Illinois Farmers Insurance Company, et al., Respondents, vs. Glass Service Company, Inc., et al., Appellants.

Illinois Farmers Insurance Company, et al., Respondents, vs. Glass Service Company, Inc., et al., Appellants. A03-109, Supreme Court, July 22, 2004. STATE OF MINNESOTA ! IN SUPREME COURT ! A03-109 ! ! Court of Appeals Anderson, Paul H., J. Took No Part, Gilbert, J. ! ! Illinois Farmers Insurance Company, et al., ! !!!!!!!!!!!!!!!!!!!!!!! Respondents, ! vs. Filed:! July 22, 2004 Ofce of Appellate Courts Glass Service Company, Inc., et al., ! !!!!!!!!!!!!!!!!!!!!!!! Appellants.!!!! SYLLABUS !!!!!!!!!!! Insurer did not waive its right to demand arbitration under the terms of its insurance policy when it either (1) failed to advise its policyholders' assignee of the assignee's right to demand arbitration under the policy, or (2) pursued a declaratory judgment action in district court in order to address the procedural question whether arbitration was required. !!!!!!!!!!! Insurer did not waive its right to demand arbitration under the No-Fault Act when it pursued a declaratory judgment action in district court in order to address the procedural question whether arbitration was required. !!!!!!!!!!! Judicial estoppel does not bar insurer from demanding arbitration when both parties to district court action at different points in the litigation alternatively demanded or opposed arbitration of claims. !!!!!!!!!!! When the terms of an automobile insurance policy conict with provisions of the No-Fault Act and our Rules of No-Fault Arbitration by providing less coverage than that provided under the Act, and that policy contains a conformity clause, the provisions of the No-Fault Act and the Rules govern. !!!!!!!!!!! The No-Fault Act requires that the assignee of more than 5,700 individual auto glass claims against the same insurer arbitrate each claim. !!!!!!!!!!! Consolidation of No-Fault arbitration proceedings may be ordered if consolidation gives rise to efciencies and avoids inconsistent judgments. !!!!!!!!!!! Afrmed in part, reversed in part, and remanded. !!!!!!!!!!! Heard, considered, and decided by the court en banc. OPINION ANDERSON, Paul H., Justice. Glass Service Company and its wholly-owned subsidiary, Auto Glass Service Center (collectively Glass Service), appeal from a Minnesota Court of Appeals decision requiring them to separately arbitrate over 5,700 individual claims of alleged underpayment by Illinois Farmers Insurance Company and Mid-Century Insurance Company (collectively Farmers).! Glass Service asserts that Farmers underpaid it for glass work that it performed for Farmers' insureds.! The alleged underpayments collectively total more than $1,000,000.! The district court concluded that a mandatory arbitration clause in Farmers' insurance policy and Minnesota's No-Fault Automobile Insurance Act (No-Fault Act), Minn. Stat. 65B.41-65B.71 (2002), require Glass Service to separately arbitrate each claim of alleged underpayment.! The court also ordered the parties to arbitrate each underpayment claim before the same arbitration panel.! The court of appeals agreed in part, but held that the parties were required to arbitrate each of the more than 5,700 alleged underpayments before separate arbitration panels.! Ill. Farmers Ins. Co. v. Glass Service Co., Inc., 669 N.W.2d 420, 428 (Minn. App. 2003).! We afrm in part, holding that arbitration is required, but we remand to the district court to determine whether some or all of these claims may be consolidated.!! Minnesota's auto glass industry is highly regulated and the case before us appears to be another chapter in the evolving relationship between independent auto glass companies and automobile insurers.! For example,

legislation now bars insurers from requiring customers to use particular insurer-favored auto glass companies.! Minn. Stat. !72A.201, subd. 6(14)-(16) (2002).! Likewise, the glass companies are prohibited from soliciting insureds as customers by offering gifts to those customers who choose to use their services.! Minn. Stat. 325F.783 (2002).! Once a customer selects an auto glass company, the insurers are required to pay "a competitive price that is fair and reasonable within the local industry at large."! Minn. Stat. 72A.201, subd. 6(14) (2002).! The Commissioner of Commerce is empowered to promulgate rules to enforce this legislation.! Minn. Stat. !72A.201, subd. 1 (2002).! Minnesota Statutes 65B.134 (2002) requires that "[a]ny policy of automobile insurance * * * providing comprehensive coverage * * * must provide at the option of the insured complete coverage for repair or replacement of all damaged safety glass without regard to any deductible or minimum amount."! By forbidding deductibles, Minnesota's statutory scheme for automobile insurance essentially removes the auto glass customer from the payment process.! As a result, auto glass companies routinely bill their customers' insurance companies directly.! Glass Service follows this practice and includes on its invoices language that its customer "assign[s] any and all claims in connection with this installation against my insurance company to Glass Service Company, Inc." Glass Service asserts that Farmers underpaid it for glass work by systematically paying Glass Service less than the amounts stated on its invoices.! According to Glass Service, this practice is contrary to the requirements of Farmers' insurance policy, which requires payment in the "amount which it would cost to repair or replace damaged * * * property with other of like kind and quality."! Glass Service alleges over 5,700 instances of underpayment, for which it demands compensation in the amount of $1,138,229.52, plus interest.! The amount of the alleged underpayments varies among the several claims.! Some include discrepancies as large as 72.5 percent between the amount billed and the amount paid, while other discrepancies are as small as 5.5 percent.! The underpayments result from work Glass Service performed across the state and span a veyear time period from August 1997to April 2002.! During this time period, the regulatory structure of the auto glass industry changed signicantly.! An earlier statute regulating claims practices required insurers to "assume all reasonable costs sufcient to pay the insured's chosen [glass] vendor."! Minn. Stat. !72A.201, subd. 6(14) (1996).! In 2000, the legislature amended this statute to require payment "based on a competitive price," and directed the Commissioner of Commerce to conduct a market survey to determine "a fair and reasonable market price for similar services."! Minn. Stat. 72A.201, subd. 6 (14) (2000).! Under this legislation, the market survey was to be used to establish prices for glass work when an insurer disputed an amount charged by a glass company.! Id.! The legislature again amended the statute in 2002 to require payment "based on a competitive price that is fair and reasonable within the local industry at large."[1]! Minn. Stat. 72A.201, subd. 6 (14) (2002). The parties agree that pricing in the auto glass industry is based primarily on three components: glass, adhesives, and labor.! Both Glass Service and Farmers base their prices upon the National Auto Glass Specications (NAGS), a national price-list publication.! Glass Service charges prices for glass, adhesive, and labor that are percentages of the list prices.! While Farmers pays Glass Service based upon identical NAGS gures, it employs different percentages of the NAGS list prices to calculate the amount it pays Glass Service.! The NAGS list prices change quarterly and the parties adjust their prices accordingly.! Therefore, the component prices that Glass Service charges and the amount that Farmers pays change on a regular basis. Using its percentage of the NAGS list prices, Farmers regularly paid Glass Service less than the amount billed.! Glass Service characterizes the pricing and payment method in the auto glass industry as "formulaic."! It contends that the issues in its dispute with Farmers do not vary among the 5,700 claims.! Rather, it contends that these claims against Farmers amount to one dispute over the percentage of the NAGS list prices to be used in calculating payments for auto glass work.! While Farmers admits that its payments are based on formulas, Farmers contends that Glass Service oversimplies the uniformity of the individual disputed claims.! The record demonstrates that Glass Service utilized different percentages of the NAGS list prices throughout the ve-year time period at issue.! During this time period, Glass Service also adjusted the prices it charged for labor and adhesive.! Because the discrepancies between the amounts billed and the amounts reimbursed were relatively small, usually under $500, Glass Service rarely disputed individual claims.! If Glass Service had disputed any of those claims individually, it would have been bound by a mandatory arbitration clause in Farmers' policy.! The clause requires arbitration of "all cases where a claim made by an insured person is $5000 or less."! The No-Fault Act also provides for the "mandatory submission to binding arbitration of all cases at issue where the claim at the commencement of arbitration is in an amount of $10,000 or less *!*!* for no-fault benets or comprehensive or collision damage coverage."! Minn. Stat. !65B.525, subd. 1.! The Act includes auto glass coverage under the umbrella of "comprehensive coverage."! Minn. Stat. 65B.134.! None of the alleged underpayments in this case exceeds $5,000, so the parties agree that each customer's claim, standing alone, is subject to arbitration.! But they disagree whether those claims must be arbitrated separately and, most critically, whether the 5,700

plus claims can be combined so that Glass Service's "claim" exceeds the jurisdictional amount for mandatory arbitration.!! In 2002, Glass Service served a demand for arbitration of its claims against Farmers.! Farmers in turn brought a declaratory judgment action in Ramsey County District Court, arguing that any assignment of claims from its policyholders to Glass Service did not include the right to arbitrate.! Alternatively, Farmers sought a declaration that any right to arbitration did not include the right to arbitrate claims collectively.! But then the parties' positions on arbitration changed.! In its answer, Glass Service brought a counterclaim for breach of contract resulting from the alleged underpayments.! In response, Farmers moved for summary judgment on the breach of contract counterclaim and sought a declaration that Glass Service was required to arbitrate each claim individually.! The court ordered the parties to arbitrate the claims separately, but required that each of the claims be arbitrated before the same arbitration panel.! The court of appeals afrmed the district court's summary judgment ruling, but held that the district court erred when it required that all the claims be arbitrated before the same panel.! Ill. Farmers, 669 N.W.2d at 428.! Rather, the court of appeals held that the claims could not be consolidated to be heard by the same arbitration panel.! Id.! Glass Service petitioned for further review, which we granted. I. Before addressing whether any or all of the disputed claims must be arbitrated, we rst address Glass Service's argument that Farmers waived its contractual right to mandatory arbitration under its insurance policy.! Waiver is the voluntary and intentional relinquishment of a known right.! Har-Mar, Inc. v. Thorsen & Thorshov, Inc., 300 Minn. 149, 156-57, 218 N.W.2d 751, 756 (1974).! One way a party may waive a contractual right to arbitration is if "judicial proceedings based on that contract have been initiated and have not been expeditiously challenged on the grounds that disputes under the contract are to be arbitrated."! Bros. Jurewicz, Inc. v. Atari, Inc., 296 N.W.2d 422, 428 (Minn. 1980).! The party alleging waiver must provide evidence that the party that is alleged to have waived the right possessed both knowledge of the right in question and the intent to waive that right.! Stephenson v. Martin, 259 N.W.2d 467, 470 (Minn. 1977).! Glass Service makes a two-pronged argument for waiver.! Its rst argument is based on the language in the arbitration clause of Farmers' policy, which provides that if Farmers denies a claim, it is to advise the claimant of the claimant's right to demand arbitration.! Glass Service argues that the policy creates a condition precedent.! Glass Service claims that, in order for Farmers to preserve its contractual right to mandatory arbitration, Farmers, after denying Glass Service's claim, was required to advise Glass Service of its "right to demand arbitration."!!! This argument requires us to determine whether the language of the arbitration clause in Farmers' insurance policy creates a condition precedent to demanding arbitration.! The interpretation of insurance contracts is governed by general principles of contract law.! Thommes v. Milwaukee Ins. Co., 641 N.W.2d 877, 879 (Minn. 2002).!The interpretation of contractual language is an issue of law for the court to decide.! Denelsbeck v. Wells Fargo & Co., 666 N.W.2d 339, 346 (Minn. 2003).! Contract language is ambiguous if it is reasonably susceptible to more than one interpretation.! Id.! When the language of an insurance contract is unambiguous, we interpret that language in accordance with its plain and ordinary meaning.! Thommes, 641 N.W.2d at 880.! !!!!!!!!!!! The arbitration clause of Farmers' policy provides that "[s]ubmission to binding arbitration is mandatory in all cases where a claim made by an insured person is $5,000 or less."! (Emphasis added.)! We conclude that the language in the arbitration clause is unambiguous and that its plain and ordinary meaning establishes that any claim under $5,000 automatically becomes arbitrable.! Further, the policy does not make Farmers' ability to seek arbitration contingent upon the happening of any event.! Absent a contractual condition precedent to Farmers demanding arbitration, Farmers cannot be said to waive any right set forth in the policy.! Because arbitration under Farmers' policy is automatic and not contingent on any event, we conclude that Farmers did not waive its right to demand arbitration when, after denying the claims, it failed to notify Glass Service of the right to arbitrate. !!!!!!!!!!! We next turn to Glass Service's second argument that Farmers waived its right to demand arbitration when it pursued litigation in district court.! We have held that, in certain instances, a party may waive its right to arbitrate a dispute by litigating that dispute in the courts.! For example, in Anderson v. Twin City Rapid Transit Co., a contract between a local public transit authority and its union provided for arbitration of employment disputes arising from the transit authority's conversion from streetcars to buses.! 250 Minn. 167, 170, 84 N.W. 2d 593, 596 (1957).! After a group of employees brought a wrongful discharge action in district court, the transit authority answered, conducted discovery, and defended the suit on the merits.! Id. at 171-72, 84 N.W.2d at 597.! When, 16 months after litigation commenced, the transit authority demanded arbitration, we held that the transit authority waived its right to arbitrate by allowing litigation to progress to such an advanced stage before demanding arbitration.! Id. at 181, 84 N.W.2d at 602.! We afrmed the principles of Anderson in Brothers Jurewicz, in which we held that a party waived its right to arbitration by answering a claim on the merits and allowing the district court litigation over the contract to proceed for over one year without moving the court to stay the proceedings and compel arbitration.! 296 N.W.2d at 428.

Glass Service notes that, similar to the behavior of the parties in Anderson and Brothers Jurewicz, Farmers led a declaratory judgment action in district court opposing arbitration.! Glass Service argues that Farmers waived its right to arbitrate by bypassing the arbitration procedures in its insurance policy and the No-Fault Act.! Farmers responds by distinguishing Anderson and Brothers Jurewicz as cases in which the parties defended claims on the merits and allowed district court litigation to progress for a signicant time before seeking arbitration.! In contrast, Farmers notes that its declaratory judgment action was commenced not to resolve the merits, but rather to address the jurisdictional question of whether arbitration was required.! We are not persuaded by Glass Service's argument that, by pursing litigation in district court, Farmers waived its right to demand arbitration.! Anderson and Brothers Jurewicz are distinguishable in that each of those cases involved actions that were litigated in court on their merits for over a year before a party demanded arbitration.! Bros. Jurewicz, 296 N.W.2d at 428; Anderson, 250 Minn. at 182, 84 N.W.2d at 603.! Glass Service is correct that, in this case, Farmers initially contested Glass Service's right to arbitrate and opposed Glass Service's demand for consolidated arbitration.! However, this opposition was jurisdictional and did not involve a challenge to the merits of Glass Service's claim.! See Patterson v. Wu Family Corp., 608 N.W.2d 863, 869 (Minn. 2000) (holding that participation in discovery does not waive jurisdictional defenses).! Farmers' current declaratory judgment action seeks only to determine where and how this dispute shall be resolved; it does not call upon the courts of this state to resolve the merits of the dispute.! Because Farmers only asked the court to determine this preliminary question, we conclude that its actions do not demonstrate an intent to waive its right to arbitration.! In addition, to the extent that this dispute is governed by the mandatory arbitration provision of the No-Fault Act, the doctrine of waiver does not apply.! Minnesota Statutes 65B.525, subdivision 1, mandates that all disputes over comprehensive coverage "in an amount of $10,000 or less" must be submitted to mandatory binding arbitration.! See also Minn. No-Fault Arb. R. 6 (referring to "jurisdiction in mandatory cases").! The statute thereby deprives district courts of subject matter jurisdiction over a certain type of disputeclaims for comprehensive benets of $10,000 or less.! Id.; see Olson v. Am. Family Mut. Ins. Co., 636 N.W.2d 598, 604 (Minn. App. 2001) (noting that district court does not have jurisdiction over claims of "no-fault benets").! Because the mandatory arbitration provision of the No-Fault Act limits the district courts' subject matter jurisdiction, the right to demand arbitration under the Act may not be waived.! See Marzitelli v. City of Little Canada, 582 N.W.2d 904, 907 (Minn. 1998) ("[I]t is blackletter law that subject matter jurisdiction may not be waived."); Duininck Bros. & Gilchrist v. Brandondale Chaska Corp., 311 Minn. 291, 293, 248 N.W.2d 743, 744 (1976).! We conclude that Farmers did not waive its right to demand arbitration under the No-Fault Act when it pursued a declaratory judgment action in district court in order to address whether arbitration was required. II. Glass Service also argues that we should adopt the equitable doctrine of judicial estoppel and use this doctrine to deny Farmers' demand for arbitration because Farmers has taken inconsistent positions in this litigation.! Judicial estoppel is an equitable doctrine that prevents a party from assuming inconsistent positions in the course of litigation.! New Hampshire v. Maine, 532 U.S. 742, 748-49 (2001); Risetto v. Plumbers & Steamtters Local 343, 94 F.3d 597, 600-01 (9th Cir. 1996).! Although we have never expressly adopted the doctrine of judicial estoppel, State v. Prot, 591 N.W.2d 451, 462 (Minn. 1999), Glass Service urges us to do so in order "to protect the integrity of the judicial process" from parties who play "!fast and loose with the courts.'"! Konstantinidis v. Chen, 626 F.2d 933, 937 (D.C.Cir. 1980) (citation omitted).! Glass Service argues that Farmers abused the judicial process by demanding arbitration after rst opposing Glass Service's initial demands for arbitration.! The court of appeals noted that we have declined to recognize the doctrine of judicial estoppel and therefore rejected Glass Service's argument.! Ill. Farmers, 669 N.W.2d at 426.! We conclude that Glass Service does not present a compelling case to apply judicial estoppel.! At different points in this litigation, both Glass Service and Farmers have demanded and opposed arbitration, presumably preferring the forum that they perceived as most benecial at the time.! See Home Ins. Co. v. Nat'l Union Fire Ins. of Pittsburgh, 658 N.W.2d 522, 535 (Minn. 2003) ("It is a well-established principle that one who comes into equity must come with clean hands.") (internal quotations and citations omitted).! While we neither adopt nor reject the doctrine of judicial estoppel, we conclude that neither party to this litigation would be entitled to the benet of our equitable powers.! III. Next, we address Glass Service's argument that the district court and the court of appeals erred by concluding that arbitration is required.! Here, we must rst reconcile the mandatory arbitration terms of Farmers' insurance policy with the arbitration provisions of the No-Fault Act.! Farmers' policies provide: If an insured person and we [Farmers] do not agree (1) that the insured person is legally entitled to recover damages, or (2) on the amount of payment under this Part, the following applies: ! Mandatory Arbitration

Submission to binding arbitration is mandatory in all cases where a claim made by an insured person is $5000 or less.! If we deny the claim we will advise you of your right to demand arbitration. ! In that event, the insured person will select an arbitrator and we will select another.! The two arbitrators will select a third. ! If they cannot agree on the third arbitrator within 30 days, the judge of a court having jurisdiction will appoint the third arbitrator.! The insured person will pay the arbitrator selected by that person. ! We will pay the arbitrator we select.! The expense of the third arbitrator and all other expenses of arbitration will be shared equally. ! Arbitration will take place in the county where the insured person lives.! Local court rules governing procedures and evidence will apply.! The decision in writing of two arbitrators will be binding subject to the terms of this insurance. ! The No-Fault Act states that this court and the "several courts of general trial jurisdiction of this state shall by rules of court or other constitutionally allowable device, provide for the mandatory submission to binding arbitration of all cases at issue where the claim * * * is in an amount of $10,000 or less *!*!*."! Minn. Stat. 65B. 525, subd. 1.! Pursuant to the No-Fault Act, we adopted rules for the administration of no-fault arbitrationthe Minnesota No-Fault Arbitration Rules.! The parties do not claim that the Rules create any inconsistencies with the Act and we nd no inconsistencies ourselves.! Furthermore, none of the amendments to the Act after our adoption of the Rules create any conict with the Rules at issue here.! Accordingly, for purposes of the case before us, we treat the Rules as having the force and effect of statute.! Cf. US West Material Resources, Inc. v. Comm'r of Revenue, 511 N.W.2d 17, 20 n.2 (Minn. 1994) (noting that administrative rules have the force and effect of law).! Thus, in examining the potential conicts between Farmers' policy and the No-Fault Act, we look to the No-Fault Rules in addition to the Act itself.! The Minnesota No-Fault Arbitration Rules require an arbitration organization to administer the selection of arbitrators in the following manner: The arbitration organization shall send simultaneously to each party to the dispute an identical list of four names of persons chosen from the panel.! Each party to the dispute * * * [may] cross out a maximum of one name objected to, [and] number the remaining names in order of preference.! * * *! One of the persons who has been approved on both lists shall be invited by the arbitration organization to serve in accordance with the designated order of the mutual preference.!! ! Minn. No-Fault Arb. R. 8.[2]! !!!!!!!!!!! The procedure for arbitrator selection as established under the No-Fault Rules conicts with Farmers' policy, which requires panel arbitration.! Farmers' policy and the procedure under the No-Fault Act also have another crucial difference.! Unlike Farmers' policy, which requires that most expenses be shared equally, arbitration under the Rules provides the single arbitrator with the discretion to assess arbitration expenses as part of an award.! Minn. No-Fault Arb. R. 42. In the absence of a legal restriction to the contrary, parties to an insurance contract, just as parties to other agreements, are free to bargain for the coverage they wish.! Bobich v. Oja, 258 Minn. 287, 294, 104 N.W.2d 19, 24 (1960).! But it has long been our policy that insurance policies "do[] not stand on the same footing as ordinary contracts.! The business of insurance is quasi public in character; hence, it is competent for the state, in the exercise of the police power, to regulate it for the protection of the public."! Clark v. Rochester Farmers' Mut. Fire Ins. Co., 161 Minn. 476, 479, 201 N.W. 930, 931-32 (1925).! If a term in an insurance contract conicts with Minnesota statutes, the contract term becomes unenforceable.! Streich v. Am. Family Mut. Ins. Co., 358 N.W.2d 396, 399 (Minn. 1984).! An insurer may, however, provide an insured with broader coverage than the No-Fault Act or Rules mandate.! Gaalswyck v. General Cas. Co. of Wisconsin, 372 N.W.2d 435, 437 (Minn. App. 1985) (citing 8D Appleman Insurance Law and Practice 5163 (1981)); see also Watson v. United Services Auto. Ass'n, 566 N.W.2d 683, 690 (Minn. 1997) (holding that Minnesota standard re insurance policy provides statutory minimum coverage).! When an insurance policy contains a conformity clause, as Farmers' policies do, that clause amends all policy terms in conict with Minnesota law to conform to those laws.! Lessard v. Milwaukee Ins. Co., 514 N.W.2d 556, 559 (Minn. 1994).! As noted earlier, the use of panel arbitration in Farmers' insurance policy without the discretion to award costs conicts with the single arbitrator method established under the No-Fault Rule.! Compared with this procedure, Farmers' policy creates a system of dispute resolution that is decidedly disadvantageous to insured persons with small claims.! Therefore, unless the policy provides greater protection for the insured than the No-Fault Act, the terms of the policy must be conformed to the provisions of the Act.!

At oral argument, Farmers conceded that arbitration under its policy is costly and designed primarily for large claims.! Arbitration under the No-Fault Rules, in contrast, requires the claimant to pay only a $60 ling fee and split the arbitrator's $300 fee.! Minn. No-Fault Arb. R. 39 & 40.! These lower fees, combined with the possibility that the claimant may be awarded arbitration costs from the insurer if he or she prevails, bestows a benet on the insured by facilitating a low-cost method of dispute resolution.! The efciency of this model provides the insured with an incentive to arbitrate his or her dispute with the insurer.! Farmers' policy deprives the insured of this benet by forcing the insured to bear an equal share of the cost of panel arbitration, irrespective of the merit of his or her claim.! Because Farmers' policy fails to provide its insureds with protections that are equal to or greater than the protections provided by the No-Fault Act and the Rules, we hold that the Act governs the issue of arbitrability in this case. IV. Having decided that the No-Fault Act determines the arbitrability of the dispute between Farmers and Glass Service, we turn to the question of whether the No-Fault Act requires Glass Service to arbitrate its claims against Farmers.! Questions of statutory interpretation are issues of law that we review de novo.! Mutual Service Cas. Ins. Co. v. League of Minnesota Cities Ins. Trust, 659 N.W.2d 755,758 (Minn. 2003).!We construe statutes in order to "ascertain and effectuate the intention of the legislature."! Minn. Stat. 645.16 (2002).! In doing so, we give effect to the plain meaning of statutory terms.! Minn. Stat. 645.08 (2002); Miller-Largo v. N. States Power Co., 582 N.W.2d 550, 552 (Minn. 1998).! Because Glass Service accepted payment from its customers in the form of assignments of their insurance claims against Farmers, we rst must determine the rights and obligations that the No-Fault Act imposes on Glass Service as an assignee of Farmers' insurance policies.! The district court concluded that, as an assignee of the policyholders' claims against Farmers, Glass Service stands in the shoes of the individual policyholders and therefore must arbitrate each claim as each claim was subject to arbitration before it was assigned to Glass Service.! The court of appeals agreed that "ultimately, these are disputes between individual policyholders and their respective insurance companies."! Ill. Farmers, 669 N.W.2d at 426.! The court of appeals therefore held that the assignment of individual claims to Glass Service could not defeat the jurisdictional limit for no-fault arbitration.! Id. An assignment operates to place the assignee in the shoes of the assignor, and provides the assignee with the same legal rights as the assignor had before assignment.! Martin ex rel. Hoff v. City of Rochester, 642 N.W.2d 1, 13 (Minn. 2002).! Similarly, a debtor may assert all equities and defenses against the assignee that were available against the assignor.! Dennis v. Swanson, 176 Minn. 267, 272, 223 N.W. 288, 290 (1929).! Thus, if Farmers had the right to demand no-fault arbitration against individual policyholders, it will also have that right against Glass Service as assignee of the policyholders' claims against Farmers. !!!!!!!!!!! The No-Fault Act provides that arbitration is mandatory to resolve "all claims *!*!* in an amount of $10,000 or less."! Minn. Stat. 65B.525.! Black's Law Dictionary denes "claim" as "[t]he aggregate of operative facts giving rise to a right enforceable by a court."! Black's Law Dictionary 240 (7th ed. 1999).! We have dened "claim" in the context of the arbitration provisions of the No-Fault Act as "the amount the claimant is asking for."! Brown v. Allstate Ins. Co., 481 N.W.2d 17, 19 (Minn. 1992).! Accordingly, we have held that a claimant could not split a no-fault claim between wage losses and medical expenses in order to bring her case under the jurisdictional limit for mandatory arbitration.! Charboneau v. Am. Family Ins. Co., 481 N.W.2d 19, 21-22 (Minn. 1992). !!!!!!!!!!! Glass Service disagrees with how the district court and the court of appeals characterized its dispute with Farmers and argues that it is a single claimant with a single claim against Farmers.! Citing the fact that its dispute with Farmers totals over $1!million, Glass Service relies on Brown for the proposition that, because it is asking for such a large sum from Farmers, its "claim" exceeds the jurisdictional amount for mandatory no-fault arbitration.! Central to Glass Service's argument is its assertion that this case involves a single dispute between it and Farmers with a single issue, which issue is the systematic policy of short paying Glass Service invoices.! Farmers, on the other hand, argues that the "claimants" in this case are the individual policyholders.! Because the amount of underpayment for each individual policyholder is under $10,000, Farmers argues that each policyholder has a "claim" of under $10,000, which is subject to mandatory arbitration.! Farmers asserts that Glass Service, as an assignee, takes no greater or lesser rights than these individual policyholders.! It then asserts that, because the individual policyholders could not avoid arbitration by consolidating their claims with those of other policyholders, Glass Service also lacks this ability.! Thus, Farmers maintains that Glass Service is likewise required to arbitrate each of its claims under the No-Fault Act.!!! We agree with Farmers that Glass Service may not defeat the No-Fault Act's jurisdictional mandate for arbitration by consolidating the claims of Farmers' individual policyholders.! The aggregate of operative facts that gave rise to the claims against Farmers at issue in this case were the individual auto glass jobs that Glass Service performed for Farmers' policyholders.! Thus, after receiving glass work from Glass Service, the individual policyholders became claimants, each with a claim of less than $10,000 against Farmers.! Glass Service chose to accept payment for glass work in the form of an assignment of the proceeds from Farmers' insurance

policies.! The form, volume, and amount of the assignments does not, however, transform Glass Service's status as an assignee of 5,700 plus individual claims into a claimant with a single claim of over $1 million.! We therefore conclude that Glass Service is an assignee of 5,700 plus individual claims, each of which is subject to mandatory arbitration under the No-Fault Act. Glass Service correctly points out that our holding in Charboneau prevents the splitting of individuals' no-fault claims against insurers.! See Charboneau, 481 N.W.2d at 21-22.! However, Charboneau is distinguishable, as it involved one individual claimant whose sole claim against her insurer arose from a single automobile accident and exceeded the jurisdictional amount for arbitration.! Id. at 20.! In Charboneau, we prevented an individual from forum shopping by splitting her claim into two separate components.! Id. at 21.! We are not willing to read Charboneau to sanction an equally undesirable form of forum shopping by allowing parties to avoid mandatory arbitration for individual claims by treating those individual claims as one single claim.! In summary, the claimants in this case are the individual policyholders, each of whom possesses a claim against Farmers of under $10,000.! Because the assignment of claims from the policyholders to Glass Service does not transform Glass Service's status from an assignee to an individual claimant, those claims are subject to no-fault arbitration after assignment.! Therefore, we hold that the No-Fault Act requires that each of these claims be arbitrated.! Like the court of appeals, we recognize that the result we reach today may not be the most efcient method of resolving the underlying dispute between Glass Service and Farmers.! See Ill. Farmers, 669 N.W.2d at 426.! We are mindful of Glass Service's concern that the cost of more than 5,700 arbitrations could easily exceed the amount at stake in this matter.! However, we must follow the mandate of the No-Fault Act, which unequivocally demands that "all claims in an amount of $10,000 or less be arbitrated."! Minn. Stat. 65B.525 (emphasis added). !We note, however, that no-fault arbitration under the Rules, which utilizes a single arbitrator with the discretion to assess costs to a party, might allay some of Glass Service's concerns.! See Minn. No-Fault Arb. R. 42.! In addition to being more cost-effective than panel arbitration, this system may remove some of the disincentive for parties to arbitrate small claims. V. !!!!!!!!!!! Having decided that Glass Service is required to arbitrate its claims under the No-Fault Act, we next address Glass Service's alternative demand that its claims be consolidated into one arbitration proceeding.! The No-Fault Act and our Rules of No-Fault Arbitration are silent on the ability of courts to consolidate arbitration proceedings.! We do, however, have a leading case on the issueGrover-Dimond Assocs. v. Am. Arbitration Ass'n., 297 Minn. 324, 211 N.W.2d 787 (1973).! In Grover-Dimond, a building owner sought a consolidated arbitration proceeding to recover unauthorized expenses from two parties, an architect and a contractor.! Id. at 325, 211 N.W.2d at 787-88.! The building owner's contracts with the architect and the contractor each contained arbitration clauses.! Id. at 325, 211 N.W. 2d at 788.! After acknowledging the lack of binding authority on the issue, we adopted the New York rule that the power of courts to order arbitration and enforce arbitration awards "imports power to regulate the method of enforcement," and then ordered consolidation.! Id. at 328-29, 211 N.W.2d at 789 (citing Matter of Chariot Textiles Corp., 21 App. Div. 2d 762, 764, 250 N.Y.S.2d 493, 495 (1966)).! We noted that, where consolidation is not prohibited by statute or by the agreement to arbitrate, consolidation of similar disputes prevents both redundancy and conicting awards.! Grover-Dimond, 297 Minn. at 329, 211 N.W.2d at 790.! We stated that consolidation was particularly appropriate because the owner's disputes with the contractor and the architect involved common evidence and would likely result in the contractor and the architect blaming each other for the overcharges.! Id. at 330, 211 N.W.2d at 790.! We concluded that consolidation was proper in such a case, as it furthered the purpose of the Minnesota Uniform Arbitration Act, Minn. Stat. 572.08-572.30 (2002), to "encourage arbitration as a !speedy, informal, and relatively inexpensive procedure for resolving controversies arising out of commercial transactions.'"! Grover-Dimond, 297 Minn. at 327, 211 N.W.2d at 788 (quoting LayneMinnesota Co. v. Regents of the Univ., 266 Minn. 284, 287, 123 N.W.2d 371, 374 (1963)).! Since Grover-Dimond, two competing views on consolidation have emerged in other jurisdictions.! Some courts follow the rationale we adopted in Grover-Dimond and have allowed consolidation when it will increase the efciency of the arbitration.! See Exber, Inc. v. Sletten Constr. Co., 558 P.2d 517, 524 (Nev. 1976); Litton Bionetics, Inc. v. Glen Constr. Co. Inc., 437 A.2d 208, 217-18 (Md. 1981).! Like Grover-Dimond, many of these cases involve "vertical consolidation," in which A has an arbitration agreement with B; B has an arbitration agreement with C; and a party seeks to consolidate the A v. B and B v. C arbitrations.! See Baesler v. Continental Grain Co., 900 F.2d 1193, 1196 (Brown, J., dissenting) (dening "vertical consolidation").! In authorizing consolidation, these courts have recognized the efciency gains of consolidating proceedings that involve common parties, common evidence, and common witnesses.! See Exber, 558 P.2d at 524.! In addition, because in many of these cases there is a dispute over which one of several parties is responsible for damages, courts often cite the danger of inconsistent judgments as a justication for consolidation.! See Grover-Dimond, 297 Minn. at 329, 211 N.W.2d at 789-90.

In contrast, several federal circuit courts have considered the issue of consolidation under the Federal Arbitration Act (FAA).! The majority of these courts have refused to allow consolidation absent an explicit contractual or statutory mandate.! See Baesler, 900 F.2d at 1195; Weyerhaeuser Co. v. W. Seas Shipping Co., 743 F.2d 635, 637 (9th Cir. 1984).[3]! These courts have taken the view that their sole duty under arbitration agreements is to ensure that agreements are enforced in accordance with their terms.! Accordingly, the courts taking this view seek to protect the right of parties to receive their bargained-for dispute settlement mechanism, regardless of any inefciencies that may result.! See Weyerhaeuser, 743 F.2d at 637.! Our survey of the law as it has developed leads us to the conclusion that Grover-Dimond remains good law in Minnesota and that it should guide our decision in this matter.! In Grover-Dimond, we based our holding in part on our state's policy under the Minnesota Uniform Arbitration Act of promoting arbitration as a cost-effective, simplied, and informal alternative to litigation.! Grover-Dimond, 297 Minn. at 327, 211 N.W.2d at 788.! Although this case arises under the No-Fault Act, the legislature's stated purpose behind the Act demonstrates that similar policy considerations are at work here.! The No-Fault Act provides that one of its purposes is "[t]o speed the administration of justice, to ease the burden of litigation on the courts of this state, and to create a system of small claims arbitration to decrease the expense of and to simplify litigation."! Minn. Stat. !65B.42 (2002); see also Charboneau, 481 N.W.2d at 21 (quoting Minn. Stat. !65B.42).! If Glass Service is correct in its characterization of this controversy as a dispute over the "formulaic" method of reimbursement for glass work, the policy considerations that guided us in Grover-Dimond may well justify consolidation of the claims in this case. When deciding whether to order consolidation, courts should consider the efciencies of consolidation, the danger of inconsistent judgments if disputes are arbitrated separately, and the prejudice that parties may suffer as a result of consolidation.! Grover-Dimond, 297 Minn. at329, 211 N.W.2d at 789-90.! Efciencies may result from a commonality of witnesses or evidence in multiple proceedings, similarity of claims between the parties, or the dependence of multiple claims on a common set of facts.! Exber, 558 P.2d at 524.! The desirability of consolidation to avoid inconsistent judgments is greatest in "vertical" cases such as Grover-Dimond.! On the other hand, a court may nd that the differences between claims, such as differences in governing law or factual differences between individual claims, make consolidation undesirable.! A court also may determine that consolidation is inappropriate if it would prejudice the rights of one of the parties to the dispute.! See Seguro de Servicio de Salud de Puerto Rico v. McAuto Sys. Gr., Inc., 878 F.2d 5, 9 (1st Cir. 1989). Whether consolidation is proper is a fact-sensitive question that is best decided by the district court exercising its sound discretion.! We therefore reverse the court of appeals on the consolidation issue and remand this case to the district court for a determination of whether some or all of Glass Service's claims against Farmers may be consolidated into one or more proceedings.! The court shall order the parties to arbitrate their disputes in accordance with our Rules of No-Fault Arbitration.! If the court nds that some or all of the claims may be joined into one proceeding, it may, in its discretion, order consolidation of those claims. !! Baesler LeRoy Baesler and other safower producers entered into standard safower contracts with Continental Grain Company.8 Each contract between Continental and the producers contained a clause requiring arbitration of controversies and claims arising out of the agreement; however, the contracts were silent on the issue of consolidation.9 The producers purchased safower seed from Continen- tal, cultivated the safower, and offered Continental the resulting crop.1 On the basis of alleged sprout damage, Continental discounted the price and refused acceptance of some of the safower. 1 The producers, individually, entered into separate arbitration 12 proceedings with Continental. Baesler brought action against Continental in North Dakota state court requesting consolidation of the separate arbitration proceedings. 13 Continental removed the action to the United States district court, and Baesler moved for summary judgment asking the court to consolidate the proceedings.14 The federal court granted Continental's summary judgment motion, concluding that it lacked authority to order consolidation of arbitration hearings.15 Baesler appealed the lower court decision to the Eighth Circuit Court of Appeals.16 The appellate court, in interpreting the Federal Arbitration Act as requiring federal courts to enforce arbitration agreements as they are written, sided with the previous holdings of the Fifth,17 Ninth, 8 and Eleventh1 9 Circuits in denying the district court authority to consolidate the arbitration proceedings absent a provision in the 20 agreements.

The Eighth Circuit held that the Federal Arbitration Act (FAA) requires federal courts to enforce arbitration agreements as they are written, and where the arbitration agreement does not provide for consolidation, a district court is without the power to consolidate the proceedings.21 UK In Great Britain v. Boeing,3 the Ministry of Defense, a branch of the Government of the United Kingdom of Great Britain [hereinafter United Kingdom], led separate Demands for Arbitration with the American Arbitration Association (AAA) against both the Boeing Company (Boeing) and Textron, Inc. (Textron).4 The arbitration proceedings initiated by the United Kingdom arose from losses incurred when a military helicopter, owned by the United Kingdom, was damaged during a ground test on a newly installed fuel injection system.' Boeing manufactured the helicopter and installed the fuel injection system, while Textron manufactured the helicopter's engine and designed the fuel injection system.6 All military projects undertaken by Boeing and Textron for the United Kingdom were executed under separate contracts governing long-standing relationships between the parties.' The respective arbitration agreements relevant to this case were contained in a 1981 Boeing-United Kingdom base contract for services, as well as a 1985 Textron-United Kingdom contract relating to the design and development of the fuel injection system.' Each contract contained the following identical arbitration clause: Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in New York City by three Arbitrators in accordance with the Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof.9 The United Kingdom sought to consolidate the Boeing and Textron arbitration proceedings because the proceedings were based on the same questions of fact and law.10 Boeing, however, refused to agree to the United Kingdom's consolidation efforts." Boeing alleged that the simplicity of the issues involved in their arbitration proceeding, as compared to the issues involved in the Textron-United Kingdom arbitration proceeding, would leadto undue expense.'2 The AAA held that the consolidation of the Boeing-United Kingdom arbitration proceeding with the Textron-United Kingdom arbitration proceeding could not occur without the consent of all the parties involved. 3 The United Kingdom, relying on CompaniaEspanola de Petroleos,S.A. v. Nereus,4 led a petition in the United States District Court for the Southern District of New York seeking to compel the consolidated arbitration proceeding denied by the AAA' 5 The district court granted the United Kingdom's petition,16 and applying Compania, held that the F.A.A.,17 along with the Federal Rules of Civil Procedure,"8 authorized it to compel the consolidation of the separate arbitration proceedings, despite a lack of agreement between the parties, because the proceedings involved the same questions of fact and law. 19 On appeal by Boeing, the United States Court of Appeals for the Second Circuit2 distinguished Compania from the case at hand2' and reversed the district court.22 The Second Circuit held that the consolidation of arbitration proceedings arising from separate agreements to arbitrate cannot occur without the agreement of the parties involved, even when the proceedings involve the same questions of fact and law.23 Vine Wax Case Facts Plaintiff runs a vine nursery in Austria dealing, inter alia, with the breeding and renement of vines as well as the sale of these vines. In the grafting process, the [plaintiff] uses a special wax in order to protect the vines from drying out and in order to reduce the risk of infection. The wax, which plaintiff also in part resold, was purchased by [plaintiff] for many years from the defendant, whose owner also runs a vine nursery. The defendant in turn obtained the wax from the F.W. company. The manufacturer of the wax was the company S. Werke GmbH. In a letter dated January 18, 1994, plaintiff asked defendant, as in previous years, to submit an offer for "about 5,000 kg black vine wax." With reference to this letter, the defendant offered to plaintiff, in a letter dated January 21, 1994, 5,000 kg of "black vine wax" at the price of DM [Deutsche Mark] 5.43 per kilogram. On January 31, 1994, plaintiff placed such an order. The wax which was thereupon delivered to plaintiff was a type of wax newly developed by S. Werke, as requested by defendant. Defendant had neither actually received accepted nor inspected the goods prior to delivery to plaintiff. The delivery took place in the original packaging directly from the manufacturer, S. Werke, as requested by defendant via the F.W. Company. Plaintiff partially used the wax for the treatment of its own vines. In addition, plaintiff also sold the wax and vines which had been treated in its nursery with the wax to other nurseries which, in turn, treated their vines with the wax and also delivered vines that had been treated with the help of the wax to other customers.

In a letter dated June 16, 1994, plaintiff gave notice of the defective wax to defendant and complained of major damage to vines treated with the wax. In the lawsuit at issue, plaintiff demands the value of sA [Austrian Schillings] 14,146,348.40 in damages from the defendant. Defendant refuses to compensate [the buyer]. [The defendant] attributes the alleged damages to frost and argues that it is exempt from any liability as an intermediary pursuant to Art. 79 CISG because the reasons for the damages are out of its control. In addition, [defendant argues that] the asserted damages are excluded by its general terms and conditions of sale. The Landgericht [Court of First Instance] dismissed the complaint. Upon the appeal of the plaintiff, the Oberlandesgericht [Regional Appellate Court] held that the complaint presented a valid cause of action and remanded the case to the Landgericht for further hearings on the amount of damages. The appeal of defendant argues against this and requests the reinstatement of the Landgericht judgment. The Reasons for the Decision I. The [Regional] Court of Appeals held: [The Court held that] plaintiff had a claim for damages against defendant pursuant to CISG Art. 45(1)(b) in connection with Art. 74 - 77, from which defendant could not be exempted by CISG Art. 79. [The Court found that] the black vine wax delivered by defendant did not meet industry standards and was therefore not in conformity with the contract pursuant to CISG Art. 35(1). [The Court stated that] on the basis of the expert's opinion, the defectiveness of the wax was proven without a doubt. [The Court pointed out that] insofar as defendant denied that the delivered vine wax was the cause of the damage, this was unsubstantiated. [The Court held that] defendant's liability was not excluded by defendant's terms and conditions of sale. They did not become part of the contract. Moreover, they were invalid because they violated AGBG [*] 9 by excluding damage claims completely. [The Court held that] defendant's liability was also not exempted by CISG Art. 79. Because defendant itself herself had commissioned the development of the new type of wax that was delivered to plaintiff, an exemption was only possible if defendant could rely on the newly developed wax having been exhaustively tested. This was not, however, the case. [The Court stated that] as a result, the impediment pursuant to CISG Art. 79(1) was not beyond defendant's control. Defendant could have avoided the defect. It [defendant] should have had the new product tested for plant compatibility. [The Court held that,] therefore, plaintiff has a cause of action for compensation of its actual nancial damages because of the delivery of the defective wax in 1994. [The Court held that,] with respect to the extent of the damages caused by the defect, the matter was not yet ripe for decision. For this purpose, further determinations, especially an evidentiary hearing, are necessary to determine the extent of the damages suffered by plaintiff in its own vine nursery with respect to the vines intended for sale as well as the extent of its losses as a result of having to reimburse its customers for damages suffered due to the defective vines and its customers' property loss caused by the use of the defective wax. This decision is signicant because it claries important and internationally disputed questions concerning a seller's liability for delivery of non-conforming goods under the United Nations Convention on the International Sale of Goods (CISG). To understand the scope of the decision it is necessary to recall the entire context of seller's liability for non-conformity. The possibility of exemption for an obligor for a breach of duty due to an impediment beyond his control and which was neither foreseeable nor avoidable for him is limited to the obligee's claims for damages. According to Art. 79(5) CISG other remedies still remain viable when an obligor qualies for an exemption. For the seller's liability due to non-conforming goods that means that the buyer still has the right to a price reduction under Art. 50 CISG, to demand cure so long as the necessary prerequisites for cure or delivery of substitute goods are met, and in certain exceptional cases to declare the contract avoided.[2] As under 459, 480 (1) BGB [German Civil Code] the seller is in this respect still liable for defects, i.e., for the non-conformity of the goods. 1. According to the CISG a party is not liable for damages due to "failure to perform any of [a party's] obligations" if the prerequisites for an exemption stated in Art. 79(1) CISG are met. In simple terms this would include impediments that were unforeseeable and beyond the control of the party in breach and therefore unavoidable. The terminology of the Norwegian text is especially appropriate in using the term "sphere of control" to circumscribe the responsibility of the obligor and his risk of liability if damages arise. The prevailing view, not only in Germany, is that "a failure to perform any obligation" within the meaning of Art. 79(1) CISG includes the delivery of non-conforming goods. This means, at least theoretically, that a seller can escape his liability for damages by an excuse under Art. 79 CISG. The Bundesgerichtshof [German Federal Supreme Court, BGH] left open the question "whether Art. 79 CISG includes every possible case and form of failure to comply with obligations under the contract" as well as the question "whether the exemption applies to delivery of nonconforming goods." However, the court's holding that a seller is liable for defects attributable to his suppliers, and its reasoning why indicate that the court deemed Art. 79 CISG applicable for damages liability due to nonconformity; otherwise the court's reasoning in denying an exemption for the seller would be superuous. To evaluate the question of whether the seller's duty to deliver conforming goods under Art. 35 CISG is included under the obligations covered in Art. 79, and therefore whether an exemption for the seller is possible, and to

give the appropriate weight to scholarly comments on this question, it is necessary to distinguish two lines of argument. Firstly, whether non-conformity is actually failure to perform an obligation within the meaning of Art. 79(1) or 79(2) CISG and whether it should be according to the intention of the drafters of the Convention. Secondly, if the answer to the rst question is yes, whether non-conformity can depend on circumstances beyond the seller's control that he cannot reasonably be expected to have taken into account at the time of the conclusion of the contract or to have avoided or overcome their consequences. Thus, whether and when an exemption for the seller from liability due to defective goods can be considered.[3] a) The wording "any of his obligations," which would include those of the seller under Art. 35 CISG, and the placement of this exemption provision in the CISG (Chapter V "Provisions Common to the Obligations of the Seller and of the Buyer") clearly imply its applicability in cases where damages are claimed against the seller due to non-conformity of the goods. An interpretation leading to different results would go against the text of the Convention. b) The legislative history of the CISG also supports this position. The question was already disputed during the preparations for the Hague Convention (ULIS) and seemingly decided that the exemption provision of Art. 74 ULIS in principle should also apply to non-conformity cases.[4] In the Secretariat Commentary [5] on the 1978 New York Draft,[6] which served as the basis for the Vienna Conference, the example chosen to illustrate 1978 Draft Art. 65(1) (=Art 79(1) CISG) was the liability and possible exemption of a seller who failed to package the goods in accordance with the contract. However, adequate packaging was already in Art. 33 of this Draft, as well as presently in Art. 35 CISG, classied as necessary for the goods to conform to the contract.[7] AngloAmerican literature refers to the rst sentence of Art. 79(4) CISG and argues on the basis of the wording of the text that this sentence clearly would not t the case of delivery of non-conforming goods.[8] However, this sentence only makes clear that, in applying Art. 79 CISG, one has to differentiate between the modalities of the breach of contract. There is also, of course, the possibility that the party who cannot deliver conforming goods is able to communicate the reason for this hindrance prior to the delivery. The reference to damages in the second sentence of Art. 79(4) CISG makes sense for the buyer if exemption in cases of non-conformity to the contract is principally deemed possible in such a situation. c) Especially practical considerations speak for qualifying delivery of non-conforming goods as "failure to perform an obligation" within the meaning of Art. 79 CISG. If the delivery of non-conforming goods were to be excepted from the possibility of exemption under Art. 79 CISG then the seller would, at least in borderline cases which would qualify for remedies under both liability for non-conformity and failure to comply with a collateral duty under German (national) sales law, be able to qualify for an exemption for breach of a collateral duty but not for breach due to non-conformity of the goods. Packaging that does not conform with the contract (Art. 35(1), (2)(d) CISG) could also be construed as a breach of a collateral duty to adequately pack the goods. The seizure of instruments which do not comply with certain security standards could be construed to be the result of delay in producing the required test-certicates and therefore as a breach of a collateral duty for which an exemption would be conceivable (e.g., if the administrative agencies worked slowly).[9] This would be a further case of an unsure, and therefore, unwanted borderline between liability for non-conformity and liability for breach of a collateral duty. d) The differing opinions cited by the German Federal Supreme Court (BGH) have the following background. In the course of the preparations for ULIS Art. 74 (and later during the deliberations on the UNCITRAL Draft of the CISG) and in the discussions concerning the possibility of including an exemption for the seller in non-conformity cases, there was concern that, at least for courts whose system of contractual liability is based on fault, Art. 79 CISG could be misunderstood as a kind of weakened fault-liability principle.[10] An exemption for the seller due to lack of fault would however be so contrary to the Anglo-American legal tradition of seller's liability based upon warranties," that the CISG would therefore have been unacceptable to certain common law countries. The cited contrary views are from authors who represented their countries during the 1964 Hague Conference and fought there, with a provision to exculpate a seller from liability for defects he could not detect by exercising due care, against the attempts of the German delegates to introduce fault-based liability.[11] The assertion that (at least) for non-conformity of goods there is no exemption for the seller is, therefore, to be understood as an attempt to restrict the exemption provision of Art. 79(1) CISG and prevent its misconstruction. Additionally the inuence of the respective national law in construing the CISG is never entirely suppressible. This is especially true for French opinions since, according to French law, the commercial seller is presumed to be acting in bad faith and therefore is liable for damages -- without the possibility of exemption -- according to French Civil Code Art. 1645. Art. 79 CISG is construed in France accordingly. Here, "nationally developed legal principles [work] as background information."[12]

In most cases in which the seller produced the goods himself an exemption for non-conformity to the contract would be out of the question. Even in cases in which impediments beyond one's control occur during the production process (e.g., due to power uctuations), the consequences are avoidable through appropriate quality controls before the goods leave the production site. Thus, the failure to comply with the contract occurs within the seller's "sphere of control." The same must be true for cases where the non-conformity of the goods under Art. 35(2)(b) CISG is due to inuences in the buyer's land such as climate, public law standards, cultural convictions, etc. which affect the suitability of the goods. If the tness of the goods for a particular purpose was part of the determination of conformity to the contract because the seller knew of this particular purpose, then the cause of the damage and its consequences in the meaning of Art. 79(1) CISG could have been avoided by the seller through observation of these specic contractual obligations. This is, of course, a question of normative allocation of risk. The seller cannot always control the physical nature of the goods, but he can control the risk of damage liability. If he cannot bear that risk, or does not want to, he must contractually limit it or exclude it, thereby bearing the risk of losing customers or nding his exculpatory clause held invalid. 2. Another issue is whether and to what extent activities of suppliers and their suppliers are within the seller's sphere of control, i.e., within his sphere of risk. Here one must rst ask whether Art. 79(1) or 79(2) CISG is applicable. This issue was much debated at the Vienna Conference. The dispute was inuenced by insecurity over the preliminary question of whether Art. 79(2) CISG was meant to facilitate the possibility of exemption for a seller or make it more difcult. This led to motions to explicitly adopt liability for "suppliers" in Art. 79(2) CISG and opposing motions not to mention suppliers and suppliers' suppliers at all and thereby practically limit "third persons" in this provision to subcontractors. These questions were essentially whether in cases of "failure by a third person" the prerequisites for exemption should be required to be met cumulatively by both the seller and the third person (thereby restricting exemption) or whether the word "and" in Art. 79(2)(a) CISG should be read as "or." Many motions and comments at the Vienna Conference clearly indicate that Art. 79(2) CISG (= Draft Art. 65(2)) was perceived by some delegates as a dangerous facilitation of a seller's exemption for his supplier.[13] Other delegates, however, correctly recognizing subparagraph (2) as a means of restricting exemption, wanted to expressly include suppliers in the provision in order to secure equal treatment of subcontractors and suppliers and to avoid "that a party should be exempted from liability because he had chosen an unreliable supplier."[14] The nal rejection of the motions to expressly include suppliers in Art. 79(2) was mainly due to the confusion and misunderstandings over whether subparagraph (2) meant to tighten or loosen liability.[15] The rejection of the propositions to view all independent subcontractors as included under subparagraph (2) can therefore hardly be seen as a clear vote for treating suppliers and their suppliers as part of the seller's sphere of control pursuant to Art. 79(1). The majority opinion, which wanted (or considered as self-evident) a limitation on the possibility of exemption for suppliers and their suppliers in the case of non-conformity of the goods would have naturally been better served with an explicit classication of these "third persons" in subparagraph (2). This construction is, however, not necessarily excluded by the vote in Vienna. There is much to be said in favor of considering suppliers and their suppliers as third parties under Art. 79(2) CISG. This would practically eliminate an exemption for the seller in cases of non-conformity to the contract since the suppliers and their suppliers would not qualify for exemption as far as they produced the goods themselves.[16] The result of the decision of the German Federal Supreme Court (BGH) that the seller is liable for suppliers and (all of) their suppliers as though the seller had himself produced the goods (the defect thus comes from within his "sphere of control") could thus easily be arrived at. Particularly, an exemption for undiscoverable defects, despite the exercise of appropriate due care, would be ruled out.[17] Nevertheless, it should be understandable that the BGH did not take this easy path to the desired policy goal of imposing liability on the seller for defects occurring within the sphere of inuence of his suppliers, since that would practically cut off the exemption for the seller in cases of delayed performance or complete nonperformance. Delay in performance or non-performance could certainly not be attributed to the seller if he had no inuence on the choice of supplier. In that case his suppliers are fully outside of his sphere of inuence (e.g., when the seller must rely on a government monopoly for certain materials or energy supply). It was cases such as these which caused the German delegation in Vienna to vote against an express inclusion of suppliers and their suppliers in Art. 79(2) CISG.[18] In addition, the buyer may have insisted upon the use of certain suppliers, which likewise upon their failure must lead to an exemption for the seller under Art. 79(1) CISG without having to resort to the, in this instance, overly broad Art. 80 CISG.[19] Here one can see that a unitary rule of exemption, the highly acclaimed "unitary, contractual approach"[20] can especially cause problems in dealing with the responsibility of suppliers and their suppliers. It seems therefore correct to have attributed responsibility for these third persons to the seller pursuant to Art. 79(1) CISG and to assign the procurement of non-conforming goods or their components to the seller's sphere of risk. In the exact regulation and assignment of this risk the contract provisions and the construction of the contract are important.[21] Here, however, as in the case of sales of self-produced goods, it is especially a question of normative assignment of risk of damages. The seller is perceived as the best suited to avoid, and therefore bear, this risk. Therefore, the BGH was correct to use the term "Garantiehaftung" [liability due to an implied warranty rather

than fault] with regard to the seller.[22] The standard of liability thereby established will also satisfy those lawyers whose national laws operate on a system of implied warranty or presume the commercial seller to always act in bad faith: systems based on liability without fault where, theoretically at least, an exemption would never be allowed. An exemption for the seller in cases of non-conforming goods is, however, not necessarily precluded. It would, however, go too far, corresponding to the German case law concerning the seller's duty to inspect the goods as prerequisite to liability under the national legal doctrine of "pVV" [positive Vertragsverletzung, fault-based liability], to grant an exemption in cases of hidden defects which could not have been discovered by a reasonable person in the seller's situation.[23] This concretization and limitation of the seller's responsibility, traced to the prerequisites of 276 BGB [German Civil Code], would, as mentioned above, conrm the concerns of the Anglo-American lawyers that the possibility of exemption in Art. 79(1) CISG could be (mis)understood by German courts as an expression of a fault-based liability principle. Limitations on liability for damages should only be considered to the extent provided in the second sentence of Art. 74 CISG (foreseeability), especially in dealing with consequential damages. Thus, cases in which a seller can qualify for exemption for delivering non-conforming goods under the contract are hardly conceivable.[24] However, that does not mean that the possibility of such cases is excluded. If, for example, foodstuffs are suspected of being poisoned or contaminated due to their origin in such a way that the buyer (foodstuff dealer) effectively cannot resell them, the seller might qualify for an exemption, provided he can prove that the goods sold by him were indeed not affected by this suspected contamination. No seller can be held liable for a general suspicion on specic goods which as a consequence renders the goods unusable and thereby non-conforming to the contract under Art. 35(2)(a) and Art. 35(2)(b) CISG. The buyer still has the remedies of price reduction and avoidance [25] or a claim for cure by the seller. The fact that the buyer cannot recover further damages, such as lost prots on resale and perhaps damage to good will, is a consequence of the risk connected to the goods in which he deals. The risk exists for both the buyer and the seller that such goods might become useless due to a general suspicion over which the parties and their suppliers have no inuence. It is therefore appropriate that the German Federal Supreme Court left open the possibility of an exemption in cases of non-conformity of goods when the non-conformity is a consequence of a risk that can neither be attributed to the sphere of inuence of the seller nor that of his suppliers. 3. The case also holds that a violation of the obligation to mitigate damages must be considered ex ofcio and could result in the loss of all rights to damages if compliance would have prevented the damages as a whole. [26] This decision of the German Federal Supreme Court can therefore rightly be viewed as a "landmark decision." This Anglo-American term seems to be especially appropriate for a decision of such international importance and it is quite certain that it will also garner the appropriate attention of courts and lawyers outside of Germany. Lincoln Lincoln National Life Insurance Company ("Lincoln") appeals the district court's grant of summary judgment and its order consolidating the arbitration of Lincoln's dispute with appellee Protective Life Insurance Company ("Protective") and the arbitration of claims between Protective and a third party, Munich American Reassurance Company ("Munich"). The only issue we must decide is whether a district court may consolidate arbitration proceedings if the parties have not provided for consolidation in their arbitration agreements. We conclude that it may not. We agree with the reasoning of Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d 635 (9th Cir.1984), in which the court held that under the Federal Arbitration Act, 9 U.S.C. sec. 1 et seq., the power of federal courts is "narrowly circumscribed." Id. at 637. Section 4 of the Act provides that if the existence of an arbitration agreement is in issue, the district court shall proceed to try that issue; once the district court is satised that an agreement for arbitration between the parties exists, the district court "shall make an order directing the parties to proceed to arbitration in accordance with the terms of the arbitration agreement." 9 U.S.C. sec. 4. The statute limits the power of the court to determining whether a written arbitration agreement exists, and if it does, to enforcing it "in accordance with its terms." Id. As the Ninth Circuit observed, this interpretation of section 4 "comports with the statute's underlying premise that arbitration is a creature of contract, and that `[a]n agreement to arbitrate before a special tribunal is, in effect, a specialized kind of forum-selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute.'" Id. (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, 94 S.Ct. 2449, 2457, 41 L.Ed.2d 270 (1974)). Parties may negotiate for and include provisions for consolidation of arbitration proceedings in their arbitration agreements, but if such provisions are absent, federal courts may not read them in. We conclude, therefore, that "the sole question for the district court is whether there is a written agreement among the parties providing for consolidated arbitration." Del E. Webb Construction Co. v. Richardson Hospital Authority, 823 F.2d 145, 149 (5th Cir.1987).1 The agreements between Protective and Lincoln and between

Protective and Munich contain their own arbitration clauses, and each clause requires arbitration only between the parties to that agreement. The three parties never agreed to consolidated arbitration. The decision of the district court granting summary judgment and ordering consolidation is VACATED and REMANDED for further proceedings consistent with this opinion.