Telecom Italia, SPA v. Wholesale Telecom Corp. ( 2001 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
_____________________
No. 00-10292
______________________
D.C. Docket No. 99-00834-CV-KMM
TELECOM ITALIA, SPA,
Plaintiff-Counter-Defendant,
versus
WHOLESALE TELECOM CORPORATION,
Defendant-Counter-Claimant-
Third-Party-Plaintiff-Appellee,
TELEMEDIA INTERNATIONAL U.S.A., INC.,
Third-Party-Defendant-Appellant.
_____________________
Appeal from the United States District Court
for the Southern District of Florida
_____________________
(April 18, 2001)
Before EDMONDSON, FAY and NEWMAN*, Circuit Judges.
_______________________
*Honorable Jon O. Newman, U.S. Court of Appeals for the Second Circuit, sitting by
designation.
NEWMAN, Circuit Judge:
This interlocutory appeal concerns the arbitrability of a tort claim alleged to be
related to a contract containing an arbitration clause. Telemedia International U.S.A.,
Inc. appeals from the order of the District Court for the Southern District of Florida
(K. Michael Moore, District Judge), denying its motion to dismiss or alternatively to
stay proceedings pending arbitration. We agree that arbitration was not required, and
we therefore affirm.
Background
I. Facts
The three actors in this case are (1) Telecom Italia, SpA (“Telecom Italia”), (2)
Appellant Telemedia International U.S.A., Inc. (“TMI”), a Florida corporation, which
is a wholly-owned subsidiary of Telecom Italia, and (3) Appellee Wholesale Telecom
Corp. (“WTC”). Telecom Italia and TMI operate telecommunications networks
internationally and in the United States, respectively; WTC is a reseller of
telecommunications services.
WTC, the party asserting the tort claim at issue, alleged in a third-party
complaint the following facts, which we assume are true for purposes of this appeal.
Beginning in July 1998, Telecom Italia began routing calls on behalf of WTC under
an oral agreement. In September 1998, Telecom Italia and WTC discussed an
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expanded, more formal arrangement, whereby WTC would pay market rates to
Telecom Italia to route calls through Telecom Italia’s switch in Rome to any place in
the world, and WTC would invest in expensive switching equipment to process more
call volume from the United States. Telecom Italia was supposed to draw up a
contract based on a written contract Telecom Italia had executed with another reseller.
Instead, Telecom Italia sent WTC an agreement in October 1998 that was materially
different in several respects from the template agreed to in September. WTC objected
to these differences and did not sign the altered agreement.
Telecom Italia is not legally authorized to transport calls in the United States,
and during the September negotiations Telecom Italia pressured WTC to lease circuits
from TMI, the United States subsidiary of Telecom Italia, to get the calls from the
United States to Rome. In October 1998, TMI and WTC executed a written lease of
TMI’s circuits for a substantial rental. The lease provides: “In the event of any
dispute arising out of or relating to this service agreement, the dispute shall be
submitted to and settled by arbitration in the City of New York, in accordance with
the rules of the American Arbitration Association.” Leases for additional circuits
were signed in the next few months.
Meanwhile, notwithstanding the apparent absence of a formal, written
agreement between Telecom Italia and WTC, Telecom Italia continued to provide
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telecommunications services to WTC from July 1998 to March 1999, and WTC made
a number of costly investments in equipment and marketing on the assumption that
Telecom Italia would honor the terms that were allegedly agreed to at the September
1998 meeting. WTC further alleged that during this period, the quality of service
provided by Telecom Italia was seriously below the levels agreed to at the September
meeting.
Telecom Italia began sending invoices to WTC in January 1999. WTC claims
that these invoices were the opening salvo in a joint effort by TMI and Telecom Italia
to get rid of WTC. The first invoice arrived just after a meeting between TMI and
WTC, in which TMI allegedly urged WTC to terminate WTC’s agreement with
Telecom Italia, so that TMI could replace WTC in marketing international long
distances services. Moreover, WTC alleged that the first invoice charged rates that
were grossly in excess of the rates agreed to in September 1998. Telecom Italia
eventually sent invoices seeking a total of more than $13 million from the period July
1998 and March 1999. Acting on its theory that the rates were grossly inflated, WTC
paid only what it considered were the undisputed parts of the invoices (several
hundred thousand dollars, at most).
