Peruvian Connection, Ltd. v. Christian

977 F.Supp. 1107

The PERUVIAN CONNECTION, LTD., Plaintiff, v. R. Scott CHRISTIAN, Defendant.

Civil Action No. 97-2242-EEO.

United States District Court, D. Kansas.

August 29, 1997.

Elizabeth Drill Nay, Douglas C. McKenna, Lewis, Rice & Fingersh, L.C., Kansas City, MO, for Plaintiff.

Stacy M. Andreas, Amy B. Marcus, Lathrop & Gage, L.C., Kansas City, MO, for Defendant.

MEMORANDUM AND ORDER

EARL E. O'CONNOR, District Judge.

This matter is before the court on the application of defendant R. Scott Christian to stay proceedings until completion of pending arbitration (Doc. # 8). Plaintiff Peruvian Connection ("PC") has responded and opposes the motion. Defendant has filed a reply. In addition, Christian has, by separate motion, requested the court to extend the deadline to answer or otherwise respond to the complaint until twenty days after the stay is terminated or denied (Doc. # 6). The court has carefully reviewed the parties' briefing, exhibits, and the applicable law, and is now prepared to rule. For the reasons stated below, the motions are granted.

I. Factual Background.

From September 1993 until August 1996, Christian was Chief Operating Officer of PC, a private, closely-held corporation engaged in the business of selling imported knitwear through mail-order catalogues and outlets. PC is controlled by Anne G. Hurlbut and her mother, M.L.M. "Biddie" Hurlbut (collectively "the Hurlbuts"), who hold the positions of Chief Executive officer and Chairman of the Board, respectively. On July 16, 1996, Christian received a "Notice of Termination Under the Employment Contract." The Notice stated that Christian's employment with PC was being terminated "without cause" pursuant to Section 6(b)(i) of the Employment Agreement. The Notice also stated that "in accordance with Section 3 of the September 3, 1993 Phantom Stock Agreement between you and the Company (`PSAR'), any rights that you hold under the PSAR will be forfeited upon your termination of employment." On the same day that PC gave notice it was terminating his employment agreement, PC offered to hire Christian as Chief Operating Officer at an increased salary but without the PSAR agreement. Christian declined the offer.

Both the employment agreement and the PSAR Agreement contained an identical arbitration provision, as follows:

Disputes under the Agreement shall be settled pursuant to binding arbitration before an arbitrator in the States of either Kansas or Missouri, in accordance with the voluntary labor arbitration rules of the American Arbitration Association, as then in effect. The arbitrator's sole authority shall be to interpret and apply the provisions of this Agreement, the arbitrator shall not change, add to, or subtract from, any of the provisions of the Agreement. The arbitrator shall have the power to compel attendance of witnesses at the hearing. Any court having jurisdiction over this matter may enter a judgment based upon such arbitration.

PC's Complaint for Declaratory Judgment, Ex. B § 17; Ex. C ¶ 11.

On February 13, 1997, Christian initiated arbitration proceedings against PC by filing with the American Arbitration Association ("AAA") a demand for arbitration addressed to PC and its owners. In the demand for arbitration, Christian asserted claims for (1) violation of § 510 of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1140; (2) wrongful termination; (3) breach of implied covenant of good faith and fair dealing; (4) quantum meruit; and (5) violation of Kansas Statutes Annotated § 17-1264(a). On March 31, 1997, in response to Christian's demand for arbitration, PC submitted to AAA an answering statement and a counterclaim for accounting. PC's answering statement contains the sentence: "The PSAR agreement does not constitute an employee benefit plan governed by ERISA 29 U.S.C. §§ 1001, et seq." Neither the answering statement nor the counterclaim contain any allegation challenging the arbitrability of the ERISA claim or any other claim raised by Christian. On April 8, 1997, Christian filed with AAA a reply to the counterclaim.

On May 15, 1997, PC filed suit in this court seeking a declaratory judgment that its actions do not expose it to liability under ERISA, 29 U.S.C. § 1001, et seq. PC contends that the agreement under which Christian was to receive phantom stock appreciation rights (the "PSAR Agreement") is not an ERISA plan.

II. Standards for Arbitration.

The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16, "evinces a strong federal policy in favor of arbitration." ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1462 (10th Cir.1995) (citing Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226, 107 S.Ct. 2332, 2337, 96 L.Ed.2d 185 (1987)). The purpose of the FAA "was to reverse the longstanding judicial hostility to arbitration agreements ... and to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 1651, 114 L.Ed.2d 26 (1991). "If a contract contains an arbitration clause, a presumption of arbitrability arises." ARW, 45 F.3d at 1462 (citing AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650, 106 S.Ct. 1415, 1419, 89 L.Ed.2d 648 (1986)). This presumption may be overcome only if "it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Id. All doubts should be resolved in favor of coverage. Id. As the Supreme Court stated in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983):

The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.

See also Esposito v. Hyer, Bikson & Hinsen, Inc., 709 F.Supp. 1020, 1022 (D.Kan.1988) (quoting Moses H. Cone, and noting that the Supreme Court has given its "stamp of approval" to the principle that arbitration provisions are to be construed broadly to effectuate the strong federal policy evidenced by the Federal Arbitration Act). Courts are to "rigorously" enforce agreements to arbitrate. ARW 45 F.3d at 1462 (citing McMahon, 482 U.S. at 226, 107 S.Ct. at 2337).

Section 3 of the FAA provides:

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 in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.

Although the Supreme Court has not directly addressed the issue of enforceability of predispute arbitration agreements in the context of ERISA-based claims, in a series of four cases, the Supreme Court has upheld the enforceability of predispute arbitration agreements under the FAA in connection with various other statutory claims. See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991) (claim under Age Discrimination in Employment Act); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917, 104 L.Ed.2d 526 (1989) (claims arising under the Securities Act of 1933); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987) (claim under § 10(b) of the Securities Exchange Act of 1934 and claim under civil provisions of Racketeer Influenced and Corrupt Organizations Act); Mitsubishi Motors Corp., v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985) (claim brought under the Sherman Antitrust Act).

In each of these cases, the Supreme Court determined that the FAA was enacted to reverse the longstanding judicial hostility toward arbitration agreements and to place such agreements on the same footing with other contracts. These cases also recognized that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum." Gilmer, 500 U.S. at 26, 111 S.Ct. at 1652 (citing Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354). Absent a well-founded claim that an arbitration agreement resulted from the sort of fraud or excessive economic power that "would provide grounds `for the revocation of any contract,'" Mitsubishi, 473 U.S. at 627, 105 S.Ct. at 3354 the FAA "provides no basis for disfavoring agreements to arbitrate statutory claims by skewing the otherwise hospitable inquiry into arbitrability." Id. Consequently, the "duty to enforce arbitration agreements is not diminished when a party bound by an agreement raises a claim founded on statutory rights." McMahon, 482 U.S. at 226, 107 S.Ct. at 2337.

While the Supreme Court has made it clear that predispute arbitration agreements relating to statutory claims are generally enforceable, the court acknowledged that some claims may not be appropriate for arbitration where Congress itself intended to preclude a waiver of judicial remedies for the statutory rights at issue. Id. The burden to demonstrate such a contrary congressional intent rests with the party opposing arbitration. Id. at 227, 107 S.Ct. at 2337. The party contending that an agreement to arbitrate a statutory claim is not enforceable has the burden of showing that "Congress intended in a separate statute to preclude a waiver of judicial remedies." Rodriguez, 490 U.S. at 483, 109 S.Ct....