Kemiron Atlantic, Inc. v. Aguakem International, Inc.

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
MAY 08, 2002
THOMAS K. KAHN
No. 01-16400 CLERK

D.C. Docket No. 01-00926-CV-T-24

KEMIRON ATLANTIC, INC.,

Plaintiff-Appellee,

versus

AGUAKEM INTERNATIONAL, INC.,

Defendant-Appellant.

Appeal from the United States District Court
for the Middle District of Florida

(May 8, 2002)

Before TJOFLAT, BLACK and MARCUS, Circuit Judges:
PER CURIAM:

This interlocutory appeal arises from a civil action filed by Kemiron

Atlantic, Inc. (“Kemiron”), against Aguakem International, Inc. (“Aguakem”).1

Kemiron alleges that its predecessor in interest contracted to sell Aguakem ferric

sulfate, and Aguakem failed to pay for the some of the shipment. Kemiron sued

Aguakem for breach of contract and unjust enrichment and sought declaratory

relief. The contract contained an arbitration clause, requiring the parties to

arbitrate the dispute. The sole issue on appeal is whether the district court erred in

denying Aguakem’s motion to stay the action pending arbitration. We find no

error and therefore affirm.

Kemiron produces ferric sulfate and Aguakem sells and distributes the

substance. Both parties entered into a requirements contract, entitled “Exclusive

Purchase and Sale Agreement” (hereinafter “Agreement”) on June 2, 1995.

Kemiron agreed to supply Aguakem with ferric sulfate, and, in return, Aguakem

promised to pay for the material. The contract provided, however, that if any

1
Kemiron invoked diversity jurisdiction under 28 U.S.C. § 1332. Kemiron is a
Delaware corporation, with its principal place of business in Savannah, Georgia. Aguakem is a
Florida corporation, with its principal place of business in Florida.

2
dispute arose from the agreement between the two companies, the matter would be

resolved according to section 25 of the Agreement. Section 25, entitled “Dispute

Resolution,” provided as follows:

The parties, convinced that a large part of the litigation arising from
the nonfulfillment of contracts and agreements is caused by a failure to
reduce the essential terms and conditions to writing, and much of the
remainder of the litigation in connection with written contracts is caused by
weaknesses of various kinds in such written documents, have endeavored to
use every care and caution in the preparation of this instrument, knowing
nevertheless that a relationship of this character may pose new problems
from time to time requiring subsequent resolution and agreement. It shall
therefore be the aim and intention of the parties, and in their mutual
interests, to provide practical and dignified means for friendly resolution of
any differences in interpretation of this Agreement or the settlement of
disputes of any kind that may arise between the parties.

To this end, it is mutually agreed that the parties shall be free to bring
any and all such matters to the attention of the other at any time without
prejudicing their harmonious relationship and operations hereunder, and that
the offices of either party shall be available at all times for the prompt and
effective adjustment of any and all such differences, either by mail,
telephone, or personal meeting under friendly and courteous circumstances.

In the event that a dispute cannot be settled between the parties, the
matter shall be mediated within fifteen (15) days after receipt of notice by
either party that the other party requests the mediation of a dispute pursuant
to this paragraph. If the parties are unable to select a mediator, the Florida
Mediation Group shall select a mediator. The parties agree to use their best
efforts to mediate a dispute.

In the event that the dispute cannot be settled through mediation, the
parties shall submit the matter to arbitration within ten (10) days after
receipt of notice by either party. The arbitration shall be conducted in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The parties shall each select an

3
arbitrator and the two arbitrators thus selected shall select a third arbitrator.
These three arbitrators shall constitute the arbitration panel. It is understood
that a judgment or award rendered, which may include an award of damages,
may be entered in any court having jurisdiction thereof.

(emphasis added).

On October 13, 2000, Kemiron made a demand on Aguakem for payment.

On November 30, 2000, Aguakem sent Kemiron a notice acknowledging that it

owed some of the money, but not all. A payment was not included with the notice.

Kemiron presented Aguakem with another demand on April 5, 2001. Aguakem

did not respond. Kemiron terminated the Agreement with Aguakem on May 3,

2001.

On May 15, 2001, Kemiron then brought this suit. On July 5, 2001,

Aguakem filed, among other matters, a motion to stay the proceeding pending

arbitration, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq..

On October 1, 2001, the district court held an evidentiary hearing on

Aguakem’s motion to stay the proceeding pending arbitration; the presidents of

both Kemiron and Aguakem testified and both parties presented exhibits.

Kemiron’s President, Lawrence Hjersted, testified that he did not receive any

notice or indication from Jorge Unanue, President of Aguakem, that Unanue

4
wanted to mediate the dispute at hand.2 Unanue admitted that “I didn’t - - have not

given notice per the agreement terms, no” when questioned by the district court.

The court decided the motion on the record after the end of the hearing, and

in a written order entered seven days later. The court ruled that, in order for there

to be a duty to arbitrate, the parties “must first mediate their dispute and then one

party must give notice of their desire to arbitrate the dispute.” The court

subsequently found that neither party gave notice to mediate or arbitrate, and

consequently, the duty to arbitrate was not triggered.

