Reference no: EM131657591

Question: GWI is a manufacturer of beauty supply products. Sullivan is a distributor of beauty supply products in New England and operates more than two dozen wholesale beauty supply stores in that region. In February 1998, the parties entered into a distribution agreement, pursuant to which GWI granted Sullivan the exclusive right to sell its products to professional stores in New Hampshire, Vermont, and Maine, and to sell its products to both professional stores and salons in Massachusetts. Among other things, the agreement provided that "[a]ll disputes and claims relating to or arising under or out of this Agreement shall be fully and finally settled by arbitration." This agreement expired in 2003, but the parties continued their relationship under the same terms and conditions as had governed the relationship during the duration of the contract. In 2006, another of GWI's regional distributors-Kaleidoscope/BOA, Inc.-assigned to Sullivan all of its "right, title, and interest under the Kaleidoscope Distribution Agreement [with GWI] dated August 16, 2004, save and except the right to distribute Graham Webb Classic line products to salons in the territory."

GWI consented to this assignment. By acquiring an assignment of Kaleidoscope's rights under its distribution agreement with GWI, Sullivan obtained the exclusive right to distribute GWI products to professional salons in Maine, New Hampshire, and Vermont (previously, it had the exclusive right to distribute GWI products only to professional stores in those states). Like the original distribution agreement between GWI and Sullivan, both the distribution agreement between Kaleidoscope and GWI (the rights under which were assignedto Sullivan) and the agreement evidencing that assignment contained arbitration provisions. Despite the fact that the Sullivan Distribution Agreement (SDA) had expired, the Assignment Agreement specifically referenced that document, describing the parties' respective rights and obligations and noting that the SDA will have to be amended to take into account Sullivan's newly expanded distribution rights. The parties' reference to the SDA in the Assignment Agreement provides strong evidence that, although the SDA agreement had expired, the parties were continuing their business relationship pursuant to its terms. A little more than a year later, GWI notified Sullivan of its intention to terminate its distribution relationship with Sullivan, effective April 1, 2007. In that letter, GWI specifically invoked the termination provisions contained in both the SDA and the Kaleidoscope Distribution Agreement. When Sullivan was unable to persuade GWI to change its mind, it sued GWI for breach of contract and other claims. Sullivan asserted that the arbitration provision in the Assignment Agreement was not relevant to this dispute and that it was not bound by the arbitration provisions in the Kaleidoscope Distribution Agreement. Is this a good argument?