Trippe Manufacturing Company, an Illinois corporation v. Niles Audio Corporation, a Florida corporation ON APPEAL FROM THE UNITED STATES…

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 03-4101
____________
TRIPPE MANUFACTURING COMPANY,
an Illinois corporation,
Appellant
v.
NILES AUDIO CORPORATION,
a Florida corporation
____________________
ON APPEAL FROM THE UNITED STATES DISTRICT
COURT
FOR THE DISTRICT OF NEW JERSEY
District Court Judge: Honorable Dennis M. Cavanaugh
(D.C. No. 03-cv-01905)
___________________
Argued: January 18, 2005
Before: ALITO, MCKEE, and SMITH, Circuit Judges
(Opinion Filed: March 18, 2005)
RANDI W. KOCHMAN
Cole, Schotz, Meisel, Forman & Leonard
25 Main Street
Hackensack, NJ 07601

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and
NATHAN H. LICHTENSTEIN (argued)
PAUL A. GREENBERG
Aronberg, Goldgehn, Davis & Garmisa
One IBM Plaza, Suite 3000
Chicago, IL 60611
Counsel for Appellant
ANTHONY P. CALLAGHAN
Gibbons, Del Deo, Dolan, Griffinger & Vecchione
One Riverfront Plaza
Newark, NJ 07102
and
STEPHEN E. NAGIN (argued)
CATHERINE A. VAN HORN
Nagin, Gallop & Figueredo
3225 Aviation Avenue, 3rd Floor
Miami, FL 33133
Counsel for Appellee
OPINION OF THE COURT
ALITO, Circuit Judge:
Trippe Manufacturing Co. (“Trippe”) appeals an order
denying its motion for summary judgment and granting a motion
by Niles Audio Corporation (“Niles”) to compel arbitration.
Because a duty to arbitrate must be founded upon a contractual
obligation, we reverse the order compelling arbitration with regard
to claims asserted by Niles that are unrelated to obligations
expressly assumed by Trippe through the Asset Purchase
Agreement (“APA”) that entered into effect on August 29, 2001.

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To the extent that Trippe expressly assumed obligations under the
APA, however, the order compelling arbitration is affirmed.
I.
Niles manufactures and markets consumer audio equipment.
In early 1998, Niles entered into an Exclusive Distributor
Agreement (“EDA”) with SL Waber, Inc. (“Waber”). Under the
terms of the EDA, Waber was to manufacture surge protectors for
Niles. Waber was also obligated to perform lifetime service
support for the product, to provide a toll-free customer service
phone line, and to handle claims under a connected equipment
guarantee (“CEG”) covering damage to electronic equipment
connected to the surge-protector. In addition, Waber covenanted
to give Niles quarterly reports on service and warranty claims.
Clause 12(f) of the EDA states, in part:
All disputes, claims, and controversies arising under
this Agreement, or a breach thereof, shall be
resolved by arbitration through the American
Arbitration Association in accordance with its rules
and regulations.
According to Niles, there were several technical problems with the
surge-protector and, after selling several thousand units, Niles
cancelled all outstanding orders in early 2001.
Trippe, a manufacturer, entered into the APA with Waber,
effective August 29, 2001. Under the terms of the agreement,
Trippe acquired several assets associated with Waber’s surge
protector business, including Waber’s rights to the Niles Audio
Contract. APA 1.1(h); APA Schedule 1.1(h). In clause 1.3 of the
APA, Trippe expressly assumed certain of Waber’s liabilities,
including:
(d) All liabilities, undertakings and obligations
for all product warranty and connected
equipment guarantees covering all products
sold to customers of the Waber Business,
regardless of whether the product was
manufactured, assembled or sold prior to, on

