VIP, Inc. v. KYB Corp. (In re Auto. Parts Antitrust Litig.)

• Citation: 951 F.3d 377
• Decision Date: 24 February 2020
• Docket Number: No. 19-1150,19-1150
• Parties: IN RE: AUTOMOTIVE PARTS ANTITRUST LITIGATION. VIP, Inc.; Performance Internet Parts, LLC, Plaintiffs-Appellees, v. KYB Corporation; KYB Americas Corporation, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

951 F.3d 377

IN RE: AUTOMOTIVE PARTS ANTITRUST LITIGATION.VIP, Inc.; Performance Internet Parts, LLC, Plaintiffs-Appellees,

v.KYB Corporation; KYB Americas Corporation, Defendants-Appellants.

No. 19-1150

United States Court of Appeals, Sixth Circuit.

Argued: December 5, 2019

Decided and Filed: February 24, 2020

ARGUED: Bradley Love, BARNES & THORNBURG, LLP, Indianapolis, Indiana, for Appellants. Thomas C. Bright, CERA LLP, San Francisco, California, for Appellees. ON BRIEF: Bradley Love, Kendall Millard, J. Alexander Barnstead, BARNES & THORNBURG, LLP, Indianapolis, Indiana, for Appellants. Thomas C. Bright, CERA LLP, San Francisco, California, David H. Fink, Nathan J. Fink, FINK BRESSACK, Bloomfield Hills, Michigan, Michael S. Smith, PRETI, FLAHERTY, BELIVEAU & PACHIOS LLP, Portland, Maine, for Appellees.

Before: DAUGHTREY, CLAY, and GRIFFIN, Circuit Judges.

GRIFFIN, Circuit Judge.

The Supreme Court recently emphasized that "before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists. But if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue." Henry Schein, Inc. v. Archer & White Sales, Inc. , ––– U.S. ––––, 139 S. Ct. 524, 530, 202 L.Ed.2d 480 (2019) (internal citation omitted). The district court concluded the first "if" did not apply to the present dispute, finding the parties did not form an agreement to arbitrate and therefore denied defendants' motion to compel arbitration. We agree and affirm.

I.

Defendant KYB Corporation (KYB) manufactures and distributes car parts throughout the United States through its subsidiary, defendant KYB Americas Corporation (KAC), to a network of retailers. Plaintiffs Performance Internet Parts, LLC and VIP, LLC (Performance, VIP, or, collectively, plaintiffs) stock and sell various replacement parts online and in retail stores. Both purchase KYB's shock absorbers from KAC, and then resell them to consumers.

Plaintiffs purchase the shock absorbers through "buying groups." These trade groups negotiate the purchasing terms and conditions on behalf of the groups' members, including pricing, rebate programs, and warranty allowances. The buying group agreements themselves do not contain an arbitration provision, nor for that matter is there an arbitration agreement contained in invoices reflecting specific purchases between the members and KAC.

Instead, we focus on the buying group agreements' reference to a "Limited Warranty." Beginning in 2016, the applicable buying group agreements provided that individual members agreed to accept an off-invoice rebate from KAC in exchange for servicing consumers' warranty issues. The agreements stated: "Distributor is responsible for warranty authentication of covered KYB products. An off-invoice warranty program is available for credit. In exchange for the warranty allowance, [KAC] requires that you honor the terms and conditions of the current KYB Limited Warranty." One of the terms of the Limited Warranty mandates arbitration "in accordance with the Rules of the American Arbitration Association," and AAA Commercial Arbitration Rule 7(a), in turn, specifically delegates to the arbitrator the power to determine his jurisdiction.

Plaintiffs assert in this putative class action that defendants and other shock absorber manufacturers engaged in a myriad of anticompetitive activities in the auto parts industry. Defendants moved to dismiss plaintiffs' complaint pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. , or, in the alternative, to dismiss all claims subject to arbitration and stay the remaining claims pending arbitration. In their view, the applicable contracts mandate that an arbitrator, not a court, decide the threshold question of arbitrability. Their argument is built on several levels of incorporation: (1) plaintiffs agreed to "honor the terms and conditions" of the Limited Warranty when they agreed to the buying group agreements; (2) one of the terms and conditions of the Limited Warranty is an arbitration clause; and (3) the arbitration clause incorporates AAA's Commercial Arbitration Rules, including its delegation provision. The district court disagreed, and defendants appeal.

II.

A.

The FAA "embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts." Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 443, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006). It provides that a "written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, ... or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Courts must, consistent with this text, " ‘rigorously enforce’ arbitration agreements according to their terms." Am. Express Co. v. Italian Colors Rest. , 570 U.S. 228, 233, 133 S.Ct. 2304, 186 L.Ed.2d 417 (2013) (citation omitted). And we resolve "any doubts concerning the scope of arbitral issues ... in favor of arbitration." Granite Rock Co. v. Int'l Bhd. of Teamsters , 561 U.S. 287, 298, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010).

"We review de novo a district court's decisions regarding both the existence of a valid arbitration agreement and the arbitrability of a particular dispute." Floss v. Ryan's Family Steak Houses, Inc. , 211 F.3d 306, 311 (6th Cir. 2000). We "apply ordinary state-law principles that govern the formation of contracts." First Options of Chicago, Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). The parties agree Indiana state law applies. And that law provides familiar parameters: arbitration is a matter of contract, there is a presumption of arbitrability, and "parties are only bound to arbitrate those issues that by clear language they have agreed to arbitrate." Watts Water Tech., Inc. v. State Farm Fire & Cas. Co. , 66 N.E.3d 983, 989 (Ind. Ct. App. 2016). Moreover, Indiana is receptive to arbitration provisions being incorporated by reference. See Wilson Fertilizer & Grain, Inc. v. ADM Milling Co. , 654 N.E.2d 848, 853–54 (Ind. Ct. App. 1995).

B.

Generally, "whether the parties are bound by a given arbitration clause raises a ‘question of arbitrability’ for a court to decide." Howsam v. Dean Witter Reynolds, Inc ., 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002). "[P]arties may," however, "agree to have an arbitrator decide not only the merits of a particular dispute but also ‘gateway’ questions of ‘arbitrability,’ such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy." Henry Schein, Inc. , 139 S. Ct. at 529 (quoting Rent-A-Center, W., Inc. v. Jackson , 561 U.S. 63, 68–69, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) ). Known as a "delegation provision," "[a]n agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other." Rent-A-Center , 561 U.S. at 70, 130 S.Ct. 2772. There is a "caveat" to enforcing delegation provisions: we "should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so." Id. at 69 n.1, 130 S.Ct. 2772 (internal quotation marks and brackets omitted).

Defendants therefore frame this appeal as a delegation case, requesting that we do what many of our sister circuits have done—generally hold that an arbitration clause's incorporation of AAA's Commercial Rules suffices as "clear and unmistakable evidence" to delegate arbitrability to an arbitrator. See Dish Network L.L.C. v. Ray , 900 F.3d 1240, 1246 (10th Cir. 2018)¹ ; Brennan v. Opus Bank , 796 F.3d 1125, 1130 (9th Cir. 2015) ; Petrofac, Inc. v. DynMcDermott Petroleum Ops. Co. , 687 F.3d 671, 675 (5th Cir. 2012) ; Fallo v. High-Tech Inst. , 559 F.3d 874, 878 (8th Cir. 2009) ; Awuah v. Coverall N. Am., Inc. , 554 F.3d 7, 11 (1st Cir. 2009) ; Qualcomm Inc. v. Nokia Corp. , 466 F.3d 1366, 1373 (Fed. Cir. 2006) ; Terminix Int'l Co. v. Palmer Ranch Ltd. , 432 F.3d 1327, 1332 (11th Cir. 2005) ; Contec Corp. v. Remote Sol. Co. , 398 F.3d 205, 208 (2d Cir. 2005). We have also assumed as much. See Turi v. Main St. Adoption Servs., LLP , 633 F.3d 496, 506 (6th Cir. 2011), abrogated on other grounds by Henry Schein, Inc. , 139 S. Ct. at 528–29. And we recently held nearly identical language in AAA's Employment Arbitration Rules and Mediation Procedures "shows that the parties ‘clearly and unmistakably’ agreed that the arbitrator would decide questions of arbitrability." McGee v. Armstrong , 941 F.3d 859, 866 (6th Cir. 2019).

With all that said, we need not entertain defendants' request in order to resolve this appeal, for it rests on an assumption that incorporation of AAA's Commercial Rules alone establishes that plaintiffs agreed to the arbitration clause in the first instance. However, "arbitration is a matter of contract." AT & T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 648, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) (citation omitted). It is axiomatic that "arbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration." Id. "Arbitration under the [FAA] is a matter of consent, not coercion," Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ. , 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), and "[a] court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute ," Granite Rock Co. , 561 U.S. at 297, ...