IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
_____________________
No. 98-10815 _____________________
STINNETT ENTERPRISES, INC.,
Plaintiff-Appellee,
versus
DRAGON TEXTILE MILLS, INC.,
Defendant-Appellant. _________________________________________________________________
Appeal from the United States District Court for the Northern District of Texas, Lubbock (5:98-CV-32-C) _________________________________________________________________ August 13, 1999
Before JOLLY and SMITH, Circuit Judges, and STAGG,* District Judge.
E. GRADY JOLLY, Circuit Judge:**
Stinnett Enterprises, Inc. (“Stinnett”) and Dragon Textile
Mills, Inc. (“Dragon”) entered into a contract under which Stinnett
would ship cotton to Dragon. The parties failed to comply with the
agreement after the first shipment and Dragon sought to arbitrate
the dispute pursuant to a clause in the contract compelling
arbitration. Stinnett filed a complaint seeking declaratory and
injunctive relief barring Dragon from arbitrating the dispute and
Dragon filed a motion to compel arbitration. The district court
held that the arbitration clause was limited to disputes arising
* District Judge of the Western District of Louisiana, sitting by designation. ** Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. out of the force majeure provision of the contract and granted a
preliminary injunction in Stinnett’s favor. Because we find that
the arbitration clause does not unambiguously limit arbitration to
force majeure disputes, we reverse.
Stinnett through its agent, P.T. Worldwide, Inc. (“P.T.”),
entered into a contract with Dragon under which Stinnett would
provide 800 metric tons of cotton to Dragon in three separate
shipments. The contract, which was prepared by Stinnett, includes
the following sentence on the front of the one-page contract where
the specific terms of the agreement appear:
Friendly or Liverpool arbitration Liverpool rules as mentioned under No. 8 of our general conditions.
The underlined words are typed in. The other words are a part of
the form contract that embodies the specific terms of the
agreement. The general conditions, which are also part of the
form, were printed on the back of the one-page contract. No. 8 of
the general conditions reads as follows:
8. Force Majeure: Sellers are not liable for temporary delays caused by conditions beyond their control. Buyers agree to extend letters of credit upon request.
Should fulfillment of this contract be rendered impossible in any part and/or in any respect by reason of acts of God, including but not limited to fires, floods, earthquakes or accidents, acts of war, blockades, embargo, strikes, riots, rebellions or other restraints of rulers or organized acts, or any other emergency beyond the control of the new buyer and seller, both parties shall decide by mutual agreement how the contract shall be fulfilled, or canceled at the market difference. In the event the parties are unable to arrive at a mutually satisfactory agreement, then the matter shall be referred to Arbitration.
2 Stinnett apparently believed that the contract language limits
arbitration to disputes arising out the force majeure clause.
Dragon, on the other hand, apparently regarded the sentence on the
front of the contract as providing for arbitration of all disputes
arising out of the contract.
After delivering its first shipment approximately three months
later than it should, Stinnett refused to make any further
deliveries, claiming that Dragon had breached the contract. Dragon
sought to arbitrate the dispute in England, and Stinnett responded
by seeking injunctive relief in Texas state court. The case was
removed to federal court and Stinnett sought a preliminary
injunction. The district court granted relief after holding an
evidentiary hearing. Dragon filed a motion to stay or dismiss the
proceeding pending arbitration or, in the alternative, to compel
arbitration (“motion to compel arbitration”). The district court
denied the motion and Dragon filed a notice of interlocutory
appeal. The district court sua sponte stayed the proceedings below
pending appeal.
We review the denial of a motion to compel arbitration de
novo. Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996).
We review the district court’s determination of whether a contract
is ambiguous de novo, but, to the extent that determination rests
on extrinsic evidence of usage of trade, the issue may involve a
question of fact requiring review under a clearly erroneous
3 standard. Bloom v. Hearst Entertainment, Inc., 33 F.3d 518, 522-23
(5th Cir. 1994).
Dragon contends that the contract compels arbitration of all
disputes. Dragon further contends that, even if the more
restrictive reading of the contract urged by Stinnett is adopted,
the dispute at issue here should still be subject to arbitration.
Because we agree with Dragon that the arbitration clause compels
arbitration of all claims arising out of the contract, we do not
address Dragon’s second argument.
