ITT Hartford Life v. Randy Stelk , 133 F.3d 664 ( 1998 )

United States Court of Appeal
FOR THE EIGHTH CIRCUIT
___________
No. 96-2010
No. 96-2094
___________
ITT Hartford Life & Annuity Insurance *
Company, formerly known as ITT Life *
Insurance Corporation, a Wisconsin *
Corporation, *
*
Plaintiff - Appellee, *
*
v. *
*
Amerishare Investors, Inc., a Florida *
corporation; *
*
Defendants. * Appeals from
the United States
* District Court for the
Randy Stelk; John Craft; * Western District of
Missouri
*
Defendants - Appellants, *
*
Amerishare Communications, Inc., *
a Florida corporation; Amerishare *
Agency, Inc., a NewYork corporation; *
Agent Investors Holding Company, a *
Georgia corporation, *
*
Defendants. *
*
___________
Submitted: February 13, 1997
Filed: January 9, 1997
___________
Before McMILLIAN, JOHN R. GIBSON, and FAGG, Circuit Judges.
___________
JOHN R. GIBSON, Circuit Judge.
Amerishare Investors, Inc. Randy Stelk, John Craft, Amerishare
Communications, Inc. and Amerishare Agency, Inc. appeal from summary
judgment entered on ITT Hartford's action to collect on a loan and loan
guarantees. They argue that the district court erred in not enforcing the
parties' arbitration agreement and in entering summary judgment. We
affirm.
Amerishare Investors1 was an insurance marketing company which had a
national distribution system of independent sales agents. ITT Hartford is
a life, annuity, accident and health insurer.
In early 1992, ITT approached Amerishare Investors about becoming the
exclusive agent for ITT life insurance and annuity products. On February
6, 1992, ITT and Amerishare Investors entered into a marketing agreement.
Under the agreement, Amerishare Investors agreed to market and sell through
its sales agents life insurance and annuity products underwritten by ITT.
Amerishare Investors was to meet certain production goals, and ITT Hartford
was "to provide Amerishare with certain services, financial assistance and
other support."
1
Amerishare Communications, Inc. and Amerishare Agency, Inc. are subsidiaries
of Amerishare Investors. Randy Stelk and John Craft founded Amerishare. We will
sometimes refer to the appellants collectively as "Amerishare," and when necessary to
our discussion, we will identify them separately.
The marketing agreement attached a letter agreement, dated February
6, 1992, memorializing ITT Hartford's obligation to provide bridge
financing. The letter agreement recognized that Amerishare Investors would
need financing during the transition from its current insurance carrier to
ITT Hartford. ITT Hartford agreed to provide temporary financial
assistance of up to $300,000 per month for up to six months (or until
Amerishare Investors achieved a monthly cash flow of $300,000). Financial
assistance was contingent upon the two parties entering into a marketing
agreement. The letter agreement provided that the bridge financing loan
would have an interest rate of 1% over prime as of the loan date, and would
be repaid in monthly installments as mutually agreed by the parties.
Repayment would begin when Amerishare achieved a monthly cash flow of
$300,000, or one year from the date of the loan.
The marketing agreement established that ITT Hartford would be the
underwriter for the insurance policies sold by Amerishare. The agreement
set forth various duties of ITT Hartford, including ITT Hartford's
obligation to issue policies, pay commissions, obtain licensing, and
perform actuarial, billing, and collection services.
The marketing agreement contained an arbitration provision:
It is the intention of the [ITT Life Insurance Corporation] and
Amerishare that the customs and practices of the insurance
industry shall be given full effect in the operation and
interpretation of this Agreement. The parties agree to act in
all things with the good faith. If the Company and Amerishare
cannot, however, mutually resolve a dispute which arises out of
or relates to this Agreement, the dispute shall be decided
through arbitration as set forth herein. The arbitrators shall
base their decision on the terms and conditions of this
Agreement and, as necessary, on the customs and practices of
the insurance industry rather than solely on a strict
interpretation of the applicable law.
The agreement outlined the procedure for the initiation of
arbitration, the
selection of the arbitrators, and the mechanics of the arbitration
proceeding. The agreement provided that Minnesota law governed.
