In 1989, Gordon McCullough ("McCullough") was general manager at a PMC plant in Cincinnati, Ohio, one of six facilities of the PMC Specialties Group, a division of PMC. In the spring of 1989, he read an article in a technical journal about an "aversive agent" known as Denatonium Saccharide ("DNS"), which was patented by Atomergic in 1985. An "aversive agent" is a substance added to poisonous products such as engine coolants to make them taste terrible and thus discourage children and animals from ingesting them. Atomergic notes that DNS is "the world's bitterest substance as certified by the Guinness Book of Records." Blum Aff. P 4.
Although no market existed for DNS at the time, McCullough was nevertheless interested in the product for two reasons. McCullough Aff. P 3. First, DNS contains saccharin, of which PMC is the only American manufacturer. Also, McCullough had learned that legislation was pending in Congress and in several states which would require the engine coolant industry to incorporate aversive agents into their products. If this legislation were to pass, a huge potential market for the product could be created.
A series of meetings ensued in the summer and fall of 1989 between McCullough and Melvin Blum ("Blum"), a vice president of Atomergic, to discuss the possibility that Atomergic could manufacture, and PMC could market, DNS. During these meetings, the parties attempted to estimate the potential market for DNS if the entire engine coolant industry were to incorporate DNS into their product. The parties agreed that Atomergic did not have the capacity to manufacture that large an amount of DNS -- estimated at 60,000 pounds a year -- and that it would need to line up "toll manufacturers" to meet this figure if the market ever developed. Id. PP 5-6.
Following these meetings, PMC and Atomergic attempted to negotiate a marketing agreement pursuant to which PMC would market, and Atomergic would manufacture and arrange for others to manufacture, DNS. Several drafts of a proposed agreement were exchanged in early 1990. See id. Exhs. A, B, C (January 4, March 2, and April 6 drafts).
It was during this period, in the course of negotiations over the marketing agreement, that the documents at issue in this litigation were executed. Atomergic claims that these documents -- a "blanket purchase order" for 60,000 pounds of DNS (the "Purchase Order") and a "confirmation of sale" form (the "Confirmation of Sale"; collectively, the "Documents") -- were binding contractual documents, which it now seeks to enforce; PMC claims that they were mere forms which the parties did not intend to have binding effect.
McCullough forwarded the Purchase Order to Blum in December of 1989. The Purchase Order, on a PMC preprinted form, was signed by Diana Grabo, PMC's purchasing agent. See id. Exh. D. It lists the quantity of purchase as "approx." 25,000 pounds "First Campaign," and 35,000 pounds "Second Campaign." Price is also listed as "approximate," and in the "DATE REQUIRED" box, "As released" has been filled in.
Blum responded by sending McCullough the Confirmation of Sale. This document, which is dated January 31, 1990 and signed by Blum, is a one-page order form preprinted by Atomergic, with boxes for order number, delivery date, F.O.B. location, terms, date, quantity, commodity, and price. See id. Exh. E. In the "QUANTITY" box is typed "60,000 lbs Annual contract," and in the "Delivery" box, "90 days after release." In the oversized box labelled "COMMODITY" is the arbitration clause under which Atomergic now demands arbitration.
Below the boxes describing the order of DNS, a box is checked next to the statement, "We accept order as described above." McCullough signed the Confirmation of Sale and returned it to Atomergic.
Following execution of these two documents, the parties continued to exchange letters and documents, and PMC applied for a trademark for DNS ("ReJeX-iT") and made a small (22-pound) purchase of DNS. See McCullough Aff. PP 7-12, 26; Blum Aff. PP 14-20. The expected legislation, however, stalled, the market for DNS never developed as anticipated, and the proposed marketing agreement was never executed. McCullough Aff. PP 13. Three years later, in February 1993, Atomergic served PMC with a Demand for Arbitration, claiming that PMC had breached its obligations under the Purchase Order and Confirmation of Sale. PMC responded with this action, jurisdiction of which is founded on diversity.
The underlying issue in this case is whether, through signing the Purchase Order and Confirmation of Sale, PMC entered into a legally binding contract with Atomergic and is thus bound by the arbitration clause in the Confirmation of Sale. This underlying question is not before us, however. Instead, we must consider the narrower question raised by Atomergic's motion: whether the question of the existence of a contract should be decided by this Court rather than an arbitrator; and, if so, whether PMC has raised issues of fact about the existence of the contract sufficient to defeat Atomergic's summary judgment motion. We conclude that the answer to both parts of this question is "yes." We then briefly consider two other arguments advanced by Atomergic, both of which we find meritless.
I. Who Should Determine Whether the Parties Entered into a Contract
Atomergic contends that an arbitrator, rather than this Court, should determine whether the Purchase Order and Confirmation of Sale constitute a binding contract which obliges PMC to submit to arbitration. For this contention, Atomergic relies principally on two Supreme Court decisions -- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 18 L. Ed. 2d 1270, 87 S. Ct. 1801 (1967), and Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983) -- and on cases in other circuits interpreting Prima Paint.
In Prima Paint, the Court, looking to § 4 of the Federal Arbitration Act, 9 U.S.C. § 4, concluded that a federal court must order arbitration "once it is satisfied that 'the making of the agreement for arbitration . . . is not in issue.'" 388 U.S. at 403 (quoting 9 U.S.C. § 4) (emphasis added). It held, specifically, that while a court should itself examine a party's allegations that an arbitration clause was fraudulently induced ("an issue which goes to the 'making' of the agreement to arbitrate"), it should leave to the arbitrator any claims of fraudulent inducement of the contract as a whole, since "the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally." Id. at 402-04.
In Moses H. Cone Hospital, the Court reaffirmed Prima Paint and the "federal policy favoring arbitration" that it represented. 460 U.S. at 24. A party to a contract had attempted to stay arbitration on the grounds that its opponent, through delay, had waived its right to enforce the contract. Applying the reasoning of Prima Paint, the Court ordered arbitration of the dispute. It concluded that:
as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.
Id. at 24-25.
Atomergic cites cases, all from other circuits, which read narrowly Prima Paint's reference to "the making of the agreement for arbitration." See, e.g., Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1410 (9th Cir. 1989) (concluding that federal courts must send cases to arbitration "unless there is a challenge to the arbitration provision which is separate and distinct from any challenge to the underlying contract"); Unionmutual Stock Life Ins. Co. v. Beneficial Life Ins. Co., 774 F.2d 524, 529 (1st Cir. 1985) (same).
We do not need, however, to consider the various positions that other circuits have taken on this question, as the law within the Second Circuit is clear. The Second Circuit has concluded unequivocally that "the question of the very existence of the [contract] which embodies the arbitration agreement is encompassed within the meaning of 'the making of the arbitration agreement.'" Interocean Shipping Co. v. National Shipping & Trading Corp., 462 F.2d 673, 676 (2d Cir. 1972), cert. denied, 423 U.S. 1054, 46 L. Ed. 2d 643, 96 S. Ct. 785 (1976); followed in A/S Custodia v. Lessin Int'l, Inc., 503 F.2d 318, 320 (2d Cir. 1974); Matter of Herlofson Mgmt. A/S v. Ministry of Supply, No. 88 Civ. 7542 (RLC), 1989 U.S. Dist. LEXIS 11032, 1989 WL 111083, at *3 (S.D.N.Y. Sept. 19, 1989).
The rationale supporting this approach is incontrovertible. As the Supreme Court has recently reaffirmed:
"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." This axiom recognizes the fact that arbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration.