ORDER
Based upon the Report and Recommendation of United States Magistrate Judge Raymond L. Erickson, and after an independent review of the files, records and proceedings in the above-titled matter, it is—
ORDERED:
1. That the Defendants’ Motion to Dismiss, or in the alternative to Compel Arbitration and Stay Litigation [Docket Ño. 2] is granted in part, and denied in part.
2. That the Plaintiffs’ claims against Defendant Luis Silva for breach of contract, which are contained in Count V of their Complaint, is referred to arbitration as set forth in the arbitration provisions which are contained in the Member Control Agreement, and the Employment Agreement.
3.That the portion of this action, which encompasses the Plaintiffs’ claims against Luis Silva for breach of contract, is stayed until such time as an arbitration award has been rendered on said claims.
ORDER and REPORT AND RECOMMENDATION
I. Introduction
This matter came before the undersigned United States Magistrate Judge pursuant to a general assignment, made in accordance with the provisions of Title 28 1J.S.C. § 636(b)(1)(A) and (B), upon the Defendants’ Motion to Dismiss, or in the alternative, to Stay Litigation and Compel Arbitration.
A Hearing on the Motions was conducted on September 28, 1998, at which time the Plaintiffs appeared by Jeffrey E. Grell, Esq., and the Defendants appeared by Christopher M. Daniels, Esq. (“Daniels”). 1
For reasons which follow, we recommend that the Motion be granted, in part, that Silva-Simitar Entertainment, LLC’s (“Silva-Simitar’s”) and Simitar Entertainment, Inc.’s (“Simitar Entertainment’s”) claims against Defendant Luis Silva (“Silva”), for breach of contract, be referred to arbitration, pursuant to the agreement of those parties to arbitrate such disputes, and that those claims be stayed pending the outcome of the arbitration. We recommend that the Motion be denied in all other respects, and that all of the Plaintiffs’ claims against Defendant Silva Entertainment, Inc. (“Silva Entertainment”), and that the remainder of their claims against Silva personally, be allowed to proceed.
II. Factual and Procedural Background
This case arises from a joint business venture between the parties to exploit the Conjunto, Tejano, and popular Mexican
Having been convinced that a partnership with Silva Entertainment would be advantageous, Simitar Entertainment entered a Member Control Agreement with Silva Entertainment, which formed Silva-Simitar, a new limited liability company under Minnesota law. Among its various provisions, which governed the management of the company, the Member Control Agreement provided, in pertinent part, for the arbitration of certain disputes between Silva Entertainment and its constituent members, as follows:
Arbitration: If any controversy or claim arising out of this Agreement cannot be settled by the parties hereto and, if applicable, the Company (the “disputants”), the controversy or claim shall be submitted to arbitration ***. Notwithstanding the foregoing, no disputant shall be required to seek arbitration regarding any cause of action that would entitle such disputant to injunctive relief.
Each of the disputants shall be entitled to present evidence and argument to the arbitrator. The arbitrator shall have the right only to. interpret and apply the provisions of this Agreement (including other applicable agreements) and may not change any of such provisions.
Member Control Agreement ¶ 16.14, Affidavit of Jeffrey E. Grell, Ex. A.
On the same day, on which the Member Control Agreement was effected, Silva entered an Employment Agreement with the newly formed limited liability company, which governed Silva’s employment relationship with Silva-Simitar. The Employment Agreement also contains an arbitration provision, the terms of which vary from the arbitration clause contained in the Member Control Agreement. As relevant to the Motions before us, the arbitration clause, which is contained in the Employment. Agreement, provides as follow:
(a) [Silva and Silva-Simitar] agree that any controversy, dispute or claim of any nature between [Silva and Silva-Simitar] *** which may arise under this Agreement, shall' be determined by arbitration. Any arbitration under this arbitration Agreement shall *** offer the same degree of relief available to the parties through the courts.
(b) This arbitration Agreement shall apply to any controversy, dispute or claim arising from events which occurred pri- or, on or subsequent to the execution of this arbitration Agreement. This arbitration Agreement shall be interpreted according to the laws of the State of Minnesota.
