Evans v. Building Materials Corp. of America ( 2017 )

United States Court of Appeals
for the Federal Circuit
______________________
STEPHEN F. EVANS, ROOF N BOX, INC.,
Plaintiffs-Appellees
v.
BUILDING MATERIALS CORPORATION OF
AMERICA, DBA GAF-ELK CORPORATION,
Defendant-Appellant
______________________
2016-2427
______________________
Appeal from the United States District Court for the
Eastern District of Virginia in No. 1:16-cv-00282-GBL-
IDD, Judge Gerald Bruce Lee.
______________________
Decided: June 5, 2017
______________________
GREGORY N. STILLMAN, Hunton & Williams LLP, Nor-
folk, VA, argued for plaintiffs-appellees. Also represented
by WENDY COHEN MCGRAW.
JOHN DENNIS MURNANE, Fitzpatrick, Cella, Harper &
Scinto, New York, NY, argued for defendant-appellant.
Also represented by ROBERT SCOTT PICKENS; JUSTIN J.
OLIVER, Washington, DC.
______________________
2 EVANS v. BUILDING MATERIALS CORPORATION
Before REYNA, LINN, and TARANTO, Circuit Judges.
TARANTO, Circuit Judge.
In September 2009, Roof N Box, Inc. (RNB) and Build-
ing Materials Corp. of America d/b/a GAF-ELK Corp.
(GAF) entered into an agreement under which GAF would
promote RNB’s “Roof N Box” product, a three-dimensional
roofing model, to building-construction contractors affili-
ated with GAF. The agreement contains a provision that
requires the parties to submit disputes “arising under”
the agreement to arbitration. GAF terminated the
agreement after about a year, and the validity of that
termination is not at issue.
In March 2016, RNB, together with its founder and
president, Stephen Evans, brought the present suit
against GAF based on GAF’s activities in marketing its
own product that competes with the Roof N Box product.
The complaint alleges design-patent infringement under
federal law as well as trade-dress infringement and unfair
competition under federal and state law. GAF moved to
dismiss or stay the action pending arbitration based on
the 2009 agreement’s arbitration provision. The district
court denied that motion. GAF appeals. Because GAF’s
assertion that the arbitration provision covers the claims
stated in the complaint is “wholly groundless,” a standard
that GAF accepts as applicable in this case, we affirm.
I
Mr. Evans is the inventor of the “Roof N Box” product,
a three-dimensional roofing model designed to be used by
a seller of roofing products and services to display roofing
components when making a sales pitch to a homeowner.
According to Mr. Evans and RNB, the Roof N Box product
allows a salesperson to remove or replace the layers of
roofing on the model while explaining the roofing layers,
their functions, and their terminologies. In June 2007,
EVANS v. BUILDING MATERIALS CORPORATION 3
Mr. Evans filed a design patent application for the model,
which issued as U.S. Design Patent No. D575,509.
In September 2009, RNB entered into a promotional
agreement with GAF. GAF agreed to promote the Roof N
Box product to GAF’s network of certified contractors who
installed roofing on residential and commercial struc-
tures. RNB agreed to sell the Roof N Box product at
discounted prices to the GAF contractors and to pay GAF
five percent of the total amount that RNB received from
those sales. RNB also agreed to maintain the confidenti-
ality of GAF’s proprietary information. Unless terminat-
ed, the agreement was to remain in effect until September
1, 2016, and would thereafter automatically renew for
additional two-year renewal periods.
The 2009 agreement contains an arbitration provi-
sion, which states: “If any dispute or disagreement arises
under this Agreement,” and the “dispute or disagreement
cannot be settled[,] . . . then such dispute or disagreement
shall be submitted to final and binding arbitration in
accordance with the rules of American Arbitration Associ-
ation . . . unless otherwise agreed to, in writing, by both
Parties.” J.A. 84. The agreement also contains what GAF
characterizes as a survival clause, which states:
“[T]ermination for default . . . [shall not] constitute a
waiver of any rights or remedies of the non-defaulting
Party including, without limitation, the right of the non-
breaching Party to seek damages for breaches occurring
during the Initial Term or any Renewing Term.” J.A. 80.
GAF terminated the agreement in 2010.
In March 2016, Mr. Evans and RNB sued GAF in the
Eastern District of Virginia. See Complaint, Evans v.