Amerishare Investors was the signatory to the marketing agreement.2
In November 1992, Amerishare Investors executed to ITT Hartford a
loan agreement, a promissory note, and a security agreement. The preamble
to the loan agreement referenced the marketing agreement, noting that:
"Amerishare and ITT Life have entered into Marketing Agreement effective
March 6, 1992," and the agreement "evidences a relationship of trust and
mutual respect." The loan agreement stated that ITT agreed to advance a
$4,350,000 line of credit to Amerishare to provide "assistance to
Amerishare in the transition, start-up and building of a large and
effective agency system." Amerishare agreed to borrow under the line of
credit only to the extent necessary to meet its current working capital
requirements. The loan agreement provided that the first advance under the
loan agreement would be used to repay the $2,987,627 in promissory notes
executed under the line of credit. These notes were amounts from the
bridge financing that ITT Hartford had provided for in the marketing
agreement. The loan agreement also provided:
This Agreement and the writings executed herewith and hereafter
constitute the sole agreement and understanding of Amerishare
and ITT Life with respect to the transactions described herein,
and supersede and replace all prior written and oral agreements
and understandings with respect thereto.
The parties contemplated that Amerishare would repay the loan from
"all commissions and other amounts payable to Amerishare under the
Marketing Agreement or any other agreement between Amerishare and ITT
Life." The agreement contained
2
Agent Investors Holding Company was also a signatory to the marketing
agreement. The court dismissed Agent Investors from the case pursuant to a stipulation
of the parties.
provisions relating to the rights and remedies in the event of default,
including a provision allowing ITT Life to terminate the line of credit and
declare all principal interest and other charges due and payable. The
agreement defined one of the events of default as "[n]otice of termination
of the Marketing Agreement." The loan agreement contained a paragraph
relating to jurisdiction and venue "in connection with any controversy
related in any way to this Agreement or any of the Loan Documents."
The agreement provided:
Amerishare consents to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in
connection with any controversy related in any way to this
Agreement or any of the Loan Documents, waives any argument
that venue in such forums is not convenient, and agrees that
any litigation initiated by Amerishare against ITT Life in
connection with this Agreement or any of the Loan Documents
will be venued in either the District Court of Hennepin County,
Minnesota, or the United States District Court, District of
Minnesota; provided that any proceeding commenced by ITT Life
hereunder will be commenced and maintained in federal court
unless the Minnesota federal courts lack subject matter
jurisdiction with respect to the claims made in such
proceeding; and provided that ITT Life will not contest removal
to or seek remand from any Minnesota federal district court
with respect to any proceeding commenced by ITT Life hereunder
except on the basis of lack of federal court subject matter
jurisdiction.
The agreement did not contain an arbitration clause.
Amerishare Investors secured its repayment obligation by granting ITT
Hartford a first security interest in all of its assets, including shares
of stock it owned in Amerishare Agency and Amerishare Communications.
Amerishare Communications and Amerishare Agency also executed guaranty and
security agreements dated November 13, 1992. Amerishare Communications and
Amerishare Agency secured their guaranties by granting ITT Hartford a first
security interest in their assets. Stelk
and Craft granted ITT Hartford a first security interest in accounts,
inventory, various claims they owned, and their shares of Amerishare stock.
Amerishare agreed that it would not sell or dispose of any of the
collateral. The guarantors agreed to pay all costs of collection. The
security agreements contained the same jurisdiction and venue clause set
forth in the loan agreement, specifically providing that the guarantors
consented to "the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy
related in any way to this Agreement." Like the loan agreement, the
security agreements did not contain an arbitration provision.
The parties amended the marketing agreement, effective August 8,
1994, lowering Amerishare's production requirements. The amendment gave
ITT the right to terminate the marketing agreement if Amerishare did not
meet the new production requirements. Amerishare failed to meet the
reduced production requirements, and on January 3, 1995, ITT Hartford
notified Amerishare that it was terminating the marketing agreement. The
notice of termination caused an "Event of Default" under the loan
agreement. ITT Hartford declared all principal and interest immediately
due and filed suit to collect under the note and guaranties.
Amerishare filed a motion to dismiss for lack of subject matter
jurisdiction, arguing that ITT's claims were subject to arbitration. In
the alternative, Amerishare moved to compel arbitration and to stay the
action pending arbitration. The magistrate judge denied Amerishare's
motion to dismiss and motion to compel arbitration, concluding that the
loan agreement was not subject to the arbitration provisions of the
marketing agreement. The magistrate judge reasoned that the loan documents
and marketing agreement "are not so closely linked as to impose or confer
arbitration on issues and parties who did not contractually agree to
arbitration."
