RCM Technologies, Inc. v. Brignik Technology, Inc.

137 F. Supp.2d 550 (D. N.J. 2001)

Opinion Date: March 19, 2001
Business Law
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ARBITRATION—A requirement to submit all matters of contract interpretation to arbitration encompasses claims that depend on contract interpretation, even ones for fraudulent inducement and unjust enrichment.

A provision of an asset purchase agreement required submission to mandatory and binding arbitration “any dispute that ‘arises as to interpretation of this Agreement.’ The agreement contained a representation that the closing net operating income (CNOI) was not less than a certain figure. A dispute arose about a contingent payout and the seller served an arbitration claim on the buyer. The buyer filed claims of breach of contract, fraud, fraudulent inducement, unjust enrichment, and negligent misrepresentation in state court. The matter was removed to the federal district court. Under the Federal Arbitration Act, a written arbitration provision in a contract is valid, irrevocable, and enforceable, “save upon such grounds as exist at law or in equity for the revocation of any contract.” Further, federal policy favors arbitration and “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration… .” In many cases, the federal courts have compelled arbitration of fraudulent inducement claims. Here, however, the arbitration provision was quite narrow, only providing for arbitration of disputes that arose as to interpretation of the contract. Nonetheless, the court recognized that the fraudulent inducement claim centered on the seller’s representation as to the CNOI being above a certain figure. The seller argued that it would be necessary to interpret the definition of CNOI, whereas the buyer countered that the CNOI was exhaustively defined in the agreement and all that was left was the necessity of calculating the figure. The Court was persuaded that the claims in the case “almost undoubtedly will require interpretation of the parties’ agreement and that there is a possibility that the parties held different views as to the meaning of CNOI. Therefore, it held that the fraudulent inducement claims were subject to arbitration. As to the unjust enrichment claim, the seller argued that it was not subject to the arbitration clause “because recovery on a theory of unjust enrichment is predicated on the absence of a valid agreement, even though precedent held that unjust enrichment claims were arbitrable. Again, the Court held that “the factual issue underpinning all of [the buyer’s claims], including the unjust enrichment claim” was the accuracy of the seller’s CNOI representation. Consequently, the Court found that the unjust enrichment claim was also subject to arbitration. Although neither party specifically addressed the breach of contract claim, the Court held that it too must be arbitrated because it also placed in issue the interpretation of the purchase agreement’s CNOI definition.

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