IVAX CORPORATION v. B. BRAUN OF AMERICA, INC., B. BRAUN MEDICAL, INC.
No. 01-11565
United States Court of Appeals, Eleventh Circuit
March 29, 2002
D. C. Docket No. 00-04909-CV-JLK. [PUBLISH]
versus
B. BRAUN OF AMERICA, INC., B. BRAUN MEDICAL, INC., Defendants-Appellants.
Appeal from the United States District Court for the Southern District of Florida
(March 29, 2002)
Before TJOFLAT, CARNES and REAVLEY*, Circuit Judges.
*Honorable Thomas M. Reavley, U.S. Circuit Judge for the Fifth Circuit, sitting by designation.
B. Braun of America, Inc., (BOA) and B. Braun Medical Inc., (BMI) (collectively, Braun)1 appeal the district court s denial of a petition to compel arbitration and accompanying motion for a stay pending arbitration. We conclude that the district court erred in finding that Braun had waived its right to arbitration, and, because we hold that the dispute between Braun and the appellee, Ivax Corporation (Ivax), falls within the scope of the parties arbitration clause, we reverse.
I.
A.
On May 30, 1997, Braun, a Pennsylvania corporation, agreed to purchase from Ivax, a Florida corporation with its principal place of business in Miami, all of the outstanding common stock of Ivax s subsidiary, a medical device manufacturer called McGaw, Inc. (McGaw). The terms of the sale were set forth in a Stock Purchase Agreement (Agreement), which required Braun to make an initial payment of approximately $320 million to Ivax. The Agreement also
Section 2.5 of the Agreement provided a process by which Ivax could2 Section 1.3 of the Agreement defined ACOI as the combined operating income of [McGaw] and [Braun] . . . determined in accordance with GAAP on both a basis consistent with the accounting principles applied in the preparation of [Braun] s September 30, 1996 audited financial statements, as adjusted by Section 2.4 and on a basis consistent with Schedule 2.4 hereto.
If the parties could not resolve their disagreement within thirty days, however, then section 2.5(a) supplied the solution: Either Braun or Ivax may cause such dispute to be submitted for determination to an arbitrator, who was to be chosen from one of the Bix Six (now Big Five) public accounting firms.5 The arbitrator had thirty days from the date it was selected to determine the disputed items using such procedures and factual investigations and determinations as the arbitrator may reasonably deem appropriate; provided, however, that the arbitrator shall be instructed to resolve such disputed items in accordance . . . with that described in Section 2.4 [of the Agreement]. The decision by the arbitrator
B.
Pursuant to the Agreement, Braun calculated the ACOI for fiscal years 1998 and 1999, and, for each year, submitted its statements to Ivax.7 Because Braun s determinations revealed that the ACOI for each year was less than $45 million, it made no contingency payments to Ivax. Not surprisingly, Ivax invoked its right under section 2.5 of the Agreement to have its accounting firm, Arthur Andersen (AA), examine Braun s books and records and the work papers of Braun s accountant, PricewaterhouseCoopers, LLP (PwC). Ivax therefore notified Braun on June 18, 1999, and then again on December 29, 1999, that it wanted to examine the books and records for fiscal years 1998 and 1999, respectively.
Beginning in July 1999, Braun provided AA access to its books and records as well as to PwC s work papers related to its audits.8 Over the next ten months,
AA examined Braun s records and PwC s papers, intermittently requesting additional information and further access, which Braun often denied because it believed the requested information to be irrelevant. Finally, in May 2000, Braun refused to allow AA to continue its examination unless and until AA signed a Confidentiality Agreement. This agreement required AA to treat as confidential all of Braun s books and records and allowed AA to disclose to Ivax only reports of its examination and any information necessary to provide Ivax a meaningful statement of account. Notably, Ivax was not a party to the agreement. On June 8, 2000, Braun and AA executed the Confidentiality Agreement, and AA subsequently resumed its examination of Braun s books and records.9
On November 21, 2000, and November 29, 2000, Ivax sent Braun notices, pursuant to section 2.5(a) of the Agreement, explaining that it believed that Braun
Shortly after receiving Ivax s notices, on December 11, 2000, Braun s accountant, PwC, began to review AA s work papers. One week later, pursuant to section 2.5(a), the parties agreed to begin good faith negotiations on December 21, 2000, which was the last day of the thirty-day negotiation period. The meeting on December 21, however, proved fruitless, the parties ending their discussion without a solution.11
In the meantime, on December 20, 2000, the day before the parties negotiation attempt, Braun sued AA in the Court of Common Pleas of Lehigh
C.
