PRM Energy Systems v. Kobe Steel, Ltd. ( 2010 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 08-1987
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PRM Energy Systems, Inc., an *
Arkansas Corporation, *
*
Plaintiff - Appellant, *
*
Energy Process Technologies, Inc., *
*
Plaintiff, *
* Appeal from the United States
v. * District Court for the
* Western District of Arkansas.
Primenergy, L.L.C., an Oklahoma *
Limited Liability Company; Don R. *
Mellot; W.N. Scott, also known as *
Bill Scott, *
*
Defendants, *
*
Kobe Steel, Ltd., *
*
Defendant - Appellee. *
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Submitted: October 15, 2008
Filed: January 8, 2010
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Before MELLOY, BEAM, and GRUENDER, Circuit Judges.
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MELLOY, Circuit Judge.
PRM Energy Systems, Inc. (“PRM”), licensed certain gasification technology
patents to Primenergy, L.L.C. (“Primenergy”). Through a network of agreements (the
“1999 Agreements”), PRM licensed Primenergy to use the gasification technology and
enter into sublicense agreements in a number of countries. After a series of disputes
between PRM and Primenergy, PRM brought claims against Kobe Steel, Ltd. (“Kobe
Steel”), a potential licensee, for tortious interference with, and inducement to breach,
the 1999 Agreements and for conspiring with Primenergy to convert PRM’s
intellectual property for their own use.
Kobe Steel moved to compel arbitration of PRM’s claims pursuant to
arbitration provisions in the 1999 Agreements, and the district court1 granted Kobe
Steel’s motion. PRM now appeals, arguing that Kobe Steel, as a nonsignatory to the
1999 Agreements, should not be permitted to enforce the arbitration provisions from
those Agreements. We affirm.
I.
To give context to this dispute, we set forth the facts as alleged in PRM’s
complaint.
In the 1999 Agreements, PRM licensed Primenergy to use PRM’s gasification
technology in a number of countries, including the United States but not including
Japan. Although Primenergy’s license did not extend to Japan, Primenergy maintains
that the 1999 Agreements gave it a right of first refusal for a license in Japan. In
2001, a U.S. subsidiary of Kobe Steel (a Japanese company) contacted PRM and
1
The Honorable Jimm Larry Hendren, Chief Judge, United States District Court
for the Western District of Arkansas.
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expressed its interest in licensing the technology in the United States. PRM referred
the subsidiary to Primenergy. In 2002, Kobe Steel began discussing licensing in
Japan with PRM, but Kobe Steel declined to sign a confidentiality agreement, and the
discussions stalled. At the same time, Kobe Steel was allegedly negotiating with
Primenergy, inducing Primenergy to breach the 1999 Agreements by sublicensing the
technology to Kobe Steel and planning joint projects in Japan. In 2003, Kobe Steel
and Primenergy reached a collaboration agreement in violation of the territorial
restrictions in the 1999 Agreements. Neither Primenergy nor Kobe Steel disclosed
this agreement to PRM.
Unaware of the collaboration between Primenergy and Kobe Steel, PRM
executed an option granting an unrelated company a license for the technology in
Japan. In 2004, Primenergy filed a demand for arbitration seeking to force PRM to
terminate the option, citing Primenergy’s purported right of first refusal. Primenergy
also sought to invalidate certain royalty provisions of the 1999 Agreements because
the underlying patents had expired. PRM asserted several cross-claims in the
arbitration, including a claim that Primenergy breached the 1999 Agreements by
having undisclosed dealings with Kobe Steel. In a final ruling on April 22, 2005, an
arbitrator found that the royalty provisions were unenforceable and that both parties
had breached the 1999 Agreements in regard to obligations concerning the territory
of Japan. The arbitrator enjoined Primenergy from further discussions with Kobe
Steel for a period of two years, but it did not award damages because PRM had not
shown any.
In 2004, while the arbitration between PRM and Primenergy was pending, PRM
filed a complaint in the district court against Primenergy and its officers alleging
breach of contract, fraud, conspiracy, misappropriation of trade secrets, unfair
competition, and tortious interference. On March 24, 2005, PRM filed a complaint
in a separate action against Kobe Steel asserting tortious interference and conspiracy.
On May 18, 2005, PRM filed an amended complaint in its lawsuit against Primenergy
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that included specific allegations concerning the interactions between Primenergy and
Kobe Steel. On November 15, 2005, the district court granted PRM’s motion to
consolidate the two actions, but it dismissed the claims against Primenergy,
concluding that the claims were subject to arbitration.
