Sunshine Shopping Ctr., Inc. v. Panama

SUNSHINE SHOPPING CENTER, INC.d/b/a SUNSHINE MALL, Plaintiff, v. LG ELECTRONICS PANAMA, S.A.,and ENGINEERING SYSTEMS & SALES, INC. d/b/a ENSYSA, Defendants.

Civil Action No. 2015-0041

DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. CROIX

September 21, 2018

Attorneys:

Edward L. Barry, Esq.,

St. Croix, U.S.V.I.

For Plaintiff

Michael C. Quinn, Esq.,

St. Thomas, U.S.V.I.

For Defendant LG Electronics Panama, S.A.

Anna Washburn, Esq.,

St. Croix, U.S.V.I.

Orlando Fernandez-Carmona, Esq.,

Guaynabo, P.R.

For Defendant Engineering Systems & Sales, Inc.

MEMORANDUM OPINION

Lewis, Chief Judge

THIS MATTER comes before the Court on the Notice of Objection to Magistrate Order ("Objection") (Dkt. No. 48) filed by Plaintiff Sunshine Shopping Center, Inc., d/b/a Sunshine Mall ("Plaintiff" or "Sunshine"). Plaintiff objects to the Magistrate Judge's Order (Dkt. No. 47) granting Defendant LG Electronics Panama, S.A.'s ("LG Panama") "Motion for an Order Compelling Arbitration and Dismissing Plaintiff's Complaint or Staying these Proceedings" ("Motion to Compel Arbitration") (Dkt. No. 20). LG Panama filed a Response to Plaintiff's Objection ("Response") (Dkt. No. 55), to which Plaintiff filed a Reply ("Reply") (Dkt. No. 56). For the reasons that follow, the Court will (1) vacate the Magistrate Judge's Order in light of Plaintiff's Objection; (2) deny without prejudice LG Panama's Motion to Compel Arbitration; and (3) grant Plaintiff's request for limited discovery on the issue of arbitrability.

I. BACKGROUND

This action arose out of a dispute among the parties related to the installation of a commercial air conditioning system at the Sunshine Mall in St. Croix, which is operated by Plaintiff. The complaint advances breach of contract and negligent misrepresentation claims against Defendants LG Panama, Engineering Systems & Sales, Inc., d/b/a ENSYSA ("ENSYSA"), and Jacques Etienne ("Etienne"), following Defendants' alleged failure to install commercial air conditioning systems as agreed by contract. (Dkt. No. 1). Plaintiff's claims against Etienne were dismissed without prejudice by stipulation. (Dkt. Nos. 39, 41). Accordingly, only LG Panama and ENSYSA remain as Defendants in this matter.

A. Motion to Compel Arbitration

LG Panama filed a Motion to Compel Arbitration pursuant to Federal Rule of Civil Procedure 12(b)(3), and a corresponding Memorandum of Law in Support (Dkt. Nos. 20, 21). In support of its Motion to Compel Arbitration, LG Panama asserted that this Court is not the proper venue for Plaintiff's action, and requested the entry of an order compelling Plaintiff to arbitrate its claims against LG Panama in Panama City, Panama, as allegedly required by the parties' contract. (Dkt. No. 21 at 1-2). LG Panama further argued that only Plaintiff and ENSYSA are parties to the contract upon which Plaintiff's claims are based, and that LG Panama's liability under that contract is therefore a legal impossibility. Id. at 2-4. LG Panama maintained that a separate contract—titleda Master Supply Agreement ("MSA")—is the controlling contract between LG Panama and Plaintiff. Id. at 4-5. Because the MSA contains an arbitration provision in which the parties agree that disputes arising out of the contract shall be resolved by arbitration, LG Panama argued that the Court should enforce the arbitration provision and compel Plaintiff to arbitrate its claims against LG Panama as provided by the MSA. Id. at 4-13.

In opposition to LG Panama's Motion to Compel Arbitration, Plaintiff argued, inter alia, that the MSA is a "sham agreement creating a fictitious and meaningless distributorship relationship," and that "there was never a meeting of the minds on any agreement to arbitrate." (Dkt. No. 27 at 1). Plaintiff claimed that the sole purpose of the MSA was to enable LG Panama to register Plaintiff as a customer in its internal system, and that the parties never intended the MSA as a binding agreement covering LG Panama's sale of goods to Plaintiff. Id. at 6. In support of its argument, Plaintiff relied on a declaration by its representative, Hatim Yusuf, along with email communications between Plaintiff and LG Panama purportedly demonstrating that execution of the MSA was strictly intended for purposes of registering Plaintiff on LG Panama's internal sales system. Id. at 7-8.

