ALTRESCO PHILIPPINES, INC.; WILLIAM R. WILLIAMS, individuаlly and as Trustee; WRW CORPORATION, Plaintiffs-Appellees, v. CMS GENERATION COMPANY, Defendant-Appellant.
No. 96-1080 (Dist. of Colorado) (D.C. No. 95-D-2336)
UNITED STATES COURT OF APPEALS TENTH CIRCUIT
APR 17 1997
Before TACHA, BRISCOE, and MURPHY, Circuit Judges.
PATRICK FISHER Clerk
Defendant CMS Generation Co. (“CMS“) appeals the decision of the district court denying CMS‘s motion to stay the action pending arbitration. This court has jurisdiction under
In the early 1990‘s, plaintiff William R. Williams was in the business of developing electric generating power plants. In 1992, a company with whom Williams was affiliated, WRW Corp. (“WRW“) (then Altresco Development, Inc.1), entered into an agreement with Meralco Industrial Electric Power Company (“Meralco“), the primary power distribution utility on the Island of Luzon, Philippines. This agreement required Meralco to buy all electricity generated by a power project to be developed by a new Philippine entity, Luzon Power Associates, Inc. (“LPA“). Williams executed this agreement as an officer of WRW. Williams owned fifty percent of LPA and the remaining fifty percent was held by a trustee for Meralco Industrial Engineering Services Corporation. (“Miescor“), a subsidiary of Meralco.
To further development of the LPA power project (“the Luzon project“), Williams contacted CMS to explore the possibility of CMS‘s participating in the project. After preliminary discussions, CMS, WRW, and Altresco Philippines (a company with which Williams was affiliated) enterеd into a Confidentiality Agreement. The purpose of the Confidentiality Agreement was to enable CMS to
After CMS reviewed the plans, it agreed to participate in the Luzon project. Subsequently, Altresco Philippines, CMS, Miesсor and LPA executed agreements detailing the management, administration, operations, maintenance and funding of the Luzon project. These agreements were known as the Project Development Agreement (“PDA“) and Equity Funding Agreement (“EFA“). Williams executed the PDA and EFA as President of Altresco Philippines. Both the PDA and EFA contained the following arbitration clause:
Any dispute relating to or in connection with this Agreement that cannot be settlеd amicably between the parties shall finally be settled by arbitration to be conducted by one arbitrator under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. Such arbitration shall be conducted in English in Hong Kong.
Plaintiffs filed a lawsuit in the district court alleging the following:
(1) CMS breached the Confidentiality Agreement by engaging in the Magellan project;
(2) CMS breached a fiduciary duty owed to LPA as its shareholder;
(3) CMS intentionally interfered with LPA‘s contract with Meralco by pursuing the Magellan project and refusing to reduce its interest in the Luzon project;
(4) CMS breached an implied covenant of good faith and fair dealing in the Confidentiality Agreement by breaking a promise to assign an engineer full time to the Luzon project; and
(5) CMS engaged in unfair competition by using informatiоn acquired under the Confidentiality Agreement to pursue the Magellan project and by failing to reduce its interest in the Luzon project.
Plaintiffs sought compensation in the amount of $85,000,000 to cover all of their losses relating to the failure of the Luzon project. CMS filed a motion to stay the action pending arbitration pursuant to the provisions in the PDA and EFA. The district court denied CMS‘s motion. This appeal followed.
II. APPLICABILITY OF THE PDA AND EFA ARBITRATION PROVISIONS TO PLAINTIFFS’ CLAIMS
CMS contends the district court erred when it ruled that plaintiffs’ claims against CMS are not subject to arbitration. It points to the PDA and EFA arbitration clauses which broadly mandate arbitration of any claim “related to” or “connect[ed] with” those agreements. CMS believes that the claims in this action fall within that language and are thus subject to arbitration. CMS asserts that
Plaintiffs respond that their claims are not arbitrable because they arise out of the Confidentiality Agreement and are separate from the PDA and EFA and the arbitration clauses contained therein. In support of their position, Plaintiffs note that (1) the Confidentiality Agreement is governed by Colorado law while the PDA and EFA are governed by New York law; (2) the Confidentiality Agreеment is supported by separate consideration; (3) the parties to the PDA and EFA (Altresco Philippines, CMS, LPA and Miescor) are different from the parties to the Confidentiality Agreement (WRW, Altresco Philippines and CMS); (4) the Confidentiality Agreement authorizes redress in the court system;3 (5) the Confidentiality Agreement expires under terms different from the PDA and EFA;
This court reviews the arbitrability of a contract de novo. O‘Connor v. R.F. Lafferty & Co., 965 F.2d 893, 901 (10th Cir. 1992). The interpretation of the arbitration clause at issue is governed by the Federal Arbitration Act (“FAA“),
Because arbitration is a matter of contract, in evaluating whether a claim is subject to arbitration, the language of the arbitration clause dictates whether a particular claim is subject to arbitration. Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Internat‘l, Ltd., 1 F.3d 639, 643 (7th Cir. 1993) (“[C]ontracting parties сontrol their own fate when it comes to deciding which disputes to consign to arbitration. On the one hand, they may delineate precisely those claims that are subject to arbitration or, on the other, they may employ general--even vague--language in their arbitration provisions.“). The arbitration clauses in the PDA and EFA broadly provide that “[a]ny dispute relating to or in connection with this Agreement” must be arbitrated. We consider eaсh claim in the complaint to see whether it falls within the scope of this language.