Bldg. Materials Corp. of Am., No. 1:16-cv-282-GBL-IDD
(E.D. Va. Mar. 14, 2016), ECF No. 1. The complaint
states the following claims: Counts I and II for, respec-
tively, direct and induced patent infringement under 35
U.S.C. § 271(a) and (b); Count III for unfair competition
4 EVANS v. BUILDING MATERIALS CORPORATION
and trade-dress infringement under 15 U.S.C. § 1125(a);
Count IV for unfair competition and trade-dress in-
fringement under state common law; and Count V for
unfair competition under N.J. Stat. § 56:8-2. The com-
plaint alleges that, after the termination of the 2009
agreement, GAF manufactured and sold an infringing
roofing model that competed with the Roof N Box product.
GAF does not dispute that it developed and sold a promo-
tional roofing product.
In May 2016, GAF moved to dismiss or stay the action
pending arbitration, invoking the 2009 agreement’s
arbitration provision. See Defendant’s Motion to Dismiss
or, in the Alternative, To Compel Arbitration and Stay
Proceedings, Evans, No. 1:16-cv-282-GBL-IDD (E.D. Va.
May 13, 2016), ECF No. 13. The district court denied the
motion. See Memorandum Opinion & Order, Evans, No.
1:16-cv-282-GBL-IDD (E.D. Va. July 6, 2016), ECF No.
32. The court held that the arbitration provision did not
cover the claims in the complaint because GAF terminat-
ed the agreement before the parties’ dispute arose. Id. at
5–8. In the alternative, the court held that the claims
were outside the scope of the arbitration provision. Id. at
8–10.
GAF appeals. We have jurisdiction under 28 U.S.C.
§ 1292(c)(1). See Microchip Tech. Inc. v. U.S. Philips
Corp., 367 F.3d 1350, 1354–55 (Fed. Cir. 2004).
II
GAF argues that the district court erred by (1) decid-
ing whether the claims of the complaint were arbitrable
rather than reserving that issue for the arbitrator and (2)
determining that the claims were not arbitrable. We
review the denial of a motion to dismiss or stay an action
pending arbitration under the law of the relevant regional
circuit. Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366,
1371 (Fed. Cir. 2006). The Fourth Circuit prescribes de
EVANS v. BUILDING MATERIALS CORPORATION 5
novo review. Am. Recovery Corp. v. Computerized Ther-
mal Imaging, Inc., 96 F.3d 88, 91 (4th Cir. 1996).
The parties dispute the standard that the district
court should have applied in determining whether to
decide the issue of arbitrability itself or instead refer that
issue to arbitration. Although the parties agree that
Fourth Circuit law governs, they disagree as to the stand-
ard the Fourth Circuit would have applied. GAF argues
that the Fourth Circuit would have applied, in this case, a
standard under which the court may reject arbitration if
and only if the assertion of arbitrability is wholly ground-
less. Appellant’s Br. 18–19; Oral Argument 15:28–32
(“The standard here is: Is what we are saying wholly
groundless? And we believe it is not, your honor.”). In
contrast, Mr. Evans and RNB argue that a court may
reject arbitration based on its analysis of the claims and
the arbitration provision, even if it does not find the
assertion of arbitrability to be so weak as to be wholly
groundless. Appellees’ Br. 11–12.
We need not resolve that dispute. We accept for pur-
poses of this appeal the “wholly groundless” standard,
which GAF has accepted both expressly at oral argument
and at least implicitly in its briefs. 1 Applying that stand-
1 This court stated in Qualcomm that the “wholly
groundless” standard applies when an arbitration agree-
ment clearly and unmistakably refers the issue of arbi-
trability to the arbitrator. 466 F.3d at 1371, 1373 & n.5.
In its briefs, GAF made no argument that the Qualcomm
standard authorizes more inquiry into the issue of arbi-
trability than is legally proper. At oral argument, GAF
expressly accepted the Qualcomm standard. Oral Argu-
ment 15:28–32. Accordingly, we consider any argument
that the Qualcomm standard permits too much judicial
inquiry to be waived.
