Battaglia v. McKendry , 233 F.3d 720 ( 2000 )

Opinions of the United
2000 Decisions States Court of Appeals
for the Third Circuit
11-30-2000
Battaglia v. McKendry
Precedential or Non-Precedential:
Docket 99-1751
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"Battaglia v. McKendry" (2000). 2000 Decisions. Paper 238.
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Filed November 30, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 99-1751
RAYMOND J. BATTAGLIA, SR.,
Appellant,
v.
MARY ANN MCKENDRY; MARY ANNE BA TTAGLIA;
JAMES DOORCHECK, INC.; RAYMOND BATT AGLIA, JR.;
JAMES BATTAGLIA; AMERICAN ARBITRATION
ASSOCIATION; TIMOTHY B. BARNARD, ESQ.
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 98-5321)
District Judge: Honorable Herbert J. Hutton
Argued: August 2, 2000
Before: ALITO, ROTH, and AMBRO, Cir cuit Judges
(Filed: November 30, 2000)
JOSEPH M. TODDY, ESQUIRE
(Argued)
Zarwin, Baum, DeVito, Kaplan,
O'Donnell & Schaer, P.C.
1515 Market Street, Suite 1200
Philadelphia, PA 19102
Counsel for Appellant
EDWARD W. FERRUGGIA, ESQUIRE
(Argued)
Schnader, Harrison, Segal &
Lewis LLP
1600 Market Street, Suite 3600
Philadelphia, PA 19103
Counsel for Appellees
Mary Ann McKendry, Mary Anne
Battaglia, James Doorcheck, Inc.,
Raymond Battaglia, Jr. and James
Battaglia
OPINION OF THE COURT
AMBRO, Circuit Judge
Raymond J. Battaglia, Sr. ("Battaglia") appeals from an
order of the United States District Court for the Eastern
District of Pennsylvania (the "District Court") that granted
summary judgment in favor of Mary Ann McKendry, Mary
Anne Battaglia, James Doorcheck, Inc., Raymond Battaglia,
Jr. and James Battaglia (collectively, the"Appellees"),
denied Battaglia's cross-motion for summary judgment and
ordered that the parties' claims be arbitrated without
further delay. Battaglia claims on appeal that the District
Court erred by failing to hold that under Pennsylvania law
the arbitrator does not have the authority to deter mine
whether an issue is arbitrable. We conclude that the
District Court did rule on this issue, and we affirm its
ruling that under Pennsylvania law it was for the Court to
determine the scope of the arbitration clause. Battaglia also
asserts on appeal that the District Court err ed in finding
that the arbitration clause was broad enough to reach (i)
disputes relating to the formation of the underlying
settlement agreement, and (ii) disputes arising from a
related consulting agreement. We affirm the District Court's
determination that the arbitration clause is sufficiently
broad to reach disputes relating to the formation of the
settlement agreement. However, because we conclude that
there are genuine issues of material fact in dispute with
respect to the integration of the settlement and consulting
2
agreements, we reverse and remand to the District Court to
reconsider, in light of this opinion, whether the arbitration
clause in the settlement agreement reaches disputes arising
from the consulting agreement.
I. JURISDICTION AND STANDARD OF REVIEW
Jurisdiction was proper in the District Court pursuant to
28 U.S.C. S 1332. We have jurisdiction over the District
Court's final order compelling arbitration under 28 U.S.C.
S 1291.
Our review of the District Court's grant of summary
judgment is plenary. See Becton Dickinson & Co. v.
Wolckenhauer, 215 F.3d 340, 343 (3d Cir. 2000).
[S]ummary judgment should be granted if, after
drawing all reasonable inferences fr om the underlying
facts in the light most favorable to the non-moving
party, the court concludes that there is no genuine
issue of material fact to be resolved at trial and [that]
the moving party is entitled to judgment as a matter of
law.
Kornegay v. Cottingham, 120 F.3d 392, 395 (3d Cir. 1997)
(quoting Spain v. Gallegos, 26 F.3d 439, 446 (3d Cir. 1994)
(quoting Petruzzi's IGA Supermarkets, Inc. v. Darling-
Delaware Co., 998 F.2d 1224, 1230 (3d Cir. 1993)).
"Summary judgment may be granted based on the
interpretation of a contract only if `the contract is so clear
that it can be read only one way.' " PaineWebber Inc. v.