On November 18, 2005, PRM filed an amended complaint against Kobe Steel,
asserting the existence of a confidentiality agreement and several exclusive
collaboration agreements between Primenergy and Kobe Steel. PRM further alleged
that Primenergy and Kobe Steel conspired to hide their dealings from PRM and that
Primenergy and Kobe Steel, through their concerted actions, were attempting to
negotiate lower royalty premiums and broader territorial rights for the licensing of
PRM’s technology.
On March 21, 2006, the district court confirmed an April 2005 arbitration
decision from the arbitration between PRM and Primenergy. Kobe Steel and PRM
then filed cross-motions for judgment on the pleadings as to PRM’s claims against
Kobe Steel. On June 19, 2006, the district court granted Kobe Steel’s motion in part,
allowing Kobe Steel to compel arbitration. The district court also entered a stay of the
proceedings. The district court held that Kobe Steel could enforce the arbitration
provisions of the 1999 Agreements on an estoppel theory because “all of PRM’s
claims either make reference to or presume the existence of the 1999 Agreements, and
allege substantially interdependent and concerted misconduct by both the
nonsignatory [Kobe Steel] and one or more of the signatories [Primenergy] to the
contract.” An arbitrator subsequently dismissed the claims against Kobe Steel. The
district court later confirmed the arbitrator’s dismissal of the claims, and PRM now
appeals the June 19, 2006 order compelling the arbitration.2
2
The district court’s interlocutory order directing arbitration and staying the
proceedings was not an immediately appealable “final decision.” Green Tree Fin.
Corp.-Ala. v. Randolph, 531 U.S. 79, 87 n.2 (2000). It became “final” within the
meaning of 9 U.S.C. § 16(a)(3), and thus appealable, upon the later dismissal of the
claims. See Randolph, 531 U.S. at 88–89.
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II.
“This court reviews de novo a district court’s grant of a motion to compel
arbitration.” Donaldson Co., Inc. v. Burroughs Diesel, Inc., 581 F.3d 726, 730 (8th
Cir. 2009) (internal quotation omitted). The first question before us is whether a
nonsignatory defendant may compel a signatory plaintiff to arbitrate claims under a
valid arbitration agreement where the relationship between the parties is based on the
concerted misconduct of the defendant and a different signatory. As we recognized
in Donaldson, the Supreme Court has held that “state contract law governs the ability
of nonsignatories to enforce arbitration provisions.” Id. at 732; Arthur Andersen LLP
v. Carlisle, 129 S. Ct. 1896, 1902 (2009) (“‘State law,’ therefore, is applicable to
determine which contracts are binding under § 2 [of the Federal Arbitration Act] and
enforceable under § 3 ‘if that law arose to govern issues concerning the validity,
revocability, and enforceability of contracts generally.’” (quoting Perry v. Thomas,
482 U.S. 483, 493 n.9 (1987))).
The Supreme Court issued Arthur Andersen, and our court issued Donaldson,
however, long after the district court ordered and subsequently confirmed arbitration
in the present case and after the parties briefed and argued this matter to our court.
Below, the district court applied federal law to address Kobe Steel’s ability to invoke
the arbitration provisions of the contract between PRM and Primenergy. In its brief
on appeal, PRM argues that federal law applies, and Kobe Steel cites only federal law
in its brief as to this issue. Accordingly, we rely primarily upon the federal law as
discussed by the parties on appeal, and by the district court below, regarding the
ability of a nonsignatory to compel arbitration.3
3
Kobe Steel cited Arthur Andersen and an Arkansas case, American Insurance
Company v. Cazort, 871 S.W.2d 575, 579–80 (Ark. 1994), in a letter to our court in
accordance with Eighth Circuit Rule of Appellate Procedure 28(j). PRM did not
respond to this letter. Kobe Steel asserts that Cazort would permit a nonsignatory to
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As a starting point, we note that a nonsignatory may compel a signatory to
arbitrate claims in limited circumstances. See, e.g., Finnie v. H & R Block Fin.
Advisors, Inc., 307 F. App’x 19, 21 (8th Cir. 2009) (unpublished per curiam)
(compelling arbitration based on a close relationship between signatories and
nonsignatories); CD Partners, LLC v. Grizzle, 424 F.3d 795, 798–99 (8th Cir. 2005)
(discussed infra); MS Dealer Serv. Corp. v. Franklin, 177 F.3d 942, 947–48 (11th Cir.
1999) (same); Thompson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 779 (2d
Cir. 1995) (applying an estoppel theory based on a close relationship of parties and
claims that were intertwined with contract rights and duties); Pritzker v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1121 (3d Cir. 1993) (applying a
“traditional agency theory” regarding a nonsignatory employee of a signatory); see
also Am. Ins. Co. v. Cazort, 871 S.W.2d 575, 579–80 (Ark. 1994).
