Town & Country Salida, Inc. v. Dealer Computer Services, Inc.

• Court: Court of Appeals for the Sixth Circuit
• Decided: April 9, 2013
• Docket: 12-1850
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 13a0347n.06

No. 12-1850 FILED UNITED STATES COURT OF APPEALS Apr 09, 2013 FOR THE SIXTH CIRCUIT DEBORAH S. HUNT, Clerk

TOWN & COUNTRY SALIDA, INC., ) ) Plaintiff-Appellee, ) ON APPEAL FROM THE ) UNITED STATES DISTRICT v. ) COURT FOR THE EASTERN ) DISTRICT OF MICHIGAN DEALER COMPUTER SERVICES, INC., ) ) Defendant-Appellant. ) )

BEFORE: KEITH, COLE, and ROGERS, Circuit Judges.

ROGERS, Circuit Judge. A contract with an arbitration clause referred to certain parties,

including an entity called “Town & Country Auto.” An arbitral panel resolving a payment dispute

determined that this referred to a particular car dealership, Town & Country Salida, Inc., and entered

an award against it. In the district court below, Town & Country Salida, Inc., sought to vacate or

modify the arbitral award on the ground that Town & Country Salida, Inc., was not an entity referred

to or bound by the contract containing the arbitration clause. The district court, without deferring

to the arbitrators’ determination that Town & Country Salida, Inc. was in fact a party to the contract,

proceeded to find that it was not. Because the district court’s factual determination in this respect

was not clearly erroneous, we have no basis to reverse the district court’s partial vacatur of the

arbitral award so as not to apply to Town & Country Salida, Inc. No. 12-1850 Town & Country Salida, Inc. v. Dealer Computer Services, Inc.

Defendant-appellant Dealer Computer Services, Inc. (“DCS”)—a company that provides and

services computer hardware and software for car dealerships—entered into a series of agreements

with car dealerships in Colorado owned by J. Michael Goodart. The original 1995 agreement

between DCS and Gunnison Ford, Inc. included an arbitration provision. Through a series of

assignments, Town & Country Autoplex-Gunnison, Inc. (“T&C Gunnison”) became a party to the

agreement in 2001.

A February 2003 amendment to the contract included a reference not only to T&C Gunnison,

but also to “Town & Country Auto” (“‘T&C Auto’”), a dealership with a different billing-

identification number. Contract Amendment Number 37, ¶ 3, provided that “DCS agrees to grant

a 100% discount on the Total Initial License Fees . . . when licensed by Dealer at Town & Country

Autoplex-Gunnison (806295) and Town & Country Auto (A06295) . . . .” See Appl. and Mot. to

Vacate Arbitration Award Ex. B-2. Goodart signed this amendment as president of T&C Gunnison.

Throughout the rest of the agreement, the only other reference to “T&C Auto” is an amendment

which acknowledges that DCS temporarily installed some equipment at “T&C Auto.”

There are two provisions in the agreement that are relevant to the legal duties of dealerships

affiliated with T&C Gunnison. The software-license terms of the original 1995 agreement

contemplate that affiliated companies at other locations may use the software, but that such

dealerships must agree in writing to be bound by the agreement and that T&C Gunnison guarantees

the affiliated dealership’s performance:

Dealer may use the Licensed Software for the internal requirements of an affiliated company at another location by paying an additional initial Software

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License Fee and an additional Application Consulting Service Fee in the amounts specified in Schedule D for each Application Program so utilized. Dealer’s “affiliated companies” shall mean corporations or entities in which Dealer owns at least a majority of the outstanding capital stock or equity interest and which have agreed, in writing, to be bound by the terms of this Agreement and for which Dealer guarantees the performance thereof.