In February 1999, Telecom Italia responded by terminating WTC’s use of two
of the three TMI circuits needed to route calls to Rome. In March, Telecom Italia
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terminated WTC’s use of the last TMI circuit, effectively shutting WTC down.
Telecom Italia had been WTC’s sole provider of telephone services.
II. Procedural History
In March 1999, Telecom Italia filed a complaint against WTC in the District
Court, alleging breach of contract, based on WTC’s failure to pay Telecom Italia’s
$13 million worth of invoices for calls made between July 1998 and March 1999. In
August 1999, WTC answered Telecom Italia’s complaint, and counterclaimed against
Telecom Italia. The counterclaim alleged the events described above: the oral
agreement in place in summer 1998, the September 1998 “agreement” that was never
successfully executed, the large investments by WTC in reliance on the September
agreement, and finally the written, fully executed leases with TMI, entered into at
Telecom Italia’s insistence. The counterclaim alleged that Telecom Italia breached
the price, quality, and prompt invoicing terms of the September agreement. The
counterclaim also alleged that Telecom Italia caused TMI to increase the rate for use
of its circuits, and that Telecom Italia caused its subsidiary, TMI, to terminate WTC’s
access to the TMI circuits in March 1999. The counterclaim alleged breach of
contract, “fraud in the inducement,” and a “conspiracy” between Telecom Italia and
TMI to put WTC out of business.
In September 1999, WTC filed a third-party complaint against TMI, alleging
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two causes of action--tortious interference with contract and civil conspiracy. The
third-party complaint alleges that TMI tortiously interfered with WTC’s contract with
Telecom Italia. The basic accusation was that TMI and Telecom Italia had colluded
to blind-side WTC with demands for payments in unexpected amounts, so as to induce
WTC to abandon or breach its contract with Telecom Italia, and to enable TMI to sell
long-distance services directly to the market that WTC had invested so much to
develop. These unexpectedly onerous demands for payment were included in the
TMI-WTC contract itself, in conditions later added to the contractual arrangement,
and in Telecom Italia’s grossly excessive and delayed invoices to WTC. Specifically,
TMI allegedly took the following actions with Telecom Italia’s knowledge and
support, all in an attempt to drive WTC away from its contract with Telecom Italia:
! Under the circuit lease, TMI charged grossly excessive rates for use of
TMI circuits, taking advantage of an earlier agreement between WTC and
Telecom Italia that allegedly permitted TMI to set its rates unilaterally.
! TMI demanded payment of an onerous security deposit to TMI after the
first circuit had already been activated. The intent of these excessive rate
and security deposit demands was “to make WTC’s performance of its
contract with Telecom Italia expensive and burdensome, and with the
intent to cause WTC to be forced to withdraw from its contractual
relationship with Telecom Italia.” It is unclear whether this security
deposit is actually part of the express terms of the circuit contract.
! “Telecom Italia, acting in concert with TMI, wrongfully terminated
WTC’s access” to the TMI circuits in February and March 1999.
! TMI persuaded Telecom Italia to delay in the submission of invoices to
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WTC, and to inflate those invoices, so as to shock WTC and persuade
WTC to abandon its contract with Telecom Italia. Telecom Italia
allegedly sent its first invoice to WTC immediately after a January 1999
meeting between TMI and WTC, at which TMI urged WTC to withdraw
from its contract with Telecom Italia, so that TMI could take WTC’s
place.
TMI moved to dismiss the third-party complaint on the ground that WTC failed
to state a claim, or alternatively to stay proceedings pending arbitration because the
circuit lease contract between TMI and WTC required arbitration of all disputes
“arising out of or relating to this service agreement.” The District Court granted the
motion to dismiss in part. Judge Moore ruled that the third-party complaint failed to
state a claim for civil conspiracy on which relief could be granted, but upheld the
sufficiency of the tortious interference claim. He further ruled that the third-party
complaint was not subject to the arbitration clause in the TMI-WTC contract, because
the allegations concerned tortious interference with the Telecom Italia-WTC contract,
which lacked an arbitration clause:
On its face, the Third-Party Complaint would appear to arise from the
contract between TMI and WTC, thus potentially subjecting the claims
for tortious interference and conspiracy to arbitration under the [Federal
Arbitration Act]. However, as alleged, the claims set forth within the
Third-Party Complaint do not involve directly the contract between TMI
and WTC. Rather, the claims are based on allegations of tortious
interference and conspiracy relating to the disruption of a separate
contract – specifically that between WTC and Telecom Italia. WTC has
not alleged a claim for breach of contract by TMI.
Furthermore, because of the close relationship between the facts
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and claims at issue in the litigation currently proceeding between
Telecom Italia and WTC, the interests of judicial economy would seem
to be served best through the adjudication of WTC’s third-party
complaint by this Court.
TMI filed a notice of appeal and has asserted interlocutory appellate jurisdiction
under the Federal Arbitration Act (“FAA”), 9 U.S.C. § 16(a)(1)(A). WTC moved to
dismiss the appeal, contending that there was no appellate jurisdiction. A panel of this
Court ordered additional briefing on jurisdiction, and referred the jurisdictional
inquiry to this panel.
Discussion
I. Jurisdiction
Under 9 U.S.C. § 16(a)(1)(A), an appeal may be taken from an order “refusing
a stay of any action under section 3 of this title.” In turn, 9 U.S.C. § 3 provides:
If any suit or proceeding be brought in any of the courts of the United
States upon any issue referable to arbitration . . . the court in which such
suit is pending, upon being satisfied that the issue involved in such suit
or proceeding is referable to arbitration under such an agreement, shall
on application of one of the parties stay the trial of the action until such
arbitration has been had.
In this case, TMI’s motion in the District Court sought dismissal of the
complaint to allow arbitration to proceed, and alternatively sought a stay pending
arbitration. Denial of the alternative relief was appealable under section 16(a)(1)(A).
See Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054, 1056 (11th Cir.
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1998). WTC resists the assertion of appellate jurisdiction on the ground that the
District Court ruled that the arbitration clause of the WTC-TMI contract was not
applicable to WTC's tortious interference claim. That argument is unavailing because
it confuses the reason for the District Court's ruling against arbitration with the
appealability of the ruling. Whether or not the District Court was correct in ruling
against arbitration, its ruling denied a requested stay of the action pending arbitration
and was for that reason appealable.
II. Merits of the Denial of Arbitration
Absent some violation of public policy, a federal court must refer to arbitration
any controversies covered by the provisions of an arbitration clause. Chastain v.
Robinson-Humphrey Co., 957 F.2d 851, 854 (11th Cir. 1992). Whether a party has
agreed to arbitrate an issue is a matter of contract interpretation: "[A] party cannot be
required to submit to arbitration any dispute which he has not agreed so to submit."
United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582
(1960).
The arbitration clause relied on by WTC calls for arbitration of “any disputes
arising out of or relating to” the lease between WTC and TMI. Although this
language is broad, it is not as broad as a clause requiring arbitration of “any dispute
between them or claim by either [party to the contract] against the other.” Brown v.
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ITT Consumer Financing Corp., 211 F.3d 1217, 1221 (11th Cir. 2000). The “arising
out of or relating to” language has proved especially problematic in cases like the
pending one where the dispute concerns a tort (TMI's alleged tortious interference
with the contract between WTC and Telecom Italia) alleged to be “related to” a
contract with an arbitration clause (the WTC-TMI lease). One commentator has
noted:
The first bar to arbitrability is based on the notion that parties to an
arbitration agreement should be compelled to arbitrate only those torts
contemplated by the arbitration agreement. Unfortunately, the standard
arbitration clause found in most commercial contracts broadly states that
"any controversy or claim arising out of, or relating to this agreement, or
the breach thereof[,]" shall be settled by arbitration. If one party
commits a tort against the other, the inevitable question is whether this
broad, general language of the arbitration agreement is sufficient to
encompass tort claims. The longstanding rule is that where the
arbitration clause is broad, the tort claim will be arbitrable if the claim
is either directly or indirectly related to the subject matter of the contract.
