Riley Manufacturing Co. v. Anchor Glass Container Corp.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
SEP 11 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
RILEY MANUFACTURING
COMPANY, INC.,
Plaintiff-Counter-Defendant -
Appellee,
v.
ANCHOR GLASS CONTAINER
CORPORATION, No. 96-3299
Defendant-Counter-Claimant-
Appellant,
and
TREND PLASTICS, INC.,
Defendant-Counter-Claimant.
Appeal from the United States District Court
for the District of Kansas
(D.C. No. 96-CV-2309)
Steven L. Brannock, (Rebecca H. Steele with him on the briefs) of Holland &
Knight, LLP, Tampa, Florida, for the appellant.
James Robert McKown, (Gardiner B. Davis with him on the brief) of Spencer
Fane Britt & Browne, LLP, Kansas City, Missouri, for the appellee.
Before PORFILIO and EBEL, Circuit Judges, and BRETT, Senior District
Judge. *
EBEL, Circuit Judge.
This copyright and trade secret dispute between two former commercial
partners, now competitors, requires us to examine the federal common law of
arbitrability. Under that law, we disagree with the district court’s conclusion that
there was no valid and enforceable arbitration agreement between the parties.
Instead, we find that at least a portion of the dispute in this case appears to be
arbitrable. Therefore, we must reverse and remand.
Background
Since the early 1980s, Riley Manufacturing Company (“Riley”), based in
Olathe, Kansas, has been in the business of making “sun tea” jars with
copyrighted ornamental designs stenciled on the glass and plastic containers.
Riley had a long-term relationship with Trend Plastics, Inc. (“Trend”), also based
in Olathe, Kansas, to supply the plastic spigots and plastic lids that were made
from injection molds that Riley designed and over which Riley asserted trade
*
The Honorable Thomas R. Brett, Senior District Court Judge, Northern
District of Oklahoma, sitting by designation.
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secret protection. In 1989, Riley began using Anchor Glass Container
Corporation (“Anchor Glass”), based in Tampa, Florida, as its supplier of glass
jars.
In 1991, facing difficulties in increasing its own distribution network, Riley
went to Anchor Glass to work out a deal whereby Anchor Glass would distribute
Riley’s sun tea products through Anchor Glass’ nationwide distribution network.
In the contract memorializing this arrangement (the “Manufacturing Agreement”),
Riley agreed to provide all of Anchor Glass’ needs for sun tea jars, up to 3.75
million units per year, and Anchor Glass agreed to use “reasonable efforts” to
market Riley’s sun tea products. The agreement provided various specifications
for the manufacturing and distribution relationship between Riley and Anchor
Glass, but the three provisions that are most relevant in this dispute are the
copyright-assignment, termination, and arbitration clauses.
The copyright provisions in the Manufacturing Agreement indicated that
Riley already had assigned to Anchor Glass the copyrights for all of the
ornamental designs that were then being used on the sun tea containers that
Anchor Glass would be selling for Riley. Riley also agreed to assign to Anchor
Glass the copyrights in any new ornamental designs it created during the life of
the manufacturing relationship. However, in the event that Anchor Glass
terminated the parties’ distribution arrangement, Anchor Glass agreed to reassign
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to Riley any of the copyrights that Riley initially had transferred to Anchor Glass.
Furthermore, although Anchor Glass would have the right to sell off its remaining
inventory of Riley-manufactured sun tea jars when the contract expired, it would
have no right to use or sell the Riley designs after the copyrights were reassigned
to Riley.
Under the termination clause, the parties specified what continuing rights
each would have when the three-year contract expired. Most importantly for the
purposes of this case, Anchor Glass was given the right to manufacture sun tea
jars with spigots that were “substantially identical” to Riley’s spigots, but Anchor
Glass would have no right to use Riley’s injection molds for the creation of these
“substantially identical” plastic spigots. This provision essentially allowed
Anchor Glass to manufacture sun tea jars – although not with Riley’s ornamental
designs – as long as Anchor Glass went to the trouble of creating its own
injection molds, a process that Riley claims is expensive and time-consuming.
Furthermore, although the termination clause allowed Anchor Glass to
manufacture “substantially identical” spigots, the contract is not explicit about
possible infringements of Riley’s trade dress in the overall appearance of the sun
tea products.
Finally, under the arbitration clause, the parties agreed to resolve “any and
all disputes arising out of or relating to this Agreement” by way of binding
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arbitration. 1 The arbitration clause required that the site of any arbitration be in
Anchor Glass’ home city of Tampa, Florida.
