CARA‘S NOTIONS, INCORPORATED, d/b/a Cara‘s Hallmark, Plaintiff-Appellee, v. HALLMARK CARDS, INCORPORATED; Hallmark Marketing Corporation, Defendants-Appellants.
No. 97-1696
United States Court of Appeals, Fourth Circuit
March 31, 1998
140 F.3d 566
Argued Jan. 28, 1998.
Id. at 52, 69 S.Ct. at 920. In Feres and Shearer, the court was presented with “wholly different cases,” cases where the service members’ injuries occurred incident to their service. However, here, where decedent‘s injuries were wholly unrelated to her military service, we should follow the Supreme Court‘s direction in Brooks and not be swayed by the military judgment rationale. Because I think that this case has been wrongly decided, and because of the importance of the issue, I vote for rehearing en banc (see Third Circuit I.O.P. 9.3.1). I acknowledge that under my view there will occasionally be cases in which so-called second guessing occurs, but the Supreme Court‘s jurisprudence does not extirpate every incarnation of that phenomenon, see Brooks, supra.
In the decades following the decision in Feres, the case was subjected to considerable criticism from both the courts and the academy. In United States v. Johnson, 481 U.S. 681, 700, 107 S.Ct. 2063, 2074, 95 L.Ed.2d 648 (1987), Justice Scalia was joined by three other justices in a dissent in which he remarked that ”Feres was wrongly decided and heartily deserves the ‘widespread, almost universal criticism’ it has received.” (citing Agent Orange Product Liability Litigation, 580 F.Supp. 1242, 1246 (E.D.N.Y.1984)). In Peluso v. United States, 474 F.2d 605 (3d Cir.1973) (per curiam), we expressed the view that Feres was wrongly decided and the hope that the Supreme Court would reverse it, observing that the “facts pleaded here, if true, cry out for a remedy.” Id. at 606. And in Hinkie v. United States, 715 F.2d 96, 97 (3d Cir.1983), we dismissed a lawsuit under the Feres bar, but only after noting that “[w]e are forced once again to decide a case where ‘we sense the injustice ... of [the] result.‘” Moreover, as I document in the margin, scholarly criticism of the doctrine is legion.***
In the last decade, however, these voices of courts and commentators have died down. Everyone seems to have given up. But the harshness of the doctrine remains. Just look at the injustice suffered by the family of Kerryn O‘Neill. Bolstered by the oft-quoted words of Justice Frankfurter:
Wisdom too often never comes, and so one ought not to reject it merely because it comes late.
Henslee v. Union Planters Bank, 335 U.S. 595, 600, 69 S.Ct. 290, 293, 93 L.Ed. 259 (1949), I urge the Supreme Court to grant certiorari and reconsider Feres. Judge Sloviter and Judge McKee join in this Statement.
Before MURNAGHAN, NIEMEYER and MOTZ, Circuit Judges.
Reversed by published opinion. Judge MURNAGHAN wrote the opinion, in which Judge NIEMEYER and Judge MOTZ joined.
OPINION
MURNAGHAN, Circuit Judge:
Cara‘s Notions, Inc., operates two Hallmark stores. The first store is the subject of a “Trademark License Agreement” between Hallmark Cards, Inc., and Betty and Jerald Gibson, the owners and officers of Cara‘s Notions. The second store is the subject of an “Account Agreement” between Hallmark Cards, Inc. and Hallmark Marketing Corporation (collectively “Hallmark“), and Cara‘s Notions, Inc., itself. We are called upon in this case to determine whether a broad arbitration clause in the Account Agreement mandates arbitration of a dispute between Cara‘s Notions, as plaintiff, and Hallmark, as defendant, regarding the first store.
The district court denied Hallmark‘s motion to compel arbitration because there was no arbitration clause in the first contract. In so doing, the district court failed to recognize that the parties to the two contracts differ, neglected to consider the actual language of the arbitration clause when interpreting the contracts and declined to defer to the strong federal policy favoring arbitration of disputes. We reverse.
In 1984, Roberta Gibson was given permission by Hallmark to become a Hallmark retailer. In November of 1984, Roberta Gibson opened Cara‘s Hallmark Shop at Town Center Shopping Center in Charlotte, North Carolina (“Store I“).
At some point in the next few years, the Gibsons incorporated Cara‘s Notions, Inc., the plaintiff. The Gibsons jointly owned Cara‘s Notions; Betty served as president and Jerald as secretary and treasurer. The record does not reflect when Cara‘s Notions was incorporated or whether there was any novation substituting Cara‘s Notions for the Gibsons as parties to Contract I.
In 1994, the Gibsons wanted to purchase a second Hallmark shop, in Concord, North Carolina (“Store II“). The Gibsons completed an application on behalf of Cara‘s Notions, Inc. In May of 1994, Hallmark and Cara‘s Notions entered into a “Hallmark Account Agreement” (“Contract II“), permitting Cara‘s Notions to operate the second Hallmark store in Concord. Contract II detailed Hallmark‘s and Cara‘s Notions’ responsibilities regarding the sale and display of Hallmark products. Contract II also contained an arbitration clause which provided:
Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, or any aspects of the relationship between Hallmark and Retailer,1 or the termination thereof, shall be settled by binding arbitration under the United States Arbitration Act in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof.