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or after the date of Closing.
(f) All liabilities and obligations of [Waber]
arising after [August 21, 2001] under each of
the Material Contracts listed on Schedule 1.1
(h) of the Disclosure Schedule.
Under the terms of the agreement, Trippe disclaimed responsibility
for any debt, obligation, or liability owed by Waber beyond those
expressly assumed.
In late 2002, Niles filed a demand for arbitration naming,
among others, Waber and Trippe. With regard to Trippe, Niles
requested the following relief: (1) a declaratory judgment binding
Trippe to the agreement between Niles and Waber, (2) an order
enjoining Trippe from discontinuing customer service support,
warranty repairs, fulfilling the CEG, or discontinuing reporting
obligations to Niles as required by the EDA, (3) attorneys’ fees and
costs, and (4) money damages. Trippe filed the present motion
seeking both a declaration that the EDA arbitration clause is not
binding on Trippe and an order enjoining Niles from pursuing its
claims against Trippe in the arbitration proceeding. Niles
responded with a motion to compel arbitration. The District Court
granted Niles’s motion, and this appeal followed.
In granting Niles’s motion to compel arbitration, the District
Court did not distinguish between claims arising out of Trippe’s
warranty and CEG obligations and other liabilities arising out of
the EDA; nor did the District Court distinguish claims according to
whether they arose before or after the effective date of the APA.
II.
We exercise plenary review over the District Court’s
decision to compel arbitration. See Bouriez v. Carnegie Mellon
University, 359 F.3d 292, 294 (3d Cir. 2004). We also exercise
plenary review over a denial of summary judgment. See Bartnicki
v. Vopper, 200 F.3d 109, 114 (3d Cir. 1999).
This arbitrability dispute is connected with a transaction

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involving interstate commerce, and is therefore governed by the
Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“The FAA”). The
FAA instructs courts to refer to principles of applicable state law
when determining the existence and scope of an agreement to
arbitrate. See Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland
Stanford Junior Univ., 489 U.S. 468, 475 (1989). Although the
EDA calls for the application of New Jersey law to the construction
of its terms, this case does not directly implicate the enforceability
of the EDA arbitration clause, but rather whether Trippe assumed
the duty to arbitrate according to that clause by entering into the
APA with Waber. Because we are concerned with the duties
assumed by Trippe under the APA, the choice of law provision of
that agreement, calling for the application of New York law,
applies.
III.
A motion to compel arbitration calls for a two-step inquiry
into (1) whether a valid agreement to arbitrate exists and (2)
whether the particular dispute falls within the scope of that
agreement. See PaineWebber, Inc. v. Hartmann, 921 F.2d 507, 511
(3d Cir. 1990), overruled on other grounds by Howsam v. Dean
Witter Reynolds, 537 U.S. 79, 85 (2002). When a dispute consists
of several claims, the court must determine on an issue-by-issue
basis whether a party bears a duty to arbitrate. See Painewebber
Inc. v. Hofmann, 984 F.2d 1372, 1376-77 (3d Cir. 1993). When
determining both the existence and the scope of an arbitration
agreement, there is a presumption in favor of arbitrability. “[A]n
order to arbitrate the particular grievance should not be denied
unless it may be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers the asserted
dispute.” AT&T Technologies, Inc. v. Communications Workers
of America, 475 U.S. 643, 650 (1986).
Although Trippe is not a signatory to the EDA, the EDA
arbitration clause may nevertheless be enforceable against it.
There are five theories for binding nonsignatories to arbitration
agreements: (1) incorporation by reference, (2) assumption, (3)
agency, (4) veil-piercing/alter ego, and (5) estoppel. MAG
Portfolio Consult, GmbH v. Merlin Biomed Group, LLC, 268 F.3d

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58, 61 (2d Cir. 2001). Niles contends that when Trippe expressly
assumed certain of Waber’s obligations under the EDA, it also
assumed the duty to arbitrate disputes related to those obligations.
Niles further argues that Trippe is bound by the EDA arbitration
clause under theories of incorporation and estoppel. These
arguments are addressed in turn.
A.
Under New York law, the assignee of rights under a
bilateral contract is not bound to perform the assignor’s duties
under the contract unless he expressly assumes that obligation.
Sillman v. Twentieth Century-Fox Film Corp., 144 N.E.2d 387,
391 (N.Y. 1957). That said, when an assignee assumes the
liabilities of an assignor, it is bound by an arbitration clause in the
underlying contract. Blum’s, Inc. v. Ferro Union Corporation, 318
N.Y.S.2d 414, 415 (1st Dept. 1971); see generally WEINSTEIN,
KORN, & MILLER, 1 NY CIVIL PRACTICE: CPLR P 7503.08. Trippe
argues that the arbitration clause constitutes an obligation that is
distinct and severable from the substantive duties imposed by the
EDA and that therefore no agreement to arbitrate exists because the
clause was not independently expressly assumed. This argument
is not convincing because “an assignment cannot alter a contract’s
bargained-for remedial measures, for then the assignment would
change the very nature of the rights assigned.” GMAC
Commercial Credit, LLC v. Spring Industries, Inc., 171 F.Supp.2d
209, 216 (S.D.N.Y. 2001) (citing Septembertide Publishing, 884
F.2d 675, 682 (2d Cir. 1989)). Because the EDA arbitration clause
covered all disputes arising under that agreement, Trippe’s
agreement to arbitrate with Niles is coextensive with the
substantive obligations assumed by Trippe under the APA.
This conclusion is entirely consistent with the case on which
Trippe principally relies, i.e., Gruntal & Co., Inc. v. Steinberg, 854
F.Supp. 324 (D.Del. 1994). In Gruntal, the assignee expressly and
without exception disclaimed liability for the assignor’s obligations
arising before the effective date of the agreement, and all of the
plaintiff’s claims were related to events prior to that date. Gruntal,
854 F.Supp. at 336. Although Trippe argues that claims asserted
by Niles in the Demand relate to events and transactions that

