Bratt Enterprises v. Noble International ( 2003 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 Bratt Enterprises v. Noble Int’l, et al. No. 01-4244
ELECTRONIC CITATION: 2003 FED App. 0262P (6th Cir.)File Name: 03a0262p.06 _________________
COUNSEL
UNITED STATES COURT OF APPEALS
ARGUED: John B. Pinney, GRAYDON, HEAD &
FOR THE SIXTH CIRCUIT RITCHEY, Cincinnati, Ohio, for Appellant. Robin E.
_________________ Harvey, BAKER & HOSTETLER, Cincinnati, Ohio, for
Appellees. ON BRIEF: John B. Pinney, GRAYDON,
HEAD & RITCHEY, Cincinnati, Ohio, for Appellant. Robin
BRATT ENTERPRISES, X E. Harvey, BAKER & HOSTETLER, Cincinnati, Ohio, for
INCORPORATED , - Appellees.
Plaintiff-Appellant, -
- No. 01-4244 ROGERS, J., delivered the opinion of the court, in which
- COFFMAN, D. J., joined. CLAY, J. (pp. 9-12), delivered a
v. > separate dissenting opinion.
,
-
NOBLE INTERNATIONAL LTD .; -
SET ENTERPRISES INC., - _________________
Defendants-Appellees. -
- OPINION
N _________________
Appeal from the United States District Court
for the Southern District of Ohio at Cincinnati. ROGERS, Circuit Judge. Noble International Ltd.
No. 99-00543—S. Arthur Spiegel, District Judge. (“Noble”) asserted a breach of contract claim against Bratt
Enterprises, Inc. (“Bratt”) in connection with Noble’s
Argued: March 13, 2003 purchase of Bratt’s steel processing business. The district
court ordered the parties to arbitrate “any and all disputes
Decided and Filed: July 31, 2003 related to” the claim based upon an arbitration provision
contained in the parties’ agreement. We conclude that the
Before: CLAY and ROGERS, Circuit Judges; COFFMAN, district court erred by compelling the arbitration of an issue
District Judge.* that the parties had not agreed to arbitrate.
*
The Honorable Jennifer B. Coffman, United States District Judge for
the Eastern and Western Districts of Kentucky, sitting by designation.
1
No. 01-4244 Bratt Enterprises v. Noble Int’l, et al. 3 4 Bratt Enterprises v. Noble Int’l, et al. No. 01-4244
FACTS regard to any amount reflected on the balance sheet, the
parties would arbitrate the dispute.3
On September 30, 1998, Bratt1 sold its steel processing
business to Noble2 under an asset purchase agreement. Noble
agreed to purchase most of the business’s assets and agreed to
assume most of the business’s liabilities, including its
accounts payable. One provision of the agreement, however, 3
Specifically the agreem ent, in pertinent part, reads:
provided that Bratt would retain all accounts payable in
excess of $1.2 million, effectively capping Noble’s liability The Basic Purchase Price set forth in [the previous section] will
for the accounts payable. be subject to adjustment after the Closing Date (as hereinafter
defined) as follows:
This assumption of liability was only one portion of the
purchase price, which included other forms of consideration. (i) [Noble] will prepare and deliver to [B ratt] within
sixty (60) days following the Closing Date (or as soon
Given the fluid values associated with some elements of the thereafter as practicable) a balance sheet for [Bratt] as
purchase price, including the business’s accounts payable, the of the opening of business on the Closing Date (the
parties agreed to a post-closing adjustment of the purchase “Closing Balance Sheet”). The Closing Balance Sheet
price, so that the price would more accurately reflect closing- will be used to determine the amount of Assumed
day values. Under the parties’ agreed method of adjustment, Liabilities as well as a ny adjustments pursuant to
[certain portions of this agreement] as of the Closing,
the elements would be valued as of the closing day, with the for purposes of determining the final Basic Purchase
valuations being reflected on a balance sheet, and adjustments Price (the “Final Basic Purchase Price”).
would be made based on the balance sheet values. The
agreement also provided that, in the event a dispute arose with (ii) The Closing Balance Sheet will be prepared in
acco rdance with G AAP (as defined herein). . . .
(iii) W ithin 30 days after the delivery of the Closing
Balance Sheet, [Bratt] will notify [Noble] as to whether
it disagrees with a ny of the amou nts includ ed in the
Closing Balance Sheet. If such notice is not given, the
1 Closing Balance Sheet will be final and conclusive for
At the time of the transaction, Bratt was known as H&H Steel all purp oses. If the parties are unable to resolve their
Processing Comp any, Inc. The com pany assumed its current name after differences within 60 days of their receipt of the
the H& H Steel Processing Comp any, Inc. name was sold during the Closing Balance Sheet, [Noble] and [Bratt] agree to
transaction in question. retain a national accounting firm, other than the
2
independent audito rs used by Noble or [Bratt], to
SET Enterprises, Inc., the other named appellee, is a wholly-owned arbitrate the dispute and render a decision within 30
subsidiary of Noble International Ltd. that was formed by a merger days of such retention, which decisio n will be final and
involving H& H Steel Processing, Inc. H&H Steel Processing, Inc. was binding for all purp oses. A ny award pursuan t to this
formerly known as Utilase Blank Welding Technologies, Inc., which was Section 1.3(c)(iii) may be entered in and enforced by
the purchaser of the steel business. Noble International L td. was the any court having jurisdiction over the matter. [Noble]
guarantor of Utilase Blank Welding Techno logies, Inc. under the and [Br att] will each pay one-half of the costs of the
agree ment. For ease of use, we re fer collectively to Set Enterp rises, Inc. services rendered by said accounting firm.
and Noble International Ltd. as “No ble,” given the identity of their
interests in this appeal. Asset Purchase Agreement, J.A. at 160-61.
No. 01-4244 Bratt Enterprises v. Noble Int’l, et al. 5 6 Bratt Enterprises v. Noble Int’l, et al. No. 01-4244
After Noble submitted the closing balance sheet, along with ANALYSIS
its proposed adjustments, numerous disputes arose between
Noble and Bratt. Unable to resolve these disputes, Bratt filed “Before compelling an unwilling party to arbitrate, [a] court
a complaint in the district court below. Noble filed its answer must engage in a limited review to determine whether the
and a four-count counterclaim. The parties have settled all dispute is arbitrable; meaning that a valid agreement to
disputes between them except the first count of Noble’s arbitrate exists between the parties and that the specific
counterclaim, which is the focus of this appeal. dispute falls within the substantive scope of that agreement.”
Javitch, 315 F.3d at 624 (6th Cir. 2003) (citing AT&T Techs.
The first count of Noble’s counterclaim asserted a breach v. Communications Workers of Am., 475 U.S. 643, 649
of contract claim in which Noble sought to recover the (1986)). The district court properly concluded that a valid
difference between the accounts payable balance, over $1.8 agreement to arbitrate existed between Bratt and Noble, but
million as reflected on the closing balance sheet, and the $1.2 erred in concluding that all aspects of Noble’s breach of
million limit of its liability. Noble simultaneously moved the contract claim fell within the scope of that agreement.
district court to compel arbitration of this claim. Bratt
opposed submitting this counterclaim to arbitration. Bratt The duty to arbitrate a dispute derives from the parties’
argued that the $1.2 million cap was a result of a mutual agreement and a party cannot be required to submit to
mistake and that the contract should accordingly be reformed arbitration any dispute that the party has not agreed to so
before any disputes regarding the account amounts could be submit. Roney & Co. v. Kassab, 981 F.2d 894, 897 (6th Cir.
submitted to arbitration. The district court granted Noble’s 1992) (citing Volt Info. Scis., Inc. v. Bd. of Trs. of the Leland
motion to compel arbitration, concluding that the claim Stanford Junior Univ., 489 U.S.468, 478 (1989); AT&T
“relate[d] to adjustments to the Closing Balance Sheet.” In Techs., 475 U.S. at 648-49; Wiepking v. Prudential-Bache
accordance with the lower court’s order, the parties proceeded Sec., Inc., 940 F.2d 996, 998 (6th Cir. 1991)). The parties’
to arbitrate, and the arbitrator ruled in Noble’s favor on the agreement to arbitrate in this case reads, in pertinent part:
breach of contract claim. Bratt then filed a motion for
reconsideration of the order compelling arbitration, which the [Bratt] will notify [Noble] as to whether it disagrees with
district court denied. The district court then entered a any of the amounts included in the Closing Balance
judgment reflecting the arbitrator’s decision. Bratt now Sheet. . . . If the parties are unable to resolve their
appeals, asserting that the district court erred by compelling differences within 60 days of their receipt of the Closing
arbitration of all disputes related to Noble’s breach of contract Balance Sheet, [Noble] and [Bratt] agree to retain a
claim. national accounting firm . . . to arbitrate the dispute and
render a decision within 30 days of such retention, which
STANDARD OF REVIEW decision will be final and binding for all purposes.