Since then Cara‘s Notions, Inc., has operated both Store I and Store II.
In early 1995, the landlord at Store I notified the Gibsons that they would have to move the store because a grocery store in the shopping center intended to expand into its space. The Gibsons claim that Hallmark promised that it would help them find a new location for their Store I. The Gibsons further claim that they suggested a new location to Hallmark, in a shopping center called “The Village at University Place.” According to the Gibsons, Hallmark representatives inspected the center and decided it was a favorable location for a Hallmark store, but instead of helping the Gibsons get a lease at that location as it had promised, Hallmark negotiated a lease at the Village at University Place for itself.
In December of 1996, Cara‘s Notions filed a complaint in state court against Hallmark, alleging that Hallmark‘s taking of the new location for itself breached the duty of good faith and fair dealing, was an unfair and deceptive trade practice, usurped an opportunity of the principal and was an illegal misrepresentation. Cara‘s Notions sought actual and punitive damages against Hallmark. Hallmark removed the case to federal court and moved to compel arbitration, asserting that the arbitration agreement in Contract II covered this dispute between the parties.
Believing that matters regarding Store I were governed only by Contract I and that matters regarding Store II were governed only by Contract II, the district court denied the motion to compel arbitration. The court held that “[b]ecause Contract I does not contain an arbitration clause, this matter regarding Store I is not subject to arbitration.” The district court held that the arbitration clause in Contract II did not modify the relationship created by Contract I because it believed that the first contract‘s merger clause required any modification to be “in writing with a specific reference to Store I.” It further held that the arbitration clause in Contract II did not apply directly to matters regarding Store I because “the boilerplate contract [II], in its introduction, specifically states that the contract is in reference to Store II,” and because the merger clause in Contract II uses the singular term “a Hallmark account” instead of a plural term such as “accounts,” thus “specifically limit[ing] its
Hallmark has appealed the dismissal of its Motion to Compel Arbitration and its Motion to Dismiss or in the Alternative to Stay Proceeding Pending Arbitration.
The Arbitration Act requires a federal court to grant a motion to stay a proceeding pending the arbitration of “any issue referable to arbitration under an agreement in writing for such arbitration.”
A straightforward examination of the two contracts reveals that the district court erred in refusing to compel arbitration of this dispute. The plaintiff in the case is Cara‘s Notions, not the Gibsons.2 The only contract
between Cara‘s Notions and Hallmark is Contract II, which contains an extremely broad arbitration clause: “Any controversy or claim arising out of or relating to ... any aspects of the relationship between Hallmark and Retailer ... shall be settled by binding arbitration....” The “Retailer” is defined in the contract as Cara‘s Notions. The instant conflict certainly relates to an aspect of the relationship between Hallmark and Cara‘s Notions. Therefore Contract II mandates arbitration of this dispute.
The district court concluded otherwise, however. In defense of the district court‘s decision, Cara‘s Notions asserts that Contract II was intended to apply only to claims or controversies regarding Store II, not those regarding Store I. Cara‘s Notions further asserts that the instant conflict arose solely out of the relationship between Hallmark and Store I, and therefore is governed by Contract I (which contains no arbitration clause).3 Cara‘s Notions points out that a court may not require a party to “submit to arbitration any dispute which he has not agreed so to submit,” AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986) (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960)) (internal quotation marks omitted), and argues that because Hallmark chose to deal with each of its stores separately and assigned them each a different account number, it may not “bootstrap” the requirement to arbitrate found in Contract II into the present dispute, arising from Contract I.
In determining “whether the arbitration clause in Contract II applies to matters re-
This agreement supersedes all prior oral or written representations and constitutes the entire understanding between Licensee and Hallmark with respect to the use of the HALLMARK trademark; [sic] in connection with licensee‘s operation of the shop and may be modified only in writing.
The district court claimed that this clause “specifically provide[s] that any modification of the agreement concerning Store I must be in writing with a specific reference to Store I.” Cara‘s Notions also argues that Contract I “can only be modified in a writing making specific reference to that shop [Store I].” Those arguments are baseless. It is clear that Contract I can only be modified in writing, but Contract II is in writing. Nothing in the merger clause or anywhere else in either contract provides any support for the assertion that that writing must specifically refer to Store I.
Second, the district court observed that the introduction to Contract II specifically refers only to Store II. Contract II begins with a series of “whereas” clauses, one of which identifies the location of the store premises where Cara‘s Notions desired to open Store II. None mentions the location (or even existence) of Store I. This does suggest that Contract II focuses on Store II. It does not mean, however, that no term of Contract II can have altered the general relationship between Cara‘s Notions and Hallmark. It is possible that, even though Contract II focuses on Store II, the parties intended certain terms of the contract to
apply to all of the dealings between the parties.
