327 F.Supp.2d 34 (2004) | Cited 2 times | D. Maine | July 26, 2004


Defendant JER, Inc. ("JER") moves pursuant to the FederalArbitration Act ("FAA"), 9 U.S.C. § 3, for a stay of the instantaction pending arbitration of the claims of plaintiff WinterwoodFarm, LLC ("Winterwood"). See Defendant's Motion for StayPursuant to 9 U.S.C. § 3, etc. ("Motion") (Docket No. 9); seealso Complaint (Injunctive Relief Requested) ("Complaint")(Docket No. 1). For the reasons that follow, I grant the Motion.

I. Applicable Legal Standard

Issuance of a stay in favor of arbitration is governed by9 U.S.C. § 3, which provides in its entirety: 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. II. Factual Context

For purposes of adjudication of the Motion, materials submittedby JER, together with the allegations of the Complaint, establishthe following:

JER was set up to market a compost made from shellfish wastegenerated by Portland Shellfish Co. and others, to be sold underthe name "Gardener's Gold." Affidavit of Jeffrey Holden ("HoldenAff."), Attachment #1 to Motion, ¶ 2. In October 2001 JER andWinterwood entered into the written agreement referred to in theComplaint ("Output Contract"), which had as its stated objectJER's exclusive purchase of Winterwood's high-grade compost.Id. ¶ 3; see also Output Contract, Exh. A to Holden Aff., at1.

Pursuant to the Output Contract, the parties agreed thatWinterwood would compost shellfish and seafood in a manner and inaccordance with recipes mutually agreed to by both parties.Output Contract ¶ 1.2. Winterwood agreed to deliver its entireoutput of finished seafood compost to JER upon maturity, with theexception of specified amounts of compost that Winterwoodreserved the right to sell directly to four designated customers.Id. ¶ 1.3. JER trucks were to pick up the compost atWinterwood's waste-composting facility. Id. Winterwood couldinvoice JER "for all compost as soon as it is screened, finishedand ready to be bagged," with "[a]ll finished products [to] bestored in a designated area" on Winterwood's property. Id. ¶1.4. The Output Contract also provided, inter alia: 3.8 ARBITRATION. All claims, disputes and other matters in question arising out of, or relating to, this Agreement or the breach thereof shall be decided by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. . . . * * * 3.14 EXTENT OF AGREEMENT. This Agreement represent[s] the entire and integrated Agreement between the parties and shall supersede all prior negotiations, representations, or agreements, either written or oral. This agreement may be amended only by written instrument signed by both parties. * * * 3.16 RELATIONSHIP OF PARTIES. Nothing contained herein shall be construed as creating any form of partnership or joint venture between the parties hereto.Id. ¶¶ 3.8, 3.14, 3.16.

After execution of the Output Contract, Winterwood repeatedlyrequested that reference to "Winterwood Farm" appear prominentlyon compost bags sold by JER. Holden Aff. ¶¶ 3-4. JER's compostbags were redesigned, with input from Winterwood, in the fall andwinter of 2002-03. Id. ¶ 5. Reference to Winterwood on bags ofcompost appears only once, at an inconspicuous location at thebottom of the bag in the section set aside for the "Guarantee" ofGardener's Gold Compost. Id. ¶ 6; see also Exh. B to HoldenAff. This reference is limited to the statement: "Gardener's Goldis produced on Winterwood Farm, a working Maine Farm." HoldenAff. ¶ 7. The inclusion of the reference to Winterwood on theredesigned JER bag was made at Winterwood's insistence shortlybefore Winterwood filed an application to register its name as atrademark. Id. ¶ 8.

JER ordered 100,000 bags printed containing the reference toWinterwood at JER's sole cost. Id. ¶ 9. Winterwood thereafterterminated the Output Contract — improperly in the view of JERPresident Jeffrey Holden. Id. ¶¶ 1, 10. Winterwood has neversent any demand for arbitration to JER. Id. ¶ 14. JER has notpurchased any additional compost since the purported terminationof the Output Contract by Winterwood. Id. ¶ 18. Winterwood isnow in direct competition with JER in the sale of compost. Id.¶ 19. Despite the arbitration clause in the Output Contract,Winterwood filed a complaint in Superior Court for breach of theOutput Contract, seeking an ex parte attachment. Id. ¶ 20.When the Superior Court denied an ex parte attachment, Winterwood did not pursue theissue of attachment further. Id. ¶ 21. The parties to theSuperior Court action have since agreed to notify the SuperiorCourt that the claims asserted in the state court will besubmitted to David Plimpton, Esq., for arbitration. Id. ¶ 23.