Dragon argues that the contract provided for arbitration with
respect to all disputes arising out of the contract. According to
Dragon, the term “Liverpool Arbitration” as used in the industry
implies that disputes in the contract will be resolved through
arbitration. Stinnett argues that because the complete clause
reads “Friendly or Liverpool arbitration Liverpool rules as
mentioned under No. 8 of our general conditions,” the contract
limits arbitration to disputes related to general provision No. 8--
the force majeure provision. Dragon responds that the term “as
mentioned” means citing, noting or referring to No. 8. It does not
mean, “as restricted to the circumstances described in No. 8" or
“as limited by No. 8.” At best, Dragon argues, the term is
ambiguous, in which case the term should be construed in Dragon’s
favor.
We find that Dragon has the better argument. Federal policy
favors arbitration and “ambiguities as to the scope of an
4 arbitration clause itself must be resolved in favor of
arbitration.” Volt Information Sciences, Inc. v. Board of
Trustees, 489 U.S. 468, 476 (1989); see also Moses H. Cone Memorial
Hospital v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983) (issues
of contract language construction should be resolved in the favor
of arbitration). Second, because Stinnett drafted the contract,
the language of the agreement is subject to “the common-law rule of
contract interpretation that a court should construe ambiguous
language against the interest of the party that drafted it.”
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-63
(1995).
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IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT
_____________________
No. 98-10815 _____________________
STINNETT ENTERPRISES, INC.,
Plaintiff-Appellee,
versus
DRAGON TEXTILE MILLS, INC.,
Defendant-Appellant. _________________________________________________________________
Appeal from the United States District Court for the Northern District of Texas, Lubbock (5:98-CV-32-C) _________________________________________________________________ August 13, 1999
Before JOLLY and SMITH, Circuit Judges, and STAGG,* District Judge.
E. GRADY JOLLY, Circuit Judge:**
Stinnett Enterprises, Inc. (“Stinnett”) and Dragon Textile
Mills, Inc. (“Dragon”) entered into a contract under which Stinnett
would ship cotton to Dragon. The parties failed to comply with the
agreement after the first shipment and Dragon sought to arbitrate
the dispute pursuant to a clause in the contract compelling
arbitration. Stinnett filed a complaint seeking declaratory and
injunctive relief barring Dragon from arbitrating the dispute and
Dragon filed a motion to compel arbitration. The district court
held that the arbitration clause was limited to disputes arising
* District Judge of the Western District of Louisiana, sitting by designation. ** Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. out of the force majeure provision of the contract and granted a
preliminary injunction in Stinnett’s favor. Because we find that
the arbitration clause does not unambiguously limit arbitration to
force majeure disputes, we reverse.
Stinnett through its agent, P.T. Worldwide, Inc. (“P.T.”),
entered into a contract with Dragon under which Stinnett would
provide 800 metric tons of cotton to Dragon in three separate
shipments. The contract, which was prepared by Stinnett, includes
the following sentence on the front of the one-page contract where
the specific terms of the agreement appear:
Friendly or Liverpool arbitration Liverpool rules as mentioned under No. 8 of our general conditions.
The underlined words are typed in. The other words are a part of
the form contract that embodies the specific terms of the
agreement. The general conditions, which are also part of the
form, were printed on the back of the one-page contract. No. 8 of
the general conditions reads as follows:
8. Force Majeure: Sellers are not liable for temporary delays caused by conditions beyond their control. Buyers agree to extend letters of credit upon request.
Should fulfillment of this contract be rendered impossible in any part and/or in any respect by reason of acts of God, including but not limited to fires, floods, earthquakes or accidents, acts of war, blockades, embargo, strikes, riots, rebellions or other restraints of rulers or organized acts, or any other emergency beyond the control of the new buyer and seller, both parties shall decide by mutual agreement how the contract shall be fulfilled, or canceled at the market difference. In the event the parties are unable to arrive at a mutually satisfactory agreement, then the matter shall be referred to Arbitration.
2 Stinnett apparently believed that the contract language limits
arbitration to disputes arising out the force majeure clause.
Dragon, on the other hand, apparently regarded the sentence on the
front of the contract as providing for arbitration of all disputes
arising out of the contract.
