Argued January 14, 2015.
Appeal from the United States District Court for the Southern District of Ohio at Dayton. No. 3:92-cv-00333--Walter H. Rice, District Judge.
Sally J. Scott, FRANCZEK RADELET, P.C., Chicago, Illinois, for Appellant.
Sarah A. Zumwalt, GROOM LAW GROUP, CHARTERED, Washington, D.C., for Appellee.
Sally J. Scott, David P. Radelet, Abizer Zanzi, William R. Pokorny, FRANCZEK RADELET, P.C., Chicago, Illinois, David P. Pierce, COOLIDGE WALL CO., L.P.A., Dayton, Ohio, for Appellant.
Sarah A. Zumwalt, Edward A. Scallet, GROOM LAW GROUP, CHARTERED, Washington, D.C., Kevin L. Murphy, GRAYDON HEAD & RITCHEY LLP, Fort Mitchell, Kentucky, for Appellee.
Before: SUHRHEINRICH, CLAY, and ROGERS, Circuit Judges. ROGERS, J., delivered the opinion of the court in which SUHRHEINRICH, J., joined. CLAY, J. (pp. 15--23), delivered a separate dissenting opinion.
ROGERS, Circuit Judge.
This appeal concerns whether a particular contract-interpretation dispute involving corporate structure is subject to the provision in the contract for arbitration by an accounting firm, and also whether the party seeking arbitration waived its right to arbitrate through its conduct before and during litigation. Under a consent decree in a lawsuit relating to employee retirement benefits, Navistar makes annual contributions to a Supplemental Benefit Trust managed by a Supplemental Benefit Committee (SBC). The size of Navistar's contributions is determined by a formula provided in the agreement that takes as inputs data on Navistar's economic performance, and Navistar must under the agreement regularly provide data to the SBC to permit it to evaluate whether Navistar is applying the formula correctly. The agreement provides for arbitration before an accounting firm in the event that the SBC disputes the " information or calculations" Navistar provides to it. The SBC intervened in the original lawsuit, ultimately claiming that Navistar was improperly classifying various aspects of its business activities and structuring its business so as to evade its profit-sharing obligations under the agreement. Navistar claimed that under the accountant arbitration mechanism provided for in the agreement, which applies to disputes over the " information or calculations" provided by Navistar, the SBC's claims were subject to arbitration. The district court correctly agreed with Navistar that the claims were subject to arbitration. However, contrary to the district court's ruling, Navistar's conduct before and during litigation did not amount to a waiver of its right to arbitrate the claims. Arbitration is therefore required.
The arbitration clause at issue is contained in a settlement agreement and consent decree in a class action lawsuit ( Shy et al. v. Navistar International Corporation ) relating to Navistar's obligations to its retired employees. As part of the agreement and consent decree, Navistar had an obligation to make yearly profit-sharing payments to a Supplemental Benefit Trust. The agreement created the SBC as the fiduciary and administrator of the Supplemental Benefit Trust. The methods for calculating and enforcing Navistar's obligation were outlined in a Profit Sharing Plan (Plan) attached as an appendix to the agreement and decree. Section 8 of the Plan required a regular report by Navistar to the SBC of financial information
necessary to confirm that Navistar was making contributions in the amounts required by the plan. Section 8 also contains a dispute resolution clause that requires disputes over the " information or calculation[s]" provided by Navistar to be referred for binding determination to an accountant (or other neutral decisionmaker) chosen by the parties. In full, the clause provides:
8.4. If, following a review of the information and calculations provided pursuant to Sections 8.1, 8.2, and 8.3 the [SBC] disputes such information or calculation[s], it shall inform the Company of such dispute within 30 calendar days of the receipt by the UAW and the [SBC] of such information. The Company and the [SBC] shall thereafter attempt, for a period not to exceed 30 calendar days, to resolve such dispute.
8.4.1. If such dispute cannot be resolved during that period, the parties to that dispute will attempt to identify a mutually acceptable third party (such as an accounting firm) to resolve such disputes.
8.4.2. If the parties to such dispute cannot identify a mutually acceptable third party to resolve such dispute, the parties to such dispute shall obtain a list of the seven largest accounting firms, measured by the number of certified public accountants practicing in the United States. The Company and the [SBC] shall then alternately, beginning with the Company, strike one name off such list until only one name remains. The remaining firm shall be empowered to resolve the dispute.
8.4.3. Following selection of the party to resolve the dispute as provided in Section 8.4.1 or 8.4.2, the parties to the dispute shall present evidence and argument in support of their position and the individual or firm shall render a decision which shall be final and binding on all parties to the dispute.
On July 2, 2009, the SBC sent Navistar a letter requesting additional financial information and disputing Navistar's classification of Medicare Part D subsidies in its calculations of its profit sharing obligations. On August 3, 2009, Navistar replied, providing at least some of the requested information and declining to pursue dispute resolution over the Medicare subsidy classification issue on the grounds that reclassifying the subsidies would not affect Navistar's overall obligations. On May 4, 2010, the SBC formally requested that Navistar arbitrate the Medicare subsidy issue and additionally requested other financial information. It appears that Navistar did not respond directly, but instead provided updated financial information (without directly addressing the SBC's requests for arbitration and information) on April 6, 2011. On November 14, 2011, the SBC again requested more detailed financial information and threatened to go to court if Navistar failed to provide it. On February 15, 2012, Navistar replied to the SBC, listing general and itemized objections to the SBC's information requests. Navistar also noted that it had not specifically responded to the SBC's May 4 request because its response depended on ongoing litigation with the original parties to the Shy agreement.
On March 23, 2012, the SBC filed a motion to intervene in the Shy litigation, followed shortly by a motion to enforce the settlement agreement, seeking an order requiring Navistar to provide the information the SBC had requested. On April 13, 2012, Navistar filed a motion for extension of time seeking the court's permission to delay Navistar's response to the SBC's motion to enforce until after the court ruled on the SBC's motion to intervene.
On April 25, 2012, Navistar filed a response to the SBC's motion to intervene, arguing that the SBC's intervention was not proper. On February 6, 2013, the district court granted the SBC's motion to intervene with instructions for the SBC to file a complaint, which it did on February 15, 2013. On March 11, 2013, Navistar filed a response to the SBC's motion to enforce, as well as a motion to dismiss the SBC's subsequent complaint, arguing for the first time, among other things, that the SBC's requests for information were subject to the alternative dispute resolution procedures outlined in the Plan. On March 29, 2013, the district court sustained the SBC's motion to enforce, finding that its dispute over what information Navistar had to provide under the Plan was not subject to the alternative dispute resolution procedures, and ordering Navistar to provide the information requested by the SBC. After Navistar provided this information, the SBC on August 21, 2013 filed a motion to amend its complaint, charging that Navistar had manipulated its corporate structure and accounting analysis to eliminate its profit-sharing obligations, in violation of the terms of the Plan. In particular, the SBC alleged the following four violations:
(1) forming entities which [Navistar] then treats as acquired businesses [treated more favorably from Navistar's point of view under the Plan] and then reallocating their revenues or not properly or completely allocating costs and expenses among the Covered Operations; (2) excluding dividends and similar payments from the calculation of Qualifying Profits; (3) excluding . . . Medicare Part D subsidy payments from the calculation of Qualifying Profits; and (4) failing to exclude Bonus Eligible employees from the calculation of Qualifying Hours.
After the district court granted leave to amend, Navistar moved to dismiss the SBC's amended complaint on the ground that the questions it raised were subject to arbitration under the Plan.
On March 6, 2014, the district court denied Navistar's motion to dismiss the SBC's amended complaint. The district court found that in all of the allegations in the amended complaint, the SBC was disputing the " information or calculations" provided by Navistar, and that therefore these claims fell under the scope of the arbitration clause. However, the court also held (although the SBC had not argued) that Navistar had waived its right to arbitrate those questions through its behavior before and during litigation. In particular, the court noted Navistar's reluctance to enter into arbitration over the Medicare subsidy payments prior to litigation, and the fact that Navistar did not seek to arbitrate the SBC's first claim requesting information until after the court granted the SBC's motion to intervene. The court found that these decisions were " completely inconsistent with any reliance on the Plan's dispute resolution procedures," and also caused a delay that prejudiced the SBC by delaying the resolution of the dispute and any payments that the SBC might be entitled to. The district court denied Navistar's motion to dismiss, and Navistar appeals. See 9 U.S.C. § 16(a)(1)(B).
The SBC's claims against Navistar are all subject to arbitration, as the district court ruled, notwithstanding the SBC's argument for affirmance on the alternative ground that the claims are not subject to arbitration under the arbitration clause. In each claim the SBC is " disput[ing] . . . information or calculation[s]" regarding Navistar's obligations to the Supplemental Benefit Trust that Navistar provided under its reporting obligations under the settlement
agreement. This places each claim within the scope of the arbitration clause.
The parties do not dispute for purposes of this appeal that § 8.4 is an arbitration agreement--albeit one with a narrow scope--to which the Federal Arbitration Act (FAA) applies. The First Circuit has persuasively held that the following elements, all present in this case as well, amounted to " arbitration in everything but name" : finality, " an independent adjudicator, substantive standards (the contractual terms . . .), and an opportunity for each side to present its case." See Fit Tech, Inc. v. Bally Total Fitness Holding Corp., 374 ...