Winterwood filed the complaint in this action on May 7, 2004,see Docket No. 1, bringing two counts under the Lanham Act,15 U.S.C. § 1051 et seq., for JER's alleged (i) false designationof origin and (ii) infringement of Winterwood's registeredtrademark by use without authorization, see Complaint ¶¶ 1-21,and also suing JER for causing likelihood of confusion ormisunderstanding as to source, sponsorship or approval of goodsin violation of Maine's Uniform Deceptive Trade Practices Act("DTPA"), 10 M.R.S.A. § 1211 et seq., see id. ¶¶ 22-24.

Winterwood alleged, inter alia: 6. On or about October 11, 2001, Winterwood entered into an agreement with JER by which Winterwood would supply its proprietary Compost blends exclusively to JER for marketing under JER's brand or brands throughout the United States. 7. Beginning from about October 2001, JER did begin packaging and marketing Winterwood's Compost in bags and other containers bearing, in addition to its own brands, a then-true designation of the source and maker of the branded Compost as Winterwood Farm Compost. 8. On or about August 2003, JER became financially and otherwise unable to continue to purchase and move in commerce further quantities of Winterwood's Compost, including 8000 yards of said Compost already produced by Winterwood for JER, which JER then allowed to lay fallow and deteriorate in storage. 9. Winterwood has bec[o]me aware that JER is marketing, selling and supplying both compost made and/or supplied by others and old, deteriorated, and possibly contaminated Compost from storage in bags and other containers now falsely designating the source of the contents to be from Winterwood Farm. 10. On or about October 14, 2003 Winterwood notified JER and demanded that JER remove and no longer use said designation of origin in its marketing and promotional materials.Id. ¶¶ 6-10. With respect to its Lanham Act cause of action forfalse designation of origin (Count I),

Winterwood further asserted: 11. JER's past, present, and continuing false designation of origin as Winterwood Farm of compost not produced by Winterwood and/or, by age, contamination, and deterioration, no longer meeting the high quality standards of Winterwood, has caused and causes confusion, mistake, and deceit among resellers, consumers, and users of soil amendment products as to the origin, quality, and efficacy of the compost products so sold by JER. 12. As a result of JER's false designation of origin and the confusion, mistake, and deceit following directly therefrom, Winterwood has been and is being severely damaged in that its reputation as a producer of quality soil products, the reputation for high quality of its proprietary Compost, and the value of its proprietary Compost have been and are being diminished and destroyed.Id. ¶¶ 11-12. With respect to its Lanham Act cause of actionfor trademark infringement (Count II),

Winterwood alleged, inter alia: 15. After the failure of JER to fulfill its contractual obligations to market, sell, and distribute the Winterwood Compost products, Winterwood, having used the trade name Winterwood Farm for years, contemplated the development of the Winterwood Farm brand for soil amendments, and is the owner of the trademark WINTERWOOD FARM for use on soil amendments, including compost. 16. Winterwood filed application for registration of its WINTERWOOD FARM trademark . . . in the United States Patent and Trademark Office on the basis of its bona fide intention to use said trademark in interstate commerce. 17. In 1994 Winterwood began advertising its Compost and other related goods in connection with its WINTERWOOD FARM trademark, and on or about March 2, 2004, Winterwood began using its WINTERWOOD FARM trademark on such goods in commerce as defined in the Act. . . . 18. JER's continued use of Winterwood Farm on packaging and in connection with compost and related goods sold in commerce misleads consumers into believing that JER is affiliated with Winterwood, and causes confusion, mistake, and deceit of and among consumers as to the source of the goods so sold by JER[.] 19. JER is infringing on the trademark WINTERWOOD FARM by making use of that term on its packaging materials without authorization from Winterwood. 20. JER's infringement of the WINTERWOOD FARM trademark further causes mistake and leads third parties to believe that Winterwood produces inferior quality compost.Id. ¶¶ 15-20. With respect to its DTPA cause of action (CountIII), Winterwood further contended: 24. JER's action with regard to Winterwood's trade mark and trade name is such that it is causing likelihood of confusion or of misunderstanding as to the source, sponsorship or approval of the goods sold by JER under Winterwood's trade mark and trade name.Id. ¶ 24.