After delivering its first shipment approximately three months
later than it should, Stinnett refused to make any further
deliveries, claiming that Dragon had breached the contract. Dragon
sought to arbitrate the dispute in England, and Stinnett responded
by seeking injunctive relief in Texas state court. The case was
removed to federal court and Stinnett sought a preliminary
injunction. The district court granted relief after holding an
evidentiary hearing. Dragon filed a motion to stay or dismiss the
proceeding pending arbitration or, in the alternative, to compel
arbitration (“motion to compel arbitration”). The district court
denied the motion and Dragon filed a notice of interlocutory
appeal. The district court sua sponte stayed the proceedings below
pending appeal.
We review the denial of a motion to compel arbitration de
novo. Webb v. Investacorp, Inc., 89 F.3d 252, 257 (5th Cir. 1996).
We review the district court’s determination of whether a contract
is ambiguous de novo, but, to the extent that determination rests
on extrinsic evidence of usage of trade, the issue may involve a
question of fact requiring review under a clearly erroneous
3 standard. Bloom v. Hearst Entertainment, Inc., 33 F.3d 518, 522-23
(5th Cir. 1994).
Dragon contends that the contract compels arbitration of all
disputes. Dragon further contends that, even if the more
restrictive reading of the contract urged by Stinnett is adopted,
the dispute at issue here should still be subject to arbitration.
Because we agree with Dragon that the arbitration clause compels
arbitration of all claims arising out of the contract, we do not
address Dragon’s second argument.
Dragon argues that the contract provided for arbitration with
respect to all disputes arising out of the contract. According to
Dragon, the term “Liverpool Arbitration” as used in the industry
implies that disputes in the contract will be resolved through
arbitration. Stinnett argues that because the complete clause
reads “Friendly or Liverpool arbitration Liverpool rules as
mentioned under No. 8 of our general conditions,” the contract
limits arbitration to disputes related to general provision No. 8--
the force majeure provision. Dragon responds that the term “as
mentioned” means citing, noting or referring to No. 8. It does not
mean, “as restricted to the circumstances described in No. 8" or
“as limited by No. 8.” At best, Dragon argues, the term is
ambiguous, in which case the term should be construed in Dragon’s
favor.
We find that Dragon has the better argument. Federal policy
favors arbitration and “ambiguities as to the scope of an
4 arbitration clause itself must be resolved in favor of
arbitration.” Volt Information Sciences, Inc. v. Board of
Trustees, 489 U.S. 468, 476 (1989); see also Moses H. Cone Memorial
Hospital v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983) (issues
of contract language construction should be resolved in the favor
of arbitration). Second, because Stinnett drafted the contract,
the language of the agreement is subject to “the common-law rule of
contract interpretation that a court should construe ambiguous
language against the interest of the party that drafted it.”
Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-63
(1995).
Although the parties could have intended the arbitration
clause on the front of the contract to be limited to the force
majeure provision, the placement of the clause (as a separate
clause from the force majeure provision) and the use of the term
“as mentioned” make the clause at least ambiguous. We therefore
must accept Dragon’s reading of the clause.
We admit that this reading is troublesome in that, if the
arbitration clause were meant to be applied to the entire contract,
there would appear to be no need for the additional verbiage “as
mentioned under No. 8 of our general conditions.” It is horn-book
law that the terms of a contract should not be read in such a way
as to render them devoid of meaning.1 In this case, however, even
1 Section 203 of the Restatement 2d provides in part that: In the interpretation of a promise or agreement or a term thereof, the following standards of preference are
5 if the words were utterly meaningless, our reading of the words “as
mentioned” does not lead to a meaningless term but instead renders
a phrase contained in one of the contract terms meaningless.
However, it is not implausible that the words mean that Liverpool
rules apply to arbitration under paragraph 8, as well as to the
agreement reflected in the specific terms that appear on the front
of the contract.
Finally, we should point out that, if we interpreted the
clause as being limited to general provision No. 8, we would
effectively be rendering the term “friendly” redundant or
meaningless inasmuch as provision No. 8 states that the parties may
by mutual agreement resolve any issues between them arising under
that provision.
In short, we are confronted with an ambiguous clause. We
therefore conclude that the arbitration clause should be read in
favor of requiring arbitration of all disputes arising out of the
contract. On that basis, we reverse the district court’s ruling.
For the foregoing reasons, the rulings and orders of the
district court are REVERSED and the case is REMANDED for further
proceedings not inconsistent with this opinion.
REVERSED and REMANDED.
generally applicable: (a) an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect.