Bratt Enterprises v. Noble International

• Court: Court of Appeals for the Sixth Circuit
• Decided: July 31, 2003
• Docket: 01-4244
• Status: Published

Opinion

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.

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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