Employment Agreement ¶ 11, Grell Aff, Ex. B.
Thus, Silva Entertainment, Simitar Entertainment, and Silva-Simitar, are all bound by the arbitration clause of the Member Control Agreement, while Silva-Simitar, and Silva, are parties to the somewhat different arbitration provisions that are set forth in the Employment Agreement.
Alleging that Silva and Silva Entertainment fraudulently induced, and then unlawfully exploited, the contractual relation
In this action, the Plaintiffs charge that Silva and Silva Entertainment are each liable under ten statutory and common law causes of action: 1) two Counts of liability under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), Title 18 U.S.C. §§ 1961-1968, for engaging in a conspiratorial scheme to commit mail and wire fraud; 2) a violation of the Minnesota Deceptive Trade Practices Act, Minnesota Statutes Section 825D.Uk', 3) common law fraud or misrepresentation; 4) a breach of contract; 5) tortious interference with contractual relationship; 6) a breach of fiduciary duty; 7) a theory respondeat superi- or to impute liability for Silva’s conduct to Silva Entertainment; 8) unjust enrichment; and 9) conversion. On August 5, 1998, Silva filed, on his and Silva Entertainment’s behalf, an ostensible pro se Motion to Dismiss or, in the alternative, to Stay Litigation and Compel Arbitration. The Plaintiffs oppose the Motion.
III. Discussion
A. Parties and Issues Properly Before the Court.
Before we examine the merits of the Defendants’ Motion, we first address the Plaintiffs’ argument that Silva cannot personally appear on behalf of Silva Entertainment, and that, therefore, no Motion, or other responsive pleading, has effectively been filed on behalf of Silva Entertainment, which is a corporation. It is settled that “the law does not allow a corporation to proceed
pro se.” Ackra Direct Marketing Corp. v. Fingerhut Corp.,
Regardless of his status, as an owner, director, or officer of Silva Entertainment, Silva’s pro se Motion is inoperative with respect to Silva Entertainment, which has yet to effectively respond to the Plaintiffs’ Complaint. As we have noted, however, an attorney — Daniels—purported to appear on behalf of both Defendants, at the Hearing on the Motions. At the commencement of the Hearing, Daniels made the following statement:
I’m representing Mr. Silva today and the corporation. I hope that takes care of the issue.
Hearing Transcript (“Tran. ”) at 4, [Docket No. 10].
The Plaintiffs’ attorney responded that he had no objection to Daniels’ representation of Silva Entertainment, “so long as we received a notice of appearance or some
Daniels’ oral representation is insufficient to bring Silva Entertainment’s position before the Court. Rule 11, Federal Rules of Civil Procedure, requires that every Motion which is filed in a Federal District Court, be signed by the party, or an attorney of record. “Rule 11 imposes a duty on attorneys to certify [by their signature] that they have conducted a reasonable inquiry and have determined that any papers filed with the court are well grounded in fact, legally tenable, and not interposed for any improper purpose.”
Cooter & Gell v. Hartmarx Corp.,
1. Standard of Review.
Congress enacted the Federal Arbitration Act,
Title 9 U.S.C. § 1, et seq.,
“to reverse judicial hostility to arbitration agreements and to place arbitration agreements on equal footing with other contracts.”
Keymer v. Management Recruiters Int’l, Inc.,
Since there is no dispute, that Silva’s agreement with Silva-Simitar falls within the scope of the FAA, our analysis proceeds with a two-part inquiry. See,
Alamria v. Telcor Int’l, Inc.,
2. Legal Analysis.
a. Valid Agreement to Arbitrate.
In deciding whether the Plaintiffs, and Silva, had agreed to submit their disputes, which are specified in the Plaintiffs Complaint, to arbitration, we must be satisfied that a valid agreement to arbitrate exists between the parties.
Id.
at 1156-57;
Patterson v. Tenet Healthcare, Inc.,
b. Arbitrability of the Plaintiffs’ Claims.
