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Arabian Motors Group W.L.L. v. Ford Motor Company

United States District Court, E.D. Michigan, Southern Division

January 19, 2017

ARABIAN MOTORS GROUP W.L.L., Plaintiff,
v.
FORD MOTOR COMPANY, Defendant.

          OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION TO STAY ARBITRATION (ECF #5)

          MATTHEW F. LEITMAN UNITED STATES DISTRICT JUDGE

         In 2005, Plaintiff Arabian Motors Group W.L.L. (“Arabian Motors”), a Kuwaiti automobile dealer, and Defendant Ford Motor Company (“Ford”) entered into an agreement under which Ford sold vehicles to Arabian Motors for resale to customers in the Middle East (the “Resale Agreement”). The Resale Agreement contains an arbitration provision that requires the parties to arbitrate certain disputes related to the agreement. After a dispute between the parties arose, Ford commenced arbitration. Arabian Motors contends that it cannot be compelled to arbitrate its dispute with Ford, and it now moves the Court to enjoin Ford from proceeding with the arbitration (the “Motion”). (See ECF #5.)

         Before the Court considers Arabian Motors' request for an injunction, it must answer a preliminary question: who should decide whether Arabian Motors can be compelled to arbitrate its dispute with Ford - the Court or the arbitrator? The Resale Agreement incorporates arbitration rules that delegate questions of arbitrability to the arbitrator, and such a delegation would ordinarily require Arabian Motors to submit its objection to arbitration to the arbitrator rather than to the Court. But Arabian Motors says that a federal statute, the Motor Vehicle Franchise Contract Arbitration Fairness Act (the “Fairness Act” or the “Act”), 15 U.S.C. § 1226, renders the delegation unenforceable. The Court disagrees. For the reasons explained below, the Fairness Act does not apply to contracts - like the Resale Agreement - between manufacturers and foreign dealers. Therefore, the parties' agreement to delegate questions of arbitrability to the arbitrator remains enforceable, and the arbitrator, not the Court, must decide whether Arabian Motors can be compelled to arbitrate its dispute with Ford. Accordingly, the Motion is DENIED.

         I

         A

         Arabian Motors is a corporation organized under the laws of Kuwait. (See ECF #5-1 at 2, Pg. ID 225.) Ford is an automobile manufacturer headquartered in Dearborn, Michigan. (See id.) On May 2, 2005, Arabian Motors and Ford entered into the Resale Agreement in Dearborn, Michigan. (See id.) The Resale Agreement appoints Arabian Motors as an authorized dealer of Ford products in Kuwait. (See id.)

         In the Resale Agreement, Arabian Motors and Ford agreed to arbitrate any “dispute, claim or controversy … in connection with the breach, implementation, invalidity, or termination” of the Resale Agreement that the parties could not resolve through informal negotiations. (Resale Agmt. at ¶14, ECF #5-1 at 22-23, Pg. ID 245-46.) Specifically, the parties agreed that any unresolved disputes would be subject to “binding arbitration in accordance with the United Nations Commission on Trade Law [“UNCITRAL”] Arbitration Rules in effect on the date” the Resale Agreement was executed. (Id. at ¶14(b), ECF #5-1 at 22-23, Pg. ID 245.) Those rules provided, among other things, that “the arbitral tribunal shall have the power to rule on objections that it has no jurisdiction, including any objection with respect to the existence or validity of the arbitration clause or of the separate arbitration agreement.” 1976 UNCITRAL Arbitration Rules, Rule 21.

         B

         The relationship between Arabian Motors and Ford apparently began to deteriorate in 2014. Two years later, on March 14, 2016, Ford sent written notice to Arabian Motors terminating the Resale Agreement effective July 27, 2016 (the “Notice of Termination”). (See ECF #5-2 at 44-46, Pg. ID 295-97.)

         On March 31, 2016, Ford submitted a Notice of Arbitration and Statement of Claim (the “Arbitration Demand”) to the American Arbitration Association (the “AAA”). (See Arbitration Demand, ECF #5-2 at 2-16, Pg. ID 253-267.) The Arbitration Demand sought a “declaratory judgment that Ford properly terminated the [Resale Agreement] for any and/or all reasons stated in the [Notice of Termination] and is not liable to [Arabian Motors] for terminating the [Resale Agreement] or relating to the course of dealings between Ford and [Arabian Motors].” (Id. at 15, Pg. ID 266.) The AAA assigned the matter to arbitrator Lawrence S. Schaner (the “Arbitrator”).

