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A U.S. District Court in California held that an arbitration clause in an agreement, which was a smaller part of a larger transaction, applied only to disputes arising under that particular agreement.
In Goodrich Cargo Systems v. Aero Union Corp., No. C 06-06226 CRB, 2006 WL 3708065 (N.D. Cal. Dec. 14, 2006), Goodrich purchased part of Aero Union's business (APS business) which had various operations, including a cargo transfer system. The parties entered into an umbrella agreement which encompassed the entire agreement, the Asset Purchase Agreement (APA). As an attachment to that agreement, the parties entered into a licensing agreement which would allow Aero Union to continue operating the portion of the business which dealt with the cargo transfer system, the Manufacturing Licensing Agreement (MLA). The MLA contained an arbitration agreement. The APA did not, although it did refer specifically to the MLA. The APA also indicated that any additions to the agreement were incorporated into the original.
Goodrich brought suit against Aero Union regarding its purchase. The complaint consisted of three claims under the APA agreement, one claim under the MLA agreement and one that was not clearly under either. Aero Union moved to compel arbitration of all claims.
The Court disregarded Aero Union's argument that all of the claims arose out of "one integrated business transaction." Although the agreements referred to each other and the APA incorporated the terms of the MLA, the agreements related to different aspects of the transaction. The Court pointed to the language of the arbitration clause within the MLA, which referred to "this Agreement," (italics omitted), meaning the MLA. The Court reasoned that the parties could have included an arbitration agreement in the APA if they intended to arbitrate all disputes arising out of the purchase. The MLA governs a small aspect of the whole purchase and "it follows that the arbitration clause only applies to disputes as to those aspects of the transaction that are actually covered by the [MLA]."
See Int'l Ambassador Programs v. Archexpo, 68 F.3d 337 (9th Cir.1995).
The Court agreed with, but disregarded Aero Union's concern with the inefficiency of resolving some claims in the court and some in arbitration. The Court declined to "rewrite [the] contract merely because it commands an inefficient result." The parties only consented to arbitrate claims arising under the MLA and thus cannot be compelled to arbitrate the other claims. The Court denied the motion to compel arbitration in regards to four of the claims, but granted as to the one claim which arose under the MLA.
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