On the same day the parties attempted to negotiate a settlement, December 21, 2000, Ivax filed the instant suit in the United States District Court for the Southern District of Florida. Alleging that Braun breached sections 2.4 and 2.5 of the Agreement, Ivax claimed that it was deprived of the contingency payments for fiscal years 1998 and 1999, and prayed for $80 million in damages. Specifically, Ivax alleged that Braun (1) deliberately fail[ed] to maintain accurate and complete accounting books and records, (2) inappropriately included [certain] losses in [the ACOI calculation], thereby artifically reducing [the ACOI], (3) intentionally implement[ed] inadequate accounting procedures, (4) den[ied] Ivax the ability to
Less than a month after the lawsuit was filed (and before filing its answer), Braun petitioned the court to compel arbitration under the Federal Arbitration Act (FAA),
This interlocutory appeal followed.
II.
The ability of parties to agree to arbitrate their disputes is well-recognized. In 1925, Congress enacted the FAA, seeking to reverse the longstanding judicial hostility to arbitration agreements . . . and to place [these] agreements on the same footing as other contracts. Equal Employment Opportunity Comm n v. Waffle House, Inc., 122 S. Ct. 754, 761, 151 L. Ed. 2d 755 (2002) (citations omitted).16
Furthermore, an agreement to arbitrate, just like any other contract . . ., may be waived. See e.g., Burton-Dixie Corp. v. Timothy McCarthy Const. Co., 436 F.2d 405, 407 (5th Cir. 1971).17 In determining whether a party has waived its right to arbitrate, we have established a two-part test. First, we decide if, under the totality of the circumstances, the party has acted inconsistently with the arbitration right, and, second, we look to see whether, by doing so, that party has
The district court denied Braun s petition to compel arbitration on the ground that Braun had waived its right to arbitrate. We review this legal conclusion de novo.18 See Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 326 (5th Cir. 1999) ( We review the issue of whether a party s conduct amounts to a waiver of arbitration de novo. ); Leadertex, Inc. v. Morganton Dyeing & Finishing Corp., 67 F.3d 20, 25 (2d Cir. 1995) ( The question of whether a party s pretrial conduct amounts to waiver of arbitration is purely a legal one, and our review of this issue is de novo. ).
A.
One of the district court s two bases for holding that Braun had waived its right to arbitrate was Braun s state court suit against AA, conduct the court found inconsistent with an intent to arbitrate. Braun argues that participation in litigation
It is true that we have held that [w]aiver occurs when a party seeking arbitration substantially participates in litigation to a point inconsistent with an intent to arbitrate. Morewitz v. West of Engl. Ship Owners Mut. Prot. & Indem. Ass n, 62 F.3d 1356, 1366 (11th Cir. 1995); see also S & H Contractors, 906 F.2d at 1514 ( [A] party that substantially invokes the litigation machinery prior to demanding arbitration may waive its right to arbitrate. ) (citations omitted). In Morewitz, we found that an insurer had waived its right to arbitrate a dispute with an injured third party because, in an earlier lawsuit, it had colluded substantially with its insured to the detriment of the third party. See Morewitz, 62 F.3d at 1365-66. There, the administrator of the estates of shipwrecked crew members had sued the ship s owner and manager in federal court in Virginia. Id. at 1359. The insurance company with a protection and indemnity policy covering the ship retained counsel to defend the action, never mentioning the arbitration clause in its insurance policy that required any dispute about the insured s obligations to be referred to . . . arbitration. Id. After a verdict in its favor, the administrator sued the insurer in federal court in Alabama to enforce the judgment. Id. at 1360. When the insurer then sought to compel arbitration, we concluded that it had
The conduct of the insurer in Morewitz, however, is a far cry from Braun s behavior in the instant case. In Morewitz, the insurer, though not a named party to the earlier suit, participated in that suit by hiring counsel and defending its interests against one of the named parties, the administrator – the very party with whom the insurer later attempted to compel to arbitration. Our objection was that, by litigating in court against the party with whom it now sought arbitration, the insurer had evinced an intent to waive arbitration. See Morewitz, 62 F.3d at 1366. Here, on the other hand, Braun instigated litigation against AA based on a separate confidentiality agreement between Braun and AA. Braun never named Ivax as a party, nor did Ivax in any way participate in that litigation. Because Braun and AA had no agreement to arbitrate, the only way for Braun to recover from AA was to sue.
