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Ervin v. Nokia

June 22, 2004

[5] TERRELL ERVIN, PLAINTIFF-APPELLEE,
v.
NOKIA, INC., DEFENDANT-APPELLANT, AND AT&T CORPORATION, AT&T CELLULARSERVICES, INC., AND AMERICAN TELEPHONE & TELEGRAPH COMPANY, DEFENDANTS.



[6] Appeal from the Circuit Court of St. Clair County. No. 01-L-150. Honorable Lloyd A. Cueto, Judge, presiding.

[7] The opinion of the court was delivered by: Justice Donovan

[8]  Plaintiff, Terrell Ervin, commenced this putative class action against defendant, Nokia, Inc. (Nokia), in order to recover damages for Nokia's alleged manufacture and sale of a defective product, the Nokia Model 8860 cellular telephone (Model 8860). Ervin's original complaint included a claim against AT&T Corp., AT&T Cellular Services, Inc., and American Telephone & Telegraph Company (collectively AT&T). AT&T's motion to stay proceedings and compel arbitration was granted. As a result, it is no longer a party to this action or appeal. Nokia also moved to stay the proceedings and compel arbitration. Ervin opposed Nokia's motion, arguing that Nokia was not covered by the arbitration provision and, therefore, lacked standing to attempt to enforce it. The circuit court of St. Clair County found that Nokia was not a party to the arbitration provision between Ervin and AT&T and could not enforce the arbitration clause. This interlocutory appeal followed; we have jurisdiction pursuant to Illinois Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)). See Caudle v. Sears, Roebuck & Co., 245 Ill. App. 3d 959, 962, 614 N.E.2d 1312, 1315 (1993). We affirm.

[9]  BACKGROUND

[10]   On or about July 5, 2000, Ervin purchased a cellular telephone from an AT&T Wireless Services, Inc., store. The telephone Ervin purchased was the Model 8860, manufactured by Nokia. At that time, AT&T also provided Ervin with a document entitled "Wireless Service Guide" (WSG). The WSG contained directions for the operation of the phone on the wireless network of AT&T, as well as other terms and conditions for the use of the service. On page 24 of the 25-page WSG, there was an arbitration clause providing, "Any dispute or claim arising out of or relating to this Agreement or to any product or service provided in connection with this Agreement (whether based in contract, tort, statute, fraud, misrepresentation[,] or any other legal theory) will be resolved by binding arbitration ***."

[11]   Ervin filed his putative class action in the circuit court of St. Clair County, Illinois, against Nokia and AT&T, alleging that the Model 8860 was defective and that Nokia and AT&T unlawfully misrepresented the phone or otherwise withheld information from the public regarding the phone's defects. Ervin's amended complaint alleged fraud, breach of an express warranty, breach of an implied warranty, breach of the covenant of good faith and fair dealing, unjust enrichment, and unfair trade practices.

[12]   On December 18, 2003, the trial judge issued an order in which he found that Nokia was not protected by any arbitration provision and could not enforce the WSG arbitration clause for the following reasons: (1) the WSG excludes the phone manufacturer, (2) the WSG is enforceable only by AT&T and its customers purchasing wireless services, (3) Nokia's owner's manual (also provided with the Model 8860) did not provide for arbitration, (4) Nokia and AT&T are not inextricably intertwined, and (5) equitable estoppel does not apply to bind Ervin to something that does not exist (an arbitration agreement with Nokia). On January 20, 2004, Nokia filed its notice of interlocutory appeal pursuant to Rule 307(a)(1).

[13]   ANALYSIS

[14]   Congress enacted the Federal Arbitration Act (FAA) (9 U.S.C. §1 et seq. (1994)) in 1925 "to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts[] and to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 114 L.Ed. 2d 26, 36, 111 S.Ct. 1647, 1651 (1991). The FAA reflects a "liberal federal policy favoring arbitration agreements" (Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 74 L.Ed. 2d 765, 785, 103 S.Ct. 927, 941 (1983); Borowiec v. Gateway 2000, Inc., 209 Ill. 2d 376, 384, 808 N.E.2d 957, 962 (2004)) and provides for orders compelling arbitration when one party has failed, neglected, or refused to comply with an arbitration agreement (9 U.S.C. §4 (1994)). The FAA also provides that, absent some ambiguity in the agreement, it is the language of the contract that defines the scope of disputes subject to arbitration. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57, 131 L.Ed. 2d 76, 84, 115 S.Ct. 1212, 1216 (1995) ("[T]he FAA's proarbitration policy does not operate without regard to the wishes of the contracting parties"). "[N]othing in the statute authorizes a court to compel arbitration of any issues, or by any parties, that are not already covered in the agreement." Equal Employment Opportunity Comm'n v. Waffle House, Inc., 534 U.S. 279, 289, 151 L.Ed. 2d 755, 766, 122 S.Ct. 754, 762 (2002). As stated by the United States Supreme Court in Waffle House, Inc.:

