Watson Wyatt & Co. v. Sbc Holdings, Inc.

• Decision Date: 28 January 2008
• Docket Number: No. 06-2063.,06-2063.
• Citation: 513 F.3d 646
• Parties: WATSON WYATT & COMPANY, Petitioner-Appellant, v. SBC HOLDINGS, INC., Respondent-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

513 F.3d 646

WATSON WYATT & COMPANY, Petitioner-Appellant, v. SBC HOLDINGS, INC., Respondent-Appellee.

No. 06-2063.

United States Court of Appeals, Sixth Circuit.

Argued: November 30, 2007.

Decided and Filed: January 28, 2008.

ARGUED: Edward A. Scallet, Groom Law Group, Washington, D.C., for Appellant. Michael F. Smith, Butzel Long, Bloomfield Hills, Michigan, for Appellee. ON BRIEF: Edward A. Scallet, Groom Law Group, Washington, D.C., for Appellant. Michael F. Smith, Steven M. Ribiat, Butzel Long, Bloomfield Hills, Michigan, Philip J. Kessler, Butzel Long, Detroit, Michigan, for Appellee.

Before: ROGERS and SUTTON, Circuit Judges; BERTELSMAN, District Judge.^*

OPINION

BERTELSMAN, District Judge.

Watson Wyatt & Company ("Watson Wyatt") appeals the district court's order denying in part its petition to compel arbitration under the Federal Arbitration Act, 9 U.S.C. § 4. Because we find that the arbitration provision is broadly written to include claims arising from events that occurred before the execution of the arbitration agreement, we REVERSE.

I. FACTUAL BACKGROUND

Watson Wyatt sells actuarial and consulting services. SBC Holdings, Inc. ("SBC") is the sponsor of a pension plan for employees of the former Stroh's Brewery Company. In 1997, Watson. Wyatt began providing actuarial and consulting services to SBC regarding the pension plan. At this time, the parties did not have a written contract or an agreement to arbitrate disputes.

In 2001, Watson Wyatt made a data input error that caused it to provide erroneous actuarial valuations and financial disclosures underestimating the plan's liabilities and overstating SBC's net worth. Watson Wyatt alleges that it discovered the error in 2004 and notified SBC.¹

SBC claims that it relied on these erroneous reports in making important decisions, including determining the value of stock in six stock redemptions. SBC claims that as a result of Watson Wyatt's error it has suffered substantial damages.

On September 4, 2002, Watson Wyatt sent a letter to SBC seeking to formalize the terms and conditions of its engagement. In the letter, Watson Wyatt proposed that the attached terms and conditions become effective on October 1, 2002 and "apply to all the services that Watson Wyatt provides to SBC." Watson Wyatt asked SBC to sign the letter indicating its acceptance of the attached terms and conditions. On October 15, 2002, SBC's CEO signed the letter indicating its acceptance to the attached terms and conditions of engagement.

The terms and conditions of engagement contained the following clause regarding dispute resolutions:

Resolution of Disputes. The parties will try to resolve any dispute or claim arising from or in connection with this agreement or the services provided by Watson Wyatt by appropriate internal means, including referral to each party's senior management. If the parties cannot reach a mutually satisfactory resolution, then any such dispute or claim will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"), and the. Federal Arbitration Act, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. . . .

In the spring of 2004, Watson Wyatt informed SBC of the data input error that occurred in 2001. After several letters between the parties, Watson Wyatt suggested that SBC submit its claims to arbitration. SBC denied that it was obligated to submit the claims to arbitration since the claims arose from Watson Wyatt's error in 2001, before the execution of the arbitration agreement.

On April 15, 2005, Watson Wyatt initiated this action in the district court by filing a petition to compel arbitration pursuant to 9 U.S.C. § 4. On June 30, 2006, the district court issued an opinion and order granting in part and denying in part the petition to compel arbitration. The trial court found that the arbitration clause is silent as to its retroactivity and, therefore, under Michigan law, it did not apply to disputes regarding damages that arose from the pre-agreement analyses. Accordingly, the trial court denied the petition to compel arbitration on the pre-agreement claims, but ordered arbitration of damages arising from the post-agreement claims. Watson Wyatt appeals the district court's order denying in part its petition to compel arbitration.

II. JURISDICTION AND STANDARD OF REVIEW

This court has jurisdiction pursuant to the Federal Arbitration Act, 9 U.S.C. § 16(a)(1)(B). Glazer v. Lehman Bros., Inc., 394 F.3d 444, 447 (6th Cir.2005), cert. denied, 546 U.S. 1214, 126 S.Ct. 1429, 164 L.Ed.2d 132 (2006).

This court reviews de novo a district court's conclusions of law regarding whether to compel arbitration pursuant to the Federal Arbitration Act (FAA). See Nestle Waters North America, Inc. v. Bollman, 505 F.3d 498, 501-02 (6th Cir.2007); Glazer, 394 F.3d at 450; Burden v. Check into Cash of Kentucky LLC, 267 F.3d 483, 487 (6th Cir.2001).

III. ANALYSIS

The FAA manifests "a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). See also Glazer, 394 F.3d at 451. This policy, however, is not so broad that it compels the arbitration of issues not within the scope of the parties' arbitration agreement. Nestle Waters, 505 F.3d at 504; Bratt Enters., Inc. v. Noble Int'l Ltd., 338 F.3d 609, 613 (6th Cir.2003). "Before compelling an unwilling party to arbitrate, [a] court must engage in a limited review to determine whether the dispute is arbitrable; meaning that a valid agreement to arbitrate exists between the parties and that the, specific dispute falls within the substantive scope of that agreement." Bratt Enters., 338 F.3d at 612 (quoting Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003)).

Here, the parties agree that a valid agreement to arbitrate existed between them, but they disagree as to whether the claims arising before the execution of the arbitration agreement are within the scope of the agreement. The parties' agreement to arbitrate states, in pertinent part:

Resolution of Disputes. The parties will try to resolve any dispute or claim arising from or in connection with this agreement or the services provided by Watson Wyatt by appropriate internal means, including referral to each party's senior management. If the parties cannot reach a mutually satisfactory resolution, then any such dispute or claim will be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA"), and the Federal Arbitration Act, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction.

. . .

(emphasis added).

The district court's decision not to compel arbitration of the pre-agreement claims was based upon its finding that the arbitration clause is silent as to whether it was intended to apply to services provided before the parties executed the agreement. The district court concluded that, because the clause is silent on the issue of retroactivity, Michigan's law precluding contracts from being construed to, operate retrospectively applies to preclude arbitration of the claims arising before the execution of the agreement.

Watson Wyatt argues that the trial court erred in finding that the clause is silent as to whether it applies to services provided prior to the execution of the arbitration agreement because the arbitration provision provides that it applies to "any dispute or claim arising from or in connection with . . . the services provided by Watson Wyatt." Thus, it argues that any claim arising from its services is covered by the arbitration provision.

This court has previously stated that where, as here, an arbitration clause is broadly written, "only an express provision excluding a specific dispute, or the most forceful evidence of a purpose to exclude the claim from arbitration,' will remove the dispute from consideration by the arbitrators." Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 577 (6th Cir.2003) (quoting AT & T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)). See also Masco v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir.2004).

This court has also stated that broadly written arbitration clauses must be taken at their word and extend to situations that fall within their purview. Fazio v. Lehman Bros., Inc., 340 F.3d 386, 396 (6th Cir.2003). In Fazio, investors sued their securities brokerage firms for damages sustained when a broker retained by the firms stole assets from their accounts. The investors' agreements with the brokerage firms contained an arbitration clause mandating that "[a]ny controversy arising out of or relating to any of my. accounts, to transactions with you for me, or to this or any other agreement or the construction, performance or breach thereof, shall be settled by arbitration." Id. at 392. This court held that the arbitration clause was broad and, taken at its word, applied to any dispute arising out of the agreements, accounts, or transactions. Thus, since unauthorized trading, excessive risk-taking and churning are problems associated with brokerage accounts, they were covered by the broad arbitration clause. Id. at 396.

Similarly, the arbitration agreement in the case at bar is broadly worded in that it applies VI "any dispute or claim arising from or in connection with this agreement or the services provided by Watson Wyatt." (emphasis added). It is noteworthy that the language of the agreement specifically extends its application to any claims arising from "the services provided by Watson Wyatt."

The First Circuit construed an arbitration clause using the same "or the services provided" language at issue in the case at bar, and held that the clause applied...