The only other cases before us that have involved waiver based on litigation activity have dealt entirely with litigation between the parties to the arbitration agreement. In each case, we held that the party engaging in litigation against the other party clearly appeared to forego arbitration, and instead sought to resolve the dispute in court. See S & H Contractors, 906 F.2d at 1514 (holding that the party
Much more analogous to the instant case is Usher Syndicate, Ltd. v. Figgie Int l, Inc., No. 87-1079, Oct. 22, 1987 (unpublished opinion) (S.D. Fla. 1987), in which the court determined that a party had not waived its right to arbitrate by earlier filing a suit against a third party. In Usher, one party to a reinsurance contract that contained an arbitration clause sued the other party to the contract, claiming breach. Id. When the defendant thereafter moved the court to stay the action pending arbitration, the plaintiff argued that the defendant had waived its right to arbitrate because the defendant had earlier sued a third party, an underwriter of reinsurance, on a related issue. Id. The court disagreed, stating:
It cannot be said, however, that pursuing rights against persons not party to an arbitration agreement constitutes a waiver of arbitration. The defendants in the [related litigation], not being signatories to the arbitration agreement, cannot be forced into arbitration. The only method by which the defendants could effectively enforce their rights against the [underwriter] was to file the collateral suit. It is in no manner inconsistent with their right to force the Plaintiffs in this litigation into arbitration as provided in the contract. Both rights exist in defendants; they are distinguishable and consistent because they are distinct rights as against separate parties.
Id. (citations omitted). See also Maxum Founds., Inc. v. Salus Corp., 779 F.2d 974, 982 (4th Cir. 1985) ( [T]he mere filing of a third-party complaint by a party that seeks arbitration will not permit a court to find that the right to arbitrate has been waived. ).
Ivax, however, argues that Braun s suit against AA was designed to obstruct the possibility of arbitration by preventing AA from providing Ivax with the information to which Ivax was entitled under section 2.5 of the Agreement. This argument has initial appeal; surely parties to an arbitration agreement may not evade arbitration through artful pleading, such as by naming individual agents of the party to the arbitration clause and suing them in their individual capacity. Doctor s Assocs. v. Hollingsworth, 949 F. Supp. 77, 83 (D. Conn. 1996) (quoting Mosca v. Doctors Assocs., 852 F. Supp. 152, 155 (E.D.N.Y. 1993)). Nonetheless, we believe that Braun s suit against AA was not a practice in artful pleading, but rather, was more like the suit in Usher: litigation against a third party on an issue
B.
The district court had a second reason for ruling that Braun had waived its right to arbitrate, namely that Braun had limited and eventually refused AA access to its books and records as well as to Braun s accountant s (PwC s) books and records. This conduct, the district court found, is inconsistent with a good faith intent to [arbitrate]. Braun responds that this alleged behavior is, at most, a
The district court is correct in assuming that participating in litigation is not the only way to waive the right to arbitration. See, e.g., S & H Contractors, 906 F.2d at 1514 ( A party has waived its right to arbitrate if, under the totality of the circumstances, the party has acted inconsistently with the arbitration right. ) (citation omitted). In E.C. Ernst, for example, we found waiver from the defendant s conduct, noting that, six months before the suit was filed, the defendant had stated to the plaintiff that it would file suit if the plaintiff initiated arbitration, and further observing that the defendant litigated the case with the plaintiff for two and a half years before finally requesting arbitration. See E.C. Ernst, 551 F.2d at 1040-41; see also Blake Constr. Co. v. United States, 252 F.2d 658, 662 (5th Cir. 1958) (finding waiver because the party demanding arbitration had consistently rejected the other party s earlier requests for arbitration).
Even assuming that Braun did indeed unduly limit AA s access to its books
Ivax proposes two other reasons, neither of which the district court relied upon, to find that Braun intended to waive its right to arbitrate. First, Ivax asserts that Braun denied the adequacy of Ivax’s November 21 and November 29, 2000 notices, which were sent pursuant to section 2.5(a) and set forth Ivax’s objections to Braun’s ACOI determination. Second, Ivax claims that Braun failed to negotiate in good faith on the thirtieth day of the negotiation period, refusing to attend the meeting or engage in “any substantive discussions.”