ITT Hartford filed a motion for summary judgment. Although the
magistrate judge was "inclined to grant" the motion because Amerishare did
not deny liability
under the loan agreements, it nevertheless granted Amerishare 120 days to
conduct discovery. No discovery was conducted. Instead, Amerishare filed
affidavits from five people detailing ITT Hartford's alleged breaches of
the marketing agreement and arguing that ITT Hartford caused its failure
to meet production goals. Specifically, the affidavits explained that ITT
Hartford was unable to handle the business generated by Amerishare and that
it breached the marketing agreement by failing to obtain licensing to sell
insurance in New Jersey, by incompetently handling applications for life
insurance, and by refusing to pay commissions. The affidavits stated that
ITT Hartford regularly lost blood and urine samples, failed to make timely
decisions on insurance, and that ITT hired away Amerishare's sales force.
Amerishare contended that the district court must order arbitration because
the affidavits showed that ITT Hartford's complaint is premised on a breach
of the marketing agreement, containing a mandatory arbitration clause.
Amerishare argued alternatively that the affidavits raised a genuine issue
of material fact as to liability and damages under the loan agreements.
The district court rejected Amerishare's arguments, reasoning that the
counterclaims based on the marketing agreement could proceed independently
of the claims on the loan agreements.
The district court denied Amerishare's motion for reconsideration,
pointing out that the parties filed a stipulation agreeing to dismiss the
counterclaims based on alleged breaches of the marketing agreement and
agreeing to submit the counterclaims to arbitration.
Amerishare now appeals, contending that the district court erred in
refusing to compel arbitration of its claims, and in ordering summary
judgment because there are disputed issues of material facts.
I.
When a party moves to compel arbitration, our role is to determine
whether there
is an agreement between those parties which commits the subject matter of
the dispute to arbitration. I.S. Joseph Co. v. Michigan Sugar Co., 803
F.2d 396, 399 (8th Cir. 1986). We examine arbitration agreements in the
same light we examine any other contractual agreement. See Perry v.
Thomas, 482 U.S. 483, 492 & n. 9 (1987).
The Federal Arbitration Act mandates that courts shall direct parties
to arbitration on issues to which an arbitration agreement has been signed.
See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). There
is a presumption of arbitrability if the governing agreement contains an
arbitration clause. See AT&T Tech. Inc. v. Communications Workers of
America, 475 U.S. 643, 650 (1986). "[A]rbitration 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."
IBEW, Local 4 v. KTVI-TV, Inc., 985 F.2d 415, 416 (8th Cir. 1993) (internal
quotation and citation omitted). We resolve ambiguities as to the scope
of an arbitration clause in favor of arbitration. See id. Nevertheless,
neither state nor federal law confers a right of arbitration; the right
must be found in a contract between the parties seeking to compel
arbitration. See, e.g., Volt Info. Sciences, Inc. v. Board of Trustees of
Leland Stanford Junior University, 489 U.S. 468, 474-75 (1989); Schoenborn
v. State Farm Auto Ins. Co., 495 N.W.2d 460, 463 (Minn. Ct. App. 1993).
A party who has not agreed to arbitrate a dispute cannot be forced to do
so. AT&T Tech., 475 U.S. at 648.
The district court held the arbitration provision of the marketing
agreement did not control because the loan agreements did not contain an
arbitration provision, and because Amerishare Communications, Amerishare
Agency, Stelk, and Craft were not signatories to the marketing agreement.
Amerishare contends that given the broad "arising out of" language
contained in the marketing agreement, ITT Hartford's claims fall within the
scope of the arbitration provision. Amerishare contends that the district
court violated a key rule of contract
interpretation, and that "[a] contract and several writings relating to the
same transaction must be construed with reference to each other." Knut.
Co. v. Knutson Const. Co., 433 N.W.2d 149, 151 (Minn. Ct. App. 1988).
Amerishare contends the district court misconstrued the holding in Knutson
by concluding that several writings should be construed together only when
the writings are executed contemporaneously, and that the loan agreement
is subject to the arbitration provision of the marketing agreement because
the agreements are all part of a "single, unified contractual scheme."
In Knutson, plaintiffs sued to collect under a promissory note and
personal guarantees. 433 N.W.2d at 150. The appellants executed the note
and personal guaranties in connection with an asset purchase agreement.
