Case Information
*1 Before EDMONDSON, FAY and NEWMAN [*] , Circuit Judges.
JON O. NEWMAN, Circuit Judge:
This interlocutory appeal concerns the arbitrability of a tort claim alleged to be related to a contract containing an arbitration clause. Telemedia International U.S.A., Inc. appeals from the order of the District Court for the Southern District of Florida (K. Michael Moore, District Judge), denying its motion to dismiss or alternatively to stay proceedings pending arbitration. We agree that arbitration was not required, and we therefore affirm.
Background
I. Facts
The three actors in this case are (1) Telecom Italia, SpA ("Telecom Italia"), (2) Appellant Telemedia International U.S.A., Inc. ("TMI"), a Florida corporation, which is a wholly-owned subsidiary of Telecom Italia, and (3) Appellee Wholesale Telecom Corp. ("WTC"). Telecom Italia and TMI operate telecommunications networks internationally and in the United States, respectively; WTC is a reseller of telecommunications services.
WTC, the party asserting the tort claim at issue, alleged in a third-party complaint the following facts, which we assume are true for purposes of this appeal. Beginning in July 1998, Telecom Italia began routing calls on behalf of WTC under an oral agreement. In September 1998, Telecom Italia and WTC discussed an expanded, more formal arrangement, whereby WTC would pay market rates to Telecom Italia to route calls * Honorable Jon O. Newman, U.S. Court of Appeals for the Second Circuit, sitting by designation. *2 through Telecom Italia's switch in Rome to any place in the world, and WTC would invest in expensive switching equipment to process more call volume from the United States. Telecom Italia was supposed to draw up a contract based on a written contract Telecom Italia had executed with another reseller. Instead, Telecom Italia sent WTC an agreement in October 1998 that was materially different in several respects from the template agreed to in September. WTC objected to these differences and did not sign the altered agreement.
Telecom Italia is not legally authorized to transport calls in the United States, and during the September negotiations Telecom Italia pressured WTC to lease circuits from TMI, the United States subsidiary of Telecom Italia, to get the calls from the United States to Rome. In October 1998, TMI and WTC executed a written lease of TMI's circuits for a substantial rental. The lease provides: "In the event of any dispute arising out of or relating to this service agreement, the dispute shall be submitted to and settled by arbitration in the City of New York, in accordance with the rules of the American Arbitration Association." Leases for additional circuits were signed in the next few months.
Meanwhile, notwithstanding the apparent absence of a formal, written agreement between Telecom Italia and WTC, Telecom Italia continued to provide telecommunications services to WTC from July 1998 to March 1999, and WTC made a number of costly investments in equipment and marketing on the assumption that Telecom Italia would honor the terms that were allegedly agreed to at the September 1998 meeting. WTC further alleged that during this period, the quality of service provided by Telecom Italia was seriously below the levels agreed to at the September meeting.
Telecom Italia began sending invoices to WTC in January 1999. WTC claims that these invoices were the opening salvo in a joint effort by TMI and Telecom Italia to get rid of WTC. The first invoice arrived just after a meeting between TMI and WTC, in which TMI allegedly urged WTC to terminate WTC's agreement with Telecom Italia, so that TMI could replace WTC in marketing international long distances services. Moreover, WTC alleged that the first invoice charged rates that were grossly in excess of the rates agreed to in September 1998. Telecom Italia eventually sent invoices seeking a total of more than $13 million from the period July 1998 and March 1999. Acting on its theory that the rates were grossly inflated, WTC paid only what it considered were the undisputed parts of the invoices (several hundred thousand dollars, at most).
In February 1999, Telecom Italia responded by terminating WTC's use of two of the three TMI circuits needed to route calls to Rome. In March, Telecom Italia terminated WTC's use of the last TMI circuit, *3 effectively shutting WTC down. Telecom Italia had been WTC's sole provider of telephone services.
II. Procedural History
In March 1999, Telecom Italia filed a complaint against WTC in the District Court, alleging breach of contract, based on WTC's failure to pay Telecom Italia's $13 million worth of invoices for calls made between July 1998 and March 1999. In August 1999, WTC answered Telecom Italia's complaint, and counterclaimed against Telecom Italia. The counterclaim alleged the events described above: the oral agreement in place in summer 1998, the September 1998 "agreement" that was never successfully executed, the large investments by WTC in reliance on the September agreement, and finally the written, fully executed leases with TMI, entered into at Telecom Italia's insistence. The counterclaim alleged that Telecom Italia breached the price, quality, and prompt invoicing terms of the September agreement. The counterclaim also alleged that Telecom Italia caused TMI to increase the rate for use of its circuits, and that Telecom Italia caused its subsidiary, TMI, to terminate WTC's access to the TMI circuits in March 1999. The counterclaim alleged breach of contract, "fraud in the inducement," and a "conspiracy" between Telecom Italia and TMI to put WTC out of business.
In September 1999, WTC filed a third-party complaint against TMI, alleging two causes of action—tortious interference with contract and civil conspiracy. The third-party complaint alleges that TMI tortiously interfered with WTC's contract with Telecom Italia. The basic accusation was that TMI and Telecom Italia had colluded to blind-side WTC with demands for payments in unexpected amounts, so as to induce WTC to abandon or breach its contract with Telecom Italia, and to enable TMI to sell long-distance services directly to the market that WTC had invested so much to develop. These unexpectedly onerous demands for payment were included in the TMI-WTC contract itself, in conditions later added to the contractual arrangement, and in Telecom Italia's grossly excessive and delayed invoices to WTC. Specifically, TMI allegedly took the following actions with Telecom Italia's knowledge and support, all in an attempt to drive WTC away from its contract with Telecom Italia:
! Under the circuit lease, TMI charged grossly excessive rates for use of TMI circuits, taking advantage
of an earlier agreement between WTC and Telecom Italia that allegedly permitted TMI to set its rates unilaterally.
! TMI demanded payment of an onerous security deposit to TMI after the first circuit had already been
activated. The intent of these excessive rate and security deposit demands was "to make WTC's performance of its contract with Telecom Italia expensive and burdensome, and with the intent to cause WTC to be forced to withdraw from its contractual relationship with Telecom Italia." It is unclear whether this security deposit is actually part of the express terms of the circuit contract.
! "Telecom Italia, acting in concert with TMI, wrongfully terminated WTC's access" to the TMI
circuits in February and March 1999. ! TMI persuaded Telecom Italia to delay in the submission of invoices to WTC, and to inflate those
invoices, so as to shock WTC and persuade WTC to abandon its contract with Telecom Italia. Telecom Italia allegedly sent its first invoice to WTC immediately after a January 1999 meeting between TMI and WTC, at which TMI urged WTC to withdraw from its contract with Telecom Italia, so that TMI could take WTC's place.
TMI moved to dismiss the third-party complaint on the ground that WTC failed to state a claim, or alternatively to stay proceedings pending arbitration because the circuit lease contract between TMI and WTC required arbitration of all disputes "arising out of or relating to this service agreement." The District Court granted the motion to dismiss in part. Judge Moore ruled that the third-party complaint failed to state a claim for civil conspiracy on which relief could be granted, but upheld the sufficiency of the tortious interference claim. He further ruled that the third-party complaint was not subject to the arbitration clause in the TMI- WTC contract, because the allegations concerned tortious interference with the Telecom Italia-WTC contract, which lacked an arbitration clause:
On its face, the Third-Party Complaint would appear to arise from the contract between TMI and WTC, thus potentially subjecting the claims for tortious interference and conspiracy to arbitration under the [Federal Arbitration Act]. However, as alleged, the claims set forth within the Third-Party Complaint do not involve directly the contract between TMI and WTC. Rather, the claims are based on allegations of tortious interference and conspiracy relating to the disruption of a separate contract—specifically that between WTC and Telecom Italia. WTC has not alleged a claim for breach of contract by TMI.
Furthermore, because of the close relationship between the facts and claims at issue in the litigation currently proceeding between Telecom Italia and WTC, the interests of judicial economy would seem to be served best through the adjudication of WTC's third-party complaint by this Court. TMI filed a notice of appeal and has asserted interlocutory appellate jurisdiction under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 16(a)(1)(A). WTC moved to dismiss the appeal, contending that there was no appellate jurisdiction. A panel of this Court ordered additional briefing on jurisdiction, and referred the jurisdictional inquiry to this panel.
Discussion
I. Jurisdiction
Under 9 U.S.C. § 16(a)(1)(A), an appeal may be taken from an order "refusing a stay of any action under section 3 of this title." In turn, 9 U.S.C. § 3 provides:
If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to 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.
In this case, TMI's motion in the District Court sought dismissal of the complaint to allow arbitration
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to proceed, and alternatively sought a stay pending arbitration. Denial of the alternative relief was appealable
under section 16(a)(1)(A).
See Paladino v. Avnet Computer Technologies, Inc.,
Absent some violation of public policy, a federal court must refer to arbitration any controversies
covered by the provisions of an arbitration clause.
Chastain v. Robinson-Humphrey Co.,
The arbitration clause relied on by WTC calls for arbitration of "any disputes arising out of or relating
to" the lease between WTC and TMI. Although this language is broad, it is not as broad as a clause requiring
arbitration of "any dispute between them or claim by either [party to the contract] against the other."
Brown
v. ITT Consumer Financial Corp.,
The first bar to arbitrability is based on the notion that parties to an arbitration agreement should be compelled to arbitrate only those torts contemplated by the arbitration agreement. Unfortunately, the standard arbitration clause found in most commercial contracts broadly states that "any controversy or claim arising out of, or relating to this agreement, or the breach thereof[,]" shall be settled by arbitration. If one party commits a tort against the other, the inevitable question is whether this broad, general language of the arbitration agreement is sufficient to encompass tort claims. The longstanding rule is that where the arbitration clause is broad, the tort claim will be arbitrable if the claim is either directly or indirectly related to the subject matter of the contract.
Joseph T. McLaughlin, Arbitrability: Current Trends in the United States, 59 Alb. L.Rev. 905, 932 (1996) (emphasis added) (footnotes omitted). The question remains: when is a dispute "related to" the "subject matter" of the contract?
The case law yields no clear answer. We have required arbitration where the tort could not have
*6
occurred but for a breach of contract. In
Gregory v. Electro-Mechanical Corp.,
In other cases, however, we have rejected claims that an arbitration clause in a contract covered a
dispute concerning another contract claim or a tort claim, each of which was claimed to be related to the
contract requiring arbitration. In
Seaboard Coast Line Railroad Co. v. Trailer Train Co.,
1 Other circuits have grappled with the problem in the context of a joint venture arrangement (with an
"arising out of or related to" arbitration clause), which one party circumvents by hiring away the other
party's key employees; the injured party claims tortious interference with the employment contracts, and
the defendant invokes the arbitration clause of the joint venture agreement. Some courts rule that in such
a situation the tortious interference claim arises out of or is related to the joint venture agreement.
See
Kiefer Specialty Flooring, Inc. v. Tarkett, Inc.,
It is possible to harmonize the results in these four cases by focusing on whether the tort or breach in question was an immediate, foreseeable result of the performance of contractual duties. Disputes that are not related—with at least some directness—to performance of duties specified by the contract do not count as disputes "arising out of" the contract, and are not covered by the standard arbitration clause. Thus in Texaco, Texaco had no right under its charter with American Trading to obtain safe operation of the chartered vessel; in Seaboard, Seaboard had no right under its license contract (the one with the arbitration clause) to obtain the documentation it was demanding under the lease contract (the one without the arbitration clause). However, where the dispute occurs as a fairly direct result of the performance of contractual duties—as was the case with the supervisor's harassment of the other contractor in McBro, or with the intentional failure to perform the contract in Gregory, then the dispute can fairly be said to arise out of or relate to the contract in question, and arbitration is required.
With this approach in mind, we conclude, in agreement with the District Court, that WTC's tortious interference claim neither arises out of nor is related to WTC's lease with TMI. WTC alleged that TMI pressured Telecom Italia to induce Telecom Italia to use its rates and billing practices to destroy WTC. Even if TMI can be shown at trial to have tortiously interfered with Telecom Italia's contract with WTC, there is no claim that TMI's performance of its contract with WTC was designed to, expected to, or likely to exert any pressure on Telecom Italia, unlike the harassment in McBro, which occurred as a result of the performance of a contractual duty. TMI's alleged pressure could have been exerted on Telecom Italia even if TMI had no contractual relationship with WTC.
TMI contends that the requisite relationship between the interference tort and the WTC-TMI contract
is shown by the allegations of WTC's third-party complaint that TMI charged WTC excessive lease rates,
demanded unjustified security deposits, and wrongfully terminated the circuit leases. Although these claims,
prerequisite to entry into the joint venture agreement);
American Recovery v. Computerized Thermal
Imaging,
if alleged as causes of action, would plainly be arbitrable as "related to" the WTC-TMI contract, their recitation in support of the claim that TMI interfered with WTC's contract with Telecom Italia does not suffice to make the interference claim arbitrable.
At most, TMI's allegedly unfair contract terms would show only that TMI was hostile to WTC and perhaps had a motive to influence Telecom Italia to injure WTC. But if a tort claim were arbitrable simply because terms in a contract with an arbitration clause were sufficiently harsh to show one party's motive to injure the other party, the scope of arbitration would extend far beyond the reasonable expectation of the contracting parties. On this theory, for example, an animus evidenced by harsh terms in a contract (with an arbitration clause) between two parties would render arbitrable an antitrust claim by one contracting party that the other party had joined with other companies in an unreasonable agreement in restraint of trade to injure the claimant. Arbitrability of the tortious interference claim is not required simply because some of TMI's contract terms were unfavorable to WTC.
In affirming the District Court's judgment, we decline to endorse its suggestion that arbitration is not
appropriate in this case because it would inefficiently result in bifurcated proceedings. If otherwise required,
arbitration must be ordered "even where the result would be the possibly inefficient maintenance of separate
proceedings in different forums."
Dean Witter Reynolds v. Byrd,
Conclusion
The order of the District Court denying arbitration is AFFIRMED.