[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
_______________________ ELEVENTH CIRCUIT
JULY 14, 2008
THOMAS K. KAHN
No. 07-10284 CLERK
_______________________
D. C. Docket No. 06-80966-CV-DTKH
INTERNATIONAL UNDERWRITERS AG
& LIBERTY RE-INSURANCE CORPORATION, S.A.,
Plaintiff-Counter-Defendant-Appellant,
versus
TRIPLE I: INTERNATIONAL INVESTMENTS, INC.,
Defendant-Counterclaimant-Appellee.
______________________
Appeal from the United States District Court
for the Southern District of Florida
______________________
(July 14, 2008)
Before BIRCH and FAY, Circuit Judges, and HINKLE,* District Judge.
HINKLE, District Judge:
___________________________
*Honorable Robert L. Hinkle, United States District Chief Judge for the Northern District
of Florida, sitting by designation.
This appeal raises the issue of the arbitrability of specific claims arising
from a commercial venture gone bad. The object of the venture was the
construction of a cement plant in Nigeria. The parties to this appeal are the owner
who proposed to build the plant and the surety who agreed to issue a financial
guarantee bond as collateral for a loan that would fund the project. The owner
asserts the proposed loan was a sham. The owner sued the surety (and others) for
fraud and on other theories. The surety moved to compel arbitration not based on
any arbitration clause in its principal agreement with the owner — the agreement
said nothing about arbitration — but instead based on an arbitration clause in an
escrow agreement through which the bond documents were to be delivered and the
surety’s fee was to be paid. The district court denied the motion. We affirm.
I. Facts
Appellee Triple I: International Investments, Inc. (“Triple I”) wished to
build a cement plant in Nigeria. It needed a $520 million loan. Financial advisors
purportedly found a lender (Japan Venture Fund Group (“Japan Venture”)) and an
issuer of a financial guarantee bond (appellant International Underwriters AG &
Liberty Re-Insurance Corporation, S.A. (“International”)).
Triple I and International agreed that Triple I would pay International a fee
of $10.4 million for issuing the bond and that International would refund all but
$200 of the fee if the bond was not used. International confirmed the agreement in
2
its written bond commitment. There was no agreement to arbitrate.
Triple I and International eventually agreed that the $10.4 million fee would
be payable half in advance and half after Triple I’s receipt of the loan proceeds.
The parties intended to close the transactions remotely, not in person. To facilitate
that approach, they engaged an escrow agent (W. E. Fielding and Associates
(“WEF”)) and entered a written escrow agreement. Among the terms were that
International would tender to WEF the $5.2 million payable to International in
advance, that International would tender to WEF the appropriate bond documents,
and that — upon confirmation that Japan Venture had funded the loan — WEF
would disburse the $5.2 million to International. The escrow agreement included
a clause calling for arbitration of “any dispute arising pursuant to or in any way
related to this Agreement or the transactions contemplated hereby.” Escrow
Agreement, R.1.1.8 ¶12.
Triple I tendered the $5.2 million to WEF. International tendered the bond
documents to WEF. Japan Venture never funded the loan, but WEF disbursed the
$5.2 million to International. Triple I demanded return of the fee, but International
balked. Triple I thus was out $5.2 million.
International filed a lawsuit in which it denied that Triple I was entitled to a
refund of the entire $5.2 million but also sought to “interplead” that amount for a
determination by the court of the parties’ respective rights. Triple I
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counterclaimed. In due course International voluntarily dismissed its complaint,
and Triple I twice amended its counterclaim. In the second amended
counterclaim, Triple I asserted that the whole deal was a sham from the outset.
Triple I named 11 counterclaim defendants, including International. Triple I
sought recovery against all of the counterclaim defendants for fraud and under the
Racketeer Influenced and Corrupt Organizations Act. Triple I also sought
recovery against International for breach of the contract for issuance of the
financial guarantee bond and on a related theory of promissory estoppel. Triple I
expressly did not seek recovery against International or the other counterclaim
defendants for breach of the escrow agreement:
By this Second Amended Counterclaim, [Triple I] hereby
makes no claim against International or the Additional Counterclaim
Defendants for breach of the Escrow Agreement or based upon the
escrow transaction contemplated in the Escrow Agreement.
Second Amended Counterclaim, R.1.32.7 ¶35.
International moved to compel arbitration based on the arbitration clause in
the escrow agreement. The district court denied the motion. International filed
this appeal.