We review de novo a district court’s decision to compel Asset Purchase Agreement, J.A. at 160-61 (emphasis added).
arbitration under the Federal Arbitration Act. Javitch v. First The plain language of this section demonstrates that the
Union Sec., Inc., 315 F.3d 619, 624 (6th Cir. 2003). parties agreed to submit disagreements regarding “any of the
amounts included in the Closing Balance Sheet” to
arbitration, as that phrase is the only referent to which “the
dispute” could apply. Based upon this language, the district
No. 01-4244 Bratt Enterprises v. Noble Int’l, et al. 7 8 Bratt Enterprises v. Noble Int’l, et al. No. 01-4244
court ordered the parties to arbitrate “any and all disputes arbitration clause itself resolved in favor of arbitration.” Volt
related to Counterclaim[] I.” Info. Scis., Inc., 489 U.S. at 475-76 (citations omitted). Here,
however, there is no ambiguity regarding the scope of the
That order, however, goes beyond the extent of the disputes arbitration agreement. The parties only agreed to arbitrate
that the parties agreed to submit to arbitration. It is true that disagreements about the amounts reflected on the closing
the parties disagreed about the valuation of accounts payable balance sheet. Congress’s preeminent concern in enacting the
on the closing balance sheet. The district court correctly FAA—the enforcement of private agreements to arbitrate as
compelled the arbitration of that issue, which was resolved entered into by the parties—requires that the parties only be
through arbitration. As determined by the arbitrator, the compelled to arbitrate matters within the scope of their
closing-day value of the accounts receivables was $1,826,694, agreement, and this is so even when the result may be
or $632,238 in excess of the $1.2 million limit. This value, piecemeal litigation. See Dean Witter Reynolds, Inc. v. Byrd,
pursuant to the parties’ agreement, is final and binding upon 470 U.S. 213, 221 (1985). The federal policy that favors
Bratt and Noble for all purposes. arbitration is not so broad that it compels the arbitration of
issues beyond those agreed to by the parties.
The valuation dispute, however, is only one dispute
involved in Noble’s breach of contract claim. The other CONCLUSION
dispute revolves around the validity of the $1.2 million
limitation provision. Noble contends that the limitation For the foregoing reasons, we REVERSE the district
provision was agreed upon by the parties and that it is entitled court’s order compelling arbitration of the mutual mistake
to recover based upon Bratt’s breach of that provision. Bratt, issue, VACATE the entry of judgment with respect to the first
however, contends that the parties agreed upon the $1.2 count of Noble’s counterclaim, and REMAND the case to the
million liability limit based upon a common or mutual district court for further proceedings consistent with this
mistake. While Noble’s claim would obviously require opinion.
reference to the closing balance sheet to determine matters of
valuation should Noble prevail on this issue, the dispute
regarding the validity of the limitation provision does not
itself involve a “disagree[ment] with any of the amounts
included in the Closing Balance Sheet.” Rather, it involves
a determination of whether the parties’ intent regarding
Bratt’s retained liabilities was based upon the parties’ sharing
a misunderstanding about an essential term of their
agreement. Thus, this aspect of Noble’s breach of contract
claim is not within the scope of the arbitration clause and is,
therefore, not arbitrable.
We recognize that “in applying general state-law principles
of contract interpretation to the interpretation of an arbitration
agreement . . . due regard must be given to the federal policy
favoring arbitration, and ambiguities as to the scope of the
No. 01-4244 Bratt Enterprises v. Noble Int’l, et al. 9 10 Bratt Enterprises v. Noble Int’l, et al. No. 01-4244
_______________ regarding the validity of the $1.2 million limitation did not
fall within the ambit of the arbitration provision, but that the
DISSENT dispute as to the valuation amount exceeding the $1.2 million
_______________ limitation did fall within the parameters of the arbitration
provision. It is true, as the majority states, that a court must
CLAY, Circuit Judge, dissenting. The district court did not determine whether a dispute falls within the substantive scope
err in concluding that all aspects of the breach of contract of the arbitration agreement before compelling an unwilling
claim brought by Defendant, Noble International, Ltd., party to arbitrate. It is also true that a party cannot be
against Plaintiff, Bratt Enterprises, Inc., fell within the scope compelled to arbitrate a dispute that it had not previously
of the arbitration agreement. The majority’s approach to agreed to arbitrate. However, in concluding that the dispute
resolving the dispute is in contravention of the principles and involving the limitation provision is not subject to arbitration,
jurisprudence pertaining to matters of arbitration. I therefore the majority fails to heed the Supreme Court’s directive that
would affirm the district court’s judgment compelling “any doubts concerning the scope of arbitrable issues should
arbitration, and respectfully dissent. be resolved in favor of arbitration, whether the problem at
hand is the construction of the contract language itself or an
The Federal Arbitration Act (“FAA”) manifests a strong allegation of waiver, delay, or a like defense to arbitrability.”