In CD Partners, we recognized two such circumstances. See CD Partners, 424
F.3d at 798. The first relies on agency and related principles to allow a nonsignatory
to compel arbitration when, as a result of the nonsignatory’s close relationship with
a signatory, a failure to do so would eviscerate the arbitration agreement. Id.; see also
Nesslage v. York Secs., Inc., 823 F.2d 231, 233 (8th Cir. 1987) (permitting a
compel arbitration under Arkansas law. In light of Arthur Andersen and Donaldson,
and notwithstanding the history of this case, we conducted an independent review of
Arkansas law (the only state’s law arguably applicable to the present agreement). We
determined that Arkansas law was consistent with our analysis as set forth herein and
would lead to the same result. See Cazort, 871 S.W.2d at 579–80 (holding that an
insurer-nonsignatory could compel arbitration pursuant to an arbitration agreement
between an insured-broker and one of the broker’s clients, stating, “‘In short,
[plaintiff] cannot have it both ways. It cannot rely on the contract when it works to its
advantage and ignore it when it works to its disadvantage.’” (quoting Tepper Realty
Co. v. Mosaic Tile Co., 259 F. Supp. 688, 692 (S.D.N.Y. 1966))). In fact, in Cazort,
the Arkansas Supreme Court cited with approval Hughes Masonry Co. v. Greater
Clarke County School Building Corporation, 659 F.2d 836, 838–41 (7th Cir. 1981),
and the federal cases we cite herein rely, in part, on Hughes Masonry and the
reasoning of the Seventh Circuit in that case.
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nonsignatory to compel arbitration where it was the “disclosed agent” of a signatory).
The second relies loosely on principles of equitable estoppel, broadly encompasses
more than one test for its application, and has been termed “alternative estoppel.” CD
Partners, 424 F.3d at 799 (“A willing nonsignatory seeking to arbitrate with a
signatory that is unwilling may do so under what has been called an alternative
estoppel theory which takes into consideration the relationships of persons, wrongs,
and issues . . . .’”) (quoting Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d
125, 131 (2d Cir. 2003)) (alteration omitted, emphasis added). Alternative estoppel
typically relies, at least in part, on the claims being so intertwined with the agreement
containing the arbitration clause that it would be unfair to allow the signatory to rely
on the agreement in formulating its claims but to disavow availability of the
arbitration clause of that same agreement. See Sunkist Soft Drinks, Inc. v. Sunkist
Growers, Inc., 10 F.3d 753, 757 (11th Cir. 1993) (citing with approval and adopting
the reasoning of Hughes Masonry Co. v. Greater Clarke County Sch. Bldg Corp., 659
F.2d 836, 838 (7th Cir. 1981)).
The specific theory or test for application of alternative estoppel that formed the
basis of the district court’s decision in the present case relies on the interdependent
and concerted misconduct of a nonsignatory and a signatory. Kobe Steel argues that
the district court was correct in applying this test. In addition, Kobe Steel argues that
other theories of alternative estoppel apply and that the close relationship or agency
theory recognized in CD Partners provides an independent basis for compelling
arbitration in the present case. Because we conclude that the district court correctly
relied upon the theory of concerted misconduct, we confine our discussion to
concerted misconduct.
In CD Partners, we relied upon MS Dealer in which the Eleventh Circuit set
forth the theory of concerted misconduct as a basis to compel arbitration when there
is no agency or other close relationship between the signatory plaintiff and
nonsignatory defendant. MS Dealer, 177 F.3d at 947 (“[A]pplication of equitable
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estoppel is warranted . . . when the signatory to the contract containing the arbitration
clause raises allegations of . . . substantially interdependent and concerted misconduct
by both the nonsignatory and one or more of the signatories to the contract.”)
(alteration and quotation omitted). The district court in the instant case, turning to MS
Dealer as persuasive authority, imported the Eleventh Circuit’s “concerted
misconduct” basis for applying alternative estoppel.