Appl. and Mot. to Vacate Arbitration Award Ex. B-1, Agreement, § 5(A). Contract Amendment

Number 37, which first referred to “T&C Auto,” also contains a similar provision that purports to

create joint and several liability for related dealerships:

The parties acknowledge and agree that each individual dealership location that Licenses Application Programs under this Agreement is jointly and severally liable for the entire contractual obligation. Dealer represents that the person executing the Amendment on behalf of Dealer is authorized to bind Dealer and each dealership location to this [acknowledgment] of joint and several liability, and that no further signatures are required.

Appl. and Mot. to Vacate Arbitration Award Ex. B-2, Contract Amendment No. 37, ¶ 61. At no

point did Goodart explicitly agree to anything as a signatory for “T&C Auto.”

There is a factual dispute about which dealership received services from DCS following this

agreement. Goodart owns and operates two Town & Country dealerships in Salida, Colorado: Town

& Country Salida, Inc. (“T&C Salida”) and Town & Country C.G., Inc. (“T&C C.G.”).1 Both are

on the same road, with T&C Salida located at 1520 East Highway 50 and T&C C.G. located at 943

East Highway 50. Without citing facts in the record, DCS alleges that it provided services to the

plaintiff-appellee in this case, T&C Salida. T&C Salida, on the other hand, points to affidavits by

1 At oral argument, DCS agreed that Goodart has two dealerships in Salida. See Oral Arg. at 8:40–9:15. The court understands this as a withdrawal of DCS’s previous argument that T&C C.G. is located in Alamosa, Colorado.

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Goodart which say that DCS provided services to another entity, T&C C.G., and that “T&C Auto”

is not T&C Salida. See Mot. for Leave to File Sur-Reply Ex. 1, Supp. Aff. of Michael Goodart Feb.

21, 2012, ¶ 4 (“[T&C C.G.], a separate corporate entity which is located in Salida at 943 E. Highway

50, did receive services from [DCS].”); T&C Salida’s Resp. to DCS’ Mot. to Confirm Arbitration

Award Ex. H, Aff. of Michael Goodart, Jan. 31, 2012, ¶ 3 (“‘[T&C Auto]’ is not a former name,

assumed name, or trade name of [T&C Salida].”).

The current dispute began in 2008 when, apparently due to economic difficulties, T&C

Gunnison stopped paying DCS. On March 26, 2009, DCS filed a demand for arbitration with the

American Arbitration Association. This demand was directed only to T&C Gunnison. An August

18, 2010 prehearing order by the arbitrators reflects that T&C Gunnison was being represented by

counsel, but there is no mention of Goodart’s other entities.

On February 1, 2011, DCS amended its demand for arbitration to add “T&C Auto” as a party

to the proceedings. This amended demand was served on T&C Gunnison’s counsel of record. On

March 21, 2011, James Blume, a lawyer with the same firm that was representing T&C Gunnison,

responded to this demand by objecting on behalf of “T&C Auto” to the arbitration in its entirety and

reserving the right to have the issue of arbitrability determined by a court.

On August 12, 2011, DCS made the first filing in the record that links “T&C Auto” to T&C

Salida. In its prehearing brief to the arbitrators, DCS repeatedly refers to “Town & Country Auto

a/k/a Town & Country Salida, Inc.” See T&C Salida’s Resp. to DCS’ Mot. to Confirm Arbitration

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Award Ex. F, DCS’ Pre-Hearing Br., 1, ¶¶ 8, 19. However, it does not appear that DCS provided

any evidence that “T&C Auto” was the same entity as T&C Salida.

On October 3, 2011, the arbitrators conducted the final arbitration hearing. DCS appeared

and presented evidence. No representatives from any of Goodart’s entities attended. On November

18, 2011, the arbitrators issued an award in favor of DCS. In this award, the arbitrators identified

T&C Salida as an alias of “T&C Auto,” which they considered to be a party to the contract and the

arbitration proceedings.

