Suburban Leisure v. AMF Bowling Products ( 2006 )


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  •                     United States Court of Appeals
    FOR THE EIGHTH CIRCUIT
    ___________
    No. 06-1865
    ___________
    Suburban Leisure Center, Inc.,          *
    *
    Appellee,                   *
    * Appeal from the United States
    v.                                * District Court for the Eastern
    * District of Missouri.
    AMF Bowling Products, Inc.;             *
    AMF Billiards & Games, LLC,             *
    *
    Appellants.                 *
    ___________
    Submitted: October 20, 2006
    Filed: November 17, 2006
    ___________
    Before MELLOY, BENTON and SHEPHERD, Circuit Judges.
    ___________
    SHEPHERD, Circuit Judge.
    AMF Bowling Products, Inc. and AMF Billiards & Games LLC (collectively
    “AMF”) appeals from an order of the district court1 denying its motion to dismiss or
    in the alternative to compel arbitration and stay proceedings with regard to claims
    brought by Suburban Leisure Center, Inc. (“Suburban”) after AMF terminated its oral
    franchise agreement with Suburban. We possess jurisdiction of this appeal pursuant
    to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 16(a)(1)(C), providing that “[a]n
    1
    The Honorable Donald J. Stohr, United States District Judge for the Eastern
    District of Missouri.
    appeal may be taken from . . . an order . . . denying an application . . . to compel
    arbitration . . . .” For the reasons discussed below, we affirm.
    I.
    For the purpose of ruling on AMF’s motion to dismiss or in the alternative to
    compel arbitration, the district court assumed the truth of the allegations in Suburban’s
    complaint. With the limited purpose of reviewing the district court’s ruling, we, too,
    view Suburban’s allegations as true. See Palcko v. Airborne Express, Inc., 
    372 F.3d 588
    , 597 (3d Cir. 2004) (stating that a motion to compel arbitration is generally
    treated as a motion to dismiss for failure to state a claim upon which relief can be
    granted); cf. Manion v. Nagin, 
    394 F.3d 1062
    , 1065 (8th Cir. 2005) (viewing factual
    allegations as true for purposes of motion to dismiss). Accordingly, the following
    facts are undisputed for purposes of this appeal. Suburban distributes indoor and
    outdoor lawn and leisure equipment, and AMF manufactures pool tables and pool
    table accessories. The parties entered into an oral franchise agreement, whereby they
    agreed that Suburban would have the right use the AMF trade name, trademark, or
    service mark in order to sell AMF’s line of pool tables and related accessories from
    Suburban’s stores located in the St. Louis, Missouri region. Subsequently, the parties
    executed a written E-Commerce Dealer Agreement (“e-commerce agreement”), in
    which Suburban agreed to provide delivery and installation of AMF’s products sold
    by AMF via its website to customers in Suburban’s specified areas.
    With regard to the e-commerce agreement, Section 14 provides that “[t]he
    determination of any dispute or claim arising under the Agreement or any invoice or
    agreement executed pursuant to this Agreement will be settled by binding arbitration
    in Richmond, Virginia.” Further, Section 15 states that the e-commerce “[a]greement
    constitutes the entire agreement between the parties and supercedes all prior
    agreement[s], oral and written.” Finally, Section 15 goes on to state that the e-
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    commerce agreement “will be construed in accordance with the laws of Virginia
    without regard to their conflict of laws provisions.”
    On August 25, 2005, AMF sent a termination letter stating that Suburban would
    be “required to cease promoting” AMF’s line of pool tables and accessories within
    sixty days. The letter made no mention of the e-commerce agreement. Suburban filed
    suit in Missouri state court alleging that it was entitled to damages from the
    cancellation of the oral franchise agreement without the requisite notice pursuant to
    Missouri Revised Statute section 407.405 as well as recoupment for improvements it
    had made to its stores in reliance on the oral franchise agreement. See Mo. Ann. Stat.
    § 407.405 (West 2001). Pursuant to 28 U.S.C. § 1441, AMF removed the matter to
    federal court. Upon removal, AMF filed a motion to dismiss or in the alternative to
    compel arbitration and stay proceedings pursuant to the FAA, 9 U.S.C. § 3. Because
    the district court found that the e-commerce agreement did not address Suburban’s
    ability to promote or sell AMF’s products, it concluded that Suburban’s underlying
    claims did not arise under the e-commerce agreement. Accordingly, the district court
    denied AMF’s motion to compel arbitration of the dispute. AMF appeals the district
    court’s order.
    II.
    We review de novo the district court’s denial of a motion to compel arbitration
    based on contract interpretation. Nitro Distrib., Inc. v. Alticor, Inc., 
    453 F.3d 995
    , 998
    (8th Cir. 2006). As both Missouri and Virginia recognize the validity of the choice
    of laws provision contained in the e-commerce agreement, we apply the law of
    Virginia to resolve this appeal. See Paul Bus. Sys., Inc. v. Canon U.S.A., Inc., 
    397 S.E.2d 804
    , 807 (Va. 1990); Kagan v. Master Home Prods. Ltd., 
    193 S.W.3d 401
    , 407
    (Mo. Ct. App. 2006). Resolution of this appeal is also governed by the FAA, 9 U.S.C.
    § 1 et seq., because the e-commerce agreement “involved interstate commerce.”
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    Amchem Prods., Inc. v. Newport News Circuit Court Asbestos Cases, 
    563 S.E.2d 739
    ,
    743 (Va. 2002).
    Pursuant to the FAA, we construe the arbitration clause resolving any doubts
    in favor of arbitration. Am. Recovery Corp. v. Computerized Thermal Imaging, Inc.,
    
    96 F.3d 88
    , 92 (4th Cir. 1996) (citing Moses H. Cone Mem’l Hosp. v. Mercury
    Constr. Co., 
    460 U.S. 1
    , 24-25 (1983)). “Thus, we may not deny a party’s request to
    arbitrate an issue ‘unless it may be said with positive assurance that the arbitration
    clause is not susceptible of an interpretation that covers the asserted dispute.’” 
    Id. (quoting United
    Steelworkers of Am. v. Warrior & Gulf Navigation Co., 
    363 U.S. 574
    , 582-83 (1960)). However, a “party cannot be required to submit to arbitration
    any dispute which he has not agreed so to submit.” Amchem Prods., 
    Inc., 563 S.E.2d at 743
    (quoting United Steelworkers of 
    Am., 363 U.S. at 582
    ). When determining
    whether a contractual dispute exists that is subject to arbitration, Virginia courts
    examine the contract’s language and apply the commonwealth’s substantive contract
    law. 
    Id. On appeal,
    AMF contends that the e-commerce agreement’s merger clause
    incorporates and subsumes the oral franchise agreement such that the e-commerce
    agreement is the sole agreement between the parties necessitating arbitration of the
    present dispute. “[A] ‘merger clause’ (sometimes an ‘integration’ or ‘entire
    agreement’ clause) . . . ‘merges’ prior negotiations into the writing. A typical clause
    includes a recital that the writing ‘contains the entire agreement of the parties.’” 2 E.
    Allan Farnsworth, Farnsworth on Contracts § 7.3 (3d ed. 2004); see, e.g., Prospect
    Dev. Co., Inc. v. Bershader, 
    515 S.E.2d 291
    , 296 (Va. 1999) (observing that a contract
    contained an “integration clause” stating “that in the absence of an amendment in
    writing, the contract contains the final and entire agreement between the parties”);
    Spotsylvania County Sch. Bd. v. Seaboard Surety Co., 
    415 S.E.2d 120
    , 126 (Va.
    1992) (noting that “a merger clause in the contract stated that the document
    ‘represent[ed] the entire and integrated agreement between the parties’”).