In 1994, after two successive amendments of the Manufacturing Agreement
to update pricing and supply provisions, Anchor Glass gave Riley notice of its
intent not to renew the production-distribution arrangement. As a result, the
Manufacturing Agreement expired by its own terms on July 31, 1994.
In January 1995, Riley discovered that Anchor Glass had sold various sun
tea jars that incorporated several ornamental designs that allegedly were copies of
certain Riley designs. As a result, Riley threatened a copyright suit against
Anchor Glass. There is no evidence in the record as to whether Anchor Glass or
Riley ever triggered the arbitration procedures of the Manufacturing Agreement
for this particular dispute. In any event, the parties reached a Release and
Settlement Agreement (the “Settlement Agreement”) on July 5, 1995, to resolve
1
The arbitration clause reads as follows:
Anchor and Riley shall attempt to resolve any and
all disputes arising out of or relating to this Agreement
by amicable negotiations. If any such dispute cannot be
resolved within thirty (30) days after either party gives
a written notice to the other party initiating negotiations
pertaining to such dispute, the parties shall submit such
dispute to arbitration in Tampa, Florida in accordance
with the Commercial Arbitration Rules of the American
Arbitration Association. The award of the arbitrators
shall be binding on the parties and enforceable by any
court having jurisdiction.
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the dispute.
Under the Settlement Agreement, Riley agreed to drop its threatened
copyright suit, and Anchor Glass agreed to drop what apparently were its own
threatened counterclaims. 2 The language of the mutual releases constitutes an
extremely broad waiver of “any and all” claims either party “now has or could
ever have or become entitled to,” which might arise under the Manufacturing
Agreement. 3
2
The parties have not indicated whether Anchor Glass actually threatened to
assert any counterclaims in this 1995 dispute, but the Settlement Agreement’s
release clause makes reference to Anchor Glass’ waiver of any “claims” or
“defenses” raised in the threatened litigation. This language suggests that Anchor
Glass must have asserted some kind of potential counterclaim in the dispute.
3
The text of paragraph 5.3 – the release relevant to Anchor Glass – reads as
follows:
Anchor fully and forever releases and discharges
Riley and its respective agents, attorneys, employees,
parents, affiliates, successors and assigns (collectively
referred to as “Releasees”), of and from any and all
responsibilities, duties, obligations, claims, demands,
debts, sums of money, accounts or causes of action or
actions, costs, losses, damages or liabilities of
whatsoever character, nature, kind or designation in law
or in equity, absolute or contingent, matured or
unmatured, suspected or unsuspected, known or
unknown which Anchor or anyone claiming under, by or
through it now has or could ever have become entitled to
assert against any of the Releasees by reason of the
claims raised in the Threatened Lawsuit or defenses
thereto, or arising out of any of the following matters
existing between the parties on the date of this
(continued...)
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In addition to these mutual releases, the Settlement Agreement also
includes a series of provisions designed to reestablish a manufacturing
relationship between Riley and Anchor Glass. Under Article IV, the parties
agreed that Riley would manufacture nearly 400,000 sun tea jars for Anchor Glass
during each of the 1996 and 1997 sun tea seasons. Furthermore, the parties agree
that Anchor Glass is expected to cease using Riley’s injection molds for its own
sun tea products, but that if Anchor Glass does make short-term use of the molds,
it would pay a prescribed royalty.
Finally, the Settlement Agreement includes a merger clause: “This
Agreement constitutes the entire agreement of the parties hereto and cancels,
terminates and supersedes any and all prior representations and agreements
relating to the subject matter thereof.” The crucial final phrase of this provision –
i.e., the words “relating to the subject matter thereof” – is undefined and there is
no cross-reference with other text in the Settlement Agreement.
3
(...continued)
Agreement: (i) any Anchor claims arising under the
Manufacturing Agreement between the parties
referenced in ¶ 3.2 and all other agreements or
documents executed in connection therewith; (ii) any
unfilled portion of Anchor’s order placed with Riley to
print approximately 5 million tumblers; (iii) Anchor’s
claim that Riley pay advertising costs incurred by
Waukama; and (iv) Anchor’s claim that several
truckloads of printed seconds (jars) shipped by Riley to
Anchor at Columbus, Ohio, was short.
-7-
Perhaps most importantly, the Settlement Agreement includes no arbitration
provision and makes no mention of any other dispute resolution mechanisms. The
Settlement Agreement also makes no reference to the arbitration clause of the
Manufacturing Agreement.