Id. The purchase agreement contained an arbitration provision. The
Minnesota court ordered arbitration, concluding that the scope of the
agreement showed that the parties intended the arbitration provision to
apply to the loan dispute, noting that the arbitration language was broad;
the Note and the Guaranty were executed at the same time as the Agreement;
the Agreement specifically mentioned the Note and Guaranty, and provided
that the Note was subject to the Agreement's terms and conditions. Id. at
150-151. Contrary to Amerishare's argument, the district court did not
decide that the loan documents were not subject to the arbitration
provision because the loan documents were not executed contemporaneously
with the marketing agreement. The timing of the execution of the documents
was simply one factor in deciding whether the parties intended to be bound
by the arbitration provision.
In general, a stranger to a contract has no rights under the contract
unless the third party is an intended beneficiary of the contract, or there
is a duty owed to the third party that is discharged by the contract.3 See
Chard Realty Inc. v. City of Shakopee, 392 N.W.2d 716, 720 (Minn. Ct. App.
1986); Anderson v. First Northtown Nat'l Bank,
3
The guarantors do not argue there is a duty owed to them under the marketing
agreement.
361 N.W.2d 116, 118 (Minn. Ct. App. 1985). Amerishare Agency, Amerishare
Communications, Stelk, and Craft are not signatories to the marketing
agreement, and the marketing agreement does not show an intent to benefit
the guarantors. See Chard, 392 N.W.2d at 720-21 (alleged third-party
beneficiary not mentioned in contract). The fact that the loan documents
did not exist when Amerishare Investors and ITT Hartford entered into the
marketing agreement demonstrates against intended beneficiary status. See,
e.g., Gold'N Plump Poultry Inc. v.. Simmons Eng. Co., 805 F.2d 1312, 1318-
19 (8th Cir. 1986).
In Lee v. Chica, 983 F.2d 883 (8th Cir.), cert. denied, 510 U.S. 906
(1993), we held that an arbitration agreement between a customer and a
brokerage firm can bind the agent who traded in the account even if the
agent did not sign the customer agreement. Id. at 886-87. We reasoned
that the plain language of the arbitration clause covered the customer's
claims against the agent who was managing her account as an employee of the
brokerage firm. Id. at 887. In Lee, however, the only agreement at issue
was the customer agreement and the customer sued for claims under that
agreement. Cf. Schoenborn, 495 N.W.2d at 463 (refusing to extend policy's
arbitration clause). Here, ITT Hartford sued to collect money under the
loan agreements. The loan transaction was a separate agreement, distinct
from the marketing agreement. The loan agreements involved different
entities and obligations. Cf. Anda Constr. Co. v. First Fed'l Savings &
Loan, 349 N.W.2d 275, 278 (Minn. Ct. App. 1984). The fact that Amerishare
may have claims against ITT Hartford under another agreement does not
transform the two agreements into one unified transaction. ITT Hartford's
claim to recover under the loan agreement has no bearing on Amerishare's
ability to arbitrate its claims, as readily conceded by ITT Hartford.4
4
At oral argument, Amerishare stated that it had requested arbitration of its
claims against ITT by filing its motion to compel arbitration in this case. The marketing
agreement, however, sets forth a detailed procedure for the initiation of arbitration and
selection of arbitrators. At the time of oral argument, Amerishare admitted that it had
not yet initiated arbitration proceedings under the marketing agreement.
Amerishare also argues that the arbitration provision in the
marketing agreement extends to this dispute because the guaranty and
security agreements expressly incorporated Amerishare's obligation to
arbitrate. The guaranties provide:
Guarantor absolutely, irrevocably and unconditionally
guarantees to Secured Party the payment and performance of all
liabilities and obligations of Amerishare Investors, Inc.
("Debtor") promptly when due, by acceleration or otherwise,
under that certain Loan Agreement of even date by and between
Debtor and Secured Party. . . .
This language, however, is a guarantee of Amerishare's obligation
"under that certain loan agreement." It does not obligate the guarantors
under the marketing agreement. This presents a far different scenario than
that in Compania Espanola de Petroleos, S.A. v. Nereus Shipping, S.A., 527
F.2d 966 (2d Cir. 1975), cert. denied, 426 U.S. 936 (1976), where the court
found the guarantors bound by the arbitration clause in the original
contract. Id. at 973-74. Although the guaranty in that case did not
contain an arbitration provision, the guarantors in that case not only
agreed to perform the balance of the original contract, but also agreed to
assume the rights and obligations under the original contract. Id.
