Trippe Mfg. Co. v. Niles Audio Corp.

• Citation: 401 F.3d 529
• Decision Date: 18 March 2005
• Docket Number: No. 03-4101.,03-4101.
• Parties: TRIPPE MANUFACTURING COMPANY, an Illinois corporation, Appellant v. NILES AUDIO CORPORATION, a Florida corporation.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 529

401 F.3d 529

TRIPPE MANUFACTURING COMPANY, an Illinois corporation, Appellant v. NILES AUDIO CORPORATION, a Florida corporation.

No. 03-4101.

United States Court of Appeals, Third Circuit.

Argued January 18, 2005.

March 18, 2005.

Randi W. Kochman, Cole, Schotz, Meisel, Forman & Leonard, Hackensack, NJ, and Nathan H. Lichtenstein (argued), Paul A. Greenberg, Aronberg, Goldgehn, Davis & Garmisa, Chicago, IL, for Appellant.

Anthony P. Callaghan, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, NJ, and Stephen E. Nagin (argued), Catherine A. Van Horn, Nagin, Gallop & Figueredo, Miami, FL, for Appellee.

Before ALITO, McKEE, and SMITH, Circuit Judges.

OPINION OF THE COURT

ALITO, Circuit Judge.

Trippe Manufacturing Co. ("Trippe") appeals an order denying its motion for summary judgment and granting a motion by Niles Audio Corporation ("Niles") to compel arbitration. Because a duty to arbitrate must be founded upon a contractual obligation, we reverse the order compelling arbitration with regard to claims asserted by Niles that are unrelated to obligations expressly assumed by Trippe through the Asset Purchase Agreement ("APA") that entered into effect on August 29, 2001. To the extent that Trippe expressly assumed obligations under the APA, however, the order compelling arbitration is affirmed.

I.

Niles manufactures and markets consumer audio equipment. In early 1998, Niles entered into an Exclusive Distributor Agreement ("EDA") with SL Waber, Inc. ("Waber"). Under the terms of the EDA, Waber was to manufacture surge protectors for Niles. Waber was also obligated to perform lifetime service support for the product, to provide a toll-free customer service phone line, and to handle claims under a connected equipment guarantee ("CEG") covering damage to electronic equipment connected to the surge-protector. In addition, Waber covenanted to give Niles quarterly reports on service and warranty claims. Clause 12(f) of the EDA states, in part:

All disputes, claims, and controversies arising under this Agreement, or a breach thereof, shall be resolved by arbitration through the American Arbitration Association in accordance with its rules and regulations.

According to Niles, there were several technical problems with the surge-protector and, after selling several thousand units, Niles cancelled all outstanding orders in early 2001.

Trippe, a manufacturer, entered into the APA with Waber, effective August 29, 2001. Under the terms of the agreement, Trippe acquired several assets associated with Waber's surge protector business, including Waber's rights to the Niles Audio Contract. APA 1.1(h); APA Schedule 1.1(h). In clause 1.3 of the APA, Trippe expressly assumed certain of Waber's liabilities, including:

(d) All liabilities, undertakings and obligations for all product warranty and connected equipment guarantees covering all products sold to customers of the Waber Business, regardless of whether the product was manufactured, assembled or sold prior to, on or after the date of Closing.

(f) All liabilities and obligations of [Waber] arising after [August 21, 2001] under each of the Material Contracts listed on Schedule 1.1 (h) of the Disclosure Schedule.

Under the terms of the agreement, Trippe disclaimed responsibility for any debt, obligation, or liability owed by Waber beyond those expressly assumed.

In late 2002, Niles filed a demand for arbitration naming, among others, Waber and Trippe. With regard to Trippe, Niles requested the following relief: (1) a declaratory judgment binding Trippe to the agreement between Niles and Waber, (2) an order enjoining Trippe from discontinuing customer service support, warranty repairs, fulfilling the CEG, or discontinuing reporting obligations to Niles as required by the EDA, (3) attorneys' fees and costs, and (4) money damages. Trippe filed the present motion seeking both a declaration that the EDA arbitration clause is not binding on Trippe and an order enjoining Niles from pursuing its claims against Trippe in the arbitration proceeding. Niles responded with a motion to compel arbitration. The District Court granted Niles's motion, and this appeal followed.

In granting Niles's motion to compel arbitration, the District Court did not distinguish between claims arising out of Trippe's warranty and CEG obligations and other liabilities arising out of the EDA; nor did the District Court distinguish claims according to whether they arose before or after the effective date of the APA.

II.

We exercise plenary review over the District Court's decision to compel arbitration. See Bouriez v. Carnegie Mellon University, 359 F.3d 292, 294 (3d Cir.2004). We also exercise plenary review over a denial of summary judgment. See Bartnicki v. Vopper, 200 F.3d 109, 114 (3d Cir.1999).

This arbitrability dispute is connected with a transaction involving interstate commerce, and is therefore governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("The FAA"). The FAA instructs courts to refer to principles of applicable state law when determining the existence and scope of an agreement to arbitrate. See Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 475, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). Although the EDA calls for the application of New Jersey law to the construction of its terms, this case does not directly implicate the enforceability of the EDA arbitration clause, but rather whether Trippe assumed the duty to arbitrate according to that clause by entering into the APA with Waber. Because we are concerned with the duties assumed by Trippe under the APA, the choice of law provision of that agreement, calling for the application of New York law, applies.

III.

A motion to compel arbitration calls for a two-step inquiry into (1) whether a valid agreement to arbitrate exists and (2) whether the particular dispute falls within the scope of that agreement. See PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 511 (3d Cir.1990), overruled on other grounds by Howsam v. Dean Witter Reynolds, 537 U.S. 79, 85, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). When a dispute consists of several claims, the court must determine on an issue-by-issue basis whether a party bears a duty to arbitrate. See Painewebber Inc. v. Hofmann, 984 F.2d 1372, 1376-77 (3d Cir.1993). When determining both the existence and the scope of an arbitration agreement, there is a presumption in favor of arbitrability. "[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, Inc. v. Communications Workers of America, 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986).

Although Trippe is not a signatory to the EDA, the EDA arbitration clause may nevertheless be enforceable against it. There are five theories for binding nonsignatories to arbitration agreements: (1) incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing/alter ego, and (5) estoppel. Mag Portfolio Consult, Gmbh v. Merlin Biomed Group, LLC, 268 F.3d 58, 61 (2d Cir.2001). Niles contends that when Trippe expressly assumed certain of Waber's obligations under the EDA, it also assumed the duty to arbitrate disputes related to those obligations. Niles further argues that Trippe is bound by the EDA arbitration clause under theories of incorporation and estoppel. These arguments are addressed in turn.

A.

Under New York law, the assignee of rights under a bilateral contract is not bound to perform the assignor's duties under the contract unless he expressly assumes that obligation. Sillman v. Twentieth Century-Fox Film Corp., 3 N.Y.2d 395, 165 N.Y.S.2d 498, 144 N.E.2d 387, 391 (1957). That said, when an assignee assumes the liabilities of an...