Neither reason persuades us. First of all, Braun’s objection to the inadequacy of Ivax’s notices in no way shows an intent to avoid arbitration; rather, Braun sought further information, presumably to prepare a response to Ivax’s objections. As for Ivax’s second reason, Braun participated in the conference on the thirtieth day, albeit by telephone, and claims that Ivax terminated the negotiation, a fact which remains undisputed. These two acts, to which Ivax draws
Faced with these facts, we cannot agree with the district court that Braun’s conduct expressed an intent to waive arbitration. We therefore find it unnecessary to discuss the prejudice prong of our two-part waiver test.
III.
Finding that Braun did not waive its right to arbitration does not end our inquiry, however. Ivax, with one more arrow in its quiver, argues that the instant dispute is beyond the scope of the arbitration clause in section 2.5(a);22 therefore, we should affirm the district court on that basis. Specifically, Ivax asserts that the arbitration clause carves out only a narrow circumstance over which the arbitrator
Ivax’s contention requires us to apply basic principles of contract interpretation while mindful of the federal policy in favor of arbitration. See Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054, 1057 (11th Cir. 1998). The
We have held, however, that the
With this legal background in mind, we turn to Ivax’s argument. First, we believe that Ivax’s contention that its lawsuit centers on Braun’s failure to maintain its books and records properly is belied by the complaint itself, which is more accurately viewed as a disagreement with Braun’s ACOI calculation. Furthermore,
Ivax essentially asserts that the subject of its complaint is Braun’s deliberate and bad-faith refusal to adhere to its obligation to maintain accurate books and records, an issue separate and apart from the determination of the ACOI. We believe, however, that, viewed in the context of Ivax’s other assertions, this claim does not accurately reflect the true nature of the complaint. Rather, the claim on which Ivax proposes we focus is only ancillary to the broader claim that Braun miscalculated the ACOI and improperly refused to make the two contingency payments. Indeed, in its complaint Ivax itself states that, in fiscal years 1998 and 1999, “[Braun] provided Ivax with a statement purporting to show that no [contingency] [p]ayment was due,” and “Ivax did not agree with [Braun’s] statement.” Furthermore, Ivax contends that Braun’s statements “were materially deficient” because Braun “failed to calculate [the ACOI] in accordance with section 2.4(e) of the Agreement.”
Ivax correctly points out that the complaint does allege that Braun “failed to maintain accurate and complete books,” but the enumerated paragraphs that follow this assertion clarify exactly what that means. The paragraphs catalog what Ivax
Perhaps more telling of the true nature of Ivax’s complaint is its prayer for damages, $80 million, which is the full amount of the contingency payments Ivax believes it is due for fiscal years 1998 and 1999. Ivax alleges in the complaint that
In the face of these facts, we therefore disagree with Ivax regarding the subject of its complaint. Cf. Telecom Italia, SPA v. Wholesale Telecom Corp., 248 F.3d 1109, 1113-16 (11th Cir. 2001) (construing plaintiff’s complaint, which, “[o]n its face . . . would appear to arise from the contract,” but, on closer inspection, involves claims arising under tort law that “do not involve directly the contract“). We conclude that the true thrust of Ivax’s complaint is Braun’s failure to calculate the ACOI properly – either because Braun inadequately kept its books or because it used improper accounting procedures – and consequent failure to make the contingency payments.
Such a dispute, we believe, is well within the scope of the parties’ arbitration clause. Section 2.5, entitled “Records; Inspection of Records,” sets forth an elaborate process for resolving any “dispute” involving “objections” by Ivax that it had “not been paid amounts due it.” The first paragraph of section 2.5 made it
“If such dispute cannot be resolved [in thirty days] . . . then either [Braun] or [Ivax] may cause such dispute to be submitted for determination to the Arbitrator, who shall as soon as practicable, but in any event no later than thirty (30) days thereafter, determine the disputed items using such procedures and factual investigations and determinations as the Arbitrator may reasonably deem appropriate.”