T&C Salida subsequently filed a complaint in the U.S. District Court for the Eastern District

of Michigan seeking to vacate or modify the arbitration award pursuant to the Federal Arbitration

Act, 9 U.S.C. §§ 10(a)(4), 11(b). T&C Salida argued that it was never a party to the contract and

claimed that “T&C Auto” is “not a former name, assumed name or trade name” of T&C Salida and

that DCS never provided goods or services to T&C Salida. See Appl. and Mot. to Vacate Arbitration

Award, ¶¶ 12–13. In response, DCS filed an answer and a cross-motion to confirm the arbitration

award. This motion added T&C Gunnison as a third-party defendant. On March 26, 2012, DCS

requested that the clerk enter default judgment against T&C Gunnison, and the clerk did so the

following day.

The district court vacated the arbitration award insofar as it bound T&C Salida. The district

court found that there was not sufficient evidence to conclude that “T&C Auto” was T&C Salida,

and therefore there was no agreement compelling T&C Salida to arbitrate the dispute. The district

court also found that despite the arbitrators’ references to T&C Salida, there was no evidence that

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T&C Salida acquiesced in the arbitration. The district court said that even if there was some activity

on the part of “T&C Auto” and this dealership was in Salida, this did not necessarily mean that this

activity was by T&C Salida. In support of this finding, the district court noted that Goodart testified

that T&C C.G. was in Salida, received services, and employed Dave Bratton as the general

manager—a fact relevant because DCS provided the district court with letters addressed to Dave

Bratton as general manager of “T&C Auto.”2 In addition, the district court cited a newspaper article

submitted by DCS, which stated that Goodart had two dealerships in Salida. The district court,

however, stopped short of finding that “T&C Auto” was T&C C.G. See Town & Country Salida,

Inc. v. Dealer Computer Servs., Inc., No. 11-15430, 2012 WL 1964106, at *5–11 (E.D. Mich. May

31, 2012). DCS appeals from this judgment.

On the record, the district court did not clearly err in finding that T&C Salida was not bound

to arbitrate by the agreement between DCS and T&C Gunnison. Because T&C Salida did not agree

to arbitration, the arbitrators had no authority to issue an award against T&C Salida.

If, as it appears, “T&C Auto” referred to an entity other than T&C Gunnison, it could

plausibly refer to either T&C Salida or T&C C.G. DCS argues that “T&C Auto” refers to T&C

2 Although the district court did not acknowledge so, the letters involving Dave Bratton introduce further ambiguity about which Salida dealership was “T&C Auto.” The four letters from 2003 are addressed to Dave Bratton at “T&C Auto” but the inside address used is 1520 East Highway 50. 1520 East Highway 50 is the address that T&C Salida identifies as its address rather than the 943 East Highway 50 address that Goodart says is the location of T&C C.G. This suggests that either DCS had the wrong address for Dave Bratton’s place of work, or Dave Bratton was actually working at T&C Salida.

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Salida, while T&C Salida, on the other hand, suggests the possibility (but carefully does not admit)

that “T&C Auto” is T&C C.G.

It was not clear error for the district court to find that there was not sufficient evidence to

establish that “T&C Auto” was T&C Salida. The district court based its finding in part on Goodart’s

affidavit, which plainly stated that “[T&C Auto] is not a former name, assumed name, or trade name

of [T&C Salida].” T&C Salida, 2012 WL 1964106, at *7 (quoting T&C Salida’s Resp. to DCS’

Mot. to Confirm Arbitration Award Ex. H, Aff. of Michael Goodart, Jan. 31, 2012, ¶ 3). DCS does

not point to anything in the record that contradicts Goodart’s affidavit. Even if DCS provided

services to a dealership owned by Goodart in Salida, Colorado, this does not necessarily mean that

T&C Salida is “T&C Auto” because, as the district court recognized, Goodart had two dealerships

in Salida. Although the correspondence between DCS and Dave Bratton, ostensibly T&C C.G.’s

general manager, used T&C Salida’s address, the letters may have reflected DCS’s confusion rather

than T&C Salida’s receipt of services. See supra, n.2. Strongly supporting the district court’s

factual determination is the statement in Goodart’s affidavit that services were supplied to 943 East

Highway 50, the address of T&C C.G.