In March 1996, some eight months after the Settlement Agreement resolved
the first copyright dispute, Riley discovered that Anchor Glass was selling sun tea
jars that incorporated three ornamental designs that allegedly infringed upon three
of Riley’s designs. Riley also discovered what it considered to be evidence that
Anchor Glass and Trend had made unauthorized use of Riley’s injection molds to
produce copies of Riley’s spigots. As a result, in June 1996, Riley filed the
present suit in federal court. 4
Riley’s suit alleges eight different causes of action, each of which
separately attacks the three allegedly improper acts at issue in this case: copying
Riley’s ornamental designs, copying Riley’s plastic spigot design, and copying
Riley’s trade dress in the overall appearance of its sun tea products. The eight
causes of action are as follows:
I. Copyright infringement - for copying the ornamental designs.
II. Breach of contract - for violating the prohibitions in the Manufacturing
4
Trend Plastics was not subject to the notice of appeal entered in this case
by Anchor Glass. Thus, Trend is not a party to this appeal. In April 1996, Riley
settled its claims in the district court against Trend, and the court entered an order
dismissing Trend as a defendant.
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Agreement and the Settlement Agreement against using Riley’s
molds as a template to make new molds, and for violating the
Settlement Agreement’s prohibition against using Riley’s injection
molds.
III. Unjust enrichment - for misappropriating Riley’s trade secrets in the
design of the spigots and other component parts.
IV. Common law trade dress infringement and unfair competition - for
using trade dress on sun tea jars and spigots confusingly similar to
Riley’s trade dress.
V. Misappropriation of trade secrets - for misappropriating Riley’s trade
secrets in the design of the spigots.
VI. Conversion - for making unauthorized use of Riley’s molds.
VII. Conspiracy - for conspiring to convert Riley’s property and its trade
secrets in its molds.
VIII. Tortious inference - against Anchor Glass, for interfering with
Riley’s distinct contractual relationship with Trend Plastics, and
against Trend Plastics, for interfering with Riley’s distinct
contractual relationship with Anchor Glass.
In addition to money damages, including punitive and treble damages, Riley also
sought preliminary and permanent injunctive relief.
Anchor Glass responded to Riley’s complaint by filing a motion to dismiss
or stay the suit pending arbitration, invoking the arbitration clause of the
Manufacturing Agreement. The district court took up this motion at a scheduling
conference, ruling that the broad language of the release in the Settlement
Agreement released any obligation of Riley found in the Manufacturing
Agreement to submit its claims to arbitration. The court also cited the merger
clause of the Settlement Agreement as “buttressing” its conclusion. The court
said the language of the release and merger clauses was unambiguous, and
because of the clarity of this contract interpretation, there was no need to discuss
-9-
the federal common law of arbitrability decisions under the Federal Arbitration
Act.
The appeal is properly before us, and we have appellate jurisdiction over
Anchor Glass’ interlocutory appeal under 9 U.S.C. § 16(a)(1)(A) (1994) and Fed.
R. App. P. 4(a).
Discussion
We review de novo a district court’s order denying a stay of a federal suit
pending arbitration pursuant to 9 U.S.C. § 3. See Avedon Eng’g, Inc. v. Seatex,
126 F.3d 1279, 1283 (10th Cir. 1997). This review requires us to evaluate
whether the district court correctly found that no valid and enforceable agreement
to arbitrate the parties’ dispute exists. See Coors Brewing Co. v. Molson
Breweries, 51 F.3d 1511, 1513 (10th Cir. 1995). Because the district court
rendered its decision on the pleadings, for the purposes of this appeal we must
accept Riley’s factual averments in its complaint as true. See Lee v. Gallup Auto
Sales, Inc., 135 F.3d 1359, 1362 (10th Cir. 1998).
I. Existence of an agreement to arbitrate
This case presents a situation where two commercially sophisticated parties
disagree over the arbitrability of their dispute in light of their contractual history,
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where they agreed at first to a broad arbitration clause and then arguably canceled
or narrowed that arbitration clause in a subsequent agreement. Before we address
the specific arbitrability of the claims raised by Riley in its federal suit, we must
address the threshold issue of who decides arbitrability in the first place – the
courts or an arbitrator.
A. Federal court jurisdiction to decide issues of arbitrability
Under the Federal Arbitration Act (“FAA”), courts have developed a
federal common law of arbitrability that implements Congress’ expression of a
strong national policy favoring the resolution of commercial disputes through
arbitration. See Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 270-71
(1995). Under this law, “the question of arbitrability – whether a [contract]
creates a duty for the parties to arbitrate the particular grievance – is undeniably
an issue for judicial determination. Unless the parties clearly and unmistakably
provide otherwise, the question of whether the parties agreed to arbitrate is to be
decided by the court, not the arbitrator.” AT&T Techns. v. Communication
Workers, 475 U.S. 643, 649 (1986).