Hofmann, 984 F.2d 1372, 1378 (3d Cir . 1993) (quoting Tigg
Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.
1987)).
II. FACTS
Battaglia is the father of Mary Ann McKendry, Raymond
Battaglia, Jr. and James Battaglia and the father-in-law of
Mary Anne Battaglia. Battaglia is also the for mer President
of James Doorcheck, Inc. (the "Company"). Raymond
Battaglia. Jr. and James Battaglia ar e the President and the
Secretary/Treasurer, r espectively, of the Company.
Raymond Battaglia, Jr., James Battaglia and Mary Ann
3
McKendry are each one-third shareholders in the Company.
They held the same ownership interests and control of the
Company in November 1990, at the time of the settlement
at issue in this case.
Appellees Mary Ann McKendry and Mary Anne Battaglia
are trustees under the Agreement of T rust of Mary A.
Battaglia (the wife, now deceased, of Battaglia), dated
March 12, 1985 (the "Trust").1 The Trust provides, among
other things, that the "Trustees shall distribute to my
husband, RAYMOND, all of the net income in annual or
more frequent periodic installments." Upon Battaglia's
death, the Trust provides that "the balance of principal
then remaining of this trust shall be distributed to my
[Mary A. Battaglia's] children."
Following his wife's death, Battaglia filed an action
against the Appellees and others in the District Court
captioned Battaglia v. Brantz, et al., Civil Action No. 90-
1511 (the "Litigation"). In the Litigation, Battaglia
complained that the trustees were not investing Trust
assets in order to maximize income, but instead were
maximizing principal to benefit themselves. It is not clear
from the record what allegations wer e made with respect to
the Company. In any event, the parties resolved the
Litigation by entering into a settlement agr eement (the
"Settlement Agreement") and a consulting agreement (the
"Consulting Agreement," and together with the Settlement
Agreement, the "Agreements").2 A form of the Consulting
Agreement was attached to the Settlement Agr eement as
_________________________________________________________________
1. While the Trust document names Geor ge M. Brantz, Esq. ("Brantz") as
a third trustee, it is not clear whether Brantz remains a trustee.
2. Although there is no dispute that the settlement of the Litigation was
memorialized in two separate documents -- the Settlement Agreement
and the Consulting Agreement -- the parties apparently dispute whether
the documents were executed concurrently. Battaglia asserts that the
Consulting Agreement was executed on September 1, 1990, while the
Settlement Agreement was executed on November 29, 1990. While the
dates on the Agreements support Battaglia's position, the Appellees
claim that they were executed concurrently on or about November 29,
1990, that language in the Settlement Agreement and Consulting
Agreement supports their assertion and that the Consulting Agreement
was merely backdated at Battaglia's insistence.
4
Exhibit A. The Settlement Agreement provides, among other
things, that "[t]he Trustees shall invest the Trust assets in
such a way as to maximize the income to Battaglia during
his lifetime."
The Settlement Agreement contains several r eferences to
the Consulting Agreement:
NOW, THEREFORE, intending to be fully and legally
bound, and in consideration of the mutual pr omises
set forth herein, the parties hereto agr ee as follows:
1. Simultaneously with the execution of this
Settlement Agreement, Battaglia and the Company
have entered into a Consulting Agreement in the form
attached hereto as Exhibit A.
****
8. All parties to this Settlement Agr eement will act
in good faith to secure to Battaglia the benefits of this
Settlement Agreement and all of the amounts due to
him under the Consulting Agreement, and will cause
the Company to do likewise. In the event of a transfer
of Company assets . . . or of a transfer of a contr olling
interest in the stock of the Company, the Company
shall take whatever steps are necessary to ensure that
the obligations due to Battaglia under the Consulting
Agreement are paid by the transfer ee.
The Consulting Agreement also refers to the Settlement
Agreement:
11. Miscellaneous. . . . The Settlement Agreement
executed concurrently with this Consulting Agr eement,
to which Settlement Agreement the Company and the
Consultant, among others, are parties, does not merge
into this Consulting Agreement.
The Settlement Agreement, which is gover ned by
Pennsylvania law, contains an arbitration clause (the
"Arbitration Clause"):
9. This Settlement Agreement and the obligations
created hereunder shall be interpr eted under the laws
of the Commonwealth of Pennsylvania, and the parties
hereto further agree that in the event that any
5
controversy arises hereunder, venue in Philadelphia,
Pennsylvania with the American Arbitration Association
is appropriate for the resolution of such controversy.
The Consulting Agreement, on the other hand, does not
contain an arbitration clause.
On December 29, 1997, Battaglia initiated arbitration
proceedings against the trustees with the American
Arbitration Association and alleged failure of the trustees to
abide by the terms of the Settlement Agr eement. In
particular, Battaglia complained that the trustees were not
investing Trust assets to maximize income to Battaglia as
required under the Settlement Agreement. On February 17,
1998, the Appellees filed a counterclaim in the arbitration
proceeding alleging, among other things, that the
Settlement Agreement was void from its inception by reason
of egregious duress committed by Battaglia. Battaglia's
subsequent motion to dismiss the arbitration counter claim
was itself dismissed by the arbitrator, T imothy B. Barnard,
Esq. (the "Arbitrator").
On October 7, 1998, Battaglia filed a Verified Complaint
in the District Court and sought a temporary r estraining
order enjoining the arbitration. The District Court denied
the request for a temporary restraining or der.
The parties subsequently filed cross-motions for
summary judgment. In a Memorandum and Order dated
July 29, 1999 (the "Memorandum Opinion"), the District
Court denied Battaglia's motion for summary judgment and
granted the Appellees' cross-motion for summary judgment.
The District Court ordered that the parties' claims be
arbitrated "without further delay." After judgment was
entered in favor of the Appellees and against Battaglia on
August 3, 1999, he filed a timely notice of appeal.
III. DISCUSSION
We address in order the thr ee issues Battaglia raises on
appeal: (1) who determines the scope of the Arbitration
Clause; (2) is the Arbitration Clause sufficiently broad to
cover disputes related to formation of the Settlement
Agreement; and (3) whether the Arbitration Clause in the
6
Settlement Agreement reaches disputes under the
Consulting Agreement, which does not contain its own
agreement to arbitrate.
A.
First, we must decide who has the authority under
Pennsylvania law to determine the scope of the Arbitration
Clause -- the Court or the Arbitrator. The issue arises
because Battaglia questions whether the Arbitrator had the
authority to decide whether the Appellees' dur ess
counterclaim is arbitrable. By granting the Appellees'
motion for summary judgment and indeed by dir ect
statement in its Memorandum Opinion, the District Court
made a ruling that it was for the Court to deter mine the
scope of the Arbitration Clause. "[Battaglia's] attempts to
raise the actual merits of the claims here ar e completely
irrelevant to the issue of arbitrability, which is the only
issue before the Court. See AT&T T echnologies, Inc. v.
Communications Workers of America, 475 U.S. 643, 649 . . .
(1986) (arbitrability of a dispute is for the court to decide)."
Memorandum Opinion at 11. Cf. Flightways Corp. v.
Keystone Helicopter Corp., 331 A.2d 184, 185 (Pa. 1975).
"[W]hen deciding whether the parties agr eed to arbitrate a
certain matter (including arbitrability), courts generally . . .
should apply ordinary state-law principles that govern the
formation of contracts." First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944 (1995). Under Pennsylvania law,
"the threshold question of whether a party agreed to
arbitrate a dispute is a jurisdictional question that must be
decided by a court." Smith v. Cumberland Gr oup, Ltd., 687
A.2d 1167, 1171 (Pa. Super. Ct. 1997). Furthermore, there
is no indication -- in the language of the Arbitration Clause
or otherwise in the record before this Court -- that the
parties intended to arbitrate the scope of the Clause itself.
Consequently, this determination was pr operly made by the
District Court. See First Options, 514 U.S. at 944 ("[C]ourts
should not assume that the parties agreed to arbitrate
arbitrability unless there is `clea[r] and unmistak[able]
evidence that they did so.") (second and thir d alterations in
original).
7
B.
Battaglia's next argument on appeal is that the
Arbitration Clause is limited to disputes involving the
interpretation and performance of the Settlement
Agreement, and thus the Clause does not encompass
disputes going to the formation of that Agr eement. In
particular, Battaglia asserts that because the Arbitration
Clause uses the language "any controversy[that] arises
hereunder [i.e., under the Settlement Agreement]," rather
than broader language such as "any contr oversy arising
under or related to the Settlement Agreement," the
Arbitration Clause does not encompass the Appellees'
counterclaim in the arbitration proceeding alleging that the
Settlement Agreement was void from its inception by reason
of egregious duress committed by Battaglia. For the reasons
set forth below, we agree with the District Court that the
Arbitration Clause is sufficiently broad to r each disputes
regarding the formation of the Settlement Agreement.