[15]   "The FAA directs courts to place arbitration agreements on equal footing with other contracts, but it 'does not require parties to arbitrate when they have not agreed to do so.' Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478[, 103 L.Ed. 2d 488, 499, 109 S.Ct. 1248, 1255] (1989). See also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404, n. 12[, 18 L.Ed. 2d 1270, 1277 n.12, 87 S. Ct. 1801, 1806 n.12] (1967) ('[T]he purpose of Congress in 1925 was to make arbitration agreements as enforceable as other contracts, but not more so'). Because the FAA is 'at bottom a policy guaranteeing the enforcement of private contractual arrangements,' Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625[, 87 L.Ed. 2d 444, 454, 105 S.Ct. 3346, 3353] (1985), we look first to whether the parties agreed to arbitrate a dispute, not to general policy goals, to determine the scope of the agreement. Id., at 626[, 87 L.Ed. 2d at 454, 105 S.Ct. at 3353]. While ambiguities in the language of the agreement should be resolved in favor of arbitration, Volt, 489 U.S. at 476[, 103 L. Ed. 2d at 498, 109 S.Ct. at 1254], we do not override the clear intent of the parties, or reach a result inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated. 'Arbitration under the [FAA] is a matter of consent, not coercion.' Id., at 479[, 103 L.Ed. 2d at 500, 109 S.Ct. at 1256]. Here there is no ambiguity." Waffle House, Inc., 534 U.S. at 293-94, 151 L.Ed. 2d at 768-69, 122 S. Ct. at 764.

[16]   Nokia asserts that, pursuant to AT&T's WSG, it should be permitted to compel arbitration. We disagree. Nokia's argument is rebutted by the explicit language of the WSG itself. Throughout the WSG, AT&T made it clear that the agreement was to apply only to the relationship between AT&T and its customers. The terms and conditions portion of the WSG specifically states, "[These terms and conditions] govern the relationship between you [(the consumer of AT&T Wireless Services)] and AT&T Wireless Services and explain our respective legal rights concerning all aspects of our relationship." (Emphasis added.) The WSG further states, "This is an agreement *** between you and the affiliate of AT&T Corp. licensed to provide Service in the area associated with your assigned telephone ***." (Emphasis added.) Under the heading "Limitation of Liability," AT&T's WSG also states, "We are not liable for acts or omissions of another service provider, for information provided through your phone, equipment failure or modification, or causes beyond our reasonable control." And, finally, under the heading "No Warranties," the WSG states: "We do not authorize anyone to make any warranty on our behalf and you should not rely on any such statement. We are not the manufacturer of the phone and any statement regarding it should not be interpreted as a warranty." (Emphasis added.) There is no ambiguity in the WSG in this instance. By the clear terms of the agreement, Nokia is not a party to and cannot enforce the arbitration clause.

[17]   Nokia counters that even if it is a "nonsignatory" to the WSG, it should be allowed to enforce the arbitration agreement on the theories of agency, third-party beneficiary, and/or equitable estoppel.

[18]   Initially, we note that in deciding whether parties agreed to arbitrate a certain matter, courts should apply ordinary state-law principles governing the formation of contracts. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 131 L.Ed. 2d 985, 993, 115 S.Ct. 1920, 1924 (1995); Washington Mutual Finance Group, LLC v. Bailey, 364 F.3d 260, 264 (5th Cir. 2004); Amgen, Inc. v. Ortho Pharmaceutical Corp., 303 Ill. App. 3d 370, 376, 708 N.E.2d 385, 389 (1999).

[19]   In Bishop v. We Care Hair Development Corp., 316 Ill. App. 3d 1182, 738 N.E.2d 610 (2000), the court found that only signatories to an arbitration agreement can file a motion to compel arbitration. Bishop, 316 Ill. App. 3d at 1194, 738 N.E.2d at 619; see also Vukusich v. Comprehensive Accounting Corp., 150 Ill. App. 3d 634, 642, 501 N.E.2d 1332, 1337 (1986). And in Caligiuri v. First Colony Life Insurance Co., 318 Ill. App. 3d 793, 742 N.E.2d 750 (2000), the court held, "Under either federal or Illinois law, the right to compel arbitration stems from an underlying contract and generally may not be invoked by a nonsignatory to the contract." Caligiuri, 318 Ill. App. 3d at 800, 742 N.E.2d at 755; see also Britton v. Co-op Banking Group, 4 F.3d 742, 744 (9th Cir. 1993); Board of Education of Meridian Community Unit School District 101 v. Meridian Education Ass'n, 112 Ill. App. 3d 558, 562, 445 N.E.2d 864, 867 (1983). The court in Caligiuri also acknowledged that federal courts have recognized contract-based theories under which a nonsignatory may be bound to the arbitration agreements of others, such as (1) incorporation by reference, (2) assumption, (3) agency, (4) veil-piercing or alter ego, and (5) estoppel. See, e.g., Thomson-CSF, S.A. v. American Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995). The court stated:

[20]   "It would seem to follow as a corollary that the same types of theories could afford a basis for a nonsignatory to invoke an arbitration agreement signed by others. Indeed, this court has suggested that this is the rule. See Howells v. Hoffman, 209 Ill. App. 3d 1004, 1007-09, 568 N.E.2d 934, 936-37 (1991) (addressing claim that broker could compel arbitration as third-party beneficiary, but also citing federal cases ...


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