B. Magistrate Judge's Order and Plaintiff's Objection

In ruling on LG Panama's Motion to Compel Arbitration, the Magistrate Judge found that: (1) LG Panama was not a party to the contract between ENSYSA and Plaintiff upon which Plaintiff's claims are based; (2) the MSA is an enforceable contract; (3) the MSA's clear and unambiguous arbitration provision is binding on the parties; and (4) Plaintiff may not introduce extrinsic evidence to "create an ambiguity" in its terms. (Dkt. No. 47 at 2-4). The Magistrate Judge therefore granted LG Panama's Motion to Compel Arbitration and stayed proceedings against LG Panama in this matter pending arbitration of Plaintiff's claims against it. Id. at 4-5.

In its Objection to the Magistrate Judge's Order, Plaintiff focuses on the narrow issue of whether the Magistrate Judge's determination that extrinsic evidence related to the formation of the MSA was barred by the parol evidence rule constitutes clear legal error. (Dkt. No. 48 at 3). Plaintiff maintains that Virgin Islands law recognizes the common law concept of a "sham contract"—one which, although held up as an enforceable contract, was not intended or understood by either party to constitute a binding legal agreement because it was entered into with an ulterior purpose. Id. at 8-9. Plaintiff contends that the MSA was a sham because its ulterior purpose—which Plaintiff maintains is explicitly recognized in the parties' written statements with respect to the MSA—"was merely to set Sunshine up as a customer in LG-Panama's accounting system." Id. at 13. Plaintiff also argues that further negotiations between LG Panama and Plaintiff following ENSYSA's failure to perform demonstrate that neither LG Panama nor Plaintiff considered the MSA a binding contractual agreement. Id. at 14. Plaintiff maintains that where "the existing factual record is inadequate to resolve the fact issues surrounding the formation of [an] agreement [to arbitrate] . . . the party resisting arbitration 'must be given the opportunity to conduct limited discovery on the narrow issue concerning the validity of the arbitration agreement.'" Id. at 14-15 (quoting Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 774 (3d Cir. 2013)). Plaintiff therefore urges the Court to vacate the Magistrate Judge's Order granting LG Panama's Motion to Compel Arbitration, and to (1) deny LG Panama's Motion to Compel Arbitration on the record developed in the parties' filings, or (2) deny LG Panama's Motion to Compel Arbitration without prejudice and allow Plaintiff an opportunity for limited discovery on the issue of arbitrability. Id. at 16.

LG Panama responds that the Magistrate Judge's Order contains no legal error, and that the clear and unambiguous terms of the MSA prevent the introduction of parolevidence. (Dkt. No. 55 at 8). LG Panama also maintains that because Plaintiff's representative— Hasim Yusuf—signed the MSA, intent to be bound by the terms of the agreement is presumed, and parol evidence is not admissible to show otherwise. Id. at 13. Finally, LG Panama argues that the existence of an integration agreement in the MSA precludes the admission of parol evidence under the circumstances here. Id. at 14-16.

II. APPLICABLE LEGAL PRINCIPLES

A. Standard of Review

Because a decision to compel arbitration and stay litigation pending its resolution has been recognized as a non-dispositive matter in the Third Circuit, the Court reviews the Magistrate Judge's determination under a "clearly erroneous or contrary to law" standard. See 28 U.S.C. § 636(b)(1)(A) ("A judge of the court may reconsider any [non-dispositive] pretrial matter . . . where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law"); FED. R. CIV. P. 72(a) (providing that a district judge "must consider timely objections and modify or set aside any part of [an] order [on a non-dispositive matter] that is clearly erroneous or is contrary to law"); see also Virgin Islands Water & Power Auth. v. Gen. Elec. Int'l Inc., 561 F. App'x 131, 134 (3d Cir. 2014) ("A ruling on a motion to compel arbitration does not dispose of the case, or any claim or defense found therein. Instead, orders granting this type of motion merely suspend the litigation while orders denying it continue the underlying litigation.") (citing PowerShare, Inc. v. Syntel, Inc., 597 F.3d 10, 14 (1st Cir. 2010)).

A factual finding "is clearly erroneous 'when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'" Lo Bosco v. Kure Eng'g Ltd., 891 F. Supp. 1035, 1037 (D.N.J. 1995) (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)). "In reviewing amagistrate judge's factual determinations [on a non-dispositive matter], a district court may not consider any evidence which was not presented to the magistrate judge." Lithuanian Commerce Corp. v. Sara Lee Hosiery, 177 F.R.D. 205, 213 (D.N.J. 1997) (citing Haines v. Liggett Group. Inc., 975 F.2d 81, 92 (3d Cir. 1992)).

On the other hand, district courts conduct a de novo review of a magistrate judge's legal conclusions on non-dispositive matters where a party objects on the basis that those conclusions were contrary to law. Equal Employment Opportunity Comm'n v. City of Long Branch, 866 F.3d 93, 99 (3d Cir. 2017) (for a non-dispositive motion referred to a magistrate judge, district courts "review[] findings of fact for clear error and [] review matters of law de novo") (citation omitted). "A ruling is contrary to law if the magistrate judge has misinterpreted or misapplied applicable...