II.

The ability of parties to agree to arbitrate disputes is well-established.

Congress, in 1925, enacted the FAA, seeking to “reverse the longstanding judicial

hostility to arbitration agreements . . . to place [these] agreements on the same

footing as other contracts. . . [and to] manifest a liberal federal policy favoring

arbitration agreements.” Equal Employment Opportunity Comm’n. v. Waffle

House, Inc., __ U.S. __, 122 S. Ct. 754, 761-62, 151 L. Ed. 2d 755 (2002)

2
Hjersted did testify, however, that Unanue told him that Aguakem wanted to mediate a
different disagreement involving Aguakem, Kemiron and a third-party company called
Checkpoint. Kemiron and Aguakem had an agreement with Checkpoint to dispose of chemical
by-products.

5
(citations omitted). Indeed, the Supreme Court has stated that “questions of

arbitrability must be addressed with a healthy regard for the federal policy favoring

arbitrations.” Moses H. Cone Mem’l. Hosp. v. Mercury Construction Corp., 460

U.S. 1, 24, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983). Notwithstanding this strong

federal policy, “arbitration is a matter of contract and a party cannot be required to

submit to arbitration any dispute which he has not agreed so to submit.” AT&T

Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648, 106 S. Ct.

1415, 89 L. Ed. 2d 648 (1986). Moreover, the intent of the contracting parties is

paramount and can trump the FAA’s policy in favor of arbitration. See

Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 57, 115 S.Ct. 1212, 131

L.Ed.2d 76 (1995) (“[T]he FAA’s proarbitration policy does not operate without

regard to the wishes of the contracting parties.”); see also Waffle House, 122 S.Ct.

at 762.

In this case, the district court denied Aguakem’s petition to stay the action

pending arbitration on the ground that Aguakem did not perform the steps

necessary, as spelled out in the contract, to trigger arbitration. We review this legal

conclusion de novo. See Perez v. Globe Airport Sec. Serv’s., 253 F.3d 1280, 1283

(11th Cir. 2001). Since an evidentiary hearing was held and findings of fact were

made, we review those findings for clear error. See Seaboard Coast Line R.R. v.

6
Trailer Co., 690 F.2d 1343, 1348 (11th Cir. 1982).

The appellant contends that Sections 2 and 3 of the FAA, in addition to the

FAA’s general policy encouraging arbitration, require the district court to stay the

proceedings and direct the parties to enter into arbitration. Enforcement of

arbitration provisions is governed by the FAA. Specifically, section 2, entitled,

“Validity, irrevocability and enforcement of agreements to arbitrate” states:

A written provision in any...contract evidencing a transaction involving
commerce to settle by arbitration a controversy thereafter arising out of such
contract or transaction, or the refusal to perform the whole or any part
thereof, or an agreement in writing to submit to arbitration an existing
controversy arising out of such a contract, transaction, or refusal, shall be
valid, irrevocable and enforceable, save upon such grounds as exist at law or
in equity for the revocation of a contract.

Id.

Section 3 of the FAA provides for proceedings to be stayed in district courts

when an issue in the proceeding “is referable to arbitration.” Id.

We disagree with the appellant that the FAA requires the district court to

stay the proceedings pending arbitration. Although there is an arbitration

agreement between the parties, it is conditioned by the plain language of section 25

of the Agreement, which prescribes what must take place before arbitration.

7
Specifically, the parties had to request mediation and “the matter shall be mediated

within fifteen (15) days after receipt of notice by either party that the other party

requests mediation.” Moreover, the Agreement states that, if the dispute “cannot

be settled through mediation, the parties shall submit the matter to arbitration

within ten (10) days after receipt of notice by either party.”

Thus, under the plain language of the contract, to invoke the arbitration

provision, either party must take two steps: first, Aguakem or Kemiron must

request mediation and provide notice of the request to the other party. If the

mediation subsequently fails, arbitration still cannot take place. The aggrieved

party must then take a second step, by providing additional notice, under the terms

of the contract, that they wish to pursue arbitration. Then, and only then, is the

arbitration provision triggered.

The FAA’s policy in favor of arbitration does not operate without regard to

the wishes of the contracting parties. See Mastrobuono, 514 U.S. at 57, 115 S.Ct.

at 1216. Here, the parties agreed to conditions precedent before arbitration can

take place and, by placing those conditions in the contract, the parties clearly

intended to make arbitration a dispute resolution mechanism of last resort.

Unanue told the court that he did not give any notice to Kemiron that he wanted to

mediate the disagreement over the ferric sulfate payment. Hjersted testified that

8
Unanue failed to provide any notice or indication that Aguakem wanted a

mediation with respect to the payment dispute. Thus, neither party met the first

condition required to invoke the arbitration clause in the Agreement. In fact, the

record reveals that Aguakem still has not demanded any mediation or arbitration.

Because neither party requested mediation, the arbitration provision has not been

activated and the FAA does not apply.3

For the foregoing reasons, the decision of the district court is

AFFIRMED.

3
We need not discuss the issue of whether Aguakem waived its right to arbitrate since we
have found that it did not fulfill the conditions precedent to trigger arbitration under the
Agreement.