Asia Pacific Industrial Corp. v. Rainforest Café, Inc.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 03-2314
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Asia Pacific Industrial Corp., *
a British Virgin Islands corporation; *
Ashok S. Kothari, a resident of Hong *
Kong, individually, *
*
Plaintiffs/Appellees, * Appeal from the United States
* District Court for the
v. * District of Minnesota.
*
Rainforest Café, Inc., a Minnesota *
corporation, *
*
Defendant/Appellant. *
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Submitted: May 14, 2004
Filed: August 23, 2004
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Before WOLLMAN, HAMILTON,1 and BYE, Circuit Judges.
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BYE, Circuit Judge.
1
The Honorable Clyde H. Hamilton, United States Circuit Judge for the Fourth
Circuit, sitting by designation.
Rainforest Café, Inc. challenges the district court's2 orders compelling and
confirming arbitration in a contract dispute between Rainforest and Ashok S. Kothari
and his investment company Asia Pacific Industrial Corporation.3 We affirm.
I
In 1997, Rainforest Chairman Lyle Berman contacted Ashok Kothari and asked
him to find a suitable franchisee to open Rainforest restaurants in Asia. Through Mr.
Kothari's efforts, Rainforest contracted with James Robertson, who eventually opened
successful Rainforest restaurants in Asia through Jungle Investments, Ltd., an affiliate
of Rainforest. After Rainforest granted Mr. Kothari stock in Jungle, he claimed Mr.
Berman had agreed to pay $1,000,000 as a fee for finding the franchisee. Rainforest
responded no such agreement existed and the stock grant was sufficient compensation
anyway for Mr. Kothari’s services.
After the parties exchanged several written communications aimed at bringing
the dispute to arbitration, Mr. Kothari and Asia Pacific brought an action for breach
of oral contract in federal court. Pursuant to the Federal Arbitration Act (FAA), 9
U.S.C. §§ 1-16 (2000), the plaintiffs then moved to stay the federal court proceedings
and compel arbitration. The district court granted the motion, and after the arbitrator
awarded Mr. Kothari $200,000, the district court confirmed the award.
2
The Honorable James M. Rosenbaum, United States District Judge for the
District of Minnesota.
3
The Federal Arbitration Act (FAA) prohibits interlocutory appeals, including
appeals from orders compelling arbitration. 9 U.S.C. § 16(b). The FAA, however,
permits an appeal from an order confirming an arbitration award, Id. § 16(a)(1)(D),
and from a final decision with respect to an arbitration that is subject to the FAA. Id.
§ 16(a)(3). We review Rainforest's appeal as a challenge to the order of confirmation.
2
On appeal, Rainforest argues the district court erred in concluding the parties
entered into an arbitration agreement through their written communications. We hold
the parties entered into a binding agreement to arbitrate.
II
Because the district court had to look no further than the correspondence
between the parties to determine they had entered into a contract, we will review the
district court's determination de novo. See Litton Microwave Cooking Prods. v.
Leviton Mfg., 15 F.3d 790, 794-95 (8th Cir. 1994) (giving plenary review to question
whether contract was formed through an exchange of forms between the parties);
Rockwood Mfg. Corp. v. AMP, Inc., 806 F.2d 142, 144-46 (7th Cir. 1996) (giving
plenary review to determination of contract formation under state law in diversity
action); Hunt v. IBM Mid Am. Employees Fed. Credit Union, 384 N.W.2d 853, 856
(Minn. 1986) (stating, under Minnesota law, “[t]he resolution of whether the language
used rises to the level of a contract is for the court” and “[w]here the intent of the
parties is totally ascertainable from the writing, construction is for the court”).
We apply ordinary state-law contract principles to decide whether parties have
agreed to arbitrate a particular matter, giving healthy regard for the federal policy
favoring arbitration. Aggrow Oils v. Nat'l Union Fire Ins. Co. of Pittsburgh, 242 F.3d
777, 780 (8th Cir. 2001). The parties agree Minnesota state law governs this diversity
case. See Erie R.R. v. Tompkins, 304 U.S. 64, 71-80 (1938).