JER President Holden states, on information and belief, that(i) no contamination or deterioration of compost supplied byWinterwood occurred after it left the Winterwood site, and (ii)JER has purchased no additional compost since the purportedtermination of the Output Contract by Winterwood. Holden Aff. ¶¶16-18.

JER has counterclaimed for (i) contamination of compost, (ii)value of bags rendered unusable and (iii) breach of the duty ofgood-faith dealing. See First Amended Answer With Defenses, andCounterclaims (Docket No. 7) ¶¶ 47-55. JER is not in default ofits obligation to submit claims arising out of the OutputContract to arbitration, and is willing to submit the claims andcounterclaims asserted in this action to binding arbitration.Holden Aff. ¶ 24.

III. Analysis

Entry of a motion to stay pursuant to the FAA is appropriate tothe extent that the court is "satisfied that the issue involved. . . is referable to arbitration under [an agreement in writingfor such arbitration]" and "the applicant for the stay is not in default in proceeding withsuch arbitration." 9 U.S.C. § 3. JER introduces uncontrovertedevidence that it is not in default in proceeding witharbitration. However, the parties sharply dispute whether theclaims raised in the Complaint are referable to arbitrationpursuant to the Output Contract.

JER seeks stay of the instant action on the basis that thematerials it submits establish that all claims Winterwood asserts"arise out of" the Output Contract. See Motion at 1. Winterwoodrejoins that the Output Contract is unrelated to the Complaintinasmuch as (i) the Output Contract did not memorialize anyagreement concerning either use of trademarks or potential unfairtrade practices, (ii) even assuming arguendo the existence ofan informal understanding between the parties regarding use ofthe Winterwood trademark, the integration clause of the OutputContract (section 3.14) renders any such unwritten agreementinvalid and unenforceable, and (iii) inasmuch as the partiesproclaimed their intention that the Output Contract not beconstrued as creating a partnership or joint venture (section3.16), they would have expressly addressed use of trademarks inthat contract if they had intended "such a joint undertaking."See Plaintiff's Opposition to Motion for Stay and To CompelArbitration ("Opposition") (Docket No. 11) at 1-3.

As a threshold matter, both parties agree that it isappropriate for this court to determine whether the claims inissue are arbitrable. See Opposition at 3-4; Defendant's Replyto Plaintiff's Response to Defendant's Motion for Stay ("Reply")(Docket No. 13) at 2-3; see also, e.g., Graham v. Smith,292 F. Supp.2d 153, 156 n. 3 (D. Me. 2003) ("When parties disagree aboutwhether they are bound by an arbitration agreement, the court,not the arbitrator, decides the issue, unless there is clear andunmistakable evidence that the parties intended to submit the arbitrabilityquestion itself to arbitration.").1

The question of arbitrability is one of contractinterpretation: "It is bedrock that arbitration is a matter ofcontract and that a party cannot be required to submit toarbitration any dispute which he has not agreed so to commit."Graham, 292 F. Supp.2d at 156 (citations and internal quotationmarks omitted). An arbitration agreement, like other contracts,is construed with reference to "ordinary state-law principlesthat govern the formation of contracts[,]" id. (citation andinternal quotation marks omitted), in this case the law of theState of Maine, see Output Contract § 3.13.

Nonetheless, the task of assessing whether the parties haveagreed to arbitrate a given matter is undertaken "with a healthyregard for the federal policy favoring arbitration." Bercovitchv. Baldwin Sch., Inc., 133 F.3d 141, 148 (1st Cir. 1998)(citation and internal quotation marks omitted). "Any doubtsconcerning the scope of arbitrable issues should be resolved infavor of arbitration, whether the problem at hand is theconstruction of the contract language itself or an allegation ofwaiver, delay, or a like defense to arbitrability." RestorationPres. Masonry, Inc. v. Grove Europe Ltd., 325 F.3d 54, 60 (1stCir. 2003) (citation and internal punctuation omitted).

