Personal Sec & Sfty v. Motorola Inc ( 2002 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________
No. 01-11040
_____________________
PERSONAL SECURITY & SAFETY SYSTEMS INC.; RICHARD R. JAFFE,
Plaintiffs-Appellees,
versus
MOTOROLA INC.,
Defendant-Appellant.
__________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
July 1, 2002
Before JOLLY, JONES, and BARKSDALE, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
Motorola, Inc. appeals the district court’s denial of its
motion to compel arbitration of claims raised by Personal Security
and Safety Systems, Inc. (“PSSI”). In 2000, PSSI filed suit
against Motorola alleging that Motorola breached a stock purchase
agreement with PSSI and made fraudulent misrepresentations during
the negotiations leading up to the agreement. Although the stock
purchase agreement did not include an arbitration clause, Motorola
moved to compel arbitration based on a provision in a licensing
agreement that was executed alongside the stock purchase agreement
as part of a broader contractual arrangement. The district court
initially granted Motorola’s motion, but it later reconsidered its
decision and denied the motion.
The central issue in this appeal is whether PSSI’s claims
under the stock purchase agreement fall within the scope of the
broad arbitration provision in the licensing agreement. We hold
that the licensing agreement’s arbitration provision governs claims
arising out of the stock purchase agreement because the agreements
were executed together as part of the same overall transaction and
therefore are properly construed together. We further hold that a
forum selection clause in the stock purchase agreement does not
operate to preclude arbitration of claims arising out of that
agreement. Accordingly, we reverse the district court’s denial of
Motorola’s motion to compel arbitration and remand to the district
court for entry of an order staying the litigation and requiring
the parties to submit their dispute to binding arbitration.
I
The underlying dispute in this case stems from Motorola’s
abortive strategic investment in PSSI. Before its demise in 1999,
PSSI was a small start-up company engaged in the development and
sale of specialized security systems -- primarily a “Personal 911
System” that allowed individuals to summon help from within a
limited geographic area by means of a wireless communications
device. Although it had made substantial progress in developing
the technology for the Personal 911 System by 1997, PSSI did not
2
have sufficient capital to complete development of the system or to
install the system at customer sites. At about the same time,
Motorola was in the process of developing a similar localized
security system for use in the hospitality industry, but its
technology was significantly less developed than PSSI’s technology.
Seeing an opportunity for collaboration, Motorola initiated
discussions with PSSI in June 1997 concerning a possible investment
in PSSI that would give Motorola access to PSSI’s technology. On
December 17, 1997, PSSI and Motorola executed three agreements in
connection with this investment: a Stock Purchase Agreement, a
Product Development and License Agreement, and a Shareholders
Agreement. Each of these agreements played a particular role in
the overall transaction.
Under the Stock Purchase Agreement, Motorola agreed to provide
twelve million dollars in financing in return for a convertible
debenture and a nine percent equity stake in PSSI. The financing
was to come in three parts. First, Motorola paid PSSI one million
dollars in cash and forgave a one million dollar interim loan that
it had provided to PSSI during the negotiations. Second, Motorola
loaned PSSI five million dollars to finance the development of the
existing Personal 911 System. Third, Motorola agreed to provide up
to five million dollars to finance the installation of the existing
Personal 911 System at customer sites once PSSI secured purchase
contracts for the system.
3
Under the Product Development Agreement, the parties agreed to
collaborate on the development of new communications technologies
based on the existing PSSI system. The Product Development
Agreement also defines in detail the parties’ respective rights to
existing intellectual property and to any new, jointly-developed
intellectual property. The Shareholders Agreement, which is not
directly at issue in this litigation, defines shareholder rights.
In May 1999, PSSI completed development of its Personal 911
System, and several customers committed to purchase the system.
Relying on the terms of the Stock Purchase Agreement, PSSI asked
Motorola to provide it with financing to install the system at the
customer sites. When Motorola refused to disburse the requested
funds, PSSI filed a complaint in federal district court alleging
that (1) Motorola’s refusal to provide financing constituted a
breach of the Stock Purchase Agreement and (2) Motorola made
fraudulent representations during negotiations to induce PSSI to
enter into the agreement. Invoking the arbitration provision in
the Product Development Agreement, Motorola filed a motion to stay
the proceedings and to compel arbitration.1 The district court
ultimately denied Motorola’s motion, and Motorola now appeals
1
In its initial complaint, PSSI also alleged that Motorola
fraudulently inserted a provision into the Product Development
Agreement. After Motorola filed its motion to compel arbitration,
however, PSSI filed an amended complaint that omitted all claims
relating to the Product Development Agreement. The claims in
PSSI’s amended complaint thus rely exclusively on the Stock
Purchase Agreement, which does not contain an arbitration clause.