Third, the district court argued that the merger clause in Contract II, by use of the singular term “account” instead of the plural term “accounts,” suggests that Contract II was only meant to apply to Store II. The merger clause in Contract II provides:
This agreement supersedes all prior oral or written representations and constitutes the entire understanding between Retailer and Hallmark with respect to Retailer‘s status as a Hallmark Account and may only be modified by written agreement of Hallmark and Retailer.
The district court concluded that the “reference to an account in the singular, as opposed to the plural, can only mean that [Contract II] referred to the specific account number that was the subject of the contract [Store II].” Had the parties intended the contract to apply to both stores, the district court observed, they could have used the plural term “accounts.”
It may be true that the use of the singular “account” further suggests that Contract II was focused on Store II.3 On the other hand, the clause‘s reference to the “Retailer‘s status as a Hallmark account” could have been meant to encompass the retailer‘s ownership of one or many accounts. Of course, the merger clause could also have been written to refer to the “Retailer‘s status as an owner of Hallmark accounts.” Such speculation does not get us very far.
Fourth, the district court noted that no one from Hallmark told the Gibsons that Contract II would have anything to do with Store I, and Cara‘s Notions argues that, partially for this reason, it would be unfair now to hold that a conflict regarding Store I must be arbitrated. Betty Gibson complained in her affidavit that no one from Hallmark went
We are unmoved. The Gibsons are sophisticated business people and Cara‘s Notions, Inc., dealt with Hallmark at arm‘s length. Both parties to such a commercial contract have a duty to read the contract carefully and are presumed to understand it.4 See Sanger v. Yellow Cab Co., 486 S.W.2d 477, 481 (Mo.1972) (en banc); Harris v. Bingham, 246 N.C. 77, 97 S.E.2d 453, 454 (1957).5 A corporation desirous of running multiple businesses ought to consult with an attorney if its president and secretary/treasurer cannot understand the contracts into which it intends to enter. Unsurprisingly, Cara‘s Notions cites no legal authority for the proposition that a corporation may avoid its contractual obligations if it misunderstood them or did not read them carefully enough.6
The arguments made by Cara‘s Notions and by the district court to support the judgment that the underlying claim need not be submitted to arbitration suffer from one common flaw: none of them addresses the language of the arbitration clause itself. That language was conspicuously noted and is very broad. The arbitration clause in Contract II applies to “[a]ny controversy or claim” relating to “any aspects of the relationship” between Hallmark and Cara‘s Notions. We will not interpret the phrase “any
aspects of the relationship” to mean “only those aspects involving one store.” The breadth of the language clearly establishes that the arbitration clause was intended to apply to all conflicts between the parties and not only to conflicts regarding Contract II in particular. Cf. CB Commercial Real Estate Group, Inc. v. Equity Partnerships Corp., 917 S.W.2d 641, 646 (Mo.Ct.App.1996) (“When the language is unambiguous, the intent of the parties is reflected within the language of the contract and the court will determine the parties’ intent from the four corners of the document itself.“); Walton v. City of Raleigh, 342 N.C. 879, 467 S.E.2d 410, 411 (1996) (same). Because the parties to Contract II are the litigants, the arbitration clause in Contract II applies to this suit between those parties.
Finally, even if the arbitration clause had been ambiguous as to its scope, our decision would be guided by the strong federal policy favoring arbitrability, based on the Arbitration Act and repeatedly recognized by the Supreme Court and this Circuit. In AT & T Technologies, Inc., the Supreme Court explained that presumption favoring arbitrability in the context of a labor dispute:
Finally, it has been established that where the contract contains an arbitration clause, there is a presumption of arbitrability in the sense that “[a]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.”
This policy is not limited to labor contracts. In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), the Supreme Court explained that when determining whether parties have agreed to arbitrate a dispute, a court is to apply the “federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act,” id. at 626, 105 S.Ct. at 3353 (quoting Moses H. Cone Mem‘l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983)) (internal quotation marks omitted). The Supreme Court explained that:
[T]hat body of law counsels “that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.... The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.”
Id. (quoting Moses H. Cone Mem‘l Hosp., 460 U.S. at 24-25, 103 S.Ct. at 941) (omission in original). “Thus, as with any other contract, the parties’ intentions control, but those intentions are generously construed as to issues of arbitrability.” Id.; Summer Rain v. Donning Co./Publishers, Inc., 964 F.2d 1455, 1460 (4th Cir.1992). These principles direct us to order arbitration here.
The Appellee, Cara‘s Notions, argues that its claims should not be submitted to arbitration despite Mitsubishi‘s command. Cara‘s Notions may have the luxury of disagreeing with the Supreme Court, but that is a luxury denied to us. The district court should either have dismissed the case for lack of standing or granted Hallmark‘s Motion to Compel Arbitration and Motion for Stay of Proceeding Pending Arbitration. The district court‘s decision otherwise is hereby reversed, and the case is remanded for further proceedings not inconsistent with this opinion.
REVERSED.