Investment Prt L P v. Glamour Shots Licens

• Court: Court of Appeals for the Fifth Circuit
• Decided: August 22, 2002
• Docket: 01-60651
• Status: Published

Opinion

REVISED AUGUST 22, 2002

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 01-60651

INVESTMENT PARTNERS, L.P.,

Plaintiff-Appellant,

v.

GLAMOUR SHOTS LICENSING, INC., and CANDID COLOR SYSTEMS, INC.,

Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Mississippi Southern Division

July 15, 2002

Before JOLLY, JONES and BARKSDALE, Circuit Judges.

Edith H. Jones, Circuit Judge:

The questions presented in this appeal are whether an

arbitration clause that prevents the award of “punitive damages”

proscribes antitrust treble damages and whether, if so, the

arbitration clause is void as against public policy. We affirm the

district court’s decision that statutory treble damages are not

equivalent to “punitive damages,” the clause is enforceable, and

the parties must arbitrate. In 1992, Investment Partners entered into a franchise and

licensing agreement with Glamour Shots Licensing, Inc. (“GSL”).

The licensing agreement permitted Investment Partners to open and

operate a “Glamour Shots” store in Biloxi, Mississippi. The

licensing agreement required Investment Partners to use the

services of Candid Color Systems, Inc. (“CCS”), a wholly owned

subsidiary of GSL, for all photo processing needs related to the

operation of the “Glamour Shots” franchise.

In October 2000, Investment Partners filed suit against

GSL and CCS in federal district court alleging violations of

federal antitrust laws. According to Investment Partners, CCS

charged exorbitant prices for photo processing pursuant to an

illegal tying agreement with GSL. Investment Partners sought

compensatory and statutory treble damages for alleged violations of

the Clayton Act, 15 U.S.C. § 15.

Appellees moved to compel arbitration, pursuant to 9

U.S.C. § 4, and a provision of the licensing agreement that

provides:

29. Arbitration: Any claim, controversy or dispute arising out of or relating to this Agreement or out of [Investment Partners’] operation of the Business shall, except as set forth herein, be settled by arbitration in Oklahoma City, Oklahoma, in accordance with the rules of the American Arbitration Association. This agreement to Arbitrate shall survive the termination of this Agreement. Any arbitration shall be undertaken pursuant to the Federal Arbitration Act . . . The arbitrators shall not award punitive damages. . . .

2 Appellees argued that this provision required arbitration because

Investment Partners’ antitrust claims arose out of the licensing

agreement. That the clause covers the parties’ dispute is

uncontested.

Investment Partners responded, however, that the clause

is void because, in prohibiting the award of punitive damages, it

prevents the arbitrator from awarding treble damages as required by

federal antitrust laws. The district court rejected Investment

Partner’s argument, granted the motion to compel arbitration, and

dismissed Investment Partners’ suit without prejudice. Investment

Partners now appeals.

DISCUSSION

This court reviews an order compelling arbitration de

novo. OPE Int’l L.P. v. Chet Morrison Contractors, Inc., 258 F.3d

443, 445 (5th Cir. 2001). All doubts concerning arbitrability are

resolved in favor of arbitration. Id. (citing Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25,

103 S.Ct. 927 (1983)).

Relying primarily on Larry’s United Super, Inc. v.

Werries, 253 F.3d 1083, 1086 (8th Cir. 2001), Appellees contend

that this court’s jurisdiction “extends only to determine whether

a valid agreement to arbitrate exists, not to determine whether

public policy conflicts with the remedies provided in the

arbitration clause.” Larry’s United, 253 F.3d at 1086. The circuit

3 courts are split on whether the enforceability of an arbitration

clause should be adjudicated before arbitration when a party

contends that public policy prevents the clause’s waiver of certain

remedies. Compare Larry’s United, and Great Western Mtg. Corp. v.

Peacock, 110 F.3d 222, 230 (3rd Cir. 1997) (“availability of

punitive damages cannot enter into a decision to compel

arbitration.”); with Paladino v. Avnet Computer Tech., Inc., 134

F.3d 1054, 1059-60 (11th Cir. 1998) (refusing to compel arbitration

and holding that arbitration clause was unenforceable because it

“completely proscribes an arbitral award of Title VII damages”) and

Graham Oil Co. v. Arco Prod. Co., 43 F.3d 1244, 1246-48 (9th Cir.

1995) (holding that arbitration clause which compelled surrender of

statutory remedies afforded by the Petroleum Marketing Practices

Act was unenforceable because it contravened federal public

policy). Although the question is close, we conclude that

appellate jurisdiction exists because IP seeks to void the entire

arbitration clause on public policy grounds, albeit by means of

attacking the remedy provision, and the Supreme Court disposed of

a similar argument, without submitting the issue first to the

arbitrators, in Green Tree Financial Corp. v. Randolph, 531 U.S.

79, 121 S.Ct. 513 (2000).

Investment Partners asserts that arbitration is not an

adequate substitute for a judicial forum in this case because the

arbitration clause in the licensing agreement denies a “statutorily

4 guaranteed right” to treble damages. Because prohibition of

punitive damages in the arbitration agreement prevents the

arbitrator from awarding statutory treble damages, Investment

Partners contends that the arbitration clause is void. This

argument is meritless.

In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 105 S.Ct. 3346 (1985), the Court discussed the

role of treble damages in federal antitrust statutes. The Court

explained:

Notwithstanding its important incidental policing function, the treble-damages cause of action conferred on private parties by § 4 of the Clayton Act . . . seeks primarily to enable an injured competitor to gain compensation for that injury. “Section 4 is in essence a remedial provision. . . . Of course, treble damages also play an important role in penalizing wrongdoers and deterring wrongdoing . . . It nevertheless is true that the treble-damages provision, which makes awards available only to injured parties, and measures the awards by a multiple of the injury actually proved, is designed primarily as a remedy.”

Id. at 635-36, 105 S.Ct. 3346 (quoting Brunswick Corp. v. Pueblo

Bowl-O-Mat, 429 U.S. 477, 485-86, 97 S.Ct. 690 (1977)). Unlike

punitive damages, which punish a wrongdoer, treble-damages

compensate an injured party. Id. While these statements do not

constitute the principal holding in Mitsubishi Motors Corp., they

are certainly definitive enough to bind this inferior court.

Therefore, the prohibition in the parties’ arbitration agreement

against awarding “punitive damages” does not extend to statutory

treble damages.

5 The Supreme Court has occasionally referred to treble

damage remedies or awards as “punitive.” See Vermont Agency of

Natural Resources v. United States ex rel. Stevens, 529 U.S. 765,

785-86 (2000) (holding that treble damages and civil penalty of up

to $10,000 per claim authorized by the False Claims Act are

“essentially punitive in nature” because “‘[t]he very idea of

treble damages reveals an intent to punish past, and to deter

future, unlawful conduct, not to ameliorate the liability of

wrongdoers’” (quoting Texas Indus., Inc. v. Radcliff Materials,

Inc., 451 U.S. 630, 639 (1981)); cf. also id. (noting that United

States ex rel. Marcus v. Hess, 317 U.S. 537, 550 (1943),

“suggest[s] that treble damages, such as those in the antitrust

laws, would have been [punitive]”); C.I.R. v. Glenshaw Glass Co.,

348 U.S. 426, 474-75, 477 (holding that “money received as

exemplary damages for fraud or as the punitive two-thirds portion

of a treble-damage antitrust recovery must be reported by a

taxpayer as gross income under s 22(a) of the Internal Revenue Code

of 1939”). We do not find these references as significant as

Mitsubishi Motors Corp. in the present context. First, the task in

this case is to construe “punitive” in a private parties’

arbitration agreement, which the Supreme Court has clearly said we

interpret broadly to permit arbitration as far as possible.

Second, it makes sense to draw a distinction, from the standpoint

of the parties’ expectations when they entered the arbitration

6 agreement, between statutory treble damages and common law punitive

damages. That is, punitive damages are awarded under notoriously

open-ended legal standards and a broadly defined constitutional

limit concerning the amount awarded. Treble damages, however,

represent a mere mathematical expansion of the actual damages

calculated by the arbitrator. While private parties might well

exclude common law punitive damages, with all their uncertainty,

from the arbitrator’s authority, the riskiness of committing

antitrust damages to the arbitrator is much smaller. Thus,

antitrust treble damages may indeed be “punitive” simply because

they exceed the actual damages that have been inflicted on the

victim of violative conduct, but they are not “punitive” for

purposes of interpreting the scope of an arbitration clause.

Investment Partners can vindicate its statutory rights in

arbitration pursuant to the terms of its agreement. Although the

arbitrator cannot award punitive damages,1 he may award antitrust

treble damages, and the arbitral forum is an adequate substitute

for the judicial forum in this case. The district court correctly

held that Investment Partners’ arbitration agreement must be

enforced. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

28, 111 S.Ct. 1647 (1991).

CONCLUSION

1 Provisions in arbitration agreements that prohibit punitive damages are generally enforceable. See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 56-57, 115 S.Ct. 1212 (1995).

7 For the foregoing reasons, we AFFIRM the judgment of the

district court.