II. Standard of Review
We review de novo a district court’s decision on whether a dispute is
covered by an arbitration agreement. See, e.g., Employers Ins. of Wausau v. Bright
4
Metal Specialties, Inc., 251 F.3d 1316, 1321 (11th Cir. 2001).
III. Merits
A dispute ordinarily is arbitrable if the parties have agreed to arbitrate it. As
we have said:
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, 80 S.Ct. 1347, 4 L.Ed.2d 1409
(1960).
Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1114 (11th Cir.
2001). The canons of construction run in favor of arbitration. See, e.g., Moses H.
Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927,
74 L. Ed. 2d 765 (1983) (“any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration”).
Triple I and International entered an agreement under which International
was to issue a financial guarantee bond and Triple I was to pay International a fee.
According to the second amended counterclaim, International never intended to
perform; the entire undertaking was a sham. The principal substantive issue
between Triple I and International is whether that is so.
If Triple I and International had included an arbitration clause in the
5
agreement for issuance of the bond — requiring, for example, arbitration of
disputes arising from the agreement, or related to the agreement — it would be
clear that Triple I’s claims against International would be arbitrable. But the
agreement for issuance of the bond did not include an arbitration provision. The
failure to include any reference to arbitration as part of the parties’ primary
agreement is substantial evidence of their intent not to require arbitration of claims
like those now at issue.
Triple I and International were, however, parties to the separate escrow
agreement. The escrow agreement included an arbitration clause. Still, the clause
did not purport to require arbitration of disputes that were separate from and
unrelated to the escrow arrangement. Instead, as one might expect from the
context, the clause said the parties would arbitrate “any dispute arising pursuant to
or in any way related to this Agreement [that is, the escrow agreement] or the
transactions contemplated hereby.”
The escrow agreement addressed the narrow issue of the mechanics for
exchanging documents and funds as part of the broader agreement for issuance of
a financial guarantee bond. In this context, a dispute “arising pursuant to or in any
way related to” the escrow agreement includes a dispute over the terms or
performance of the escrow agreement. A dispute arising pursuant to or in any way
related to “the transactions contemplated” by the escrow agreement includes a
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dispute over the terms or performance of the escrow transactions — the tendering
of the documents and funds and their later delivery. Thus when Triple I made a
claim against WEF for failure to perform as required by the escrow agreement,
WEF was entitled to compel arbitration, as International readily admitted.1
But the same is not true of Triple I’s claims against International for fraud
and for breach of the agreement for issuance of a financial guarantee bond. We
assume, for purposes of this appeal, that the fraud and breach occurred as alleged.
See Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1111 (11th
Cir. 2001) (assuming that the facts alleged in the relevant pleading were true for
purposes of an appeal over arbitrability). Triple I’s allegation is that
International’s undertaking was a sham from the outset. At the outset, and indeed
when International issued its bond commitment, there was no escrow agreement.
The parties entered the escrow agreement only later, as a means of exchanging the
deliverables to which they had separately agreed. The “transactions
contemplated” by the escrow agreement did not include an already-underway
fraudulent scheme that the perpetrators undoubtedly would have been more than
1
Before filing the second amended counterclaim, Triple I asserted a claim against WEF
for breach of the escrow agreement. WEF moved to compel arbitration of that claim, and Triple
I immediately agreed to arbitrate. International now says that this judicially estops Triple I from
asserting that its claims against International are not arbitrable. But there is nothing inconsistent
about Triple I’s positions. To the contrary, Triple I’s position that the claim against WEF was
arbitrable but the claims against International are not is a fully consistent — indeed correct —
reading of the contracts at issue.
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willing to carry out without any escrow transaction at all.
In arguing the contrary, International emphasizes that the arbitration clause
refers to “transactions” — plural. But the reference is not just to “transactions,”
but to “transactions contemplated hereby,” that is, transactions contemplated by
the escrow agreement. The transactions that the escrow agreement contemplated
were the escrow transactions — the tendering of documents, the tendering of
funds, and their later delivery. There were several escrow transactions, and the
use of the plural thus was proper.
Reading the arbitration clause to apply only to claims arising from or related
to the escrow agreement or the escrow transactions accords not only with the
language but also makes sense in context. The primary undertaking between
Triple I and International was for issuance of a financial guarantee bond. The
parties did not agree to arbitrate disputes arising from or related to that transaction.