In construing the scope of an arbitration clause, courts
generally operate under a pronounced "pr esumption of
arbitrability":
[W]here the contract contains an arbitration clause,
there is a presumption of arbitrability in the sense that
"[a]n order to arbitrate the particular grievance should
not be denied unless it may be said with positive
assurance that the arbitration clause is not susceptible
of an interpretation that covers the asserted dispute.
Doubts should be resolved in favor of coverage."
AT&T Techs., 475 U.S. at 650 (second alteration in
original)(quoting United Steelworkers v. W arrior & Gulf
Navigation Co., 363 U.S. 574, 581-82 (1960)). The
Pennsylvania Supreme Court has adopted an identical rule.
See Lincoln Univ. of the Commonwealth Sys. of Higher Educ.
v. Lincoln Univ. Chapter of the Am. Ass'n of Univ. Professors,
354 A.2d 576, 581-82 (Pa. 1976). This presumption of
arbitrability is particularly applicable wher e the arbitration
clause at issue is broad. See AT&T T echs., 475 U.S. at 650
(finding to be broad a clause providing for arbitration of
"any differences arising with r espect to the interpretation of
this contract or the performance of any obligation
hereunder").
8
In ordering arbitration, the District Court r elied on the
presumption of arbitrability and on the "expansive, all-
encompassing language" of the Arbitration Clause.
Memorandum Opinion at 8-9. Cf. Flightways, 331 A.2d at
185 (broad language -- that arbitration is agreed for "[a]ny
controversy or claim arising out of or r elating to this
Agreement" -- "cannot be circumvented by an allegation
that the contract was void ab initio because of fraud in the
inducement").
In arguing that the Arbitration Clause has a more limited
scope, Battaglia relies on In re Kinoshita & Co., 287 F.2d
951 (2d Cir. 1961), and cases relying thereon. But this line
of cases has been discredited both in the Second Circuit
and in other jurisdictions. In Kinoshita, the Second Circuit
found that an arbitration provision providing for arbitration
of "any dispute or difference . . . aris[ing] under" the
contract containing the clause was not sufficiently broad to
require arbitration of a claim alleging fraudulent
inducement of the contract. See Kinoshita, 287 F.2d at 953.
The Second Circuit explained that when an arbitration
provision refers only to disputes "under" or "arising out of "
a contact, arbitration is limited to disputes r elating to the
interpretation of the contract and matters of performance.
See id. The Court distinguished the arbitration clause at
issue from clauses including disputes "r elating to" a
contract, stating that the latter would encompass claims of
fraud in the inducement. See id.
Although Kinoshita has not been formally overruled by
the Second Circuit, that Court has repeatedly distinguished
Kinoshita and limited the case to its pr ecise facts. The
Second Circuit first limited Kinoshita in S.A. Mineracao da
Trindade-Samitri v. Utah Int'l, Inc., 745 F.2d 190 (2d Cir.
1984), where the Court found that an arbitration clause
requiring arbitration of "any question or dispute . . .
aris[ing] or occur[ring] under" the agreement was
sufficiently broad to reach claims of fraud in the
inducement. See id. at 192. The Court noted that while the
distinction between the arbitration clause at hand and the
clause at issue in Kinoshita was "far fr om overwhelming," it
was "at least as reasonable as the distinction drawn in
Kinoshita." Id. at 194. While the Court acknowledged that
9
Kinoshita is inconsistent with the federal policy favoring
arbitration, it declined to overrule Kinoshita on policy
grounds:
We decline to overrule In re Kinoshita, despite its
inconsistency with federal policy favoring arbitration,
particularly in international business disputes,
because we are concerned that contracting parties may
have (in theory at least) relied on that case in their
formulation of an arbitration provision. We see no
reason, however, why we may not confine Kinoshita to
its precise facts. We are confident that parties who
have actually relied on Kinoshita[,] in an attempt to
formulate a narrow arbitration pr ovision, have adopted
the exact language of the arbitration provision involved
in Kinoshita. The provision involved in Kinoshita
required arbitration of "any dispute or difference
aris[ing] under" the agreement. Thus, to ensure that an
arbitration clause is narrowly interpreted contracting
parties must use the foregoing phrase or its equivalent,
although the better course, obviously, would be to
specify exactly which claims are and ar e not arbitrable.
Id. (alteration in original).
The Second Circuit again distinguished Kinoshita in
Genesco, Inc. v. T. Kakiuchi & Co., 815 F .2d 840 (2d Cir.
1987). There the Second Circuit found that an arbitration
clause requiring arbitration of "all claims and disputes of
whatever nature arising under this contract" was broad
enough to reach claims of fraud in the inducement. See id.
at 854. Although the only material differ ence between the
clauses in Genesco and Kinoshita is that the former
contains the phrase "of whatever nature," the Second
Circuit rested its decision on this distinction:
The instant clause is . . . distinguishable fr om the
Kinoshita clause. The clause here r equires arbitration
of "all claims and disputes of whatever natur e arising
under this contract." . . . The phrase "of whatever
nature" indicates the parties' intent to submit all
claims and disputes arising under the contract to
arbitration, whether they be tortious or contractual in
nature.
10
Id.
Again, the Second Circuit declined to overrule Kinoshita:
We are invited to overrule Kinoshita . While we
recognize, as did [S.A. Mineracao], that Kinoshita is
inconsistent with the federal policy favoring arbitration,
nevertheless, we decline the invitation. Because the
instant clause is distinguishable from the Kinoshita
clause, we need not discuss the continued viability of
Kinoshita. See Scherk [v. Alberto-Culver Co.], 417 U.S.
at 508, 94 S.Ct. at 2451 (clause requiring arbitration of
"any controversy or claim . . . aris[ing] out of this
agreement" held to cover fraudulent misr epresentations
claim).
Id. at 854 n.6 (citation omitted) (thir d alteration in original).
Although the Second Circuit does not discuss the
continued viability of Kinoshita, its citation to Scherk
implies that, even in the Second Circuit, Kinoshita is no
longer good law.3 Cf. St. Paul Fire & Marine Ins. Co. v.
Employers Reinsurance Corp., 919 F. Supp. 133, 135
(S.D.N.Y 1996) ("In both Second Circuit cases [i.e., S.A.
Mineracao and Genesco], . . . the court grappled with
Kinoshita and left it in tatters. . . . As a r esult, the authority
of Kinoshita is highly questionable in this Circuit.").
In light of the negative treatment affor ded Kinoshita --
even within the Second Circuit -- we decline to follow those
courts that have found Kinoshita persuasive in holding that
an arbitration provision such as the one at issue here does
not reach formation issues. In particular , we decline to
follow the Ninth Circuit, which apparently continues to
approve the teaching of Kinoshita. See Tracer Research
Corp. v. National Envtl. Servs. Co., 42 F .3d 1292, 1295 (9th
Cir. 1994) (finding that arbitration pr ovision applying to
disputes "arising out of " or "arising under" a contract is
limited to disputes relating to interpr etation and
performance of the contract itself); Mediterranean Enters.,
Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir.
_________________________________________________________________
3. See Scherk v. Alberto-Culver Co., 417 U.S. 506, 519-20 (1974).
Nonetheless, the breadth of the arbitration clause was not at issue
before the Court in Scherk.
11
1983) (finding that arbitration provision applying to
disputes "arising hereunder" is limited to interpretation and
performance of the underlying contract). Furthermore, we
do not believe that the Pennsylvania courts, after
consideration of S.A. Mineracao and Genesco, would be
persuaded by A. Sulka & Co. v. SMI Indus., Inc. , No. 2094,
1979 Phila. Cty. Rptr. LEXIS 64 (Ct. C.R. Pa. June 26,
1979) (following Kinoshita and holding that arbitration
provision covering disputes "arising out of this agreement"
is limited to disputes relating to the interpr etation and
performance of the agreement). Not only have the
underpinnings for the A. Sulka Court's holding been
eroded, but we can find no evidence that the opinion has
been cited by any other court in Pennsylvania.
Instead, we will follow the Eleventh Circuit, which has
recently rejected Kinoshita as"not being in accord with
present day notions of arbitration as a viable alternate
dispute resolution procedure." H.S. Gregory v. Electro-
Mechanical Corp., 83 F.3d 382, 385 (11th Cir. 1996). In
Gregory, the Court was asked to deter mine whether the
counts alleged in a complaint, including a count for
fraudulent inducement, fell within an arbitration pr ovision
providing for arbitration of "any dispute . . . which may
arise hereunder." See id. at 383. After considering the
structure of the complaint and its factual allegations, the
Eleventh Circuit concluded that, regar dless of the plaintiffs'
characterization of the claims, they all arose under the
agreement and thus were encompassed within the
arbitration provision. See id. at 384-85. As an alternate
basis for its decision, however, the Eleventh Circuit relied
on the Supreme Court's decision in Scherk , where the
Court found that an arbitration clause requiring arbitration
of any controversy or claim arising out of the agreement
covered a fraudulent misrepresentation claim. See id. at
385-86. In relying on Scherk, the Eleventh Circuit stated
that it does not draw a distinction between the phrases
"arising under" and "arising out of." See id. at 386. In fact,
the Eleventh Circuit noted that the Scherk Court seemed to
use these terms interchangeably. See id.
In sum, when phrases such as "arising under" and
"arising out of " appear in arbitration pr ovisions, they are
12
normally given broad construction, and ar e generally
construed to encompass claims going to the for mation of
the underlying agreements. See, e.g., St. Paul Fire & Marine
Ins. Co., 919 F. Supp. at 135 ("Since 1961 [when Kinoshita
was decided], both the Supreme Court and the Second
Circuit have taken an increasingly br oad view of such
phrases as "arising under" and "arising out of " in
arbitration agreements, and have concluded that fraudulent
inducement claims generally fall within their scope."). This
construction of an arbitration provision is consistent with
both federal and Pennsylvania precedent holding that an
agreement to arbitrate a particular dispute"should not be
denied unless it may be said with positive assurance that
the arbitration clause is not susceptible of an interpretation
that covers the asserted dispute." AT&T Techs., 475 U.S. at
650; accord Lincoln Univ., 354 A.2d at 581-82. Accordingly,
as a matter of Pennsylvania law, the Arbitration Clause is
broad enough to encompass disputes relating to the
formation of the Settlement Agreement. Because there is no
genuine issue of material fact to be resolved at trial, we will
affirm the District Court's grant of summary judgment with
respect to this aspect of the case.
C.
Battaglia's final argument on appeal is that the
Arbitration Clause contained in the Settlement Agr eement
is not broad enough to reach disputes arising under the
Consulting Agreement. In particular, Battaglia contends
that the Agreements are separate and independent and,
therefore, that the Arbitration Clause (pr esent in only the
Settlement Agreement) does not apply to the Consulting
Agreement. In contrast, the District Court found that all
disputes between the parties -- including those r elating to
the Consulting Agreement -- were subject to the Arbitration
Clause. The Court's decision was based on the br eadth of
the Arbitration Clause and the Court's conclusion, based
on the language of the Agreements, that "the parties
intended for the Settlement and Consulting Agr eements to
be interdependent and interrelated documents."
Memorandum Opinion at 10. We agree with the District
Court that the applicability of the Arbitration Clause to the
13
Consulting Agreement turns on whether the Settlement
Agreement and the Consulting Agreement should be
construed as a single integrated agreement. But because we
believe that there are genuine issues of material fact in
dispute with respect to the integration of the Agreements,
we conclude that the District Court erred in granting
summary judgment in favor of the Appellees on this issue.
On the one hand, there exists evidence that the
Agreements were intended to be interpr eted as a single
integrated agreement. First, it is undisputed that both
Agreements memorialized the terms of the settlement of a
single litigation. According to the ter ms of the Agreements
and statements made by the Appellees in affidavitsfiled
with the District Court, the Agreements wer e executed
concurrently. Furthermore, a for m of Consulting Agreement
is attached to the Settlement Agreement as Exhibit A, and
the Agreements contain various refer ences to each other.
Most significantly, the Settlement Agreement obligates all
parties thereto to "act in good faith to secure to Battaglia
. . . all of the amounts due to him under the Consulting
Agreement, and will cause the Company to do likewise."