With these precepts in mind, I find all three counts of theComplaint arbitrable. The parties chose broad language indefining the scope of arbitrable matters: "All claims, disputesand other matters in question arising out of, or relating to,this Agreement or the breach thereof[.]" Output Contract § 3.8;see also, e.g., Collins & Aikman Prods. Co. v. Building Sys.,Inc., 58 F.3d 16, 20 (2d Cir. 1995) ("The clause in this case,submitting to arbitration `any claim or controversy arising outof or relating to the agreement,' is the paradigm of a broad clause.") (citation and internal quotationmarks omitted); Newbridge Acquisition I, L.L.C. v. Grupo Corvi,S.A. de D.V., No. 02 Civ. 9839(JSR), 2003 WL 42007, at *3(S.D.N.Y. Jan. 6, 2003) ("Here, the arbitration clause at issueis very broad, providing that `any and all disputes which mayarise out of or in connection with this Agreement shall befinally settled by arbitration in New York.'"); Baychar, Inc. v.Frisby Techs., No. 01-CV-28-B-S, 2001 WL 856626, at *6 (D. Me.July 26, 2001) ("In analyzing contractual language pursuant togeneral common law principles, the Court first looks to the plainlanguage of the agreement. In this case the arbitration clause[covering "[a]ny controversy or claim under or in relation tothis Agreement, or any modification thereof"] is facially broadin scope.").

Although I find no published Maine case construing a phrasesubstantially similar to "arising out of, or relating to" in thecontext of an arbitration clause, I find instructive a MaineSuperior Court case parsing similar language in aninsurance-policy context: "`Arising out of' is ordinarily held tomean originating from, growing out of, flowing from, incident toor having connection with. `In connection with' is ordinarilyheld to have even a broader meaning than `arising out of' and isdefined as related to, linked to or associated with." AcadiaIns. Co. v. Vermont Mut. Ins. Co., No. Civ.A.CV 02-440, 2003 WL23185875, at *1 (Me. Super. 2003) (citation and internalquotation marks omitted).

My research reveals that, in keeping with these basicdefinitions, courts have broadly construed similar language inthe arbitration-clause context. Noncontractual claims have beenheld "related to" an underlying contract for purposes ofarbitrability when those claims have been found to "touch[]matters covered by" or to be "interwoven with" the underlyingcontract — i.e., when their adjudication requires reference tothat contract. See, e.g., Ford v. Nylcare Health Plans of theGulf Coast Inc., 141 F.3d 243, 250 n. 7 (5th Cir. 1998)("Whether described as `touch[ing] matters covered by' theagreement, or `interwoven with' the agreement, a tort claim is `related to' theagreement [for purposes of an arbitration clause] only ifreference to the agreement is required to maintain the action.")(citations omitted); Bangor Hydro-Elec. Co. v. New England Tel.& Tel. Co., 62 F. Supp.2d 152, 158-59 (D. Me. 1999)(quantum-meruit, unjust-enrichment and equitable-contributioncounts were "related to" contract, and hence arbitrable, whenanalysis of those counts required inquiry into reasonableness ofplaintiff's expectation that defendant bear some costs oftree-clearance work, and that in turn would be distilled at leastin part by reference to provisions of underlying contractgoverning parties' joint ownership and occupancy of utilitypoles); McMahon v. RMS Elecs., Inc., 618 F. Supp. 189, 190, 192(S.D.N.Y. 1985) (finding two of three defamation claims to fitdefinition of "disputes and claims arising in connection withthis Agreement" — and hence to be arbitrable — becausethey "necessarily turn[ed] on whether [plaintiff] was terminatedwith or without cause, an issue which involve[d] aninterpretation of the contractual relationship between theparties.").