4
pursuant to 9 U.S.C. § 16.2 The proceedings in the district court
have been stayed pending the appeal.
II
The primary issue in this appeal is whether the arbitration
provision in the Product Development Agreement applies to PSSI’s
claims arising under the Stock Purchase Agreement. Motorola argues
that PSSI’s claims fall within the broad scope of the arbitration
provision because the Stock Purchase Agreement and the Product
Development Agreement were executed together as part of the same
transaction and therefore must be construed together. PSSI
responds that the two agreements are independent, freestanding
contracts. Because PSSI’s claims rely solely on the Stock Purchase
Agreement and because the arbitration provision in the Product
Development Agreement does not expressly apply to claims arising
under other agreements, PSSI maintains that the arbitration
provision does not reach claims under the Stock Purchase Agreement.
Instead, PSSI argues that the forum selection clause in the Stock
Purchase Agreement controls, and the claims stated in its complaint
must be litigated in a court located in Texas.
The district court agreed with PSSI and denied Motorola’s
motion to compel arbitration. We review de novo the district
court’s denial of a motion to compel arbitration. See OPE Int’l LP
2
The district court initially granted Motorola’s motion, but
later reversed itself upon PSSI’s motion for reconsideration.
5
v. Chet Morrison Contractors, Inc., 258 F.3d 443, 445 (5th Cir.
2001).
A
We begin our inquiry by outlining the basic principles that
inform federal law in this area. The Supreme Court has made it
clear that the Federal Arbitration Act, 9 U.S.C. § 3, establishes
a “liberal policy favoring arbitration” and a “strong federal
policy in favor of enforcing arbitration agreements.” Texaco
Exploration and Prod. Co. v. AmClyde Engineered Prod. Co., Inc.,
243 F.3d 906, 909 (5th Cir. 2001) (citations and internal quotation
marks omitted). Of course, this general policy is not without
limits. Because arbitration is necessarily a matter of contract,
courts may require a party to submit a dispute to arbitration only
if the party has expressly agreed to do so. See AT&T Tech., Inc.
v. Communications Workers of Am., 475 U.S. 643, 648 (1986); see
also Volt Info. Sciences, Inc. v. Bd. of Trustees, 489 U.S. 468,
478 (1989) (“[The FAA] simply requires courts to enforce privately
negotiated agreements to arbitrate, like other contracts, in
accordance with their terms.”).
To ascertain whether the parties have agreed to arbitrate a
particular claim, we must determine: “(1) whether there is a valid
agreement to arbitrate between the parties; and (2) whether the
dispute in question falls within the scope of that arbitration
agreement.” OPE Int’l, 258 F.3d at 445 (citations and internal
6
quotation marks omitted). In view of the policy favoring
arbitration, we ordinarily “resolve doubts concerning the scope of
coverage of an arbitration clause in favor of arbitration.” Neal
v. Hardee's Food Systems, Inc., 918 F.2d 34, 37 (5th Cir. 1990);
see also Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 24-25 (1983) (same). As a consequence, a valid agreement
to arbitrate applies “unless it can be said with positive assurance
that [the] arbitration clause is not susceptible of an
interpretation which would cover the dispute at issue.” Neal, 918
F.2d at 37 (internal citations and quotation marks omitted). With
these principles in mind, we now turn to the arbitration provision
in this case.
B
Motorola and PSSI agree that the Product Development Agreement
contains a valid arbitration provision and that there are no
external constraints that preclude arbitration of PSSI’s claims.
Thus, the central question is whether the arbitration provision
covers the claims -- arising solely out of the Stock Purchase
Agreement -- alleged in PSSI’s amended complaint. Stated in terms
of the applicable caselaw, the question is whether we can say “with
positive assurance” that the arbitration provision in the Product
Development Agreement is not susceptible of an interpretation that
would cover those claims.
7
We start, as always, with the language of the arbitration
provision itself. Paragraph 14.2 of the Product Development
Agreement provides, in relevant part:
[T]he parties hereby agree to resolve by
binding arbitration any and all claims,
demands, actions, disputes, controversies,
damages, losses, liabilities, judgments,
payments of interest, penalties, enforcement
of settlement agreements, deficiencies, any
and all demands not yet matured into the
foregoing, and other matters in question
arising out of or relating to this Agreement
(all of which are referred to as “Claims”),
even though some or all of such Claims
allegedly are extra-contractual in nature and
even though some or all of such Claims sound
in contract, tort or otherwise, at law or in
equity, in accordance with Commercial
Arbitration Rules . . . of the American
Arbitration Association . . . .
Where, as here, an arbitration provision purports to cover all
disputes “related to” or “connected with” the agreement, we have
held that the provision is “not limited to claims that literally
‘arise under the contract,’ but rather embrace[s] all disputes
between the parties having a significant relationship to the
contract regardless of the label attached to the dispute.”
Pennzoil Exploration and Production Co. v. Ramco Energy Ltd., 139
F.3d 1061, 1067 (5th Cir. 1998). Thus, PSSI must arbitrate its
dispute with Motorola if the allegations of fraud and breach of the
Stock Purchase Agreement have a “significant relationship to” the
subject matter of the transaction.
8
PSSI argues that the arbitration provision does not apply in
this case because it governs only those claims related to the
Product Development Agreement, while the claims stated in PSSI’s
complaint arise under an entirely separate agreement. It is well
established, however, that “[u]nder general principles of contract
law, separate agreements executed contemporaneously by the same
parties, for the same purposes, and as part of the same
transaction, are to be construed together.” Neal v. Hardee's Food
Systems, Inc., 918 F.2d 34, 37 (5th Cir. 1990) (citations omitted);
see also Restatement (Second) of Contracts § 202(2) (1979) (same);
Richland Plantation Co. v. Justiss-Mears Oil Co., Inc., 671 F.2d
154, 156 (5th Cir. 1982) (“When several documents represent one
agreement, all must be construed together in an attempt to discern
the intent of the parties, reconciling apparently conflicting
provisions and attempting to give effect to all of them, if
possible.” (citations omitted)).
In the present case, the Stock Purchase Agreement and the
Product Development Agreement were both key elements of a
transaction in which Motorola agreed to provide financing in return
for a stake in PSSI and access to PSSI’s technology. Although the
Stock Purchase Agreement and the Product Development Agreement
govern different facets of the parties’ relationship, the
agreements must be construed together because they were executed at
9
the same time as part of the same overall transaction.3 Indeed,
each agreement expressly anticipates the execution of the other,4
and the parties attached a form of the Product Development
Agreement as an exhibit to the Stock Purchase Agreement. As we
observed in Neal, 918 F.2d at 37, “[a]lthough the parties used
multiple agreements to delineate their relationship, each agreement
was dependent upon the entire transaction. . . . The individual
agreements were integral and interrelated parts of the one deal.”
PSSI argues that this view runs contrary to the intent of the
parties in this case because the arbitration provision was in an
ancillary agreement and was therefore not intended to govern the
parties’ entire relationship.5 Even assuming that the Stock
3
Paragraph 1.1 of the Stock Purchase Agreement provides that
“each and every event . . . that is to occur at the Purchase
Closing [including the execution of the Product Development
Agreement] shall be deemed to have occurred contemporaneously.”
4
The Stock Purchase Agreement provides that “[i]n connection
with the Purchase and Loan, [Motorola] and [PSSI] desire to enter
into certain other agreements, upon the terms and subject to the
conditions set forth herein.” The Stock Purchase Agreement
expressly refers to the Product Development Agreement as one of
those agreements. The Product Development Agreement similarly
provides that “the parties have executed or will execute between
them various agreements in connection with an investment by
Motorola in PSSI (the ‘Related Agreements’).”
5
As further evidence that the two agreements were intended to
be construed separately, PSSI notes that each agreement selects a
different governing law. In particular, the Product Development
Agreement provides that Illinois law governs its interpretation
while Texas law governs the interpretation of the Stock Purchase
Agreement. Although this potential conflict in governing law may
have to be resolved during the course of arbitration, such a
conflict is not conclusive evidence of the parties’ intent, and it
does not affect our interpretation of the scope of the arbitration
10
Purchase Agreement is the heart of the transaction at issue here,
however, this fact is not dispositive because the arbitration
provision is contained in an agreement that was essential to the
overall transaction.6
As we explained earlier, the thrust of the transaction was
relatively straightforward. In return for providing funds to
complete the development and installation of PSSI’s Personal 911
System, Motorola received a minority stake in PSSI (with an option
to purchase a larger stake) and it received access to PSSI’s
technology to facilitate the joint development of future products.
It seems clear that the Product Development Agreement, which
clause in the Product Development Agreement.
6
To support its contention that the Stock Purchase Agreement
and the Product Development Agreement should not be construed
together, PSSI directs our attention to our recent decision in
PaineWebber Inc. v. Chase Manhattan Private Bank (Switzerland), 260
F.3d 453, 464 (5th Cir. 2001). In PaineWebber, we held that
binding arbitration provisions in a set of Option Agreements did
not apply to disputes arising under a separate Referral Agreement,
which did not contain a binding arbitration provision. See id.
Our holding in PaineWebber is easily distinguished from the present
case. The agreements in PaineWebber were construed separately
because (1) the securities trades at issue occurred outside the
“strictly limited” effective period of the Option Agreements and
(2) the parties explicitly provided that the trades “would be
executed in accordance with the terms of the Referral Agreement”
and explicitly declined to apply the terms of the Option
Agreements. Id. at 463-64. In this case, by contrast, the Stock
Purchase Agreement and the Product Development Agreement were
executed at the same time as part of the same transaction. In
addition, the Product Development Agreement contained no
restrictions on its scope or duration, and its terms were not made
subject to the terms of the Stock Purchase Agreement. In short,
PaineWebber does not control our decision in the instant case.
11
governed access to each party’s intellectual property as well as
the parties’ joint development efforts, was a central part of this
transaction.7 Although the arbitration provision in the Product
Development Agreement is somewhat narrower than the provision at
issue in Neal, we conclude that it is sufficiently broad to cover
all disputes related to the entire transaction. It is of no moment
that each element of the transaction focuses on a different aspect
of the transaction and could be a valid free-standing contract.
In sum, we hold that, where the parties include a broad
arbitration provision in an agreement that is “essential” to the
overall transaction, we will presume that they intended the clause
to reach all aspects of the transaction -- including those aspects
governed by other contemporaneously executed agreements that are
part of the same transaction. Thus, in the absence of a contrary
expression of intent in the Stock Purchase Agreement, the
arbitration provision in the Product Development Agreement covers
all disputes related to the subject matter of the entire
transaction between PSSI and Motorola. Because we cannot say “with
positive assurance that [the] arbitration clause is not susceptible
of an interpretation which would cover the dispute at issue,” we
7
As PSSI acknowledges, Motorola initiated talks with PSSI
primarily for the purpose of gaining access to PSSI’s advanced
technology. For example, PSSI’s amended complaint alleges that
Motorola “expressed an interest in PSSI and licensing its
technology” because Motorola had determined that “at least two more
years of development work was necessary before the development of
its . . . product progressed to the stage PSSI had already reached
in its development of the Personal 911 System.”
12
find that it applies to PSSI’s claims under the Stock Purchase
Agreement.
C
PSSI argues that, even assuming the arbitration provision in
the Product Development Agreement can be construed to cover claims
arising out of the Stock Purchase Agreement, the forum selection
clause in the Stock Purchase Agreement forecloses this
interpretation. Paragraph 6.7 of the Stock Purchase Agreement
provides:
Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS. ANY SUIT OR
PROCEEDING BROUGHT HEREUNDER SHALL BE SUBJECT
TO THE EXCLUSIVE JURISDICTION OF THE COURTS
LOCATED IN TEXAS.
