APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA D.C. Civil No. 77-225
Before Gibbons, Hunter and Garth, Circuit Judges.
Bristol Farmers Market and Auction Co. and Closeouts, Inc.*fn1 (Bristol) appeal from a district court decision refusing to enjoin arbitration demanded under a lease agreement by the lessee, Arlen Realty & Development Corp. (Arlen). The district court held that the issues Arlen seeks to press in arbitration are properly within the scope of the arbitration clause, are not barred by res judicata, and were not waived by Arlen's failure to assert them in prior legal actions. Thus, the district court granted Arlen's motion to dismiss for failure to state a claim upon which relief can be granted. We affirm.*fn2
Bristol (as lessor) and Arlen (as lessee) entered into an agreement dated April 2, 1970. It provided for the lease of premises in a shopping center for the operation of a discount department store. The term commenced April, 1970 and was to terminate March 31, 1985. On June 17, 1974 the parties executed an Amendment to the Lease and Consent to Subletting Agreement. Bristol consented to the subletting of the premises to Bristol Bazaar,*fn3 but by the terms of the agreement, Arlen remained liable to Bristol for the rental payments.
Litigation commenced between Arlen and Bristol when Arlen and the sublessee, Bristol Bazaar, stopped making rental payments after September 1, 1975.*fn4 On October 24, 1975 Bristol sued Arlen in federal court for rent due. Bristol received a judgment for rent owing from September 1, 1975 through March 31, 1976 and prevailed in the appeal to this court.*fn5
Bristol instituted a second action on June 30, 1976 for rent owing after April 1, 1976. In addition to the rent claim, Bristol contended that Arlen had violated the lease agreement by failing to "stay open" as required by section 102.*fn6 Arlen requested that the claim be withdrawn from the rent action and submitted instead to arbitration. Bristol consented. Moreover, Arlen specifically refused to raise its "supermarket defense," declaring its intention to press the issue in arbitration. By this "defense," Arlen claims that Bristol had an obligation under the lease to maintain a supermarket in the shopping center. Bristol prevailed in the second rent action and in the appeal to this court.*fn7 The district court declared that the issues were decided in the first rent action and were thus res judicata except the computation of damages.
Bristol brought two additional actions for subsequent rent terms, obtaining a judgment in the district court on the first, which was not appealed, and settling the second before judgment.
On December 9, 1976 Bristol filed a Demand for Arbitration on the issue of whether Arlen breached its obligations by failing to maintain a discount department store in the shopping center. On December 21, 1976 Arlen filed a Demand for Arbitration covering four issues, the last three of which are the subject of this appeal. Subsequently, on January 27, 1977, Arlen filed the same three issues as defense and counterclaim in the arbitration proceeding commenced by Bristol and withdrew its own Demand for Arbitration. Bristol brought this action to enjoin the arbitration of Arlen's counterclaims. The three issues and corresponding claims for relief requested by Arlen in the arbitration proceeding are:
We begin with the fundamental assertion that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 1353, 4 L. Ed. 2d 1409 (1960). Accord, John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547, 84 S. Ct. 909, 11 L. Ed. 2d 898 (1964); Hussey Metal Division v. Lectromelt Furnace Division, 471 F.2d 556, 557 (3d Cir. 1972) (decided under Pennsylvania law). Further, the court is limited to ascertaining "whether the party seeking arbitration is making a claim which on its face is governed by the contract. . . . The courts . . . have no business weighing the merits of the grievance." United Steelworkers v. American Manufacturing Co., 363 U.S. 564, 568, 80 S. Ct. 1343, 1346, 4 L. Ed. 2d 1403 (1960). Thus, our role in the first instance is confined to determining whether the issues asserted by Arlen in arbitration are within the ambit of the arbitration clause.
The arbitration provisions are in sections 2001 and ...