and granting defendant-appellee Evans & Sutherland Computer Corporation's ("E & S") cross-motion to compel arbitration. Thomson asserts that the district court improvidently compelled it to arbitrate against E & S based upon an arbitration agreement between E & S and Thomson's subsidiary, to which Thomson was not a signatory. Because, under ordinary principles of contract and agency law, Thomson cannot be said to have voluntarily submitted to arbitrate its disputes with E & S, we reverse the judgment of the district court and remand for proceedings consistent with this opinion.

BACKGROUND

Rediffusion Simulation Limited ("Rediffusion") was a British company engaged in the business of building flight simulators for the training of pilots. In 1986, Rediffusion entered into a "Working Agreement" with E & S, located in Salt Lake City, Utah. Under the Working Agreement, Rediffusion agreed to purchase computer-generated image equipment (the computer "brain" of the flight simulator) exclusively from E & S and to use its best efforts to market those systems containing E & S equipment; in return, E & S agreed to supply its imaging equipment only to Rediffusion.

Subsequent to entering into the Working Agreement, Rediffusion was sold to Hughes Aircraft Company. Hughes amended and extended the Working Agreement between Rediffusion and E & S. On December 31, 1993, Hughes sold Rediffusion to Thomson, which renamed it Thomson Training and Simulation Limited. Prior to purchasing Rediffusion, Thompson maintained a division engaged in the business of building flight simulation equipment (the Training and Simulation Systems Division) into which it began integrating Rediffusion.

At the time Thomson began publicly contemplating the acquisition of Rediffusion, E & S informed Thomson that, if it purchased Rediffusion, E & S intended to bind Thomson and its flight simulation division to the Working Agreement. Specifically, E & S told Thomson that upon purchasing Rediffusion both Rediffusion and Thomson's Training and Simulation Systems Division would be required to purchase all needed computer-generated image equipment from E & S. In response, Thomson wrote to E & S seeking to have it waive those provisions of the Working Agreement that E & S believed to be binding upon Thomson. Thomson did not, however, concede that it would be bound by Rediffusion's Working Agreement. In fact, when it became clear that Thomson and E & S could reach no agreement prior to Thomson's acquisition of Rediffusion, Thomson explicitly informed E & S that it was not adopting the Working Agreement and did not consider itself bound by Rediffusion's Agreement which it had neither negotiated nor signed.

The Working Agreement

Section 6.1 of the Working Agreement provides for the arbitration of all disputes between the "parties" to the Agreement. While the Agreement provides no explicit definition of "parties," it does define "E & S" and "Rediffusion":

1.14 the term "E & S," wherever used in this Working Agreement, shall include the affiliates of E & S.

The term "Rediffusion" wherever used in this Working Agreement, shall ... mean Rediffusion and each of its affiliates.

* * * * * *

1.6 An "affiliate" of a party hereto shall mean any person, firm or corporation that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such party.

Despite the lack of definition for "parties" in the Working Agreement, the district court

found that the term "parties" was intended to mean "E & S and Rediffusion" and, therefore, was also intended to include the affiliates of the parties. Accordingly, the arbitration clause in the Working Agreement purported to bind not only Rediffusion, but also its affiliates--namely, Thomson (given that Thomson indisputably controlled Rediffusion).

Injunctive Relief

While under Thomson's ownership, Rediffusion's share of the flight simulator market drastically decreased. On August 8, 1994, E & S filed a demand for arbitration under the Working Agreement against both Rediffusion and its parent-company Thomson, asserting a breach of their obligations arising out of the Working Agreement. Despite Thomson's insistence that it was not bound by the Working Agreement (and the arbitration clause contained therein), E & S filed a demand for arbitration against both Rediffusion and Thomson on August 8, 1994. While Rediffusion did not contest the applicability of the arbitration clause to it, Thomson refused to answer E & S's demand for arbitration. On August 29, 1994, Thomson commenced this action in the Southern District of New York, seeking 1) a declaration that it was not bound by the arbitration clause of the Working Agreement and 2) an injunction prohibiting further proceedings against it under the Working Agreement. E & S cross-moved to compel Thomson to arbitrate.

The district court granted E & S's cross-motion to compel arbitration. In doing so, the district court stated that while E & S's claims did not fall under any of the traditional categories for binding a nonsignatory to an arbitration clause, Thomson was bound nonetheless. Adopting a hybrid approach to binding a nonsignatory to an arbitration agreement, the district court accepted E & S's assertion that "the Court may bind Thomson based on its conduct in voluntarily becoming ... an affiliate, on the degree of control Thomson exercises over [Rediffusion], and on the interrelatedness of the issues." (internal citations and quotations omitted).

Thomson now appeals the judgment of the district court.

DISCUSSION

Arbitration is contractual by nature--"a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960). Thus, while there is a strong and "liberal federal policy favoring arbitration agreements," Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625, 105 S.Ct. 3346, 3353, 87 L.Ed.2d 444 (1985) (quotations omitted), such agreements must not be so broadly construed as to encompass claims and parties that were not intended by the original contract. "It does not follow, however, that under the [Federal Arbitration] Act an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision." Fisser v. International Bank, 282 F.2d 231, 233 (2d Cir.1960); see also Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir.1993). This Court has made clear that a nonsignatory party may be bound to an arbitration agreement if so dictated by the "ordinary principles of contract and agency." McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519, 524 (2d Cir.1980); see also A/S Custodia v. Lessin Int'l, Inc., 503 F.2d 318, 320 (2d Cir.1974).

I. Traditional Bases For Binding Nonsignatories

This Court has recognized a number of theories under which nonsignatories may be bound to the arbitration agreements of others. Those theories arise out of common law principles of contract and agency law. Accordingly, we have recognized five theories for binding nonsignatories to arbitration agreements: 1) incorporation by reference; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel. The district court properly rejected each of these traditional theories as sufficient justification for binding Thomson to the arbitration agreement of its subsidiary.

A. Incorporation by Reference

A nonsignatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relationship with the nonsignatory which incorporates the existing arbitration clause. See Import Export Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503, 505-506 (2d Cir.1965) (separate agreement with nonsignatory expressly "assum[ing] all the obligations and privileges of [signatory party] under the ... subcharter" constitutes grounds for enforcement of arbitration clause by nonsignatory); Matter of Arbitration Between Keystone Shipping Co. and Texport Oil Co., 782 F.Supp. 28, 31 (S.D.N.Y.1992); Continental U.K. Ltd. v. Anagel Confidence Compania Naviera, S.A., 658 F.Supp. 809, 813 (S.D.N.Y.1987) (if a "party's arbitration clause is expressly incorporated into a bill of lading, nonsignatories ... who are linked to that bill through general principles of contract law or agency law may be bound"). As the district court noted, E & S has not attempted to show that the Working Agreement was incorporated into any document which Thomson adopted. Thus, Thomson cannot be bound under an incorporation theory.

B. Assumption

In the absence of a signature, a party may be bound by an arbitration clause if its subsequent conduct indicates that it is assuming the obligation to arbitrate. See Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 ...