and liberal federal policy in favor of arbitration of disputes. Moses H. Cone Mem’l Hosp., 460 U.S. at 24-25 (emphasis
See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, added). Instead, the majority resolves the matter against
Inc., 473 U.S. 614, 625 (1985); see also Decker v. Merrill arbitration by improperly interpreting the language of the
Lynch, Pierce, Fenner & Smith, Inc., 205 F.3d 906, 911 (6th provision in a narrow fashion while showing deference to
Cir. 2000). The Supreme Court has long recognized that Plaintiff’s mutual mistake defense. See Paper, Allied-Indus.,
“where the contract contains an arbitration clause, there is a Chem. & Energy Workers Int’l Union v. Air Prods. &
presumption of arbitrability in the sense that ‘[a]n order to Chems., Inc., 300 F.3d 667, 676 (6th Cir. 2002) (rejecting the
arbitrate the particular grievance should not be denied unless union’s “narrow” interpretation of the agreement as not
it may be said with positive assurance that the arbitration providing for arbitration, and finding that because the union’s
clause is not susceptible of an interpretation that covers the dispute involved the “interpretation or application of any of
asserted dispute. Doubts should be resolved in favor of the terms or provisions” of the agreement, the dispute was one
coverage.’” AT&T Techs., Inc. v. Communications Workers for arbitration).
of Am., 475 U.S. 643, 650 (1986) (quoting Steelworkers v.
Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 To illustrate, the language of the arbitration agreement
(1960)). “[A]ny doubts concerning the scope of arbitrable provides in relevant part:
issues should be resolved in favor of arbitration, whether the
problem at hand is the construction of the contract language Within 30 days after the delivery of the Closing Balance
itself or an allegation of waiver, delay, or a like defense to Sheet, the Company [Bratt] will notify the Purchaser,
arbitrability.” Moses H. Cone Mem’l Hosp. v. Mercury [Noble] as to whether it disagrees with any of the
Construc. Corp., 460 U.S. 1, 24-25 (1983). amounts included in the Closing Balance Sheet. If such
notice is not given, the Closing Balance Sheet will be
The majority ignores this well steeped body of federal final and conclusive for all purposes. If the parties are
policy and law in concluding that the parties’ dispute unable to resolve their differences within 60 days of their
No. 01-4244 Bratt Enterprises v. Noble Int’l, et al. 11 12 Bratt Enterprises v. Noble Int’l, et al. No. 01-4244
receipt of the Closing Balance Sheet, the Purchaser all aspects of Defendant’s breach of contract claim, and
[Noble] and the Company [Bratt] agree to retain a respectfully dissent.
national accounting firm . . . to arbitrate the dispute and
render a decision within 30 days of such retention, which
decision would be final and binding for all purposes.
(J.A. at 160-61.) The majority contends that the clause
“disagree with any of the amounts included in the Closing
Balance Sheet[,]” as set forth in the arbitration provision
limits matters subject to arbitration strictly to disputes
involving valuation, and therefore does not encompass any
claim as to which party is responsible for the amount owed.
This shortsighted and narrow approach fails to consider that
implicit in any dispute as to the valuation of any amount on
the Closing Balance Sheet is a claim as to which party is
responsible for the amount, particularly where the Closing
Balance Sheet provided the basis for the Final Purchase Price
under the agreement.
In other words, as part and parcel of determining
disagreements concerning the amounts included in the
Closing Balance Sheet, the parties would expect to also
determine by way of arbitration the applicability of the $1.2
million limitation. Thus, it cannot “be said with positive
assurance that the arbitration clause is not susceptible to an
interpretation that covers the asserted dispute,” and the matter
is therefore entitled to a “presumption of arbitrability.” AT&T
Techs., 475 U.S. at 650 (internal quotation marks and citation
omitted).
In summary, when liberally construing the arbitration
provision as directed by the Supreme Court and in accordance
with federal policy, it is clear that the district court properly
concluded that Defendant’s claim as to the validity of the $1.2
million limitation was one for the arbitrator. See Moses H.
Cone Mem’l Hosp., 460 U.S. at 24-25 (noting that “questions
of arbitrability must be addressed with a healthy regard for
the federal policy favoring arbitration”). I therefore would
affirm the district court’s judgment compelling arbitration of