It is true that T&C Salida, owned by Goodart, could have made things much clearer in the

court below, and here, by taking a straightforward position on what entity was referred to as “T&C

Auto.” T&C Salida did not do so, apparently with a view toward preserving an argument that T&C

C.G. is also not bound by the DCS contract. In any event, the affidavit evidence that T&C Salida

was not serviced by DCS, and that T&C C.G. was so serviced, could certainly be credited as

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weightier evidence than the addresses in the DCS-Bratton letters. The district court thus did not

clearly err in finding that “T&C Auto” was not T&C Salida.

Neither party sought a jury trial of any disputed factual issues, see Fed. R. Civ. P. 38(d), and

neither party argues, assuming that the district court had factual issues to resolve independently of

the arbitrators’ findings, that we should review such independent factual determinations other than

under a deferential “clearly erroneous” standard. See Fed. R. Civ. P. 52(a)(6); First Options of Chi.,

Inc. v. Kaplan, 514 U.S. 938, 947–48 (1995); Uhl v. Komatsu Forklift Co., Ltd., 512 F.3d 294, 303

(6th Cir. 2008).

DCS does argue that the district court erred in deciding the question of whether T&C Salida

was “T&C Auto” without deferring to the arbitrators’ finding that it was. This argument is without

merit. Where arbitrators allegedly “exceeded their powers,” 9 U.S.C. § 10(a)(4), or “awarded upon

a matter not submitted to them,” 9 U.S.C. § 11(b), due to the absence of a party’s consent, courts

need not defer to the arbitrators, because if a party did not agree to arbitration, the arbitrators have

no authority to issue an award.

It is well settled in both commercial and labor cases that whether parties have agreed to submit a particular dispute to arbitration is typically an issue for judicial determination. It is similarly well settled that where the dispute at issue concerns contract formation, the dispute is generally for courts to decide.

Granite Rock Co. v. Int’l Bhd. of Teamsters, 130 S. Ct. 2847, 2850–51 (2010) (internal quotation

marks and citations omitted).

DCS argues that Equitable Resources v. United Steel, 621 F.3d 538, 545–49 (6th Cir. 2010),

controls this case and requires this court to treat the interpretation of “T&C Auto” as a typical

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instance of an arbitrator’s interpretation of a contract, entitling the arbitrator’s conclusion to

deference. Equitable does not control this case because Equitable voluntarily submitted to

arbitration before the arbitrator engaged in any interpretation. See id. at 541. Equitable could

perhaps affect this case if T&C Salida had clearly submitted to arbitration and an arbitrator had

found that T&C Salida was in fact “T&C Auto.” But this is not what happened; Equitable clearly

consented to arbitration prior to the arbitrator’s interpretation of the contract. When an arbitrator

finds consent to arbitration based on the arbitrator’s findings of facts or interpretation of a contract,

these findings and interpretations are not accorded deference when a party challenges the arbitrator’s

authority. Indeed, a court must find “clear and unmistakable evidence” that the parties agreed to

arbitrate the issue of arbitrability. First Options, 514 U.S. at 944.

Moreover, the district court properly found that T&C Salida was not bound to arbitrate as a

nonsignatory to the contract. DCS argues two of the theories that this court has acknowledged under

“ordinary contract and agency principles,” to provide a basis for binding a nonsignatory to an

arbitration agreement: agency and estoppel. See Javitch v. First Union Secs., 315 F.3d 619, 629 (6th

Cir. 2003) (citing Thomson-CSF v. Am. Arbitration Ass’n, 64 F.3d 773, 776 (2d Cir. 1995)). Neither

provides a basis in this case to require T&C Salida to arbitrate.

First, when Goodart agreed to Contract Amendment Number 37, there is no indication that

Goodart was acting as the agent of T&C Salida. DCS proffers two theories about Goodart’s role:

either Goodart acted as president of T&C Gunnison, which was somehow an agent of T&C Salida,

or Goodart acted as president of T&C Salida and thus was an agent of T&C Salida. DCS argues that

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T&C Salida was in either event an undisclosed principal, and accordingly, DCS can hold it to

account for its agent’s actions.

