Arbitration Claim Unrelated to Prior Settlement Agreement Gets No Traction

McDermott Will & Emery

McDermott Will & Emery

The US Court of Appeals for the Eighth Circuit affirmed a denial to compel arbitration of a trademark infringement action because the new dispute did not arise out of or relate to the subject of a prior settlement agreement of a similar dispute between the parties that included an arbitration clause. Zetor North America, Inc. v. Brent Rozeboom, et al., Case No. 16-2125, (8th Cir., July 3, 2017) (Benton, J).

Zetor North America owned rights to the ZETOR mark in North America for use in connection with tractors. Ridgeway Enterprises sells new and used tractor parts using the ZETOR name but is not an authorized Zetor dealer. According to Zetor, Ridgeway advertises, markets and sells these parts without distinguishing which are genuine, thus causing consumer confusion about the source and quality of the parts.

In 2008, the parties had a similar dispute that was resolved by a settlement agreement that included an arbitration provision. The provision stated that the parties would “attempt in good faith to resolve any controversy arising out of or relating to this Agreement.” Under the agreement, Ridgeway had also “acknowledged the validity of the mark ZETOR” and had agreed to “permanently cease and desist the use of the ZETOR mark, except to describe the compatibility of its products with a ZETOR product.”

In 2014, Zetor learned that Ridgeway had continued to use the ZETOR mark without authorization and thereupon sued Ridgeway for trademark infringement, among other things. Ridgeway responded by filing a motion to compel arbitration based on the arbitration clause in the parties’ prior settlement agreement. After the district court denied the motion, Ridgeway appealed, arguing that Zetor’s “current claims arise out of or relate to” the prior settlement agreement, that the “factual allegations touch matters covered by the arbitration provision,” and that the parties therefore are bound by the arbitration provision.

The Eighth Circuit agreed with the district court that the parties were not bound by the arbitration clause in the earlier settlement agreement and found that such agreement “resolved an existing dispute; it did not create a relationship between the parties to be governed by the terms of the Agreement,” despite the language that obliged Ridgeway to permanently cease and desist the alleged infringing use of the ZETOR mark. The Court explained that the release in the prior settlement agreement “encompass[es] Plaintiff’s alleged infringement up to the effective date only.” In its new action, Zetor is “not attempting to enforce the terms of the Agreement; it is suing to enforce the trademark and unfair competition laws that are independent of the Agreement.”

The Eighth Circuit rejected Ridgeway’s claim that the settlement agreement created a relationship governing future conduct between the parties, noting that the agreement “requires only that Defendant stop its objectionable sales practices, subject to certain exceptions. It does not create a structure of forward-looking rights and obligations enforceable through arbitration.” 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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