Focusing on the term “exclusive jurisdiction,” PSSI reads this
provision to mean that any dispute arising out of the Stock
Purchase Agreement must be litigated in Texas courts. PSSI argues
that, because the parties “intended to confer solely upon Texas
courts the power to decide” any dispute brought under the Stock
Purchase Agreement, the parties expressly excluded the use of
arbitration to resolve such a dispute.8
8
In PaineWebber, 260 F.3d at 463, we held that an agreement
to submit all disputes “‘to the appropriate arbitrator or court in
the United States’” was not a binding agreement to arbitrate
because the provision plainly permits resolution of disputes either
in court or by arbitration. In so holding, we noted that a binding
agreement to arbitrate “precludes by its very terms any court
resolution.” Id. Read in context, it seems clear to us that this
statement stands for the unremarkable proposition that only one
adjudicatory body can resolve the merits of a dispute. The
13
We do not find PSSI’s interpretation of the forum selection
clause persuasive. Standing alone, one could plausibly read the
forum selection clause to mean that Texas courts have the exclusive
power to resolve all disputes arising under the Stock Purchase
Agreement. But the forum selection clause does not stand alone.
To the contrary, we must interpret the forum selection clause in
the context of the entire contractual arrangement and we must give
effect to all of the terms of that arrangement. See Richland
Plantation Co. v. Justiss-Mears Oil Co., Inc., 671 F.2d 154, 156
(5th Cir. 1982) (“When several documents represent one agreement,
all must be construed together in an attempt to discern the intent
of the parties, reconciling apparently conflicting provisions and
attempting to give effect to all of them, if possible.”). Given
our conclusion that the arbitration provision in the Product
Development Agreement applies to all claims related to the overall
transaction, we must therefore interpret the forum selection
provision in the Stock Purchase Agreement in a manner that is
consistent with the arbitration provision.
Reading the two provisions together, it becomes clear that the
forum selection clause does not require the parties to litigate all
claims in Texas courts, nor does it expressly forbid arbitration of
claims arising under the Stock Purchase Agreement. Instead, we
PaineWebber Court did not suggest that a binding arbitration
provision precludes the litigation in court of disputes concerning
the application and enforcement of that provision.
14
interpret the forum selection clause to mean that the parties must
litigate in Texas courts only those disputes that are not subject
to arbitration -- for example, a suit to challenge the validity or
application of the arbitration clause or an action to enforce an
arbitration award.9 Rather than covering all “disputes” or all
“claims” like the arbitration provision in the Product Development
Agreement, the forum selection clause confers “exclusive
jurisdiction” on Texas courts only with respect to “any suit or
proceeding.” This limitation suggests that the parties intended
the clause to apply only in the event of a non-arbitrable dispute
that must be litigated in court.10
Thus, read together with the arbitration provision, the forum
selection clause in the Stock Purchase Agreement does not operate
to bar arbitration of disputes where otherwise required by
contract.11 Consequently, we conclude that the claims in PSSI’s
9
Indeed, the parties’ dispute concerning the scope of the
arbitration clause in the Product Development Agreement was
litigated in a “court located in Texas,” in accordance with the
forum selection clause.
10
This reading comports with the plain meaning of the terms
“suit” and “proceeding.” See Webster’s Third New Int’l Dictionary
2286 (1993) (defining “suit” as “an action or process in a court
for the recovery of a right or claim”); id. at 1807 (defining a
“proceeding” as “the course of procedure in a judicial action or in
a suit in litigation”).
11
This interpretation of Paragraph 6.7 of the Stock Purchase
Agreement is also consistent with cases holding that a forum
selection clause cannot nullify an arbitration clause unless the
forum selection clause specifically precludes arbitration. See
Patten Securities Corp., Inc. v. Diamond Greyhound & Genetics,
Inc., 819 F.2d 400, 407 (3d Cir. 1987) (holding that a forum
15
complaint must be arbitrated in accordance with the terms of the
Product Development Agreement.
III
For the reasons set out above, we REVERSE the judgment of the
district court denying Motorola’s motion to compel arbitration of
PSSI’s claims and REMAND for entry of an order staying the
litigation and requiring the parties to submit their dispute to
binding arbitration.
REVERSED and REMANDED.
selection clause under which a party agreed to “submit to the
jurisdiction” of courts located in New Jersey “with respect to
controversies arising under this Agreement” did not preclude
arbitration), abrogated on other grounds by Gulfstream Aerospace
Corp. v. Mayacamas Corp., 485 U.S. 271, 287 (1988); In re Winter
Park Const., Inc., 30 S.W.3d 576, 578 (Tex.App.-Texarkana 2000, no
pet.) (holding that an arbitration clause was not “superceded” by
a forum selection clause providing that “[v]enue for any suit
arising out of any relationship between Seller and Buyer shall be
the appropriate court in Harrison county [sic], Texas”).
16