Unlike the general presumption that a particular issue is arbitrable when the
existence of an arbitration agreement is not in dispute, see Moses H. Cone Mem’l
Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983), when the dispute is
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whether there is a valid and enforceable arbitration agreement in the first place,
the presumption of arbitrability falls away. See First Options of Chicago, Inc. v.
Kaplan, 514 U.S. 938, 944-45 (1995). As the Court explained,
Courts should not assume that the parties agreed to
arbitrate arbitrability unless there is “clear and
unmistakable” evidence that they did so. In this manner,
the law treats silence or ambiguity about the question
“who (primarily) should decide arbitrability” differently
from the way it treats silence or ambiguity about the
question “whether a particular merits-related dispute is
arbitrable because it is within the scope of a valid
arbitration agreement” – for in respect to this latter
question the law reverses the presumption.
Id. (citations omitted); see also Cogswell v. Merrill Lynch, Pierce, Fenner &
Smith Inc., 78 F.3d 474, 480 (10th Cir. 1996). Courts will not apply the
traditional presumption in favor of arbitrability when the particular issue is
whether the parties have agreed to allow an arbitrator to decide the existence of
their putative agreement to arbitrate because “doing so might . . . force unwilling
parties to arbitrate a matter they reasonably would have thought a judge, not an
arbitrator, would decide.” First Options, 514 U.S. at 945. Furthermore, “the
issue is not whether it would be more convenient for courts or arbitrators to
decide” whether the parties have a valid and enforceable agreement to arbitrate,
but rather “whether the parties’ agreement contains ‘clear and unmistakable’
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evidence they intended the arbitrator to decide the issue.” Cogswell, 78 F.3d at
481.
B. Evidence as to the “Who decides” issue
in the Riley-Anchor Glass arbitration clause
In light of the difficult arguments that Anchor Glass must present to
support its initial arbitrability argument, we have no hesitation in concluding that
Anchor Glass does not have “clear and unmistakable” evidence that the parties
intended to have an arbitrator, rather than a court, decide whether an arbitration
agreement exists or what the scope of that agreement is. Thus, the validity and
enforceability of the Riley-Anchor Glass arbitration agreement is for the courts to
decide. As a result, we conclude that there was no error in the district court’s
decision to resolve the arbitrability issue itself rather than to refer it to an
arbitrator.
First, although the arbitration clause in the Manufacturing Agreement is
broadly written, referring to “any and all disputes arising out of or relating to” the
contract, there is no hint in the text of the clause or elsewhere in the contract that
the parties expressed a specific intent to submit to an arbitrator the question
whether an agreement to arbitrate exists or remained in existence after the
Settlement Agreement. Furthermore, Riley and Anchor Glass negotiated against
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background principles of Florida and Kansas law, 5 where the issue of arbitrability
has been determined, as a matter of law, to be a question for the courts and not an
arbitrator. For example, in Florida, in a case involving one party’s claim that a
subsequent oral contract had superseded an earlier written arbitration agreement,
the court held that the question of “[w]hether or not a dispute should be submitted
to arbitration is a question for the court to determine from the contract of the
parties. . . . [T]he trial court cannot leave it to the arbitrators themselves to
determine which claims are subject to arbitration when it has not established
which agreement applies.” Thomas W. Ward & Assoc., Inc. v. Spinks, 574 So. 2d
169, 169-70 (Fla. Ct. App. 1990) (emphasis added & citation omitted). Similarly,
in Kansas, the law is long-established that “whenever a motion to compel
arbitration comes on for hearing, the threshold determination to be made by the
court is whether an agreement to arbitrate exists and whether this agreement
includes arbitration of the specific point at issue.” City of Wamego v. L.R. Foy
Constr. Co., 675 P.2d 912, 915 (Kan. Ct. App. 1984) (emphasis added). We find
5
The Manufacturing Agreement specifies that the contract is to be
“construed under and in accordance with the laws of the State of Florida.” The
parties, however, relied on Kansas decisional law for purposes of this appeal. In
any event, because the question here is the intent of the parties, we believe that
both Kansas and Florida law provide evidence of the parties’ unstated
assumptions about how the law would treat their contract. See First Options, 514
U.S. at 944 (“When deciding whether the parties agreed to arbitrate a certain
matter (including arbitrability), courts generally . . . should apply ordinary state-
law principles that govern the formation of contracts.”).
