Twin City Monorail, Inc. v. Robbins & Myers, Inc., 82-2431

• Decision Date: 27 February 1984
• Docket Number: No. 82-2431,82-2431
• Parties: TWIN CITY MONORAIL, INC., Appellee, v. ROBBINS & MYERS, INC., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1069

728 F.2d 1069

TWIN CITY MONORAIL, INC., Appellee, v. ROBBINS & MYERS, INC., Appellant.

No. 82-2431.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 10, 1983.

Decided Feb. 27, 1984.

David F. Fitzgerald, Steven J. Kluz, Eric J. Magnuson, Rider, Bennett, Egan & Arundel, Minneapolis, Minn., for appellee.

Morris M. Sherman, James V. Roth, Leonard, Street & Deinard, Minneapolis, Minn., for appellant.

Before ROSS, McMILLIAN and BOWMAN, Circuit Judges.

McMILLIAN, Circuit Judge.

Robbins & Myers, Inc. (Robbins & Myers), appeals from an order entered in the District Court for the District of Minnesota granting a motion filed by Twin City Monorail, Inc. (Twin City), to compel arbitration of their contract dispute. For reversal Robbins & Myers argues that the district court erred in granting the motion to compel arbitration because whether the arbitration clause was intended to cover the particular dispute was in issue. For the reasons discussed below, we reverse and remand for further proceedings.

On November 6, 1981, Robbins & Myers contracted to sell its Twin City Monorail division to Twin City. This contract contained an estimated final purchase price of $1,250,000, but Sec. 3.1 of the contract provided that the actual price would be the "book value" of the inventory on hand at the time of the closing. Section 3.2 of the contract gave Twin City the right to object in writing, within ten days, to any "item" contained in the statement of inventory. Furthermore, Sec. 3.2 provided that if any such objection was not resolved within thirty days of the closing, it was to be submitted to a certified public accountant (CPA) for arbitration. Because these two clauses of the contract are integral to an understanding of this case, they are set forth fully in the margin. ¹

The transaction was closed on March 22, 1982, and pursuant to the contract Robbins & Myers conducted a final inventory count and arrived at an inventory book value of $1,377,713.35. Twin City subsequently raised eight objections to the inventory statement. These objections were not resolved within thirty days of the closing, and Robbins & Myers refused to submit them to arbitration. Consequently, Twin City instituted an action under 9 U.S.C. Sec. 4 (1982) to compel arbitration. The parties thereafter agreed to submit five of the objections (all involving either the actual physical count or the characterization of certain items as inventory) to a CPA for arbitration.

The three objections which remained before the district court, and which are the subjects of this appeal, involve: (1) the method of valuing the inventory, (2) the total value of the inventory and (3) the basis for pricing that inventory. These issues are, in essence, differing facets of a dispute about the method which should be used to value the inventory. Twin City argues that the parties intended to use a LIFO (Last In-First Out) valuation method, while Robbins & Myers argues that a FIFO (First In-First Out) method was contemplated. The importance of determining which method was intended is demonstrated by the parties' assertions that the difference in valuation may be as much as $700,000.

The crux of Twin City's argument is that a FIFO valuation method is commonly used as an internal management tool, but it is not properly used for the determination of inventory book value. Twin City argues that LIFO is the proper method of assigning value to inventory, especially since Robbins & Myers used such a method in reporting its aggregate corporate earnings. Robbins & Myers, however, argues that the $1,250,000 estimated purchase price was based on FIFO and that the corporation had two book values. One book value, which was based on FIFO, was consistently carried on the books of the Twin City Monorail Division. The other book value, which was based on LIFO, was used only on Robbins & Myers' consolidated balance sheet for all divisions. This dichotomy had been established for tax purposes and is permitted by the Internal Revenue Service. See Treas.Reg. Sec. 1.472-2 (1981).

The narrow issue presented by this appeal is whether the district court erred in compelling the submission of the dispute over the valuation method to arbitration. We have jurisdiction of the appeal under 28 U.S.C. Sec. 1291, because an order compelling arbitration pursuant to 9 U.S.C. Sec. 4 is final and appealable. See, e.g., Hartford Financial Systems v. Florida Software Services, Inc., 712 F.2d 724, 728 (1st Cir.1983).

Title 9 U.S.C. Sec. 4 provides in part as follows:

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. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue. Where such an issue is raised, the party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to a jury in the manner provided by the Federal Rules of Civil Procedure, or may specially call a jury for that purpose. If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.

When presented with the petition to compel arbitration, the district court first had to determine whether the making of the arbitration clause was in issue and, if it was, to proceed to trial on that issue. In reviewing the district court's decision, we are limited to determining two issues of federal substantive law: "(1) whether an express written agreement to arbitrate the subject matter of the present dispute exists between the parties, and (2) if so, whether the agreement to arbitrate has been breached." Johnson Controls, Inc. v. City of Cedar Rapids, 713 F.2d 370, 373 (8th Cir.1983).

In the present case it is not disputed that the parties did agree to arbitrate. The inquiry, however, should not end at this point. If "there is an issue as to which disputes the parties intended the arbitration clause to cover, ... [there] would be an issue 'as to the making of the arbitration agreement.' " Pollux Marine Agencies, Inc. v. Louis Dreyfus Corp., 455 F.Supp. 211, 217 (S.D.N.Y.1978), citing International Union of Operating Engineers, Local Union No. 139 v. Carl A. Morse, Inc., 387 F.Supp. 153, 157 (E.D.Wis.1974), aff'd, 529 F.2d 574, 579 (7th Cir.1976). As stated by the Supreme Court, "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit." United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1352, 4 L.Ed.2d 1409 (1960). In the present case, arbitration cannot be compelled unless it is found both that the parties agreed to arbitrate and that the parties intended the arbitration clause to cover disputes about the accounting method to be used for valuing the inventory.

There is some confusion, however, as to the proper standard to be used in determining whether the parties intended a particular dispute to be within the scope of an arbitration clause. As pointed out by Twin City, many courts, including the Supreme Court, have indicated that the analysis should be weighted heavily in favor of arbitration. Other courts, however, have indicated that the analysis may be somewhat more balanced. See National Railroad Passenger Corp. v. Missouri Pacific R.R., 501 F.2d 423, 427 (8th Cir.1974) (the court's function is to determine whether the clause "on its face" governs the dispute in issue). However, the decisions calling for an interpretation of intent which is weighted toward arbitrability involve either or both a labor arbitration clause or an extremely broad arbitration clause. For example, United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. at 582-83, 80 S.Ct. at 1352-53 (stating that an order to arbitrate must issue "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute"), involved a very broad arbitration agreement, which provided as follows:

"Should differences arise between the Company and the Union or its members employed by the Company as to the meaning and application of the provisions of this Agreement, or should any local trouble of any kind arise, there shall be no suspension of work on account of such differences but an earnest effort shall be made to settle such differences immediately in the following manner:

....

Fifth, if agreement has not been reached the matter shall be referred to an impartial umpire for decision."

Id. at 576, 80 S.Ct. at 1349 (quoting the collective bargaining agreement). The Court, in reversing the lower court's refusal to compel arbitration under Sec. 301(a) of the National Labor Relations Act, was influenced not only by the breadth of this provision but also by the national policy of avoiding industrial strife via labor arbitration. ²

Thus United Steelworkers v. Warrior & Gulf Navigation...