On the other hand, viewing the evidence in the light most
favorable to Battaglia (as we must), the Agr eements may be
viewed as independent agreements, in which case the
Arbitration Clause would not apply to disputes arising
under the Consulting Agreement. First, the parties to the
Agreements are not the same. While all the Appellees are
parties to the Settlement Agreement, only the Company is
a party to the Consulting Agreement.4 In Battaglia's Verified
Complaint filed in the District Court, he states that "[i]n
order to resolve the dispute between Battaglia and the
Trustees, paragraph 2 of the Settlement Agr eement
provides in pertinent part that: `[The] Trustees shall invest
the trust assets in such a way as to maximize the income
to Battaglia during his lifetime.' " Battaglia further explains
that "[i]n order to resolve the dispute between Battaglia and
Doorcheck, the Consulting Agreement was drafted and
provided in part that Battaglia would pr ovide consulting
services to Doorcheck in exchange for compensation." Thus,
_________________________________________________________________
4. Of course, Battaglia is a party to both Agr eements.
14
based on the limited record (which does not fully set forth
the nature of the Litigation), it would be possible to
conclude that the settlement was memorialized using two
separate agreements because the relief sought against the
Company was different from that sought against the other
Appellees. If so, the parties may very well have intended the
Agreements to be treated independently.
Next, even though the language of the Agreements
suggests that they were executed concurr ently,5 the
Consulting Agreement is dated almost thr ee months prior
to the Settlement Agreement. While Battaglia r epeatedly
states that the Agreements were executed as dated, the
Appellees assert that the Agreements wer e executed
concurrently, and that the Consulting Agr eement was
merely back-dated at Battaglia's insistence. If the
Consulting Agreement was executed three months prior to
the Settlement Agreement, the argument that the
Agreements must be interpreted together loses some of its
force.
Finally, the Consulting Agreement is a valid contract on
its face and could well be the product of a settlement of
claims relating to Battaglia's alleged "ouster" as President of
the Company. The terms of the Consulting Agr eement are
fully set forth therein and, contrary to thefinding of the
District Court,6 the Consulting Agreement does not rely on
the Settlement Agreement for its terms. In fact, the
Consulting Agreement's only reference to the Settlement
Agreement -- in Paragraph 11 that "[t]he Settlement
Agreement . . . does not merge into this Consulting
Agreement" -- suggests a finding that the parties intended
to treat the Agreements independently. A typical merger
clause might state that "this agreement mer ges all prior
negotiations and understandings between the parties and
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5. The Settlement Agreement provides that "[s]imultaneously with the
execution of this Settlement Agreement, Battaglia and the Company have
entered into a Consulting Agreement." The Consulting Agreement refers
to the Settlement Agreement "executed concurrently."
6. The District Court found that "[i]t is the Settlement Agreement[ ]
which
sets forth the terms of the Consulting Agr eement." Memorandum
Opinion at 11.
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constitutes their entire agreement." In other words, the
standard merger clause causes prior negotiations and
understandings to merge into and be extinguished by the
subsequent agreement.7 By placing into the Consulting
Agreement an anti-merger concept, it is plausible that the
parties here were merely trying to underscore the
independence of each Agreement. Battaglia especially had
every incentive to assure that the payment pr ovisions of the
Consulting Agreement were independent beyond
peradventure from the Settlement Agr eement.
Because the evidence before the District Court regarding
the independence/inter-dependence of the Agr eements is
inconclusive, the District Court improperly granted the
Appellees' cross-motion for summary judgment.
Accordingly, we will reverse the judgment of the District
Court with respect to this issue and remand for further
proceedings consistent with this opinion.
IV. CONCLUSION
As set forth above, the District Court correctly
determined that under Pennsylvania law it was for the
Court -- and not the Arbitrator -- to deter mine whether an
issue (in this case, the Appellees' duress claim) is arbitrable
within the scope of the Arbitration Clause. Also, because we
find that the Arbitration Clause is broad enough to
encompass disputes relating to the formation of the
Settlement Agreement, we will affirm the District Court's
grant of summary judgment with respect to this aspect of
the case. However, because there is a genuine issue of
material fact in dispute with respect to the
independence/interdependence of the Settlement and
Consulting Agreements, we will reverse the judgment of the
District Court with respect to this issue and r emand for
further proceedings consistent with this opinion.
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7. This concept is distinct from integration. If agreement A merges into
agreement B, the terms of agreement A are extinguished. On the other
hand, if agreements A and B are deemed integrated, the provisions of
agreement A are not extinguished, but rather are read in conjunction
with the terms of agreement B.
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A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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