6 EVANS v. BUILDING MATERIALS CORPORATION
ard, we conclude that the district court correctly rejected
arbitration here because GAF’s assertion of arbitrability
is wholly groundless. That conclusion requires affirmance
of the district court’s decision not to refer the issue of
arbitrability to the arbitrator and, simultaneously, the
district court’s denial of the motion to dismiss or stay the
case pending arbitration. And it does so without regard to
the district court’s conclusion that the termination of the
2009 agreement rendered the arbitration provision inap-
plicable to the present dispute. 2
Whether GAF’s assertion of arbitrability is wholly
groundless depends on the scope of the language of the
arbitration provision. Here, the relevant arbitration
provision reaches only claims “arising under” the 2009
agreement. GAF accepts that, for such language, Fourth
Circuit precedent directs the focus to “whether the claims
at issue have a direct nexus to the contractual obligations,
and more specifically, whether the claims are ‘related to
the interpretation and performance of the contract itself.’”
Appellant’s Br. 25 (quoting Am. Recovery, 96 F.3d at 92–
93). Such “arising under” language is narrower in scope
For that reason, this case is not an appropriate one in
which to explore differences among circuit-court opinions
regarding when the issue of arbitrability is to be referred
to arbitration. In particular, we do not explore the extent
to which such differences reflect case-specific differences
in contract language or differences in legal standards.
See, e.g., Belnap v. Iasis Healthcare, 844 F.3d 1272, 1284–
93 (10th Cir. 2017) (discussing various Supreme Court
and circuit-court opinions); Douglas v. Regions Bank, 757
F.3d 460, 461–64 (5th Cir. 2014) (discussing similar
issues).
2 We also need not address the significance of the
fact that Mr. Evans is not named as a party to the 2009
agreement.
EVANS v. BUILDING MATERIALS CORPORATION 7
than language, such as “relating to,” under which a claim
may be arbitrable if it has a “significant relationship” to
the contract, regardless of whether it arises under the
contract itself. Long v. Silver, 248 F.3d 309, 316–17 (4th
Cir. 2001); Am. Recovery, 96 F.3d at 92–93; J.J. Ryan &
Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315,
321 (4th Cir. 1988).
Fourth Circuit law stresses that “any doubts concern-
ing the scope of arbitrable issues should be resolved in
favor of arbitration.” Am. Recovery, 96 F.3d at 92 (quot-
ing Moses H. Cone Mem’l Hosp. v. Mercury Constr. Co.,
460 U.S. 1, 24–25 (1983)). Thus, a court “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)). We follow those principles in reviewing the
complaint in this case.
Counts I, II, and III state claims for patent infringe-
ment, trade-dress infringement, and unfair competition
related, not to GAF’s carrying out of its obligations estab-
lished by the 2009 agreement, which concerned GAF’s
promotion of RNB’s products, but rather to GAF’s making
and selling of its own competing roofing products. Those
claims do not involve any issue “related to the perfor-
mance or interpretation of the contract itself.” See Appel-
lant’s Br. 25. Nor are the claims similar to those alleging
tortious interference or other agreement-dependent
wrongs, which courts have held to be covered by similarly
worded arbitration provisions. See, e.g., Dialysis Access
Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 380–82 (1st
Cir. 2011). As a substantive matter, Counts I, II, and III
challenge actions whose wrongfulness is independent of
the 2009 agreement’s existence. Those counts are so
plainly outside the arbitration provision that a contrary
argument is wholly groundless.
8 EVANS v. BUILDING MATERIALS CORPORATION
We also reject the assertion of arbitrability of Count
IV, which, GAF now argues, incorporates an allegation
that GAF breached a confidentiality obligation that it
owed to RNB and possibly to Mr. Evans. As an initial
matter, GAF has not preserved that argument. Its open-
ing brief to this court did not present any argument for
arbitrability specific to Count IV or GAF’s confidentiality
obligations. GAF mentioned “confidentiality” just once,
and only in relation to the district court’s finding that the
arbitration provision did not survive the termination of
the agreement. Appellant’s Br. 29–30 (“The reservation of
‘remedies at law’ . . . pertains to confidentiality and non-
use of GAF’s sensitive information.”). GAF did not make
a version of its current point about Count IV until its
reply brief and oral argument. See Oral Argument 4:45–
6:23; Appellant’s Reply Br. 2–3. That is too late. See
SmithKline Beecham Corp. v. Apotex Corp., 439 F.3d
1312, 1319 (Fed. Cir. 2006) (“Our law is well established
that arguments not raised in the opening brief are
waived.”); Edwards v. City of Goldsboro, 178 F.3d 231,
241 n.6 (4th Cir. 1999).
Moreover, GAF did not preserve its confidentiality-
based argument in the district court. None of GAF’s
relevant district-court filings mention Count IV specifical-
ly or “confidentiality.” See Defendant’s Rebuttal in Sup-
port of its Motion to Dismiss or, in the Alternative, To
Compel Arbitration and Stay Proceedings 4–6, Evans, No.
1:16-cv-282-GBL-IDD (E.D. Va. June 17, 2016), ECF No.
30 (Defendant’s Rebuttal); Defendant’s Memorandum of
Law in Support of its Motion to Dismiss or, in the Alter-
native, To Compel Arbitration and Stay Proceedings 9–10,
Evans, No. 1:16-cv-282-GBL-IDD (E.D. Va. May 13, 2016),
ECF No. 14 (Defendant’s Memorandum).
That GAF did not timely make its new argument is
hardly surprising. The argument rests on the complaint’s
statement that GAF agreed to maintain the confidentiali-
ty of Mr. Evans’s and RNB’s information. Complaint
EVANS v. BUILDING MATERIALS CORPORATION 9
¶ 21. But that statement does not allege that GAF under-
took any such confidentiality obligation under the 2009
agreement itself, which is the sole asserted source of a
duty to arbitrate. And in fact, the 2009 agreement does
not contain such an obligation. The agreement contains a
one-way confidentiality provision, which requires RNB to
maintain the confidentiality of GAF’s proprietary infor-
mation, but not the reverse. See J.A. 83 (“Roof N Box
shall keep confidential and shall not use, except in the
performance of the Program, any proprietary technical or
business information of GAF or its affiliates which Roof N
Box may obtain during the term of this Agreement . . . .”).
Indeed, GAF agreed at oral argument that the 2009
agreement’s language did not obligate GAF to maintain
the confidentiality of Mr. Evans’s and RNB’s information.
See Oral Argument 2:23–26, 4:22–35. Thus, we cannot
find that Count IV, or indeed any other count, arises
under the 2009 agreement based on a GAF breach of any
confidentiality obligation that it might have owed.
For similar reasons, GAF has forfeited any argument
that Count V warrants different treatment from the other
claims. GAF has not presented any argument that Mr.
Evans’s and RNB’s assertion of a violation of N.J. Stat.
§ 56:8-2 is broad enough to cover a claim against GAF for
breach of the 2009 agreement (or other agreement-related
conduct). See Appellant’s Br. 25–28; Defendant’s Rebuttal
4–6; Defendant’s Memorandum 9–10. And we see nothing
in the record that would require us to disturb the district
court’s decision on that basis.
None of GAF’s arguments establish the existence of a
legitimate dispute regarding the application of the “aris-
ing under” arbitration provision to Mr. Evans’s and RNB’s
claims. GAF points to the complaint’s assertions of will-
fulness and similar states of mind, see Appellant’s Br. 25–
27, but those states of mind concern GAF’s challenged
conduct regarding its own products. See, e.g., Halo Elecs.,
Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1933 (2016)
10 EVANS v. BUILDING MATERIALS CORPORATION
(“[C]ulpability is generally measured against the
knowledge of the actor at the time of the challenged
conduct.”). They do not concern GAF’s states of mind with
respect to any obligation established by the 2009 agree-
ment, e.g., GAF’s promotion of RNB’s products.
GAF also relies on the complaint’s requests for lost
profits for unfair competition and trade-dress infringe-
ment. Appellant’s Br. 27. But those requests do not
make the asserted claims arise under the 2009 agree-
ment. As with GAF’s state-of-mind argument, what
matters for the “arising under” determination is the
conduct that the plaintiffs challenge and the asserted
reasons that the challenged conduct is wrongful. Here,
the claims alleged in Counts I–V would not arise under
the 2009 agreement even if Mr. Evans and RNB were to
calculate the harm caused by GAF’s challenged conduct
based on their past revenues—including revenues earned
during the 2009–2010 period, when the agreement was in
effect—because the grounds on which they challenge that
conduct are independent of any obligation in the 2009
agreement.
Finally, GAF gains no ground in arguing that the
complaint’s claims will “continue to implicate” the 2009
agreement because adjudicating GAF’s defenses “will
require addressing the distinctions between the quality
and construction” of RNB’s and GAF’s products and
“questions of perceived product origin.” Appellant’s Br.
28. Resolving those factual issues, should they arise, will
not require the adjudicator to interpret the meaning of
any contractual provision or identify conduct forbidden by
the 2009 agreement.
III
For the foregoing reasons, we affirm the judgment of
the district court.
AFFIRMED