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    Merger clauses “purport to contractually require application of the parol
    evidence rule to the parties’ agreement.” 11 Richard A. Lord, Williston on Contracts
    § 33:21 (4th ed. 1999). In Virginia, “parol evidence . . . is inadmissible to vary,
    contradict, add to, or explain the terms of a complete, unambiguous, unconditional
    written instrument.” Shevel’s Inc.-Chesterfield v. Se. Assocs., Inc., 
    320 S.E.2d 339
    ,
    343 (Va. 1984)). However, a merger “clause does not prohibit the admission of parol
    evidence which does not contradict or vary the terms of the . . . contract . . . .”
    Prospect Dev. Co., 
    Inc., 515 S.E.2d at 296
    . In this case, as the district court found, the
    e-commerce agreement does not address Suburban’s ability to promote or sell AMF’s
    products, which is the subject of the prior oral franchise agreement. Accordingly, the
    prior oral agreement necessarily does not seek to contradict or supplement the
    subsequent e-commerce agreement that addresses a different subject, AMF’s selling
    its own product from the AMF website. Thus, these facts do not implicate the parol
    evidence rule.
    Further, the e-commerce agreement does not extinguish the prior oral franchise
    agreement because it constitutes an independent agreement under the “collateral
    contract doctrine.” Because “the parol evidence rule does not exclude parol proof of
    a prior or contemporaneous oral agreement that is independent of, collateral to and not
    inconsistent with the written contract, and which would not ordinarily be expected to
    be embodied in the writing,” a merger clause gives rise to no more than a presumption
    that all the parties’ prior agreements merged into the written agreement. 
    Shevel’s, 320 S.E.2d at 343
    (quoting Pierce v. Plogger, 
    286 S.E.2d 207
    , 209 (Va. 1982)). The
    Virginia Supreme Court refers to this exception to the parol evidence rule as the
    “collateral contract doctrine.” 
    Id. The Shevel’s
    Court determined that this doctrine
    required the admission of a prior oral agreement into evidence, despite a merger clause
    in the parties’ subsequent written agreement, because the prior oral agreement was a
    “different agreement” that did not seek “to vary or explain” the subsequent written
    agreement. 
    Id. In a
    later case, the Virginia Supreme Court discussed Shevel’s and
    stated that its “focus then was on whether parol evidence was admissible in the face
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    of a [contract] silent on the subject matter of an alleged separate agreement yet stating
    that it was the complete agreement of the parties. We said such evidence was
    admissible.” J.E. Robert Co. v. J. Robert Co., Inc. of Virginia, 
    343 S.E.2d 350
    , 353
    (Va. 1986).
    This case involves two distinct agreements between Suburban and AMF.
    Suburban and AMF initially entered into the oral franchise agreement providing for
    Suburban’s promotion and sale of AMF products from Suburban’s stores.
    Subsequently, the parties executed the written e-commerce agreement, which required
    Suburban to install and service AMF products sold by AMF through its website to its
    customers. Therefore, the oral franchise agreement addresses a contractual
    relationship between the parties that is not covered in any manner by the e-commerce
    agreement. As a result, the oral franchise agreement is “independent of, collateral to,
    and not inconsistent with” the e-commerce agreement within the meaning of Shevel’s.
    See 
    Shevel’s, 320 S.E.2d at 343
    . Thus, the parties did not intend for the e-commerce
    agreement to be their sole agreement such that the merger clause does not subsume
    the prior oral franchise agreement pursuant to Virginia’s “collateral contract
    doctrine.” Because the agreements are independent of each other, the e-commerce
    agreement’s arbitration language cannot be attributed to the oral franchise agreement,
    even construing the language in favor of arbitration. Accordingly, Suburban has not
    agreed to arbitrate its claims in the underlying suit.
    III.
    We conclude that the district court did not err in denying AMF’s motion to
    dismiss or in the alternative to compel arbitration and stay proceedings, and affirm.
    ______________________________
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