1. First Claim for Relief.
Plaintiffs first cause of action states a claim for breach of the restrictive covenant in the Confidentiality Agreement. It alleges that “[b]y pursuing the Magellan project, CMS breached . . . the confidentiality agreement . . . [and as a]
Although plaintiffs have not specifically pleaded breaches of the PDA or EFA, direct breaches of those agreements are not necessary to invoke the arbitration clauses contained therein. In re Oil Spill by the “Amoco Cadiz” Off the Coast of France March 16, 1978 (Amoco Transport Co. v. Bugsier Reederei and Bergungs, A.G.), 659 F.2d 789, 794 (7th Cir. 1981) (“Whether a particular claim is arbitrable depends not upon the characterization of the claim, but upon the relationship of the claim to the subject matter of the arbitration clause. Were the rule otherwise, a party could frustrate any agreement to arbitrate simply by the manner in which it framed its claims.“). Instead, claims that fall within the scope of the agreement to arbitrate are arbitrable.
The district court relied on United International Holdings, Inc. v. Wharf (Holdings) Ltd., No. 95-1184, 1996 WL 55657 (10th Cir. Feb. 9, 1996) cert. denied, 116 S. Ct. 2524 (1996) in concluding that none of plaintiffs’ claims for
In Wharf, plaintiff United International Holdings, Inc. (“UIHI“) entered into a written agreement (the “TCA“) with Wharf Cable whereby UIHI was to provide to Wharf a variety of technical services for a Hong Kong cable television venture (“Wharf Cable project“). In return, UIHI would receive quarterly fees. UIHI had also expressed an interest in investing in the Wharf Cable project, thereby becoming an equity participant in the project. The parties disputed whether they had entered into an oral contract regarding UIHI‘s investment. When Wharf (and its newly formed parent, through which the investment was allegedly to have been made) refused to permit UIHI‘s investment, UIHI brought an action in federal district court. Wharf cable moved to compel arbitration of the action.
This court rejected Wharf Cable‘s argument that an arbitration clause in the TCA encompassed claims bаsed on UIHI‘s alleged oral contract to invest in Wharf‘s parent. The court noted that the TCA was a narrow agreement regarding UIHI‘s provision of technical services to Wharf and that it specifically provided that UIHI was to have “no right or interest” in Wharf Cable. Id. at 4. This court concluded the claims brought against Wharf and its affiliates were “too remote, in
In stark contrast, the contracts at issue in this case are directly related to one another. The Confidentiality Agreement specifically contemplates that CMS may participate in financing, construction, and operation of the Luzon project, i.e., subjects finalized in the PDA and EFA. The two agreements are integrally connected and were essential to the development of the Luzon project. A claim allеging damages for failure to develop a project is not “too remote” in substance or in distance from the development and funding agreements for that very project to avoid arbitration. Because this court cannot conclude “with positive assurance” that the arbitration clauses in the EFA and PDA are “not susceptible of an interpretation that covers [Claim 1],” arbitration of this claim cannot be denied. See AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650 (1986) (quoting Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)).
2. Second Claim for Relief.
Thе second claim alleges that CMS breached its shareholder fiduciary duty to LPA by “becoming involved in the Magellan project in the first instance and then later refusing to reduce its interest in LPA, despite repeated demands and warnings from Meralco that should CMS fail to reduce its interest, the LPA
The EFA was the very instrument by which CMS became a shareholder of LPA. It is that shareholder status upon which plaintiffs premise their second claim for relief. As a consequence, that claim necessarily touches upon the EFA and is subject to arbitration.
3. Third Claim for Relief.
Plaintiffs’ third cause of action is one for intentional interference with contract. Plaintiffs contend that CMS intentionally interfered with the power contract between LPA and Meralco by pursuing the Magellan project and refusing to reduce its holdings in LPA. This claim is not connected with the development and funding obligations of the Luzon project as set forth in the PDA and EFA. CMS‘s duty, if any, not to interfere with a contract between LPA and Meralco is unrelated to any obligation imposed by the PDA and EFA. Because this claim cannot be construed to be “related to” or “connect[ed] with” the PDA and EFA, it is not subject to arbitration.