We look to principles of Minnesota contract law in order to determine whether the parties agreed to submit their present claims to arbitration. Maintaining, at the forefront of the analysis, “a healthy regard for the Federal policy favoring arbitration,” we adhere to the Supreme Court’s instruction that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.”
Moses H. Cone Memorial Hosp. v. Mercury Construction Corp.,
supra at 24-25,
i. Conflicts between the Arbitration Clauses.
The issues that are presented, by Silva’s attempt to simultaneously enforce two arbitration clauses, are somewhat perplexing. The terms employed by the two provisions reflect substantial differences in the scope of disputes that are properly arbitrable. The agreement to arbitrate, which is set forth in the Employment Agreement, uses broad language, and is
The parties’ briefs each seize, respectively, upon the expansive, or the limiting language in the arbitration agreements, so as to support their personally tailored interpretations of the breadth, or attenuation, of the scope of arbitrability, without discussing the interplay between the two agreements to arbitrate, which were executed on the same day, and in the same business transaction. Minnesota law holds that, in general, “[contracts in several writings relating to the same transaction will be construed with reference to each other.”
Anderson v. Kammeier,
Member Control Agreement This agreement has been entered into in conjunction with the Member Control Agreement, entered into between Simi-tar Entertainment, Inc. and Silva Entertainment, Inc. ***. In the event that any of the terms and provisions of this Agreement conflict with or contravene the terms or provisions of the Member Control Agreement, the terms and provisions of the Member Control Agreement shall be deemed to be controlling.
Employment Agreement ¶ 12(d) [emphasis added].
The disputes at issue implicate both arbitration agreements, as they have arisen under both contracts, and they create a conflict between the operation of both. Therefore, paragraph 12(d) requires that the Employment Agreement’s arbitration provision to yield to the limitations set forth in its counterpart, as set forth in the Member Control Agreement. Accordingly, we construe both arbitration clauses jointly, and we apply all of the restrictions, on the parties’ agreement to arbitrate, that are set forth in Section 16.14 of the Member Control Agreement.
ii. Significance of the Use of “Arising out of’ and “Arising under” as Opposed to “Relating to” upon the Scope of Arbitrability.
The Plaintiffs contend that the employment of the clauses, which require the submission, to arbitration, of disputes “arising out of,” or “which may arise under,” the Member Control and Employment Agreements, means that only the contract claims are arbitrable, and that their other common law, and statutory claims, are beyond the purview of the arbitration because those did not, strictly speaking, “arise out of,” or “under,” the contracts themselves. In this respect, they underscore that the Supreme Court, and Eighth Circuit cases, which uphold a broad, extra-contractual application of agreements to arbitrate, have arisen from
Several Courts in other jurisdictions, however, have attached a significance to the absence of the term “relating to,” as revealing the parties’ intent to narrow the scope of the disputes that were covered by an arbitration clause. The reasoning of these Courts is characterized by a view that the absence of “relating to” is a product of an intentional omission of the term, and reflects the parties’ intent that the arbitration agreement have a narrow application.
For example, the Ninth Circuit holds, that “an arbitration clause that cover[s] disputes ‘arising under’ [or .‘arising out of] an agreement, but omit[s] reference to claims ‘relating to’ an agreement, coverfs] only those disputes ‘relating to the interpretation and performance of the contract itself.’ ”
Tracer Research Corp. v. National Environmental Services Co.,
Other Circuits, specifically the Eleventh and Seventh, have rejected this approach, and have held that the terms “arising out of,” “arising under,” and “arising hereunder,” are sufficiently broad so as to encompass all claims that are germane to the subject matter of the contract, and not merely those that sound in contract. See,
Gregory v. Electro-Mechanical Corp.,
For that same reason, we believe that an interpretation of “arising under,” or “arising out of,” should be as broad as that applied to “arising out of or relating to,” and we respectfully reject the holdings of
Tracer Research Corp.,
and of
In re Kinoshita,
are lending little deference to the presumption of arbitrability, which has been mandated by the Supreme Court. At most, the omission of “relating to,” from these arbitration clauses, creates an ambiguity as to the scope of the arbitrability, which must be resolved, absent some other showing, in favor of arbitration. See,
Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ.,
iii. Effect of Express Limitations on Arbitrator’s Authority to Decide Claims.
The express limitation upon the arbitrator’s authority, which restricts the arbitrator to the mere interpretation and application of the contractual provisions, and the express exclusion of claims for injunctive relief, leaves no room to doubt that the parties intended to limit the scope of arbitration to contractual claims that did not involve requests for injunctive relief. In a practical sense, an arbitration agreement operates as no more than a specialized choice-of-forum provision, which has the effect of identifying the “situs of the suit,” as well as the procedures that govern its resolution. See,
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
We cannot, therefore, construe the language of the arbitration agreements to mean that the Plaintiffs agreed to submit all of their contractual and statutory claims to an arbitrator, but that their avenues of relief would be limited to damages for a breach of contract. Such an interpretation would suggest that the parties agreed to submit, to arbitration, matters that the arbitrator could not decide, which would amount to a de facto waiver of the substantive rights that are afforded by State and Federal law. Given the beneficial, public purposes, that are served by arbitration, such an interpretation would be untenable.
In a closely paralleling case, the Eleventh Circuit examined an arbitration agreement whose scope was defined in two somewhat inconsistent clauses. See,
Paladino v. Avnet Computer Technologies, Inc.,
A more straightforward approach, in interpreting an identical arbitration provision, was employed by the District of New Mexico, in
Alcaraz v. Avnet, Inc.,
As noted by the Mitsubishi court, “[n]othing *** prevents a party from excluding statutory claims from the scope of an agreement to arbitrate.” Mitsubishi [Motors Corp. v. Soler Chrysler-Plymouth, Inc., supra at 628,105 S.Ct. 3346 ]. By including the above language in the Agreement, Avnet has done just that. If by the terms of the Agreement, the arbitrator has no authority to award any damages under Title VII or the ADEA, then the parties did not intend to submit Title VII or ADEA claims to arbitration. An employee can only be required to arbitrate claims if s/he has contracted to do so. Armijo [v. Prudential Ins. Co.,72 F.3d 793 , 797 (10th Cir.1995) ] (citing Gilmer v. Interstate/Johnson Lane Corp., supra at 35,111 S.Ct. 1647 ).
Id. at 1027-28.
Applying this reasoning here, we conclude that the parties have agreed to arbitrate only those matters which fall within the circumscribed jurisdiction of the arbitrator — namely the interpretation and application of the Member Control Agreement, and the Employment Agreement, and which do not involve claims for injunctive relief.
Therefore, of the claims asserted against Silva, only Count V, which alleges a breach of contract, is subject to mandatory arbitration, while the remaining Counts, each of which requires an assessment of the Defendants’ conduct under Federal and State law, are beyond the scope of the parties’ arbitration provisions. As a consequence, we recommend that the Plaintiffs’ breach of contract claims against Silva, which are presented in Count V of their Complaint, be referred to an arbitrator, pursuant to the arbitration provisions in the Member Control Agreement, and the Employment Agreement.
c. Stay of Proceedings.
Once a Court has determined, that, a dispute falls within the scope of an arbitration agreement, the proceedings in the case, on the issues referable to arbitration, must be stayed pending the completion of arbitration. See,
Title 9 U.S.C. § 3; Keymer v. Management Recruiters Int’l, Inc.,
supra at 1156;
Houlihan v. Offerman & Co.,
We cannot discount the effect, upon the nonarbitrable claims, that an arbitrator’s interpretation of the Member Control Agreement, and of the Employment Agreement, may have, for it may well influence the issues that remain for resolution. Nevertheless, much of this lawsuit is premised upon an asserted fraud in the making of the contracts, themselves, and, therefore, it cannot be fairly said that the breach of contract claims against Silva predominate over that claims that involve a fraudulent conspiracy under RICO, deceptive trade practices, fraud, tortious interference with contractual relationships, breach of fiduciary duties, unjust enrichment, and conversion. Accordingly, we recommend that only the Plaintiffs’ claims against Silva, in Count V, should be stayed pending arbitration.
NOW, THEREFORE, It is—
ORDERED:
That the Defendant Silva Entertainment shall serve and file an Answer, or other responsive pleading, or advise the Court of good cause why it cannot, within 20 days of the date of this Order and Report and Recommendation, or the Court will recommend the entry of default against it.
RECOMMENDED:
1. That the Defendants’ Motion to Dismiss, or in the alternative to Compel Arbitration and Stay Litigation [Docket No. 2] be granted in part, and denied in part.
2. That the Plaintiffs’ claims against Defendant Luis Silva for breach of contract, which are contained in Count V of their Complaint, be referred to arbitration as set forth in the arbitration provisions which are contained in the Member Control Agreement, and the Employment Agreement.
3. That the portion of this action, which encompasses the Plaintiffs’ claims against Luis Silva for breach of contract, be stayed until such time as an arbitration award has been rendered on said claims.
NOTICE
Pursuant to Rule 6(a), Federal Rules of Civil Procedure, D. Minn. LRl.l(f), and D. Minn. LR72.1(c)(2), any party may object to this Report and Recommendation by filing with the Clerk of Court, and by serving upon all parties by no later than March 5, 1999, a writing which specifically identifies those portions of the Report to which objections are made and the bases of those objections. Failure to comply with this procedure shall operate as a forfeiture of the objecting party’s right to seek review in the Court of Appeals.
If the consideration of the objections requires a review of a transcript of a Hearing, then the party making the objections shall timely order and file a complete transcript of that Hearing by no later than March 5, 1999, unless all interested parties stipulate that the District Court is not required by Title 28 U.S.C. § 636 to review the transcript in order to resolve all of the objections made.
February 18,1999.
Notes
. For reasons delineated in the text of this Order and Report and Recommendation, Christopher M. Daniels, Esq., did not effectively appear on behalf of either Defendant.
.
Silva Entertainment, Inc. (“Silva Entertainment”), having never responded to the Plaintiffs Complaint, has technically been in default since late July of 1998. See,
Rule 12(a)(1), Federal Rules of Civil Procedure.
Silva Entertainment is directed to serve and file an Answer, or other responsive pleading, or advise the Court of good cause why it cannot, within 20 days of the date of this Order and Report and Recommendation. If the corporation fails abide by this directive, the Court will be compelled to recommend the entry of a default against it. See,
Hall v. T.J. Cinnamons, Inc.,
. The Plaintiffs also argue that the Defendants have waived their right to arbitration by failing to demand arbitration' and, instead, by threatening litigation in a judicial forum. According to the law of this Circuit, a party waives its right to demand arbitration when: 1) it has knowledge of an existing right to arbitration; 2) it undertakes conduct inconsistent with that right; and 3) the party opposing arbitration suffers prejudice.
Hunt v. Up North Plastics, Inc.,
Here, the Plaintiffs have shown that the Defendants conducted themselves in a manner that is inconsistent with a known right to arbitration but, given the fact that this Motion was filed in lieu of an Answer and, that the case is in its infancy, there is no demonstrable prejudice to support a finding that the Defendants have waived their right to arbitration.
. We note that the
Keymer
decision, from which we quote, has been vacated, and superseded, by an opinion which has yet to be published, and which is not accessible on Westlaw. See,
Keymer v. Management Recruiters Int’l, Inc.,
. Although the issue was not raised by the parties, it is not entirely clear that Luis Silva ("Silva”) would have standing to enforce the Member Control Agreement's arbitration provision, as he was not a signatory to that Agreement. This issue arises only because Silva Entertainment has ineffectively responded to the Complaint, and has not filed a Motion to enforce that arbitration agreement. The general rule is that one, who is not a party to a contract, has no standing to compel arbitration.
Britton v. Co-op Banking Group,