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Graham Webb International, Inc. v. C.B. Sullivan Company

October 8, 2009

GRAHAM WEBB INTERNATIONAL, INC., PLAINTIFF,
v.
C.B. SULLIVAN COMPANY, INC., DEFENDANT.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

Order Granting in Part Defendant's Motion to Dismiss; Denying as Moot Plaintiff's Motion for Preliminary Injunction

Plaintiff, Graham Webb International, Inc. ("GWI"), moves the Court for a preliminary injunction staying a pending arbitration proceeding between the parties before the American Arbitration Association ("AAA") in Minnesota. Defendant, C.B. Sullivan Company, Inc. ("CBS"), moves the Court to dismiss Plaintiff's complaint for lack of personal jurisdiction, pursuant to the first-to-file rule, under the doctrine of forum non conveniens, and based on the Federal Arbitration Act. In the alternative, CBS asks the Court to transfer this action to the U.S. District Court for the District of New Hampshire. The parties have filed opposition and reply briefs with regard to both motions.

The Court heard oral argument on the parties' motions on September 30, 2009. For the reasons set forth herein, the Court GRANTS Defendant CBS's motion to dismiss based upon the Federal Arbitration Act, DENIES Defendant's motion to dismiss in all other regards, and DENIES AS MOOT Plaintiff's motion for preliminary injunction.

Background

The Agreements

GWI is a manufacturer of beauty supply products. CBS is a full-service distributor of wholesale beauty supply products throughout New England. In February 1998, CBS and GWI entered into a Distribution Agreement (the "1998 Distribution Agreement"). The 1998 Agreement granted CBS exclusive rights to distribute GWI products to both professional stores and salons in Massachusetts and to professional stores only in New Hampshire, Vermont, and Maine. [Declaration of of Joanne Caruso in Support of Motion for Preliminary Injunction ("Caruso Decl."), Exhibit 1A.] The 1998 Distribution Agreement did not grant CBS any right to distribute GWI products to salons in New Hampshire, Vermont, or Maine. The 1998 Distribution Agreement contained an arbitration provision which states as follows:

All disputes and claims relating to or arising under or out of this Agreement shall be fully and finally settled by arbitration in Minneapolis, Minnesota pursuant to the Rules of commercial arbitration of the American Arbitration Association and the terms of the Federal Arbitration Act. The decision of the arbitrator or arbitrators shall be final and may be enforced by any court of competent jurisdiction. The foregoing paragraph of this Section shall survive any termination of this Agreement. [Caruso Decl., Exhibit 1A, page 11, ¶ 22.] This agreement expired in 2003, but GWI and CBS continued to conduct its distribution relationship in accordance with the agreement.

On August 16, 2004, GWI entered into a distribution agreement with another distributor of beauty products, Kaleidoscope (the "2004 Kaleidoscope Agreement"). [Caruso Decl., Exhibit 1C.] The 2004 Kaleidoscope Agreement granted Kaleidoscope the exclusive right to sell certain GWI products to professional salons in New Hampshire, Vermont, and Maine. The 2004 Kaleidoscope Agreement also contained an arbitration provision, which states as follows:

All disputes among the parties hereto arising under this Agreement shall be settled by arbitration or litigation according to the Rules for Arbitration attached to this Agreement as Exhibit "H" and incorporated herein.

All proceedings and hearings will take place in San Diego County, California. The parties elect to have the substantive law of California apply to the arbitration, but the parties agree that activities undertaken pursuant to this Agreement in fact affect Interstate commerce and the parties elect to apply the procedural law of the Federal Arbitration Act. The parties agree that arbitration can be compelled by a court located in San Diego County, California, that arbitration cannot be avoided by the filing of any other lawsuit or proceeding, or the involvement or lack of involvement of any other party, and that provisions or ancillary remedies can be sought without waiver of arbitration rights. [Id., p. 15, ¶ 23.]*fn1

On November 2, 2005, GWI, CBS, and Kaleidoscope entered into an agreement whereby most of Kaleidoscope's rights to distribute products to salons in New Hampshire, Vermont, and Maine under the 2004 Kaleidoscope Agreement were assigned to CBS (the "Assignment Agreement"). [Caruso Decl., Exhibit 1D.] The Assignment Agreement further provided that it would be necessary to amend the underlying 1998 Distribution Agreement to reflect the change in distribution rights:

To complete this transaction, it will be necessary to make certain amendments to the distribution agreements to reflect the change in distribution rights. In this regard, we will need to amend the CB Sullivan Distribution Agreement to include salon rights for Maine, Vermont, and New Hampshire; in the case of the Kaleidoscope Distribution Agreement, we will need to amend the distribution agreement to delete the salon sales rights for all brands except the Graham Webb Classic Line. The parties agree to execute such amendments, and sign such other documents as may be necessary to complete this transaction. [Id., p. 3.] This Assignment Agreement contained yet a third arbitration provision stating that "[i]n the event of any dispute arising from or pertaining to this agreement, the parties agree to submit such dispute to binding arbitration before the American Arbitration Association in accordance with its rules for commercial matters."

Litigation History

On January 31, 2007, GWI notified CBS that it was unilaterally terminating the parties' distribution relationship effective April 1, 2007. [Complaint, ¶ 8.] On March 21, 2007, CBS sued GWI in New Hampshire state court, asserting various claims arising out of GWI's termination of CBS's distribution rights. GWI removed the case to federal court, and then moved to dismiss the complaint arguing the claims must be submitted to arbitration based upon the clauses of the 1998 Distribution Agreement, the 2004 Kaleidoscope Agreement, and/or the Assignment Agreement. [Plaintiff's Request for Judicial Notice in Support of Motion for Preliminary Injunction, Exhibit B, p.2.]

The District Court in New Hampshire granted in part GWI's motion to dismiss and remanded the case for arbitration in accordance with the parties' agreements. [Plaintiff's Request for Judicial Notice in Support of Motion for Preliminary Injunction, Exhibit D.] In compelling arbitration, the district court first determined that although the 1998 Distribution Agreement expired in 2003, the parties "continued a course of dealing prescribed by that contract" under an implied-in-fact contract. [Id. at p.8.] Thus, the court found the parties were bound by the terms of the 1998 Distribution Agreement, including its arbitration provisions. The Court then considered whether the parties were bound by the arbitration provision in the 2004 Kaleidoscope Agreement based upon the Assignment Agreement. The court concluded that as an assignee, CBS's rights against GWI were subject to all of the limitations of the assignor's rights. "Consequently, absent evidence that the parties specifically intended otherwise, Sullivan would, as the assignee of all of Kaleidoscope's rights under the Kaleidoscope Distribution Agreement, be bound by that agreement's arbitration provisions." [Id. at pp. 11-12.]

Finally, the court examined the Assignment Agreement for evidence of GWI and CBS's intent to submit to arbitration of any disputes. The court noted the Assignment Agreement stated the parties would amend their previously-existing distribution agreements, to reflect the change in distribution rights, and found this language evidenced an intent that the parties be bound by the original 1998 Distribution Agreement:

The assignment Agreement's language quoted above plainly demonstrates that the parties intended Sullivan's newly-acquired distribution rights to be governed by the Sullivan Distribution Agreement (or the implied-in-fact contract that replaced it upon ... its expiration) -- including, of course, the [Sullivan Distribution Agreement]'s arbitration provisions. That is, the parties unmistakably contemplated amending Sullivan's existing distribution agreement with GWI to include the newly-acquired distribution rights. Consequently, any disputes relating to, or arising under or out of, Sullivan's distribution of GWI's products in the New England region would be governed by the SDA. [Id. at p. 13.] Finally, the Court noted the existence of the broad arbitration clause in the Assignment Agreement, and found that "to the extent there is any confusion about what the parties intended when they executed the Assignment Agreement, that, too, must be arbitrated." [Id. at 13-14.]

The New Hampshire court granted the motion to dismiss to the extent it sought an order remanding the case for arbitration, and administratively closed the case "subject to reopening upon motion of either party after Sullivan's claims have been fully arbitrated." [Id. at p. 15.] The Minnesota Arbitration

On June 25, 2008, CBS filed a Demand for Arbitration with the AAA in Minnesota as provided for in the arbitration clause of the 1998 Distribution Agreement. [Caruso Decl., Exhibit 1.] On July 14, 2008, GWI filed an objection to the AAA's jurisdiction over CBS's claims based upon termination of the distribution rights under the 2004 Kaleidoscope Agreement and subsequent Assignment Agreement (i.e. the right to distribute products to salons in New Hampshire, Vermont, and Maine). GWI argued that CBS was required to pursue its rights under the ...


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