Weatherly Cellaphonics Partners v. Hueber

• Decision Date: 05 December 1989
• Docket Number: Civ. A. No. 89-1701 (CRR).
• Parties: WEATHERLY CELLAPHONICS PARTNERS, Plaintiff, v. Eldon L. HUEBER, et al, Defendants.
• Court: U.S. District Court — District of Columbia

726 F. Supp. 319

WEATHERLY CELLAPHONICS PARTNERS, Plaintiff, v. Eldon L. HUEBER, et al, Defendants.

Civ. A. No. 89-1701 (CRR).

United States District Court, District of Columbia.

December 5, 1989.

Paul C. Besozzi, Washington, D.C., for plaintiff.

Dean George Hill, Timothy E. Welch, Washington, D.C., for defendants.

CHARLES R. RICHEY, District Judge.

The plaintiff, Weatherly Cellaphonics Partners ("Weatherly"), has sued the defendants, Eldon L. Hueber and Cellutech, Inc. ("Hueber"),¹ for fraud, breach of contract, and breach of fiduciary duty. Hueber now moves to dismiss and compel arbitration, arguing that this dispute should be resolved not by litigation but by arbitration as specified in the arbitration clause contained in the contract between the parties. The Court will grant Hueber's motion in part and will stay these proceedings pending arbitration because the arbitration clause covers this dispute.

I. Background Facts

Weatherly was interested in acquiring interests in certain cellular telephone markets being awarded through a lottery conducted by the Federal Communications Commission ("FCC"). In an attempt to improve its chances of profiting from the lottery, Weatherly joined forces with many other lottery participants. By way of the "Joint Agreement" ("Agreement")—an umbrella agreement tying together over one hundred lottery participants—Weatherly came to be contractually related with Hueber, operating through Cellutech. Under the Agreement, the parties that did not win the lottery were entitled to acquire minority interests in the markets awarded by the FCC to any other, more successful, party to the Agreement. Weatherly was not awarded a license while Hueber was awarded third place, a valuable runner-up position, in one of the markets.

Since the "conditional buy-sell" arrangement between the parties was phrased in terms of "winning" the lottery, the question arose whether Hueber was required to share its runner-up interest with the other parties. Although Hueber's position was that ownership rights in his runner-up interest had not been created, Hueber sent each party to the Agreement a letter containing: (1) a proposed addendum "clarifying the positions of the various parties," which each party was supposed to sign and (2) a capital call so that the parties could share the legal and other expenses needed to prosecute Hueber's application and perhaps displace the first- and second-placed selectees.

Weatherly apparently never received the letter. After Hueber refused its somewhat belated tender of a $300 check in response to the capital call, Weatherly filed this action.² Weatherly alleges inter alia that Hueber failed to use reasonable efforts to give it timely notice of the capital call and that, although Weatherly attempted to tender the capital call immediately after belatedly receiving notice, Hueber has wrongfully refused the tender and prevented Weatherly from participating as a minority owner in Hueber's runner-up position. Hueber argues that an arbitrator and not a court must resolve this dispute because the Agreement contains the following arbitration clause: "Any disputes under this Agreement which cannot be resolved by the Parties shall be resolved by resort to the offices of the American Arbitration Association in Washington, D.C., and its rules and regulations applicable to commercial disputes."

II. Analysis

A preliminary procedural matter is who decides—the Court or an arbitrator—whether there should be an arbitral or a judicial resolution of the merits of this dispute. It is well-established that, unless the parties have clearly and unmistakably provided otherwise, "the question of arbitrability—whether an agreement creates a duty for the parties to arbitrate a particular grievance—is undeniably an issue for judicial determination." National R.R. Passenger Corp. v. Boston & Maine Corp., 850 F.2d 756, 759 (D.C.Cir.1988) (quoting AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649, 106 S.Ct. 1415, 1418-19, 89 L.Ed.2d 648 (1986)). Moreover, even if the claim seems frivolous, a court decided the arbitrability issue may not address the potential merits of the underlying claim. AT & T Technologies, 475 U.S. at 649-50, 106 S.Ct. at 1418-19. Thus, the only issue presently before the Court is whether this dispute over Hueber's alleged misconduct regarding the capital call and addendum to the Agreement falls within the scope of the Agreement's arbitration clause.