A financial guarantee bond of course could have been issued without any escrow
arrangement at all. That the parties chose to carry out the main agreement by
means of an escrow arrangement — and that the escrow agreement called for
arbitration of disputes arising from or related to the escrow agreement and escrow
transactions — hardly evinces an intent to arbitrate disputes arising from or related
to the main agreement. To hold otherwise would be to let the tail wag the dog.
International notes, though, that an arbitration clause in an agreement
8
sometimes can require arbitration of a dispute arising not from the agreement itself
but from another source, including another agreement. That is correct. But this
occurs only when the arbitration clause applies to the dispute at issue. That, in
turn, ordinarily is so only when the dog is wagging the tail. When an arbitration
clause in one agreement does not apply to claims arising from or related to a
different agreement, we have not required arbitration.
As confirmation of this analysis, we address a case on which International
relies and then three decisions in which we did not require arbitration.
International relies on Blinco v. Green Tree Servicing LLC, 400 F.3d 1308
(11th Cir. 2005). That case involved a residential note and mortgage. The
husband signed a note that included a clause requiring arbitration of all disputes
“arising from or relating to this contract or the relationships which result from this
contract.” Blinco, 400 F.3d at 1310. The husband and wife signed a mortgage.
The husband and wife brought a lawsuit against a successor to the note’s payee
alleging statutory violations relating to the servicing of the note and mortgage.
Not surprisingly, we held the dispute covered by the arbitration clause (and,
separately, we held the clause binding not only on the husband but also on the
wife and the successor to the original payee). In holding the clause applicable to
this dispute, we said:
[I]t is difficult to understand how [the defendant] could be a servicer
9
if there were no Note, and more importantly, how [the defendant]
could face statutory servicer liability if there were no Note to service.
Blinco, 400 F.3d at 1311.
In Blinco, the central document in the parties’ relationship — the note —
included an arbitration clause. In the case at bar, in contrast, the central document
in the relationship between Triple I and International — the commitment for
issuance of a financial guarantee bond — did not include an arbitration clause.
This is the difference between the tail and the dog. Moreover, the arbitration
clause in Blinco applied not only to disputes arising from or relating to the note,
but also to disputes arising from or relating to the relationships that resulted from
the note. There is no similar language in the arbitration clause at issue in the case
at bar, and in any event the relationship between Triple I and International did not
result from the escrow agreement. Finally, in Blinco it was “difficult to
understand” how the defendant could face statutory servicer liability in the
absence of a note to service. In the case at bar, in contrast, it is easy to understand
how Triple I could have been defrauded without an escrow agreement; Triple I
could simply have agreed to pay the fee in another manner. And it is easy to see
how International could have breached its agreement to issue a bond without an
escrow agreement; International could simply have failed to issue the bond.
Moreover, Blinco did not establish any rule that any dispute that could not
10
have arisen but for an agreement necessarily “arises from or relates to” the
agreement within the meaning of an arbitration clause. We disapproved any such
rule in Seaboard Coast Line R.R. Co. v. Trailer Train Co., 690 F.2d 1343 (11th
Cir. 1982). Trailer Train licensed certain rail cars to Seaboard and later, for tax
reasons, leased some of the same cars to Seaboard. The license agreement
included a clause requiring arbitration of any dispute arising under the agreement.
The lease agreement, however, did not have an arbitration clause. Seaboard
moved to compel arbitration of its claim that Trailer Train failed to deliver
documents required by the lease agreement. The district court denied the motion,
and we affirmed. We said that the license and lease, though related, were
“separate and distinct,” and that the terms of one could not control a breach of the
other. Seaboard, 690 F.2d at 1352. We noted the federal policy favoring
arbitration but said the policy “cannot serve to stretch a contract beyond the scope
originally intended by the parties.” Id. And we quoted with approval the Second
Circuit’s statement in Necchi v. Necchi Sewing Machine Sales Corp., 348 F.2d
693, 698 (2d Cir. 1965), that a dispute does not “arise out of or in connection
with” a contract just because the dispute would not have arisen if the contract “had
never existed.” Seaboard, 690 F.2d at 1351.
This same reasoning is fully applicable in the case at bar. The bond
commitment and escrow agreement at issue here, like the license and lease at issue
11
in Seaboard, were “separate and distinct.” And the quotation from Necchi puts to
rest International’s contention that Triple I’s claims must be arbitrable because
they could not have arisen had the escrow agreement not existed. Moreover, here,
unlike in Necchi, Triple I’s claims could have arisen even in the absence of any
escrow agreement.