Joseph T. McLaughlin, Arbitrability: Current Trends in the United States, 59 Alb. L.
Rev. 905, 932 (1996) (emphasis added) (footnotes omitted). The question remains:
when is a dispute “related to” the “subject matter” of the contract?
The case law yields no clear answer. We have required arbitration where the
tort could not have occurred but for a breach of contract. In Gregory v. Electro-
Mechanical Corp., 83 F.3d 382 (11th Cir. 1996), the plaintiff claimed that the
defendant induced the plaintiff to enter into a contract that the defendant had no
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intention of honoring; we required arbitration of the fraud tort claim as related to the
contract on the theory that the tort claim would never have arisen had the defendant
honored the contract. In McBro Planning and Development Co. v. Triangle Electrical
Construction Co., 741 F.2d 342, 344 (11th Cir. 1984), two contractors each had a
contract with a hospital, but there was no contract between the contractors themselves.
Each hospital contract contained an arbitration clause, and each mentioned that one
contractor would supervise the other contractor. The supervised contractor claimed
that the supervising contractor harassed him to such an extent that he could not fulfill
his contract. We held that this dispute was covered by the arbitration clause in both
contractors' agreements with the hospital, see id. at 344, on the theory that the tort was
“founded in and intertwined with” the obligations of the hospital contracts. Id. at 344(internal quotation marks omitted).
In other cases, however, we have rejected claims that an arbitration clause in
a contract covered a dispute concerning another contract claim or a tort claim, each
of which was claimed to be related to the contract requiring arbitration. In Seaboard
Coast Line Railroad Co. v. Trailer Train Co., 690 F.2d 1343 (11th Cir. 1982), the
parties had a contract to lease railcars and a contract to license railcars; only the
license contract had an arbitration clause. The Plaintiff claimed that the defendant
breached the lease contract by failing to submit tax documents verifying certain leases.
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The defendant argued that any “furnishing” of a railcar was covered by the license
contract and its arbitration clause. We rejected this broad reading of the license
contract and denied arbitration on the ground that the two contracts were “separate and
distinct.” Id. at 1351. In Texaco, Inc. v. American Trading Transportation Co., 644
F.2d 1152 (5th Cir. Unit A 1981), the contract with the arbitration clause was a ship
charter; negligent piloting and the ship’s unseaworthiness allegedly caused damage
to the party chartering the ship. The Court rejected arbitration of the ensuing tort
claim on the ground that the “complaint at bar is not the result of a difference or
dispute arising out of the Charter.” Id. at 1154. However, in both Texaco and
Seaboard, the arbitration clause had “arising out of” or “arising under” language, but
did not include “or related to” language.1
1
Other circuits have grappled with the problem in the context of a joint venture arrangement
(with an “arising out of or related to” arbitration clause), which one party circumvents by hiring
away the other party’s key employees; the injured party claims tortious interference with the
employment contracts, and the defendant invokes the arbitration clause of the joint venture
agreement. Some courts rule that in such a situation the tortious interference claim arises out of or
is related to the joint venture agreement. See Kiefer Specialty Flooring, Inc. v. Tarkett, Inc., 174
F.3d 907, 910 (7th Cir. 1999) (contracts related because the alleged tortfeasor had insisted that the
employee in question work on the joint venture as a prerequisite to entry into the joint venture
agreement); American Recovery v. Computerized Thermal Imaging, 96 F.3d 88, 94 (4th Cir. 1996)
(employee in question had duties under the joint venture agreement; interfering with his employment
contract was therefore related to the joint venture agreement); cf. Sweet Dreams Unlimited v. Dial-
A-Mattress International, 1 F.3d 639, 642 (7th Cir. 1993) (tortious interference with plaintiff’s other
business relationships covered by arbitration clause, because disputes had their “genesis” in the
original licensing agreement). However, the Second Circuit has rejected arbitration in these
circumstances on the theory that the employment contract and the joint venture agreement are