Although we recognize that we must resolve any ambiguities in the
marketing agreement in favor of arbitration, we can say with positive
assurance that the arbitration clause does not cover the instant dispute.
Amerishare and ITT Hartford executed the marketing agreement eight months
before the execution of the promissory note and guaranties. Although the
promissory note refers to the marketing agreement, it does not provide that
the note or guaranties are subject to the provisions of the marketing
agreement. Cf. Knutson, 433 N.W.2d at 151. Indeed, the note states that
the note and the writings constitute the sole agreement of Amerishare and
ITT Life and supersede all prior agreements. The loan agreements do not
discuss arbitration and, in fact, expressly provide that Amerishare
consents to the personal jurisdiction of the Minnesota courts with respect
to the loan documents. It is evident to us that the agreements are not so
connected as to impose the arbitration provision to the loan
documents.
The district court did not err in refusing to compel arbitration.
II.
Even if the court disagrees that arbitration is required, Amerishare
contends that reversal is still warranted because of genuine issues of
material fact. Amerishare contends that there exists a genuine issue of
material fact as to whether the contract performance is excused by the
prevention doctrine. Amerishare contends that "contract performance is
excused when it is hindered or rendered impossible by the other party."
LaSociete Generale Immobiliere v. Minneapolis Community Dev. Agency, 44
F.3d 629, 638 (8th Cir. 1994) (quoting Zobel & Dahl Constr. v. Crotty, 356
N.W.2d 42, 45 (Minn. 1984)), cert denied, 116 S. Ct. 58 (1995).
Amerishare contends that it raised numerous factual issues supporting
complete defenses to ITT's claims; most importantly, a defense based on
ITT's breach of its duty of good faith. Amerishare argues the affidavits
it filed raised a genuine issue of material fact both as to liability and
damages. Amerishare contends that there exists a genuine issue of fact as
to whether ITT breached the marketing agreement creating liability under
the loan agreement and guaranties. Amerishare further contends that there
are genuine issues of fact as to damages under the loan agreement and
guaranties. In addition to the affidavits detailing ITT Hartford's actions
which constitute liability under the marketing agreement, Stelk filed an
affidavit stating that the promissory note upon which ITT is suing will be
paid in full by September 1996, due to residual income that is being
generated monthly from Amerishare accounts now controlled by ITT Hartford.
The controller for ITT Hartford filed an affidavit stating that it had
reduced Amerishare's debt to ITT Hartford by $276,300, the amount of
commissions due Amerishare. He further stated that ITT Hartford had not
received the payments that Amerishare claimed would pay off the remaining
note balance, and that ITT Hartford did not expect any further commissions
generated by Amerishare.
The district court stated that in light of the fact that the ITT
Hartford had stipulated to a dismissal of the counterclaims and agreed that
counterclaims were subject to arbitration, there was no basis for
withholding summary judgment.
Amerishare raises the identical arguments before this court,
characterizing its counterclaims and affirmative defenses as absolute
defenses to liability, creating a genuine issue of material fact. The only
argument that Amerishare identifies as to why the arbitration of the
counterclaims cannot proceed independently is that if the arbitration panel
decides that ITT wrongfully terminated the marketing agreement, then ITT
had no right to "call" its loan under the loan agreement. If this
happened, the district court rulings would be irreconcilable. Amerishare
cites two cases which hold that a factual finding by a panel of arbitrators
can collaterally estop a related issue in a court proceeding.
We are unconvinced by Amerishare's argument. An arbitrator's
subsequent ruling in favor of Amerishare on its claims under the marketing
agreement would not be irreconcilable to the judgment on the promissory
note. The district court only decided liability under the loan documents.
The cases cited by Amerishare establish only that a factual finding of an
arbitrator can be collateral estoppel in a later court proceeding. See,
e.g., Vacca v. Viacom Broadcasting, 875 F.2d 1337, 1339 (8th Cir. 1989).
This principle of collateral estoppel does not apply here because there has
not been an arbitration. See Dean Witter Reynolds, Inc., 470 U.S. at 223
("The collateral-estoppel effect of an arbitration proceeding is at issue
only after arbitration is completed"). Should Amerishare institute
arbitration and the arbitration panel find in favor of Amerishare on its
counterclaims, the arbitration panel can simply award damages accordingly.
There are no genuine issues of disputed fact. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986).
We affirm the district court's judgment.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.