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occurred long before the APA effective date, this is not conclusive
of the issue before us; some of Niles’s claims relate to events that
took place after the effective date, and some of Trippe’s assumed
obligations reach back prior to that date. First, Trippe expressly
assumed liability for “all product warranty and connected
equipment guarantees covering all products sold to customers of
the Waber Business, regardless of whether the product was
manufactured, assembled or sold prior to, on or after the date of
Closing.” APA 1.3(d). Because the duty to arbitrate attached to
these obligations, Trippe is bound to arbitrate Niles’s warranty and
CEG claims. Second, Trippe expressly assumed liability arising
out of the Niles Audio Contract after the effective date and is
therefore bound to arbitrate those claims as well. Finally, because
Trippe did not assume Waber’s obligations arising prior to the
effective date of the agreement, with the exception of the warranty
and CEG obligations, Trippe did not agree to arbitrate claims
related to those unassumed obligations.
Because Trippe agreed to arbitrate disputes related to
obligations expressly assumed by the APA, an order compelling
arbitration is proper if Niles’s claims are within the scope of that
agreement to arbitrate. The language of clause 12(f) of the EDA
is very broad, encompassing “[a]ll disputes, claims, and
controversies arising under this Agreement, or a breach thereof . .
. .” All of Niles’s claims presented in its demand for arbitration
fall within the scope of this clause. The limiting factor with regard
to Trippe is not the scope of the arbitration clause, but the existence
of the agreement. We therefore hold that the order compelling
arbitration is correct with respect to any claim arising out of the
EDA after August 21, 2001, and to all claims related to the
warranty and CEG obligations.
B.
Niles argues that the entirety of Waber’s obligations under
the EDA are binding on Trippe, including an unlimited duty to
arbitrate. In an effort to achieve this result, Niles invokes the
theory of incorporation by reference, citing Exchange Mut. Ins. Co.
v. Haskell Co., 742 F.2d 274 (6th Cir. 1984). The theory of
incorporation by reference is relevant to the interpretation of a

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contract that expressly adopts the terms and conditions of an earlier
agreement. Although Trippe acquired some of Waber’s rights
under the EDA by entering into the APA, it is not accurate to say
that the parties intended for the EDA to inform the APA’s
construction. Rather, the EDA is treated as a purchased asset by
the APA. Niles cannot expand Trippe’s duty to arbitrate under this
theory.
C.
Niles argues that because Trippe embraced the EDA, Trippe
should be equitably estopped from challenging the arbitration
clause, citing Bouriez, 359 F.3d 292. As in Bouriez, however,
there is no evidence that Trippe directly benefitted from the
assignment of Waber’s rights to the Niles contract and therefore no
grounds for invoking the equitable power to bind a non-signatory
to the arbitration clause in question.
IV.
We hold that Trippe must arbitrate claims arising out of the
obligations expressly assumed in the APA, specifically, claims
related to warranty and CEG obligations and all claims arising after
August 21, 2001. To the extent that the District Court’s order
conforms with this holding, it is affirmed. To the extent that the
order compelling arbitration encompassed claims unrelated to
warranty and CEG obligations that arose prior to August 21, 2001,
it is reversed.

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