         In email messages sent to the AAA on April 30, 2016, May 24, 2016, and September 6, 2016, Arabian Motors objected to arbitration on the grounds that (1) the dispute was not arbitrable and (2) the AAA lacked jurisdiction to decide whether Arabian Motors could be compelled to arbitrate. (See ECF #13-4 at 2, Pg. ID 494; ECF #5-3 at 2, Pg. ID 299; ECF #13-6 at 7-8, Pg. ID 503-504.)

         On October 13, 2016, Arabian Motors filed a Complaint in this Court against Ford. (See Compl., ECF #1.) In its Complaint, Arabian Motors seeks two types of relief. First, Arabian Motors requests “preliminary and permanent injunctive relief enjoining the Ford Motor Company arbitration” and a declaratory judgement “that it [Arabian Motors] has no obligation to arbitrate [its dispute with Ford].” (Id. at 43-44, Pg. ID 43-44.) Second, Arabian Motors seeks damages for alleged breaches of the Resale Agreement and fraud by Ford. (See Id. at 28-44, Pg. ID 28-44.)

         On October 17, 2016, Arabian Motors filed the Motion in which it asks the Court to issue a preliminary injunction staying the arbitration on the ground that it cannot be compelled to arbitrate its dispute with Ford. (See ECF #5.) Ford responded to the Motion on November 15, 2016. (See ECF #13.) Arabian Motors filed a reply on November 29, 2016. (See ECF #16.) The Court held a hearing on the Motion on December 14, 2016.

         II

         When deciding whether to issue a preliminary injunction, the Court generally considers the following factors:

(1) whether the movant has a “strong” likelihood of success on the merits; (2) whether the movant would otherwise suffer irreparable injury; (3) whether issuance of a preliminary injunction would cause substantial harm to others; and (4) whether the public interest would be served by issuance of a preliminary injunction.

Leary v. Daeschner, 228 F.3d 729, 736 (6th Cir. 2000).

         However, before the Court applies these factors here, it must answer a preliminary question: who should decide whether Arabian Motors can be compelled to arbitrate its dispute with Ford? If the Arbitrator must decide that question, then the Court may not enjoin the arbitration on the ground that Arabian Motors cannot be compelled to arbitrate. Thus, the Court begins with the question of who decides arbitrability.

         III

         “[A]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes-but only those disputes-that the parties have agreed to submit to arbitration.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). Generally, courts (rather than arbitrators) decide whether parties have agreed to submit a particular dispute or issue to arbitration. The “default” rule “is that questions of arbitrability are the province of courts, not arbitrators.” Solvay Pharmaceuticals, Inc. v. Duramed Pharmaceuticals, Inc., 442 F.3d 471, 478 (6th Cir. 2006).

         But there is a significant exception to this general rule. Because arbitration is a “matter of contract, ” parties can “agree to submit the arbitrability question … to arbitration.” First Options, 514 U.S. at 943. Put differently, parties can “agree to arbitrate ‘gateway' questions of arbitrability, such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy, ” rather than have a court decide such questions. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68-69 (2010). However, “[c]ourts should not assume that parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” First Options, 514 U.S. at 944 (internal punctuation omitted).

         Here, the Resale Agreement contains clear evidence that the parties intended to submit gateway questions of arbitrability to the Arbitrator. Among other things, the parties agreed in the Resale Agreement to conduct their arbitration in accordance with the then-governing UNCITRAL Arbitration Rules. (Resale Agmt. at ¶14(b), ECF #5-1 at 22, Pg. ID 245.) As noted above, those rules provided that “[t]he arbitral tribunal shall have the power to rule on objections that it has no jurisdiction, including any objections with respect to the existence or validity of the arbitration clause or of the separate arbitration agreement.” 1976 UNCITRAL Arbitration Rules, Rule 21. Courts have consistently held that such an incorporation of the 1976 UNCITRAL Arbitration Rules is “clear and unmistakable evidence” that the parties agreed to arbitrate threshold issues of arbitrability. See Oracle Am., Inc. v. Myriad Group A.G., 724 F.3d 1069, 1073-75 (9th Cir. 2013) (collecting cases).[1] Arabian Motors does not contend otherwise. (For ease of reference, from this point forward, the Court refers to the language of the Resale Agreement incorporating the UNCITRAL rules as the “Delegation Provision.”)

         Instead, Arabian Motors contends that the Court must decide the question of arbitrability because enforcement of the Delegation Provision would violate the Fairness Act. Because Arabian Motors is specifically attacking the Delegation Provision, the Court must determine whether that provision is enforceable. See Rent-A-Center, at 71-72 (holding that a federal court may rule on enforceability of a delegation provision only where it is specifically challenged and not where a party challenges validity of arbitration provision as a whole).[2] If the provision is enforceable, the parties must submit the question of arbitrability to the Arbitrator. See Granite Rock Co., 561 U.S. at 299-300 (explaining that a “valid” delegation provision ...


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