Subsequently, in Donaldson, we discussed concerted misconduct at some
length, described the type of claims and allegations that would be necessary to invoke
this theory, but found the theory inapplicable on the facts of that case. 581 F.3d at
733–35. We said that to warrant the benefit of alternative estoppel based on concerted
misconduct, at a minimum, “the plaintiff must specifically allege coordinated behavior
between a signatory and a nonsignatory.” Id. at 734. We did not “suggest that a claim
against a co-conspirator . . . will always be intertwined to a degree sufficient to work
an estoppel.” Ross v. Am. Express Co., 547 F.3d 137, 148 (2d Cir. 2008) (quotation
omitted). Rather, we stated, “The concerted-misconduct test requires allegations of
‘pre-arranged, collusive behavior’ demonstrating that the claims are ‘intimately
founded in and intertwined with’ the agreement at issue.” Donaldson, 581 F.3d at
734–35 (quoting MS Dealer, 177 F.3d at 948). Ultimately, we found on the facts of
Donaldson that there was no allegation of “pre-arranged collusive behavior” as
“required by the case law” of other circuits. Id. at 734 (“Although [the] cross-claim
made common allegations against [the signatory and nonsignatory], it did not make
any allegations suggesting that [they] knowingly acted in concert, improperly
cooperated, or worked hand-in-hand.” (internal quotations omitted)). As such,
although we have recognized and described the theory of concerted misconduct, we
have not yet expressly applied it to compel a party to arbitration.
Here, we believe that the nature of the alleged misconduct and its connection
to the contract demonstrates the requisite relationships between persons, wrongs, and
issues necessary to compel arbitration. PRM “specifically allege[d] coordinated
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behavior between a signatory and a nonsignatory.” Id. The 1999 Agreements
anticipated that an entity such as Kobe Steel might enter into a licensing relationship
with Primenergy, and the 1999 Agreements attempted to govern that expected
relationship. This is not a situation, then, where the nonsignatory co-conspirator “is
a complete stranger to the plaintiffs’ . . . agreements[,] . . . did not sign them, . . . is not
mentioned in them, and . . . performs no function whatsoever relating to their
operation.” Ross, 547 F.3d at 148.
Collusive conduct between Kobe Steel and Primenergy allegedly arose from
this potential relationship. PRM alleges that Kobe Steel and Primenergy concealed
their actions from PRM, conspired to violate the terms of the 1999 Agreements, and
attempted to undermine the 1999 Agreements’ contemplated authority over licensee
and sub-licensee relationships. The alleged collusive actions not only arose out of and
targeted the 1999 Agreements, they were “intimately founded in and intertwined with”
Primenergy’s underlying contract obligations. Donaldson, 581 F.3d at 735 (quoting
MS Dealer, 177 F.3d at 947). As such, we agree with the district court’s conclusion
that “PRM’s claims either make reference to or presume the existence of the 1999
Agreements, and allege substantially interdependent and concerted misconduct by
both the nonsignatory [Kobe Steel] and one or more of the signatories [Primenergy]
to the contract.” Accordingly, the district court did not err in its reliance on a
concerted-misconduct theory of alternative estoppel to grant nonsignatory Kobe
Steel’s motion to compel arbitration.
III.
PRM further contends that even if Kobe Steel can compel arbitration, PRM’s
claims against Kobe Steel are outside of the scope of the arbitration clause of the 1999
Agreements. “[A]s a matter of federal law, any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration,” including “the
construction of the contract language itself.” Moses H. Cone Mem’l Hosp. v. Mercury
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Constr. Corp., 460 U.S. 1, 24–25 (1983); see also Telectronics Pacing Sys., Inc. v.
Guidant Corp., 143 F.3d 428, 430–31 (8th Cir. 1998) (“[A]ny doubts raised in
construing contract language on arbitrability should be resolved in favor of
arbitration.” (internal quotations and alterations omitted)).4 In determining whether
the scope of the arbitration clause is broad enough to cover the claims at issue, we do
not consider the fact that the defendant is not party to the agreement containing the
clause. CD Partners, 424 F.3d at 801 n.3.
The arbitration clause here covers “all disputes arising under” the agreement,
and PRM argues this language is substantially narrower than the corresponding
language at issue in CD Partners. The CD Partners arbitration clause included “any
claim, controversy or dispute arising out of or relating to” the agreement. Id. at 797,
800. While PRM asserts that the language at issue here is narrower than that in CD
Partners, see Coregis Ins. Co. v. Am. Health Found., Inc., 241 F.3d 123, 128–29 (2d
Cir. 2001) (discussing “related to” as broader than “arising out of” where contract
provision uses both terms), we note that in CD Partners we did not rely solely on the
broader “related to” portion of the arbitration clause. Rather, we held that the claims
“had their genesis in, arose out of, and related to” the operations under the contracts.
CD Partners, 424 F.3d at 801 (emphasis added). And even though the clause here
may be somewhat narrower, it includes no limiting language and is generally broad
in scope. See Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen GMBH, 206
F.3d 411, 416 n.3 (4th Cir. 2000) (recognizing “[a]ny dispute arising out of the
Contract” as “broad”); United Food and Commercial Workers Union, Local 400 v.
Shoppers Food Warehouse Corp., 35 F.3d 958, 960 (4th Cir. 1994) (stating that
4
In determining the arbitrability of a dispute, we generally apply these
principles as matters of “federal substantive law,” Moses H. Cone, 460 U.S. at 24,
informed by “‘traditional principles’” of relevant state law, Arthur Andersen, 129 S.
Ct. at 1902 (quoting 21 R. Lord, Williston on Contracts § 57:19, p. 183 (4th ed.
2001)). See also First Option of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Here,
neither party contends that any particular state’s law applies.
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“arises under” is “relatively broad”); cf. Heckler v. Ringer, 466 U.S. 602, 615 (1984)
(broadly construing “arising under” in statutory language).
Arbitration may be compelled under “a broad arbitration clause . . . as long as
the underlying factual allegations simply ‘touch matters covered by’ the arbitration
provision.” 3M Co. v. Amtex Sec., Inc., 542 F.3d 1193, 1199 (8th Cir. 2008) (quoting
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625 n.13
(1985)). It generally does not matter that claims sound in tort, rather than contract.
Hudson v. ConAgra Poultry Co., 484 F.3d 496, 499–500 (8th Cir. 2007) (“Under the
Federal Arbitration Act, we generally construe broad language in a contractual
arbitration provision to include tort claims arising from the contractual relationship,
and we compel arbitration of such claims.”); CD Partners, 424 F.3d at 800 (“Broadly
worded arbitration clauses . . . are generally construed to cover tort suits arising from
the same set of operative facts covered by a contract between the parties to the
agreement.”). In light of the interpretive preference for arbitration, we have no trouble
concluding that PRM’s tort claims are “disputes arising under” the 1999 Agreements
and are therefore within the scope of the broad arbitration clause.
IV.
For the foregoing reasons, we affirm the judgment of the district court.
BEAM, Circuit Judge, dissenting.
I disagree with the court's conclusion that the nature of PRM's claims are
connected to the contract and demonstrate the requisite relationships between persons,
wrongs, and issues necessary to compel arbitration. The arbitration clause tangentially
at issue here purports to cover "all disputes arising under" a technology licensing
agreement between PRM and Primenergy.
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The problem is, insofar as this appeal is concerned, that PRM asserts only a
garden variety tort claim against Kobe Steel that does not directly touch either the
subject matter or the geographic reach of the PRM/Primenergy contract itself. Indeed,
according to PRM, the tortious activities of Kobe Steel deal with transactions beyond
the scope, and purposefully outside of, the licensing authority granted Primenergy.
To be sure, it is axiomatic that in order for Kobe Steel to have engaged in the alleged
misconduct it must have had knowledge of the 1999 Agreements but that is the extent
of the allegations' involvement with those agreements.
This is clearly not the situation discussed in Ross v. American Express Co., 547
F.3d 137, 148 (2d Cir. 2008), one of the principal cases relied upon by the court. Nor
does PRM allege the sort of interdependent and concerted misconduct discussed in
Donaldson sufficient to place the claims within the scope of the arbitration clause.
Donaldson Co., Inc. v. Burroughs Diesel, Inc., 581 F.3d 726, 733-34 (8th Cir. 2009)
(discussing the application of the concerted misconduct test in MS Dealer Serv. Corp.
v. Franklin, 177 F.3d 942, 945, 948 (11th Cir. 1999), wherein the plaintiff alleged that
a non-signatory worked hand-in-hand with the signatory in a fraudulent scheme
intertwined with and involving the obligations imposed by the contract containing the
arbitration clause). Certainly, because of Kobe Steel's allegedly surreptitious
negotiations with Primenergy seeking to circuitously obtain the benefits of PRM's
technology for use in Japan, Kobe Steel is not "a complete stranger to the plaintiffs'
. . . agreements." Ross, 547 F.3d at 148. But, Kobe Steel is virtually so. The
PRM/Primenergy agreements do not mention Kobe Steel and perform no function
whatsoever relating to the supposed Kobe Steel/Primenergy "exclusive collaboration"
agreement. And, Kobe Steel was never a participant in the PRM/Primenergy deal.
Thus, the concerted misconduct requirements of Donaldson, the case that
mainly drives the court's analysis in this appeal, are almost totally absent. 581 F.3d
at 733-34. Accordingly, as in Donaldson, this litigation, too, lacks sufficient
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allegations of pre-arranged collusive behavior, and Kobe Steel's arbitration demand
should be rejected. Id. at 735.
I dissent.
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