distinct from one another. See Collins & Aikman Products Co. v. Building Systems, Inc., 58 F.3d
16, 22 (2d Cir. 1995) (distribution agreement was not related to tortious interference in employment
contracts of key employees); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 856 (2d Cir. 1987)
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It is possible to harmonize the results in these four cases by focusing on whether
the tort or breach in question was an immediate, foreseeable result of the performance
of contractual duties. Disputes that are not related--with at least some directness--to
performance of duties specified by the contract do not count as disputes “arising out
of” the contract, and are not covered by the standard arbitration clause. Thus in
Texaco, Texaco had no right under its charter with American Trading to obtain safe
operation of the chartered vessel; in Seaboard, Seaboard had no right under its license
contract (the one with the arbitration clause) to obtain the documentation it was
demanding under the lease contract (the one without the arbitration clause). However,
where the dispute occurs as a fairly direct result of the performance of contractual
duties--as was the case with the supervisor's harassment of the other contractor in
McBro, or with the intentional failure to perform the contract in Gregory, then the
dispute can fairly be said to arise out of or relate to the contract in question, and
arbitration is required.
With this approach in mind, we conclude, in agreement with the District Court,
that WTC's tortious interference claim neither arises out of nor is related to WTC's
lease with TMI. WTC alleged that TMI pressured Telecom Italia to induce Telecom
(tortious interference claim based on bribe of executive of contracting party not arbitrable because
not “on its face” related to sales contract).
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Italia to use its rates and billing practices to destroy WTC. Even if TMI can be shown
at trial to have tortiously interfered with Telecom Italia's contract with WTC, there is
no claim that TMI's performance of its contract with WTC was designed to, expected
to, or likely to exert any pressure on Telecom Italia, unlike the harassment in McBro,
which occurred as a result of the performance of a contractual duty. TMI's alleged
pressure could have been exerted on Telecom Italia even if TMI had no contractual
relationship with WTC.
TMI contends that the requisite relationship between the interference tort and
the WTC-TMI contract is shown by the allegations of WTC's third-party complaint
that TMI charged WTC excessive lease rates, demanded unjustified security deposits,
and wrongfully terminated the circuit leases. Although these claims, if alleged as
causes of action, would plainly be arbitrable as “related to” the WTC-TMI contract,
their recitation in support of the claim that TMI interfered with WTC's contract with
Telecom Italia does not suffice to make the interference claim arbitrable.
At most, TMI's allegedly unfair contract terms would show only that TMI was
hostile to WTC and perhaps had a motive to influence Telecom Italia to injure WTC.
But if a tort claim were arbitrable simply because terms in a contract with an
arbitration clause were sufficiently harsh to show one party's motive to injure the other
party, the scope of arbitration would extend far beyond the reasonable expectation of
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the contracting parties. On this theory, for example, an animus evidenced by harsh
terms in a contract (with an arbitration clause) between two parties would render
arbitrable an antitrust claim by one contracting party that the other party had joined
with other companies in an unreasonable agreement in restraint of trade to injure the
claimant. Arbitrability of the tortious interference claim is not required simply
because some of TMI's contract terms were unfavorable to WTC.
In affirming the District Court's judgment, we decline to endorse its suggestion
that arbitration is not appropriate in this case because it would inefficiently result in
bifurcated proceedings. If otherwise required, arbitration must be ordered “even
where the result would be the possibly inefficient maintenance of separate proceedings
in different forums.” Dean Witter Reynolds v. Byrd, 470 U.S. 213, 217 (1985). We
regard the District Court's comment about judicial economy as an aside that was
unnecessary to its correct ruling.
Conclusion
The order of the District Court denying arbitration is AFFIRMED.
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