“Minnesota follows the objective theory of contract formation, under which an
outward manifestation of assent is determinative, rather than a party's subjective
intent.” TNT Props., Ltd. v. Tri-Star Developers LLC, 677 N.W.2d 94, 102 (Minn.
Ct. App. 1994). “The test for whether a contract has been formed is an objective one
to be judged by the words and actions of the parties and not by their subjective mental
3
intent.” Am. Fed'n of State, County and Mun. Employees, Council #14 v. City of St.
Paul, 533 N.W.2d 623, 627 (Minn. Ct. App. 1995).
Viewed objectively, the correspondence between the parties in this case shows
they entered into a contract to arbitrate their dispute in June 2000, when Rainforest's
General Counsel Stephen Cohen wrote to Mr. Kothari:
Lyle [Berman] asked me to review this file and to respond to your
request for an arbitration. We believe that an arbitration in Minneapolis
would be a workable process for resolving this dispute and as such we
have turned it over to our counsel, William Pentelovitch . . . . Please
provide me with the name and number of your counsel so we can discuss
the ground rules for arbitration. I believe it is in all of our interests to
keep expenses to a minimum.
(Emphasis added.) Rainforest's subjective intent aside, this letter reflects an offer
which has been received (“request for an arbitration”) and Rainforest's acceptance
(“an arbitration in Minneapolis would be . . . workable”). Moreover, the letter reveals
Mr. Cohen turned over the dispute to outside counsel, William Pentelovitch, to
“discuss the ground rules” for the now-agreed-to arbitration. Subsequent to this
letter, Scott Johnson, Mr. Kothari's attorney, wrote to Mr. Pentelovitch, stating he was
making contact because their clients had "apparently agreed to arbitrate the matter.”
In our mind, any reasonable person reading the June 2000 letter in context would
conclude Rainforest and Mr. Kothari had agreed to arbitration and it only remained
for the lawyers to sort through the details.
Though a few weeks later Mr. Pentelovitch wrote an ambiguous letter in which
he appeared to be backtracking from this agreement, he sent Mr. Johnson an
Agreement to Arbitrate form on December 4, 2000. The cover letter to the form
stated, “Enclosed herewith please find a proposed form of Agreement to Arbitrate the
above-referenced dispute. I received permission from our client to go forward with
4
arbitration this afternoon.” (Emphasis added.) Again, a reasonable person would
read this letter as a second acceptance of Mr. Kothari's "request" to arbitrate.
On December 13, 2000, Mr. Johnson wrote back to Mr. Pentelovitch, stating:
I have had an opportunity to review the agreement to arbitrate which you
forwarded to us and the following changes should be made. First, the
agreement should be between Rainforest Café, Inc. and Asia Pacific
Industrial Corporation. Ashok Kothari should not be a personally
named party to the agreement. In paragraph nine, the categories of
documents should be changed from 10 to 15.
In this instance, too, an objective reading of the letter suggests the parties had already
agreed to arbitrate the dispute and were now merely working out the details in the
Agreement form.
Rainforest argues the December correspondence did not create a contract.
Rainforest claims Mr. Johnson's December 13, 2000 letter was not a valid acceptance
of its offer to arbitrate because the letter changed a material term in the offer by
naming Asia Pacific instead of Mr. Kothari as the arbitrating party. Whatever may
be the significance of this formal distinction in name,4 we conclude that Rainforest’s
argument is faulty.
The argument, of course, rests on the premise Mr. Cohen’s June 2000 letter was
not an acceptance of Mr. Kothari's offer. Because we have already determined the
letter was indeed a valid acceptance, this premise is invalid and so is the argument it
supports. That is to say, by the time Mr. Kothari suggested the name change in his
4
At oral argument, Mr. Kothari explained Asia Pacific is a holding company
for his properties and stock.
5
December 13 letter, the parties were already bound by the arbitration agreement and
Mr. Kothari's request was at most a request to modify the contract.5
III
Because a valid agreement to arbitrate was formed in June 2000, the district
court properly compelled the parties to arbitrate their dispute. In turn, the district
court’s order confirming arbitration was also without error. It is affirmed.
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5
Rainforest apparently rejected the request, for Mr. Kothari himself remained
the named claimant through arbitration.
6