Affirming a district court's denial of a motion to compel arbitration of a commercial dispute, the Eleventh Circuit Court of Appeals held that a loan agreement alluding to a separate franchise agreement did incorporate the arbitration agreement by reference, but the dispute was not arbitrable because the arbitration agreement expressly excluded affiliates.

In World Rentals and Sales, LLC v. Volvo Construction Equipment Rents, Inc., No. 06-16352, 2008 WL 466127 (11th Cir. Feb. 22, 2008), Volvo Rents, a company that sells and leases construction equipment through franchises, entered into a franchise agreement containing an arbitration agreement with World Rentals in 2003. World Rentals obtained financing through Volvo Finance, an affiliate of Volvo Rents. The loan documents did not contain arbitration agreements, but did incorporate the franchise agreement between World Rentals and Volvo Rents.

By 2006, World Rentals franchise business had floundered, which caused Volvo Finance to threaten legal action to recover the outstanding loans. World Rentals responded by suing Volvo Rents and Volvo Finance for fraud and tort claims, specifically alleging they had fraudulently induced World Rentals to sign the franchise and loan agreements.

After some procedural wrangling, the district court ordered arbitration of the dispute between World Rentals and Volvo Rents, but not the dispute between World Rentals and Volvo Finance, concluding that an arbitration agreement existed between World Rentals and Volvo Rents but none existed between World Rentals and Volvo Finance. World Rentals appealed, seeking an order compelling Volvo Finance to arbitrate because the loan agreement between it and Volvo Finance incorporated the arbitration agreement in the franchise agreement.

The Eleventh Circuit held that the loan agreements did incorporate the arbitration agreement in the franchise agreement, but that the dispute between World Rentals and Volvo Finance was outside the arbitration agreement's scope. The Court found that the loan agreement's language was sufficiently broad to incorporate the arbitration agreement by stating that "[a]ll…documents…referred [to] in this [Loan Document]…are hereby incorporated…in their entirety as if fully restated in this [Loan Document]." Moreover, the loan documents themselves expressly allude to the franchise agreement. Therefore, the arbitration agreement between World Rentals and Volvo Rent also applied to Volvo Finance.

Although the loan agreement did incorporate the franchise agreement by reference, the Court concluded the arbitration agreement did not cover the present dispute. The arbitration agreement's language covered "all disputes, claims, controversies or causes of action arising between Franchisee and Franchisor." However, the agreement specified that the term Franchisor only applied to Volvo Rents and excluded any of its affiliates such as Volvo Finance. Therefore, the arbitration agreement was limited only to disputes between World Rentals and Volvo Rents.