As a factual matter, there is no basis to argue that Goodart—either as president of T&C

Gunnison or as president of T&C Salida—acted on behalf of T&C Salida. The contract refers to

“T&C Auto” and, as the district court found, this was not T&C Salida. While both Michigan and

Colorado agency law allow for undisclosed principals to be liable in contract to those who contract

with their agents, see Timmerman v. Bultman, 220 N.W. 754, 755 (Mich. 1928); McCreery v.

Morrison, 105 P. 876, 877 (Colo. 1909), the question of whether an agent was acting on behalf of

a principal is generally a factual question. See, e.g., Lenart v. Ragsdale, 385 N.W.2d 282, 284

(Mich. Ct. App. 1986); Socomet, Inc. v. City of Detroit, 190 N.W.2d 551, 554 (Mich. Ct. App.

1971); McCreery, 105 P. at 877. In the absence of evidence that Goodart in either alleged capacity

was acting on behalf of T&C Salida, the district court did not clearly err in finding otherwise.

While this factual finding dooms DCS’s agency argument, there are also strong policy

arguments against accepting DCS’s broad view of principal liability. DCS’s argument would create

widespread alternative liability when any individual who happens to serve as a corporate officer of

multiple corporations signs a contract. While this would create problems for the corporations, it

would also leave third parties contracting with such individuals unsure with which corporations they

have formed a contractual relation. DCS’s agency argument fails.

Second, DCS’s estoppel argument also does not warrant reversal. DCS argues that T&C

Salida received the benefits of the contract for five years and is thus estopped from disavowing the

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arbitration provision. However, as T&C Salida points out, DCS did not raise its estoppel argument

before the district court and it is therefore waived. Moreover, DCS cites no evidence that it provided

T&C Salida with benefits for five years. In fact, there is evidence in the record that directly

contradicts DCS’s assertion. See Mot. for Leave to File Sur-Reply Ex. 1, Supp. Aff. of Michael

Goodart Feb. 21, 2012, ¶ 2 (“[T&C Salida] never received services from [DCS].”).

DCS also argues that the district court erred in finding that T&C Salida did not receive notice

of the arbitration proceedings. However, even if T&C Salida properly received notice, the more

important point is that T&C Salida did not consent to arbitration and cannot be bound as a

nonsignatory. DCS does not explain what difference notice would make, so DCS’s notice argument

does not warrant reversal.

We need not address the cases relied upon by DCS dealing with whether an arbitral decision

may be challenged as a manifest disregard of the law. Although the district court referred to the

manifest disregard standard, see T&C Salida, 2012 WL 1964106, at *7, the reference was not

necessary to the district court’s analysis, and we need not rely upon it. The district court’s judgment

is best understood as arising under the statutory bases for challenging arbitration awards.

Neither party challenges the district court’s action in partially vacating the award while

leaving the award against T&C Gunnison in place. Accordingly, we do not address the concern

mentioned by the district court that a partial vacatur—as opposed to a modification—may not be

proper under the Federal Arbitration Act.

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Finally, we acknowledge DCS’s general concern that because the principal of all the similarly

named T&C’s is Goodart, DCS is the victim of some “shell game.” But the law respects the separate

nature of different corporations, and a business wanting to rely on a contract with other businesses

is well-advised to ensure that the contract clearly indicates who the contracting parties are. The

creditors and equity holders of T&C Salida should not be harmed because Goodart has a similarly

named business down the highway and has been less than eager to admit that he or T&C C.G. owes

DCS. Moreover, our opinion in no way addresses DCS’s ability to recover from T&C Gunnison,

against which DCS has an arbitral award, or from T&C C.G., which is not a party to this appeal, and

which did receive services from DCS according to Goodart’s affidavit.

The judgment of the district court is affirmed.

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