By these lights, one can discern that all three counts of theComplaint "relate to" the Output Contract. Count I of theComplaint alleges false designation of origin in violation of theLanham Act. See Complaint ¶¶ 1-13. Count II alleges trademarkinfringement in violation of the Lanham Act, asserting that JER'scontinued unauthorized use of the mark "misleads consumers intobelieving that JER is affiliated with Winterwood," id. ¶ 18,"causes confusion, mistake, and deceit of and among consumers asto the source of the goods so sold by JER[,]" id., and "furthercauses mistake and leads third parties to believe that Winterwoodproduces inferior quality compost[,]" id. ¶ 20. Count IIIalleges violation of the DTPA, echoing Counts I and II incontending that JER's usage of the trademark and trade name "iscausing likelihood of confusion or of misunderstanding as to thesource, sponsorship or approval of the goods sold by JER[.]" Id. ¶ 24. The gravamen of all three counts thus islikelihood of confusion among consumers and others as to thesource of goods sold. See, e.g., International Ass'n ofMachinists & Aerospace Workers v. Winship Green Nursing Ctr.,103 F.3d 196, 200 (1st Cir. 1996) ("Trademark infringement andunfair competition laws exist largely to protect the public fromconfusion anent the actual source of goods or services. TheLanham Act is cast in this mold. Generally speaking, the Actproscribes the unauthorized use of a service mark when theparticular usage causes a likelihood of confusion with respect tothe identity of the service provider.") (citations and footnoteomitted).

As Winterwood acknowledges in its complaint, for a certainperiod of time following execution of the Output Contract, JER'sdesignation of Winterwood as the source and maker of the brandedcompost was "then-true." See Complaint ¶¶ 6-7. Indeed, theOutput Contract provided that Winterwood would sell virtually itsentire output of finished seafood compost to JER; thus, so longas the parties hewed to the terms of the contract, JER'sdesignation of Winterwood as the source of the compost itpurchased from Winterwood presumably would not be false ormisleading. Nor, during continuation of the contract, couldconsumers be misled as to the existence of an affiliation betweenWinterwood and JER or likely be confused as to whose product waswhose. During that period of time, Winterwood and JER (though notpartners or joint venturers) were indeed affiliated, andWinterwood essentially promised that it would have no third-partycustomers for its seafood compost apart from four clients to whomit expressly reserved the right to continue to make direct sales.See Output Contract § 1.3.

It follows that adjudication of all three counts of theComplaint necessarily would entail examination of the parties'relationship as set forth in the Output Contract, includingwhether that contract effectively was terminated and, if so, when.2 All claims asserted in theComplaint thus are "related to" the Output Contract for purposesof the parties' arbitration clause. In accordance with9 U.S.C. § 3, entry of a stay of the instant action pending arbitration isappropriate.3

IV. Conclusion

For the foregoing reasons I conclude that the motion of JER tostay the instant action should be, and it hereby is, GRANTED.

1. To the extent that Winterwood suggests that the courtshould defer this determination, see Opposition at 3-4, I agreewith JER that the issue is ripe for decision in connection withthe instant motion, see Reply at 2-3.

2. Winterwood's argument that its claims are unrelated to theOutput Contract inasmuch as that contract (i) does not expresslyaddress use of trademarks or potential unfair trade practices and(ii) bars extrinsic evidence of any unwritten agreement, seeOpposition at 2-3, is a red herring. In view of the breadth ofthe parties' chosen arbitration clause, the question presented isnot whether the claims arise directly from the Output Contractbut rather whether recourse to that contract is essential toadjudicate those noncontractual claims.

3. I recognize that the Motion, as well, misses the mark intwo respects: that JER (i) relied on the "arising under" ratherthan the broader "related to" portion of the parties' arbitrationclause and (ii) cited only one case, B.V.D. Licensing Corp. v.Maro Hosiery Corp., 688 F. Supp. 961 (S.D.N.Y. 1988), that isnot particularly helpful (in fact, JER concedes in its replymemorandum that Maro is distinguishable). See generallyMotion; Reply; see also, e.g., Fairchild v. National Home Ins.Co., 17 Fed. Appx. 631, 632-33 (9th Cir. 2001) ("[T]he clauserequiring arbitration of `any disputes arising hereunder' [is]narrower than one requiring arbitration of a dispute `arising outof or relating to this agreement.' . . . Thus, the phrase`arising hereunder,' without more, covers a much narrower scopeof disputes, i.e., only those relating to the interpretationand performance of the contract itself.") (citations and internalpunctuation omitted). Nonetheless, JER squarely raises the keyquestion: whether the arbitration clause of the Output Contractcan be read to encompass the claims made in the Complaint,rendering a stay pursuant to 9 U.S.C. § 3 appropriate.

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