the AAA's phrase "any controversy or claim arising out of or relating to this agreement, or the breach thereof" ( id. at 406). Defendants urge that the different language chosen by the parties here, embracing only "disputes arising out of the agreement," is entitled to be given just as sweeping a reading, for which purpose they call this Court's attention to the opinion issued by its colleague Honorable Charles Kocoras in Schacht v. Hartford Fire Ins. Co., No. 91 C 2228, 1991 U.S. Dist. LEXIS 12145, at *8-*14 (N.D. Ill. Aug. 30, 1991).
Defendants are of course wrong in saying of Schacht (D. Supp. Brief at 2):
This case is dispositive of the question posed by this Court.
After all, we are regularly reminded by our Court of Appeals that district judges' opinions are of no precedential value. Hence this Court's great respect for its colleague Judge Kocoras does not require adherence to his views if this Court perceives them to be mistaken. And in this instance one thing that does not appear to have been pointed out to Judge Kocoras in Schacht (at least his opinion is silent on the subject) is the fact that Prima Paint itself contains a clue that there is indeed a material difference between (1) what the Court there viewed as a broad arbitration clause and (2) the clause that is at hand here.
Some brief explanation may be in order. Schacht, 1991 U.S. Dist. LEXIS 12145, at *9-*10 declined to follow the directly contrary decision of Judge Edward Weinfeld in Michele Amoruso E Figli v. Fisheries Development Corp., 499 F. Supp. 1074, 1080-81 (S.D. N.Y. 1980), which had in turn adhered to the Second Circuit's Pre-Prima Paint decision in In re Kinoshita & Co., 287 F.2d 951 (2d Cir. 1961). Interestingly enough, Prima Paint, 388 U.S. at 402 n.8 had actually cited Kinoshita with apparent favor. And although the current status of Kinoshita was later questioned by the Plaintiff in Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 854-55 (2d Cir. 1987), the Second Circuit there declined the invitation to overrule Kinoshita ( id. at 854 n.6).
Just one Court of Appeals decision of recent vintage has dealt with a clause that is essentially on all fours with that chosen by the contracting parties in this case. Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir. 1983) is so much on Point that it is worth quoting here at length:
We interpret "arising hereunder" as synonymous with "arising under the Agreement." The phrase "arising under" has been called "relatively narrow as arbitration clauses go." ( Sinva, Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 253 F. Supp. 359, 364 (S.D. N.Y. 1966). In In re Kinoshita & Co., 287 F.2d 951, 953 (2d Cir. 1961), Judge Medina concluded that when an arbitration clause "refers to disputes or controversies 'under' or 'arising out of' the contract," arbitration is restricted to "disputes and controversies relating to the interpretation of the contract and matters of performance." Judge Medina reasoned that the phrase "arising under" is narrower in scope than the phrase "arising out of or relating to," the standard language recommended by the American Arbitration Association. Id.
In a recent case, a district court amplified Judge Medina's reasoning. In Michele Amoruso e Figli v. Fisheries Development Corp., 499 F. Supp. 1074, 1080 (S.D. N.Y. 1980), the court discussed the Supreme Court's interpretation of an arbitration clause, noting that "arising out of or relating to this agreement" had been labelled a "broad arbitration clause." Id. (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 398, 87 S. Ct. 1801, 1803, 18 L. Ed. 2d 1270, 1274 (1967)). The court went on to say that in the case before it, "the clause is limited to differences or disputes 'arising out of this Agreement'; notably, it omits reference to disputes 'relating to' the agreements. The omission is significant in the Second Circuit." Michele Amoruso e Figli, 499 F. Supp. at 1080.
The omission should be significant in this circuit as well. The standard clause suggested in the U.S.-Korean Commercial Arbitration Agreement contains the phrase, "out of or in relation to or in connection with this contract, or for the breach thereof." We have no difficulty finding that "arising hereunder" is intended to cover a much narrower scope of disputes, i.e., only those relating to the interpretation and performance of the contract itself.
This Court is persuaded that it would be anomalous to hold that a challenge to the very existence of an agreement, based on fraud in its inducement--that is, a dispute as to whether there is any agreement at all--ought to be viewed as arbitrable under a clause that defines the questions subject to arbitration as "any disputes arising out of the agreement" By contrast, an agreement also to arbitrate "any controversy or claim . . . related to this agreement" does not require the same degree of artificial levitation-- Genesco, 815 F.2d at 855 pointed to the same distinction in language, and it found confirmation of that distinction in that Court of Appeals' own earlier decision in Kinoshita:
The district court concluded that the language of the Genesco/Kakiuchi-America arbitration clause--"any controversy arising out of or relating to this contract"--is sufficiently broad to require arbitration of Genesco's fraudulent inducement claim against Kakiuchi-America. We agree. Kinoshita itself recognized that the inclusion of the phrase "relating to" in an arbitration provision requires a fraudulent inducement claim to be resolved by the arbitrators and not the courts. 287 F.2d at 953; see Samitri, 745 F.2d at 194; see also Prima Paint, 388 U.S. at 406, 87 S. Ct. at 1807 ("any controversy or claim arising out of or relating to this agreement" is easily broad enough to encompass fraudulent inducement claim). The arbitration clause therefore covers Genesco's fraud claim against Kakiuchi-America.
In summary, although this Court has consistently adhered to the public policy favoring arbitration, as taught both in the Federal Arbitration Act and the case law in this area, it cannot ignore the contracting parties' choice of an arbitration clause that is narrower than the well-known standard clause prescribed by the AAA. That difference is meaningful, and one obvious consequence of that difference ought to be that the parties have not committed to arbitrators rather than to a court the question whether any contract exists at all.
Defendants' motion in the alternative to dismiss or stay this action is therefore denied. At the status hearing on October 9 the parties should be prepared to address the question whether the converse result should follows--whether the arbitration that has been launched by Barragan and Dial-A-Mattress Operating ought to be stayed pending the resolution in this action of the threshold question whether the Barragan-Sweet Dreams agreement was induced by fraud.
Milton I. Shadur, Senior United States District Judge