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Safe Step Walk-In Tub Co. v. Greenworksus

United States District Court, M.D. Tennessee, Nashville Division

May 19, 2015

SAFE STEP WALK-IN TUB CO., a Tennessee corporation, and MICHAEL DUFFER, Plaintiffs,
v.
GREENWORKSUS, a California corporation, Defendant.

MEMORANDUM

WILLIAM J. HAYNES, Jr., Senior District Judge.

Plaintiffs, Safe Step Walk-in Tub Co. ("Safe Step") and Michael Duffer ("Duffer"), Tennessee citizens, filed this action under 28 U.S.C. § 1332, the federal diversity jurisdiction statute against the Defendant GreenworksUS ("Greenworks"), a California citizen.[1] Plaintiffs' claims arise from the parties' contract and, as such, Plaintiffs contend that those claims are subject to arbitration under that contract.

Before the Court is Plaintiffs' motion to compel arbitration (Docket Entry No. 7). Previously, Plaintiff filed a motion to lift stay and grant motion to compel. (Docket Entry No. 22). This Court granted Plaintiff's motion to lift stay (Docket Entry No. 31), and set a status conference to address the motion to compel arbitration. Following the June 27, 2014 status conference in this action, the Court identified the sole issue as whether Defendant Greenworks' claims against Plaintiff Duffer are subject to mandatory arbitration. Duffer contends that he was a signatory to the parties' contract as Safe Step's agent, and that he is covered by the arbitration provision in that contract. Greenworks concedes that its claims against Safe Step are covered by the arbitration clause in the parties' contract, but contends that, because Duffer did not sign the contract in his individual capacity, he cannot compel arbitration of the claims brought against him personally.

A. Review of the Record

On or about July 1, 2010, Safe Step and Greenworks entered into a written Dealership/License Agreement, effective July 5, 2010. (Docket Entry No. 1, Petition to Compel Arbitration at ¶ 12). This Agreement contains a mandatory arbitration clause, providing that:

Any controversy, dispute or claim arising out of, in connection with or otherwise relating to any provision of this Agreement, or to the breach, termination or validity hereof or any Transaction, contemplated hereby (any such controversy, dispute or claim being referred to as "Dispute"), shall be finally settled by arbitration conducted expeditiously in accordance with the Commercial Arbitration Rules then in force, the "AAA, " with application of the following procedural requirements. A single arbitrator (the "Arbitrator") shall be appointed by the AAA. The Arbitrator's conduct shall be governed by the current version of the Code of Ethics for Arbitrators in Commercial Disputes that has been approved and recommended by the AAA and the American Bar Association.
The situs for arbitration pursuant to this Section shall be as agreed to by the parties, failing which it shall be Davidson County, Tennessee.

(Docket Entry No. 1-4, Dealership/License Agreement at 9) (emphasis in original).

Plaintiff Duffer signed this Agreement as President of Safe Step and on Safe Step's behalf. Id. at 14; see also Docket Entry No. 9, Declaration of Stuart Hall.

B. Conclusions of Law

Arbitration agreements are, fundamentally, contracts. Thus, courts review the enforceability of an arbitration agreement according to the applicable state law. See Byrd v. SunTrust Bank, No. 2:12-cv-2314, 2013 WL 3816714, *5 (W.D. Tenn. Jul. 22, 2013) (citing Hergenreder v. Bickford Senior Living Grp., LLC, 656 F.3d 411, 415 (6th Cir. 2011)). Yet, the Federal Arbitration Act ("FAA") reflects a strong federal policy in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Accordingly, any doubts regarding arbitrability must be resolved in favor of arbitration. Burden v. Check Into Cash of Kentucky, LLC, 267 F.3d 483, 488 (6th Cir. 2001). Moreover, this federal policy favoring arbitration is taken into consideration even in applying ordinary state law. Walker v. Ryan's Family Steak Houses, Inc., 400 F.3d 370, 377 (6th Cir. 2005).

Here, the parties' contract does not contain a choice-of-law provision, but this contract issue is governed by Tennessee law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938); see also Perry v. Thomas, 482 U.S. 483, n. 9 (1987). "[T]he cardinal rule for interpretation of contracts is to ascertain the intention of the parties and to give effect to that intention as best can be done consistent with legal principles." Cummings Inc. v. Dorgan, 320 S.W.3d 316, 333 (Tenn. Ct. App. 2009). "The central tenet of contract construction is that the intent of the contracting parties at the time of executing the agreement should govern." Planters Gin Co. v. Fed. Compress & Warehouse Co., 78 S.W.3d 885, 890 (Tenn. 2002). Thus, courts ascertain the parties' intention from what was "actually embodied and expressed in the instrument as written." Petty v. Sloan, 277 S.W.2d 355, 361 (Tenn. 1955).

Under Tennessee law, "[w]hen an agency relationship has been established, the principal may be bound by the acts of the agent performed on the principal's behalf and within the actual or apparent scope of the agency." Creech v. Addington, 281 S.W.3d 363, 373 (Tenn. 2009) (citing White v. Revco Discount Drug Centers, Inc., 33 S.W.3d 713, 723 (Tenn. 2000)). Here, it is undisputed that Duffer signed the Dealership/License Agreement with Greenworks as an agent "acting on behalf of Plaintiff Safe Step." (Docket Entry No. 1-2, Cross-Complaint in Arbitration at ¶¶ 3, 23).

Generally, nonsignatories cannot compel arbitration. Bowie v. Clear Your Debt, LLC, 523 Fed.App'x 315, 317 (6th Cir. 2013); Benton v. Vanderbilt University, 2003 WL 1627029, *9, (Tenn. Ct. App. Mar. 31, 2003), aff'd, 137 S.W.3d 614 (Tenn. 2004). Yet, "nonsignatories may be bound to an arbitration agreement under ordinary contract and agency principles." Crossville Medical Oncology, P.C. v. Glenwood Systems, LLC, 310 Fed.App'x 858, 860 (6th Cir. 2009) (quoting Javitch v. First Union Securities, Inc. 315 F.3d 619, 629 (6th Cir. 2003)); see also Broaddus v. Rivergate Acquisitions, Inc., No. 3:08-0805, 2008 WL 4525410, *2 (M.D. Tenn. Oct. 1, 2008) (concluding that "Plaintiff, by agreeing to arbitrate with the Company, ' agreed to arbitrate with its agent and subsidiary corporation..."). Underpinning this rationale is the notion that, "if a party can avoid the practical consequences of an agreement to arbitrate by ...


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