Interpreting section 2.5 “with a healthy regard for the federal policy favoring arbitration,” Moses Cone, 460 U.S. at 24, 103 S. Ct. at 941, we conclude that the phrase “such dispute,” as set out in the final portion of section 2.5(a), easily encompasses the instant lawsuit. Read in its context, “such dispute” must refer to the first sentence of section 2.5(a): disagreements that arise when “Ivax determines that it has not been paid amounts due it.” Indeed, this is the only “dispute” the section contemplates; it serves as the catalyst for the entire ACOI verification
Ivax, however, would have us find that the scope of the clause is much narrower – that it includes only disputes about whether particular accounting entries were correctly included in the ACOI determination. To reach a ruling on the disputed items, the arbitrator, according to Ivax, “would have in hand reports from the two parties’ accountants, based on complete and accurate information.” Ivax also points out that the arbitrator has only thirty days to “determine the disputed items,” meaning that the clause cannot encompass broader disputes regarding the ACOI, such as the sufficiency of Braun’s record-keeping.
We believe, however, that this interpretation makes little sense against the backdrop of the rest of section 2.5, which clearly states that, if Ivax “determines that it has not been paid amounts due it,” the parties must proceed along the agreed-upon dispute resolution process. Moreover, section 2.5(a) grants the arbitrator the power to use “whatever procedures and factual investigations” it deems necessary to determine the ACOI. Such a grant of access would be unnecessary under Ivax’s narrow interpretation, which confines the arbitrator to adjudicating disputes over proper ACOI entries based solely on “reports from the
Ivax’s interpretation of the scope of the arbitration clause makes even less sense in light of Ivax’s own conduct prior to this litigation. Indeed, Ivax engaged the agreed-upon process up to the step of arbitration, presumably because it believed that the current dispute was arbitrable. Ivax, for example, provided Braun with notices, completing the first step of the process; allowed Braun to examine its books and records, fulfilling the second requirement; sent Braun requests for changes to the arbitration procedure, indicating its belief that the dispute was arbitrable; and, proposed a negotiation on the thirtieth day of the negotiating period, initiating the process’ final step. To allow Ivax to withdraw from the dispute resolution process at this point – based on this very narrow construction of section 2.5 – would ignore the parties’ clear intention to arbitrate this very dispute.
In sum, we find that the thrust of Ivax’s complaint is a disagreement over Braun’s ACOI calculation and that such a dispute falls easily within the scope of the parties’ arbitration agreement.
IV.
Having found that Braun did not waive its right to arbitrate and that the instant dispute falls within the scope of the parties’ arbitration clause, we
SO ORDERED.
Notes
Records; Inspection of Records. [Braun] shall maintain complete and accurate books and records of account relating to the determination of the [ACOI]. Upon reasonable notice not more frequently than annually, [Ivax] shall have the right to have an Accountant of its choosing and reasonably acceptable to [Braun] examine the relevant books and records of [Braun] during normal business hours to verify that appropriate accounting and payments have been made by [Braun] under this Agreement with respect to the preceding three (3) fiscal years, to the extent not previously examined. [Braun] will cause its Accountants to provide [Ivax] s Accountants access to its work papers (excluding the proprietary materials of [Braun] s Accountants).
(a) In the event that as a result of any examination by [Ivax] pursuant to this Section 2.5 [Ivax] determines that it has not been paid amounts due it under Section 2.5 of this Agreement with respect to any preceding fiscal year, [Ivax] may provide notice to [Braun] in writing of such determination, which notice shall set forth in reasonable detail the basis for such determination and [Ivax] s specific objection(s) to [Braun] s Statement with respect to such fiscal years. [Braun] and its Accountants shall thereafter be entitled to examine the relevant working papers of [Ivax] s Accountants (excluding the proprietary materials of [Ivax] s Accountants) and the procedures carried out in connection with their examination. [Braun] and [Ivax] and their respective Accountants shall have thirty (30) days from the date [Braun] receives notification of [Ivax] s determination and objection(s) to negotiate in good faith a resolution of their dispute. If such dispute cannot be resolved within such thirty (30) day period, then either [Braun] or [Ivax] may cause such dispute to be submitted for determination to the Arbitrator, who shall as soon as practicable, but in any event no later than thirty (30) days thereafter, determine the disputed items using such procedures and factual investigations and determinations as the Arbitrator may reasonably deem appropriate; provided, however, that the Arbitrator shall be instructed to resolve such disputed items in accordance and in a manner consistent with that described in Section 2.5 hereof. The Arbitrator s determination of the disputed items shall be final and binding upon both [Braun] and [Ivax] and shall be nonappealable.
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had . . ..
A written provision in . . . a 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