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no “clear and unmistakable evidence” within the four corners of the
Manufacturing Agreement that the parties intended to submit the question of
whether an agreement to arbitrate exists to an arbitrator.
Second, the existence of the merger clause in the Settlement Agreement
raises at least an ambiguity on the question of the intent of the parties to allow an
arbitrator to decide the validity of the 1991 arbitration clause. The merger clause
expressly states that the Settlement Agreement “cancels, terminates and
supersedes” any prior agreement relating to the subject matter of the
Manufacturing Agreement. Although we conclude below that this language does
not terminate the arbitration clause in the Manufacturing Agreement in toto, see
Part II infra, we do believe that this language raises legitimate questions as to the
continuing existence and scope of the arbitration clause in the Manufacturing
Agreement. Furthermore, the Settlement Agreement is noteworthy for its lack of
an arbitration clause. Thus, because the Settlement Agreement creates an
ambiguity on the question of arbitrability – an ambiguity that the Settlement
Agreement does not expressly delegate to an arbitrator for resolution – we find
that the question of whether an agreement to arbitrate continues to exist for Riley
and Anchor Glass is a question for the courts.
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II. Existence and scope of an agreement to arbitrate
The district court determined that the arbitration clause in the
Manufacturing Agreement no longer held any force or effect in the face of the
Settlement Agreement. The court relied on two rationales, first that the mutual
release clause in the Settlement Agreement “exonerated Riley from any duty with
respect to binding arbitration of disputes arising out of or relating to the
Manufacturing Agreement,” and second that the merger clause in the Settlement
Agreement canceled the arbitration provisions of the Manufacturing Agreement.
We disagree on both issues.
Under the federal common law of arbitrability, an arbitration provision in a
contract is presumed to survive the expiration of that contract unless there is some
express or implied evidence that the parties intend to override this presumption:
“In short, where the dispute is over a provision of the expired agreement, the
presumptions favoring arbitrability must be negated expressly or by clear
implication.” Nolde Bros., Inc. v. Local No. 358, Bakery & Confectionery
Workers Union, 430 U.S. 243, 255 (1977). Thus, when a dispute arises under an
expired contract that contained a broad arbitration provision, courts must presume
that the parties intended to arbitrate their dispute. This is so even if the facts of
the dispute occurred after the contract expired. See id. (holding that claims for
severance pay by workers who were discharged after their collective bargaining
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agreement expired were subject to the continuing force of the prior arbitration
clause). The presumption in favor of continuing arbitrability, however,
disappears in either of two situations: first, if the parties express or clearly imply
an intent to repudiate post-expiration arbitrability, and second, if the dispute
cannot be said to arise under the previous contract. See id. at 254-55; United
Food & Commercial Workers Int’l Union v. Gold Star Sausage Co., 897 F.2d
1022, 1026 (10th Cir. 1990); see also Primex Int’l Corp. v. Wal-Mart Stores, Inc.,
679 N.E.2d 624, 626 (N.Y. 1997) (holding that commercial disputes relating to
two expired contracts were arbitrable, but any portion of the disputes relating to
the last contract between the parties, which lacked an arbitration clause, was not
arbitrable). In United Food, we defined the concept of whether a dispute “arises
under” a previous contract as follows: “a dispute must either involve rights which
to some degree have vested or accrued during the life of the contract and merely
ripened after termination, or relate to events which have occurred at least in part
while the agreement was still in effect.” United Food, 897 F.2d at 1024-25
(quotation omitted).
The lesson we take from these cases is that absent some evidence that Riley
and Anchor Glass intended to revoke the arbitration clause in their Manufacturing
Agreement, that agreement to arbitrate disputes continues to exist and to apply to
certain disputes between Anchor Glass and Riley. However, the arbitration clause
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in the Manufacturing Agreement only applies to disputes that “arise under” that
Manufacturing Agreement and its successor agreements. The obligation to
arbitrate cannot apply to claims or defenses that relate to matters that do not arise
under the Manufacturing Agreement. With this understanding in mind, we now
turn to the evidence that Riley and the district court found demonstrates an intent
to revoke the arbitration clause in the Manufacturing Agreement.
A. Effect of the 1995 mutual release clause
The core rationale for the district court’s decision was its conclusion that
the mutual release clause in the Settlement Agreement eliminated all of Riley’s
duties under the Manufacturing Agreement. If this conclusion were correct, we
would agree that the claims herein asserted could not arise under the
Manufacturing Agreement and hence would not be arbitrable. However, the view
that the Settlement Agreement terminated all of Riley’s duties fails to account for
the precisely limited nature of the release provisions in the Settlement Agreement.
