Zenger-Miller, Inc. v. Training Team, GmbH, 90-20392 RFP.

• Decision Date: 13 February 1991
• Docket Number: No. 90-20392 RFP.,90-20392 RFP.
• Citation: 757 F. Supp. 1062
• Court: U.S. District Court — Northern District of California
• Parties: ZENGER-MILLER, INC., a California corporation, Plaintiff, v. TRAINING TEAM, GMBH, a foreign corporation, and Astrid Karakash, an individual, Defendants.

757 F. Supp. 1062

ZENGER-MILLER, INC., a California corporation, Plaintiff, v. TRAINING TEAM, GMBH, a foreign corporation, and Astrid Karakash, an individual, Defendants.

No. 90-20392 RFP.

United States District Court, N.D. California.

February 13, 1991.

COPYRIGHT MATERIAL OMITTED

Edward Smithers and Donald E. Sloan, Gibson, Dunn & Crutcher, San José, Cal., for plaintiff.

Patricia M. Lucas and Walter W. O'Haire, Brown & Bain, Palo Alto, Cal., for defendants.

ORDER

PECKHAM, District Judge.

I. INTRODUCTION

Defendants bring before the court a motion to dismiss plaintiff's action for breach of contract, copyright violations, Lanham Act violations and fraud, or alternatively stay the action pending arbitration. First, defendants maintain that the language of their two contracts with plaintiff unambiguously provides for arbitration of all claims. They contend that, at best, the language is ambiguous as to the kinds of disputes that should be arbitrated and those that should be litigated. Therefore, the court should consider defendants' extrinsic evidence in ascertaining the intentions of the parties. Even if the language clearly provides for arbitration of fee disputes only, defendants contend that the California parol evidence rule compels the court to preliminarily consider evidence outside the contract. Defendants' extrinsic evidence purportedly confirms the parties' intention that all claims be arbitrated. Therefore, all claims brought before this court should be dismissed or stayed pending arbitration.

Second, defendants maintain that the court lacks personal jurisdiction over them because (1) defendants contractually consented to jurisdiction only in litigation following an arbitration award, and (2) defendants are Germans whose only contact with California was entering into contracts with plaintiff.

Third, defendants contend that the court lacks subject matter jurisdiction because U.S. copyright laws and the Lanham Act do not apply to alleged acts of infringement which occurred wholly outside the United States.

II. FACTS

Plaintiff Zenger-Miller, Inc. ("ZMI") is a California corporation that creates, develops and distributes management and employee training programs to major organizations worldwide. ZMI has conducted business either directly or through representatives in several European countries. In late 1987, Steve Mann, then Senior Vice President of ZMI, and Defendant Astrid Karakash ("Karakash") began discussing the possibility of Karakash's acting as a ZMI representative and distributor in Germany. In the midst of these discussions, Karakash organized defendant Training Team GmbH ("Training Team") to adapt and distribute ZMI products. All discussions between Steve Mann and Karakash took place in Germany except for one session which took place in Paris. Karakash is a German national who resides in Frankfurt/Main and who is not an American citizen.

Early in 1988, ZMI submitted a draft agreement ("Draft") to Training Team setting forth the terms of the distributor relationship. The Draft provided in part that the contract would be governed by California law, that disputes regarding interpretation, breach or enforcement would be litigated in California, and that Training Team would consent to the personal jurisdiction of California (the "choice of forum/choice of law clause"). After reviewing the Draft, Karakash's counsel, Mr. Ulrich Koch ("Koch"), disapproved of the choice of forum/choice of law clause. Koch maintains that he could not possibly have advised Karakash to sign such a one-sided clause. Karakash contends that, because of Koch's warning, she proposed to ZMI that disputes be resolved in German courts under German law. ZMI did not accept this proposal.

According to ZMI, Koch was concerned that protection of ZMI's intellectual property rights under U.S. law would violate German law. However, ZMI's United States and German counsel reviewed the Draft and found no such violation. ZMI contends that it conveyed this information to Karakash. In any event, the choice of forum/choice of law clause was incorporated in the final drafts exactly as it was found in the original Draft.¹

ZMI and Training Team then agreed to add an arbitration clause to their two contracts. It seems that the parties intended to at least partially resolve the conflict over forum/law selection with the arbitration clause. The facts regarding the parties' preliminary negotiations as to the site of arbitration are in dispute. Karakash maintains that ZMI initially proposed San Francisco as the site, but that Training Team refused either to litigate or arbitrate in California. In any event, Paris was finally selected as the site of arbitration. Karakash also contends that ZMI and Training Team finally agreed that all disputes would be arbitrated. However, the arbitration clause in both final drafts provided that controversies or claims arising out of, or related to "amounts due and owing" would be arbitrated.

