What Is Arbitration

PRM Energy Systems, Inc. v. Primenergy

United States Court of Appeals,

Eighth Circiut,

592 F.3d 830 (2010).

MELLOY, BEAM, and GRUENDER, Circuit Judges.

Plaintiff – Appellant: PRM Energy Systems, Inc., an Arkansas Corporation,

Plaintiff: Energy Process Technologies, Inc.,

Defendant: Primenergy, L.L.C., an Oklahoma Limited Liability Company

Defendant – Appellee: Kobe Steel, Ltd.,

1. What is Arbitration?

• Alternative resolution instead of litigation
• Require the third party’s presence: Arbitrator.
• The right to make decision belongs to arbitrator.
• Power is strict and flexible
• Arbitration Clause: The agreement in a contract states that any disputes arising under the contract would be resolved through arbitration rather than court system.

1. Background and Analysis

1. Background

• PRM sued Primenergy for fraud and theft trade secrets
• PRM sued Kobe for using their own techno in Japan without permission
• The Trial Court declared that PRM had to take all the complaints to arbitration.
• Problem:

+ Is PRM correct when appealed?

+ Why or Why not?

1. Analysis

When Kobe Steel moved to compel arbitration of PRM’s claims pursuant to arbitration provisions in the 1999 Agreements, and the district court1 granted Kobe Steel’s motion, PRM is absolutely correct that Kobe Steel, as a non-signatory to the 1999 Agreements, should not be permitted to enforce the arbitration provisions from those Agreements.

• There are five interlocking contracts relevant to the disputes between PRM and Primenergy: General Agreement, the Territorial License Agreement, the Confidentiality Agreement, the Consulting Agreement, and the Option To Expand Territory. As a group, the contracts are referred to as "the 1999 Agreements."
• The General Agreement contains an Arbitration Clause providing that "[a]ll disputes under the General Agreement that cannot be resolved by the parties shall be decided by arbitration." Each of the other four contracts contains a provision which makes it a part of the General Agreement, and thus subject to the Arbitration Clause of the General Agreement.

• Pursuant to the Arbitration Clause, various disputes sounding in contract between PRM and Primenergy were submitted to arbitration.

• The arbitration clause tangentially at issue here purports to cover "all disputes arising under" a technology licensing agreement between PRM and Primenergy.
• PRM asserts only a garden variety tort claim against Kobe Steel that does not directly touch either the subject matter or the geographic reach of the PRM/Primenergy contract itself.

• according to PRM, the tortious activities of Kobe Steel deal with transactions beyond the scope, and purposefully outside of, the licensing authority granted Primenergy. To be sure, it is axiomatic that in order for Kobe Steel to have engaged in the alleged misconduct it must have had knowledge of the 1999 Agreements but that is the extent of the allegations' involvement with those agreements.

• The PRM/Primenergy agreements do not mention Kobe Steel and perform no function whatsoever relating to the supposed Kobe Steel/Primenergy "exclusive collaboration" agreement. And, Kobe Steel was never a participant in the PRM/Primenergy deal.

Thus, the concerted misconduct requirements of Donaldson, the case that mainly drives the court's analysis in this appeal, are almost totally absent. Accordingly, as in Donaldson, this litigation, too, lacks sufficient allegations of pre-arranged collusive behavior, and Kobe Steel's arbitration demand should be rejected.

1. Precedent

DONALDSON COMPANY INC v. BURROUGHS DIESEL INC

Plaintiff: DONALDSON COMPANY, INC

Defendant: BURROUGHS DIESEL, INC.

The players in this lawsuit are:

•Western Star Truck Sales Inc is a manufacturer and distributor of trucks.

•Burroughs Diesel Inc is a dealer of Western Star.

•Donaldson Company Inc supplied portions of the truck's air intake system.

1.The truck engines failed, and in November 2001 the consumers sued Donaldson, Western Star, and Burroughs.

2.Burroughs cross-claimed against Donaldson & Western Star.

3.Western Star moved to compel arbitration against Burroughs.

4.Donaldson found out about the arbitration, and said that the cross-claim of Burroughs must be arbitrated.

5.The district court granted Donaldson's motion to compel arbitration.