After wading through the boilerplate in ¶ 5.3 of the Settlement Agreement,
it becomes clear that Anchor Glass released Riley from only five discrete matters,
none of which included Riley’s obligation under the Manufacturing Agreement to
arbitrate matters which arise under the Manufacturing Agreement and are not
settled in the Settlement Agreement. Thus, Riley was released from:
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1) Anchor’s claims or defenses raised in Riley’s first threatened copyright
litigation in 1995;
2) Anchor’s claims upon Riley’s indebtedness evidenced by the
Manufacturing Agreement and the promissory note and security
agreement executed contemporaneously thereto, which claims are
described in ¶ 3.2 of the Settlement Agreement; 6
3) Anchor’s claim for the unfilled portion of an order of approximately 5
million tumblers to be produced by Riley;
4) Anchor’s claim that Riley pay for advertising related to the “Waukama”
order; and
6
The language of ¶ 5.3(i) on this point is syntactically incorrect, but we
believe that the intent of the parties here was to refer to Riley’s commercial
indebtedness to Anchor Glass.
Paragraph 5.3(i), as written, refers to “any Anchor claims arising under the
Manufacturing Agreement between the parties referenced in ¶ 3.2 and all other
agreements or documents executed in connection therewith.” This syntactical
structure suggests the citation to ¶ 3.2 merely specifies which parties are being
discussed. However, ¶ 3.2 does not define the parties in the dispute; instead, the
paragraph discusses Riley’s existing commercial debts to Anchor Glass.
We believe the correct reading of the release in ¶ 5.3(i) construes the
phrase “referenced in ¶ 3.2” to modify “claims” rather than “parties.” Because
our review of the legal meaning of this contract is de novo, we respectfully
disagree with the district court’s contrary interpretation, which would apparently
have had the phrase “referenced in ¶ 3.2” modify “parties.” Although there is
certainly syntactical support for that conclusion, there was no issue in ¶ 5.3
concerning which parties are referenced. Paragraph 5.3 defines explicitly the
parties covered by the paragraph, and it would make no sense to assume there was
a further identification of the parties referenced in that paragraph by referring
back to ¶ 3.2, which does define certain claims but does not define parties.
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5) Anchor’s claim for an allegedly short shipment of seconds delivered to
Anchor by Riley at Columbus, Ohio.
In light of these limited releases, we conclude that ¶ 5.3 of the Settlement
Agreement does not destroy all of Anchor Glass’ rights to demand arbitration for
disputes with Riley. Instead, the specific releases in ¶ 5.3 only go so far as to
waive Anchor Glass’ right to demand arbitration on the five topics explicitly
listed (together, of course, with a waiver of Anchor Glass’ underlying claim on
the merits pertaining to those five topics, no matter what forum might be used to
assert such rights). Thus, under the Settlement Agreement, Anchor Glass
continues to possess the right to demand arbitration on disputes unrelated to the
five topics listed in ¶ 5.3.
B. Effect of the merger clause in the Settlement Agreement
Although we believe that the waiver and release provisions of ¶ 5.3 leave
untouched certain of Anchor Glass’ claims and the right to demand arbitration on
such claims, we must still address the district court’s alternative conclusion that
the merger clause in ¶ 8.2 of the Settlement Agreement “cancels, terminates and
supersedes” the entirety of the Manufacturing Agreement. However, on this point
too, we conclude that the district court construed the Settlement Agreement too
broadly.
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Paragraph 8.2 in the Settlement Agreement reads as follows: “This
Agreement constitutes the entire agreement of the parties hereto and cancels,
terminates and supersedes any and all prior representations and agreements
relating to the subject matter hereof.” Anchor Glass argued below that the
“subject matter” of the Settlement Agreement was limited solely to Riley’s
threatened copyright suit. The district court characterized this argument as
“myopic,” and we agree that the “subject matter” of the Settlement Agreement is
not so severely limited. Indeed, if the subject matter of the Settlement Agreement
related only to the copyright dispute, then there would have been no basis for
releasing Riley’s commercial debts or other specific claims listed in ¶ 5.3 and
discussed in the preceding section of this opinion.
On the other hand, we reject Riley’s equally extreme position that the
“subject matter” specified in ¶ 8.2 is the entire business relationship between
Riley and Anchor Glass, including the entire Manufacturing Agreement. If the
Settlement Agreement had intended to extinguish the entire Manufacturing
Agreement, it would be expected that it would have said so explicitly. But there
is no such explicit statement in the Settlement Agreement. Indeed, if the
Manufacturing Agreement were null and void as a result of the merger clause in
the Settlement Agreement, Riley would have lost some very important protections
provided to it by the Manufacturing Agreement. For example, § 18 of the
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Manufacturing Agreement specifies that Anchor Glass will not have the power to
“contest the validity or ownership of the Riley trademark during or after the term
of this Agreement.” This is a valuable right for Riley, and we think it unlikely
that Riley intended to give up this right sub silentio when it listed other rights it
was giving up with specificity in ¶ 5.1. This is especially so when there are no
references whatsoever to the trademark rights or the incontestability of Riley’s
marks in the Settlement Agreement.
Instead of Riley’s contention that the Settlement Agreement superseded all
of the Manufacturing Agreement, we conclude that the merger clause in the
Settlement Agreement cancels only those provisions of the Manufacturing
Agreement that related to the specific “subject matter” of the Settlement
Agreement. Therefore, in order to determine the scope of the merger clause in
¶ 8.2, we must identify the “subject matter” of the Settlement Agreement.
First, the initial “whereas” clauses of the Settlement Agreement make it
clear that the “subject matter” of the Settlement Agreement includes the copyright
litigation that Riley had threatened against Anchor Glass. However, it would not
be accurate to say that the Settlement Agreement pertains to any and all copyright
disputes between Riley and Anchor Glass, even future disputes. Rather, the
copyright issues raised in the Settlement Agreement relate to Riley’s infringement
claims against Anchor Glass for four specific ornamental designs. The only other
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provision relating to copyright rights in the Settlement Agreement involves
Anchor Glass’ promise in ¶ 2.6 to return to Riley all copies of the Riley-
copyrighted designs that Anchor Glass had been using in its production of sun tea
jars. This provision appears to touch, at least peripherally, on the language in the
Manufacturing Agreement specifying that Riley will reacquire its copyright rights
over its decorative designs when the Manufacturing Agreement expires. Thus, the
“subject matter” of the Settlement Agreement appears to involve both the specific
copyrighted designs at issue in Riley’s first threatened lawsuit as well as Anchor
Glass’ continuing use of Riley’s copyrighted designs.
Second, ¶¶ 2.4 and 2.5 of the Settlement Agreement also make very specific
references to Anchor Glass’ future use of Riley’s injection molds. The Settlement
Agreement spells out that Anchor Glass would be allowed to use Riley’s injection
molds for the 1995 season but would be expected to develop its own molds for the
1996 season. Furthermore, if Anchor Glass used Riley’s molds in 1996, Anchor
Glass would be required to pay Riley a royalty of 5 cents for each plastic part
made from the molds. These provisions in the Settlement Agreement directly
conflict with, and therefore supersede, the language in the termination clause of
the Manufacturing Agreement, which specifies that “Anchor shall not have the
right to use . . . Riley’s injection molds.” Thus, the “subject matter” of the 1995
contract also includes Anchor Glass’ continuing use of Riley’s injection molds.
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Third, the Settlement Agreement in ¶ 4.2 reestablishes a production-
distribution relationship between Riley and Anchor Glass in which Anchor Glass
guaranteed that it would order at least 43 truckloads of Riley’s sun tea containers
for both the 1996 and 1997 seasons. This portion of the Settlement Agreement
also established a new pricing schedule for Riley’s products. Thus, the “subject
matter” of the Settlement Agreement also includes the essential business
relationship between Riley and Anchor Glass for the 1996 and 1997 sun tea
seasons.
Fourth, ¶ 3.1 of the Settlement Agreement reallocates the financial
relationship between Riley and Anchor Glass, with Anchor Glass agreeing to
forgive Riley’s debts under their prior contracts and to make additional payments
to Riley. Thus, the “subject matter” of the 1995 contract includes how the parties
intend to resolve their financial obligations stemming from the 1991 contract.
Finally, ¶ 3.4 of the Settlement Agreement includes a mutual promise from
the parties that they will refrain from “unlawful economic reprisals or retribution”
against each other. The contract does not specify what is meant by “reprisal” and
“retribution.” Nevertheless, this provision makes clear that the “subject matter”
of the 1995 contract included how the parties henceforth were to deal with each
other.
The merger clause in the Settlement Agreement revoked the prior right of
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the parties to demand arbitration on these specific topics. 7 However, nowhere
does the Settlement Agreement affect the right of the parties to demand
arbitration on topics unrelated to the enumerated “subject matter” of the
Settlement Agreement. The parties also continue to retain a right to demand
arbitration on any legal defenses that arise solely from the provisions of the
Manufacturing Agreement and not released by the Settlement Agreement.
C. Anchor Glass’ limited right to demand arbitration
In light of our discussion above on the “subject matter” of the Settlement
Agreement, we conclude that Anchor Glass retains a limited right to demand
arbitration on those claims in Riley’s federal lawsuit that arise under the
Manufacturing Agreement but which are not addressed in the Settlement
Agreement. With some of Riley’s claims, we have no hesitation in resolving
whether or not they are subject to arbitration. Others of Riley’s claims, however,
are not so clear and we cannot discern with confidence whether they either arise
under the Manufacturing Agreement or are addressed in the Settlement
Agreement, and thus are removed from the arbitration provision. As a result, we
7
We do not necessarily intend to conclude that this is an exhaustive list, but
merely set forth the above topics to demonstrate that the “subject matter” of the
Settlement Agreement is expressly set forth and may be discerned from the
various substantive provisions found in the document.
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must remand this case to the district court for further proceedings to determine
whether there is any implicit evidence in the record indicating that these claims
relate to the 1995 contract.
For example, as for Riley’s copyright claim in Count I of the suit, there can
be no question that this claim is not subject to arbitration. Riley’s pleadings
indicate that this claim involves three of the four copyrighted designs that were
the subject of Anchor Glass’ release in the 1995 Settlement Agreement.
(Compare Aplt. App. at 18, ¶ 52 with id. at 68 (First “whereas” clause).) As a
result, Count I of Riley’s suit clearly relates to the “subject matter” of the 1995
contract. The district court did not err in refusing to stay Riley’s case pending
arbitration of this claim.
On the other hand, it appears that at least a portion of Riley’s breach of
contract claim, (“Anchor used Riley’s molds as a template to make its molds in
breach of the Manufacturing Agreement . . . ,” see ¶ 58 of the Complaint), may
still be subject to arbitration since that claim, specifically limited to the
Manufacturing Agreement, does not appear to have been released or otherwise
affected by the Settlement Agreement.
As for Riley’s other counts in this case, though, we have no way of
determining from the record before us whether the factual support for these
claims arises under the Manufacturing Agreement and whether they relate to the
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“subject matter” of the Settlement Agreement. The parties have not briefed which
specific claims would be subject to arbitration in light of our interpretation of the
“subject matter” of the Settlement Agreement. Thus, on remand, the district court
should review Riley’s pleadings and the positions of the parties to determine
which of those claims in Riley’s suit are related to the “subject matter” of the
Settlement Agreement and therefore are not eligible for arbitration under the
Manufacturing Agreement. In conducting this review, the district court must bear
in mind the rule that “any doubts concerning the scope of arbitrable issues should
be resolved in favor of arbitration.” See Moses H. Cone, 460 U.S. at 24-25.
After conducting this review of Riley’s claims, the district court also
should make an additional determination of whether a resolution of Riley’s
arbitrable claims will have a preclusive effect on the nonarbitrable claims that
remain subject to litigation. If there will be such a preclusive effect, especially if
the arbitrable claims predominate over the nonarbitrable claims, then the district
court should consider whether to stay the federal-court litigation of the
nonarbitrable claims pending the arbitration outcome on the arbitrable claims.
See Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 856 (2d Cir. 1987)
(holding that “[b]road stay orders are particularly appropriate if the arbitrable
claims predominate the lawsuit and the nonarbitrable claims are of questionable
merit”). On the other hand, the mere fact that piecemeal litigation results from
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the combination of arbitrable and nonarbitrable issues is not reason enough to stay
Riley’s entire case. See Coors Brewing Co. v. Molson Breweries, 51 F.3d 1511,
1517 (10th Cir. 1995) (holding that “litigation must proceed in a ‘piecemeal’
fashion if the parties intended that some matters, but not others, be arbitrated”).
Conclusion
The district court correctly determined that the initial question of the
arbitrability of the appellee’s claims was for the courts to decide rather than an
arbitrator. However, the court erred in determining that the appellant had no right
to demand arbitration on any of the claims asserted in this case. Instead, we hold
that the appellant has a limited right to demand arbitration on those claims arising
under the Manufacturing Agreement but unrelated to the matters modified or
otherwise addressed in the Settlement Agreement.
As a result, we REVERSE the district court’s decision in its Scheduling
Order of August 28, 1996, denying the appellant’s motion for a stay pending
arbitration, and we REMAND for further proceedings in light of our discussion
above.
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