III. DISCUSSION

1. Scope of the arbitration and forum selection clauses

a. The language of the contract

Defendants first contend that the language of the arbitration clause unambiguously provides for arbitration of all claims. This is simply a misreading of the clause. The arbitration clause states that "any controversy or claim arising out of, or related to, amounts due and owing under this Agreement shall be settled by arbitration ..." (emphasis added). Plaintiff does not overreach in stating that "claims arising out of, or related to, amounts due and owing" mean "fee disputes."

Defendants also incorrectly quote Mediterranean v. Ssangyong, 708 F.2d 1458 (9th Cir.1983) to support their interpretation of the clause. They quote Mediterranean as having stated that the language "arising out of or relating to" denotes a broad arbitration clause. Mediterranean actually stated that the phrase "arising out of or relating to this agreement" has been labelled a broad arbitration clause. Mediterranean at 1464 (citations omitted). Evidently, "arising out of or relating to this agreement" is more expansive than "arising out of relating to amounts due and owing under this agreement."

Mediterranean even holds that the omission of the phrase "relating to" would reduce the scope of an arbitration agreement:

"The omission of the phrase "relating to" should be significant in this circuit as well. The standard clause suggested in the U.S.-Korean Commercial Arbitration Agreement contains the phrase, `out of or in relation to or in connection with this contract, or for the breach thereof.' We have no difficulty finding that `arising hereunder' is intended to cover a much narrower scope of disputes ..." Id. at 1464.

Applying the same analysis to the language herein, the addition of the phrase "amounts due and owing" significantly limits the scope of the arbitration clause.

Defendants maintain that, at best, the language of the arbitration clause is ambiguous as to its scope. However, any ambiguity in the language itself is resolved by the fact that the parties incorporated a separate choice of forum/choice of law clause, which designates California as the site of litigation of the substantive issues:

"This Agreement shall be governed by and construed in accordance with the laws of the State of California, U.S.A. (except that body of laws controlling conflicts of law).... Representative defendants agrees that any litigation regarding the interpretation, breach or enforcement of this Agreement shall be filed in and heard by the state or federal courts with jurisdiction to hear such disputes in Santa Clara County, California and Representative hereby submits to the personal jurisdiction of such courts."

The parties defined the outer boundaries of the arbitration clause by expressly providing for the litigation of interpretation, breach and enforcement here. Moreover, even if plaintiff singlehandedly drafted this forum selection clause, defendants undoubtedly were aware of it, since they objected to its language on several occasions. Notwithstanding their objections, defendants agreed to the language by executing the agreement.

One area of slight ambiguity remains. Since plaintiff is suing in part for money damages, the resolution of any substantive issue (e.g., interpretation, breach) will necessarily affect the damages award or, said another way, will "relate to amounts due and owing." Since the arbitration clause covers all controversies "relating to amounts due and owing," all substantive issues that would affect plaintiff's damages would be arbitrable under this reading of the clause. However, such a reading is implausible in light of the drafter's effort to make an express and definite distinction between arbitrable and non-arbitrable claims (e.g., writing separate clauses for litigation and arbitration, drawing the line between substantive issues and fee disputes, avoiding listing the clauses back-to-back in the contract). Therefore, this court finds that the clauses, read together, unambiguously determine the scope of arbitration.

b. Consideration of extrinsic evidence

Defendants next contend that, even if the language of the contracts unambiguously limits arbitration to fee disputes, the California parol evidence rule allows defendants to present evidence that the contracts do not accurately reflect the parties' intentions. The Ninth Circuit has held that federal law governs the scope and interpretation of arbitration clauses (Mediterranean at 1463) and forum selection clauses (Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 513 (9th Cir. 1988)). Under the federal parol evidence standard, extrinsic evidence is inadmissible to interpret or vary the terms of an unambiguous, fully integrated written contract. Manetti-Farrow at 514; Trident Center v. Connecticut General Life Ins., 847 F.2d 564, 568 (9th Cir.1988). However, defendants' correctly point to the parties' choice of California law in their contracts....