Two other cases in which we did not require arbitration also deserve
mention. In Klay v. All Defendants, 389 F.3d 1191 (11th Cir. 2004), some of the
plaintiff physicians had entered contracts with the defendant health maintenance
organizations that included broad arbitration clauses. The physicians rendered
services covered by the contracts (as to which the physicians were therefore
among the HMO’s “participating providers”) but also rendered other services that
were not covered by the contracts (as to which the physicians were therefore
“nonparticipating providers”). We held that the physicians were not required to
arbitrate their claims based on services rendered outside the contracts, which were
referred to as “non-par claims.” In reaching that result, we relied on the context
and on the nature of the contracts and found even the broadest language in any of
the contracts insufficient to require arbitration:
Because we find that even the broadest arbitration clauses could not
compel arbitration of non-par claims in this instance, we need not
parse through the language used in each HMO’s arbitration
agreements.
12
Klay, 389 F.3d at 1201 n.11. In the case at bar, as in Klay, the parties agreed to an
arbitration clause as part of a contract, but that contract had a limited scope, and in
context the arbitration clause was not broad enough to extend to the claims at
issue, which arose independently of the contract with an arbitration clause.
Similarly, in Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d
1109 (11th Cir. 2001), there was an oral agreement between Telecom Italia, SpA
(“Telecom Italia”) and Wholesale Telecom Corporation (“WTC”), under which
Telecom Italia would use its switch in Rome to route calls for WTC to any place in
the world. Some of the calls originated in the United States. Telecom Italia did
not have legal authority to transport calls in the United States. At Telecom Italia’s
urging, WTC agreed to lease circuits from a Telecom Italia subsidiary, Telemedia
International U.S.A., Inc. (“TMI”), in order to get calls from the United States to
the switch in Rome.
The oral agreement between WTC and Telecom Italia included no provision
for arbitration. The written lease between WTC and TMI, in contrast, included a
clause requiring arbitration of any dispute “arising out of or relating to” the lease.
The relationships went sour. Telecom Italia and WTC filed claims against
one another. WTC filed a claim against TMI asserting tortious interference with
the oral agreement between WTC and Telecom Italia. TMI moved to compel
arbitration, asserting that the tortious interference claim arose from or related to
13
the lease; the lease was, after all, the only reason for TMI’s involvement in the
entire undertaking. But the district court denied the motion, and we affirmed.
After reviewing our leading cases addressing clauses requiring the parties to
an agreement to arbitrate disputes “arising from” or “related to” the agreement, we
said:
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. . . . However, where the dispute occurs as a fairly direct result
of the performance of contractual duties . . . , then the dispute can
fairly be said to arise out of or relate to the contract in question, and
arbitration is required.
Telecom Italia, 248 F.3d at 1116. Applying this standard, we concluded that
TMI’s alleged tortious interference with the WTC-Telecom Italia oral agreement
did not arise from or relate to the WTC-TMI lease, despite the overlap between the
contracts. In support of this conclusion, we said that TMI could have interfered
with the WTC-Telecom Italia agreement “even if TMI had no contractual
relationship with WTC.” Id.
In the case at bar, as in Telecom Italia, there is an obvious relationship
between the two contracts at issue. But here, as in Telecom Italia, International
could have breached its bond commitment and defrauded Triple I even if there had
14
been no escrow agreement at all. Triple I’s claims are not related — with at least
some directness — to the performance of duties specified in the escrow agreement.
The escrow agreement’s arbitration clause does not apply to Triple I’s claims
against International.
IV. Conclusion
The principal agreement between Triple I and International was for issuance
of a financial guarantee bond in exchange for a fee. The agreement did not
include an arbitration provision. Triple I, International, and an escrow agent were
parties to a separate escrow agreement that included an arbitration clause. But the
terms and logical import of that clause did not extend to disputes arising not from
any failure to perform the escrow agreement but only from the failure to perform
— and fraudulent enticement into — the agreement for issuance of the bond. The
district court’s order denying the motion to compel arbitration of this dispute is
AFFIRMED.
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International Underwriters AG v. Triple I: International Investments, Inc.
Court: Court of Appeals for the Eleventh Circuit
Date filed: 2008-07-14
Citations: 533 F.3d 1342
Copy CitationsCombined Opinion