Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Mo.: Dealer’s claims against paint manufacturer must be arbitrated, (Dec 27, 2013)

By Edward L. Puzzo, J.D.

A paint dealer’s claims against a paint manufacturer were subject to the arbitration provision of the dealer agreement and not excluded from arbitration due to a carve-out of certain issues from arbitration provided in that agreement, the federal district court in Kansas City, Missouri has ruled (SPBR Holdings v. Kwal-Howells, December 23, 2013, Gaitan, F.).

In June 2011, SPBR Holdings, a paint retailer, purchased ten paint stores from defendant Kwal-Howells, a paint manufacturer and retailer. The parties also entered into a dealership agreement governing the purchase and sale of products.

SPBR Holdings alleged that soon after this transaction, Kwal-Howells stopped supplying paint, requiring it to purchase substitute supplies at a higher cost. Kwal-Howells countered that SPBR Holdings had breached the dealer agreement, and demanded arbitration. The parties were in arbitration proceedings when SPBR Holdings filed claims in state court. Kwal-Howells sought to dismiss the court case on the grounds that the court venue was improper and all the claims should be heard in arbitration instead.

Arbitrability. The initial issue considered by the court was whether or not the agreement to arbitrate disputes, contained in the dealer agreement, extended to the question of “arbitrability,” that is, whether the agreement required the parties to arbitrate a particular claim. This is an issue for judicial determination, the court stated, unless the parties to the agreement clearly and unmistakably provided otherwise. Here, the arbitration provision of the agreement discussed which disputes were covered by the provision, but there was no express reference to the threshold issue of arbitrability, the court found. The arbitration clause referred to the rules of the American Arbitration Association generally as the sole and exclusive procedures for the resolution of disputes under the agreement but this language did not evidence “clear and unmistakable” intent that the parties agreed to have an arbitrator decide the question of arbitrability. Thus, the court ruled, it would make that determination.

Arbitration “carve-out.” Kwal-Howells maintained that all of SPBR Holdings’ claims were covered by the arbitration clause of the dealership agreement. SPBR Holdings did not dispute that it agreed to the arbitration clause, but alleged that its claims fell within the scope of a “carve-out” section of the arbitration provision, which excluded disputes arising under certain specified sections of the dealer agreement.

SPBR Holdings stated that its claims for promissory estoppel, breach of contract, violation of the Missouri statute related to notice for termination of franchisees, fraud, negligent misrepresentation, breach of duty of good faith and fair dealing, tortious interference with contracts and business expectancy were all based on Kwal-Howells’s failure to fill purchase orders and its attempted termination of the dealer agreement, all covered by a section dealing with timely payment for products, which was a section of the agreement carved-out from arbitration.

After reviewing each of plaintiff SPBR Holdings claims, the court concluded that none of the claims fell under the section carved out from arbitration. That section, the court found, dealt with Kwal-Howells’ right to terminate the agreement for non-payment of goods, whereas SPBR Holdings’ claims all concerned breach of contract, misrepresentation and the like. These claims were not subject to carve-out from the arbitration agreement, the court ruled, and all of SPBR Holdings’ claims were subject to arbitration. In such a situation, the dismissal of the court action, rather than the imposition of a stay pending the outcome of the arbitration, was appropriate. Therefore, the court dismissed the action.

The case is Civil Action No. 13-CV-0543-W-FJG

Attorneys: John M. Duggan (Duggan, Shadwick, Doerr & Kurlbaum) for SPBR Holdings, Inc. J. Nick Badgerow (Spencer Fane Britt & Browne, LLP) for Kwal-Howells, Inc.

Companies: SPBR Holdings, Inc.; Kwal-Howells, Inc.

Cases: FranchisingDistribution MissouriNews