A. Facially Broad Arbitration Clause

The essence of Weatherly's argument is:

(1) a party cannot be forced to arbitrate any dispute which it has not agreed to arbitrate; (2) Hueber's allegedly unilateral acts of fraud and breach of fiduciary duty were beyond the scope of the Agreement; and (3) therefore, Hueber may not use the arbitration clause as a "sword" to deny Weatherly its judicial remedies. The Court disagrees with all but the first of these propositions.

Weatherly makes entirely too much of the axiomatic proposition repeatedly stated in the case law that parties to an arbitration agreement "cannot be required to submit to arbitration any matter that they did not agree would be subject to that manner of dispute resolution." Davis v. Chevy Chase Fin. Ltd., 667 F.2d 160, 165 (D.C. Cir.1981) (citing United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960)). It is equally axiomatic that arbitration is a matter of contract. E.g., AT & T Technologies, 475 U.S. at 648, 106 S.Ct. at 1418; Warrior & Gulf, 363 U.S. at 582, 80 S.Ct. at 1352-53.

The Court must therefore attempt to discern the intent of the parties at the time they entered into the Agreement. In this regard, Weatherly's post hoc contentions that it never intended the arbitration clause to cover this type of dispute are entitled to little weight. While Weatherly may not have contemplated the precise scenario by which it has allegedly been divested of any minority ownership rights it may have had in Hueber's runner-up position, Weatherly did enter into a contract with an expansive arbitration clause.³ Contained in Paragraph 19 of the Agreement, to which both Weatherly and Hueber were parties, the arbitration clause covers "any disputes under this Agreement" without mentioning any exceptions.

The Court fails to comprehend how this dispute could be beyond the scope of the Agreement when the Agreement provides the only basis for any of Weatherly's claims against Hueber. After all, Weatherly's Complaint alleges fraud, breach of contract, and breach of fiduciary duty,⁴ and the various kinds of relief sought (money damages, a declaratory judgment, and an injunction) all revolve around redressing Hueber's alleged failure to live up to his part of the contract by unilaterally redistributing Weatherly's minority interest in a certain cellular telephone market.

It is clearly proper to utilize arbitration to resolve claims brought under: the § 10(b) antifraud provisions of the Securities Exchange Act of 1934, the RICO statutes, or the antitrust laws. See Rodriguez de Quijas v. Shearson/American Express, Inc., ___ U.S. ___, 109 S.Ct. 1917, 1920, 104 L.Ed.2d 526 (1989) (citing Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987); Mitsubishi Motors Corp. v. Soler-Chrysler Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985)). In light of these holdings by the Supreme Court, the Court sees no reason why it would be improper to compel arbitration of Weatherly's common-law fraud and breach of fiduciary duty claims, see Fischer v. NWA, Inc., 883 F.2d 594, 600-01 (8th Cir.1989) (affirming district court's dismissal of common law claims, including fraud, because plaintiff failed to comply with mandatory arbitration clause), even though they may seem slightly less related to the Agreement than the breach of contract claim. Put simply, if Weatherly wants to claim rights under a contract—the Agreement—then it must also be bound by a perfectly valid provision of that contract—the broadly drawn arbitration clause.

B. Strong Presumption Favoring Arbitration

In any event, even if Weatherly's position were more persuasive than the foregoing "plain language" analysis indicates, Weatherly has failed to overcome the strong presumption in favor of arbitration. The Federal Arbitration Act ("Arbitration Act"), 9 U.S.C. § 1 et seq., requires that, when a suit is brought in a federal court

upon any issue referable to arbitration under an agreement in writing for such arbitration, the court ..., upon being satisfied that the issue involved in such suit ... is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement....

Id. § 3 (emphasis added). The District of Columbia ("D.C.") statute upon which Hueber relies has a similar provision that also favors arbitral rather than judicial resolution of disputes when parties have entered into a contract with an arbitration clause. See D.C.Code Ann. § 16-4302. Therefore, under either the federal or the D.C. statute, the Court should apply a presumption in favor of arbitration.⁵

The Arbitration Act covers all contracts "evidencing a transaction involving commerce," 9 U.S.C. § 2, and it defines commerce broadly as "commerce among the several States ..., or in the District of Columbia, ... or between the District of Columbia and any state," id. § 1. The "involving commerce" language must be construed "very broadly" to be co-extensive with Congress' power under the commerce clause to reach activities affecting interstate commerce. Snyder v. Smith, 736 F.2d 409, 418 (7th Cir.), cert. denied, 469 U.S. 1037, 105 S.Ct. 513, 83 L.Ed.2d 403 (1984). While the parties have not addressed this precise issue, the contract at issue here seems to involve...