4. Fourth Claim for Relief.
Plaintiffs’ fourth claim is one for a breaсh of the implied covenant of good faith and fair dealing based on CMS‘s failure to assign a project engineer full
5. Fifth Claim for Relief.
The Fifth Claim4 is one for unfair competition based on CMS‘s misuse of the information obtained under the Confidentiality Agreement to pursue the Magellan project as well as its refusal to reduce its interest in the Luzon project. Unlike claims one, two and four, this claim stands independent of the PDA and EFA. The obligation of confidentiality under the Confidentiality Agreement is unrelated to the obligations in the PDA and EFA. Had CMS elected not to participate in the Luzon project but had used the information obtained under the Confidentiality Agreement to pursue another project, plaintiffs could still pursue
III. APPLICABILITY OF THE PDA AND EFA TO NONSIGNING PARTIES
CMS contends that although neither William R. Williams nor WRW Corporation signed the PDA or EFA, both are bound equally with Altresco Philippines by those agreements and by the arbitration clauses contained therein under standard principles of agency and contract law. CMS relies upon the following in support of its position: (1) the derivative claims Williams brought on behalf of LPA are subject to arbitration because LPA signed the PDA and EFA;5 (2) WRW signed two initial memoranda of understanding related to the Luzon project and “thus is in privity with the other two plaintiffs“; (3) WRW is an agent of Altresco Philippines and Williams; and (4) in documents submitted to the district court, Altresco Philippines and WRW are referred to collectively as “Altresco” and the “Developer.” CMS concludes that “[t]hese facts demonstratе that all three plaintiffs are in privity as to the Luzon project, and that Altresco Development, Inc., now known as WRW Corporation, should be equally bound by the arbitration agreements.”
To establish that Williams or WRW is the alter ego of Altresco Philippines, the signatory to the PDA and EFA, CMS must prove that Altresco Philippines is a “mere instrumentality” of Williams and/or WRW, and that Altresco Philippines’ separate corporate structure was used to perpetuate a fraud, illegality or inequity. Key v. Liquid Energy Corp., 906 F.2d 500, 503-04 (10th Cir. 1990). In evaluating an alter ego theory, we note that “[c]ourts do not lightly pierce the corporate veil, ‘even in deference to the strong policy favoring arbitration.‘” ARW Exploration, 45 F.3d at 1461 (quoting Califano v. Shearson Lehman Bros., Inc., 690 F. Supp. 1354, 1355 (S.D.N.Y. 1988)). In this case, the record reveals only that Williams and WRW were involved in steps leading to the development of the Luzon project. This is simply insufficient to
IV. WAIVER
Plaintiffs contend CMS waived arbitration by removing, answering the complaint, and moving for dismissal before moving to compel arbitration. Their discussion of this argument is cursory. “[T]he right to arbitrate, like any other contract right, can be waived.” Metz v. Merrill Lynch, Pierce, Fenner & Smith, 39 F.3d 1482, 1489 (10th Cir. 1994). In determining whether a party has waived its right to arbitrate, we must examine the following factors:
- whether the party‘s actions are inconsistent with the right to arbitrate;
- whether “the litigation machinery has been substantially invoked” and the parties “were well into preparation of a lawsuit” before the party notified the opposing party of an intent to arbitrate;
- whether a party either requested arbitration enforcement close to the trial date or delayed for a long period before seeking a stay;
- whether a defendant seeking arbitration filed a counterclaim without asking for a stay of thе proceedings;
- “whether important intervening steps [e.g., taking advantage of judicial discovery procedures not available in arbitration] had taken place“; and
- whether the delay “affected, misled, or prejudiced” the opposing party.
V. CONCLUSION
Although neither all parties nor all claims are subject to arbitration in this case, the FAA compels us to enforce the signing parties’ agreement as drafted. See Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 217 (1985) (“[T]he Arbitration Act requires district courts to compel arbitration . . . even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.“). Given that mandate and in light of the strong federal policy favoring arbitration, we construe the language contained in the arbitration provisions of the PDA and EFA to require Altresco Philippines to arbitrate claims one, two, and four against CMS. To that extent, the judgment of the district court is REVERSED; in all other respects it is AFFIRMED. This matter is therefore REMANDED to the district court for entry of a stay consistent with this decision.
ENTERED FOR THE COURT,
Michael R. Murphy
Circuit Judge
Notes
For a period of three (3) years from the date of this Agreement, CMS shall participate in the Project only with [Altresco International, Inc. and Altresco Philippines, Inc.] or its Affiliates, on mutually acceptable terms and conditions, and shall not pursue the Project or any transaction with Meralco alone or in conjunction with any third party.