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IQ Products Co. v. WD-40 Co.

United States Court of Appeals, Fifth Circuit

September 13, 2017

IQ PRODUCTS COMPANY, Plaintiff - Appellant
WD-40 COMPANY, Defendant-Appellee

         Appeal from the United States District Court for the Southern District of Texas

          Before HIGGINBOTHAM, GRAVES, and HIGGINSON, Circuit Judges.

          STEPHEN A. HIGGINSON, Circuit Judge

         Plaintiff-Appellant IQ Products Co. sued Defendant-Appellee WD-40 Co., and WD-40 filed a motion to compel arbitration. Over IQ's objections, the district court granted the motion, finding that the parties intended to arbitrate the "gateway issue" of whether their claims were arbitrable. After prevailing in arbitration, WD-40 filed a motion to confirm its award. IQ filed a motion to vacate the award on the ground that the arbitrators had exceeded their authority because the claims were not arbitrable. The district court denied IQ's motion to vacate and granted WD-40's motion to confirm. IQ appealed, and we now affirm.


         WD-40 is a widely used household lubricant often packaged in aerosol cans. WD-40 Company produces a lubricant concentrate and develops specifications for the chemical formulas, packaging, and manufacturing of its products, but uses independent contract packagers to manufacture the products according to those specifications. In 1992, IQ Products Company, a longtime manufacturer of aerosol and non-aerosol consumer products, began serving as a contract packager for WD-40 branded products.

         In 1996, WD-40 began to develop a new WD-40 formula using carbon dioxide as the propellant rather than propane/butane. Around the same time, WD-40 proposed that it and IQ enter into a written contract concerning WD-40 products. IQ had concerns about engineering challenges associated with replacing the low-pressure propane/butane propellant with a high-pressure carbon-dioxide propellant. IQ described its concerns in a letter from IQ's Chief Executive Officer, Yohanne Gupta, about negotiation of the proposed agreement:

As I am not aware of the extent of research and development work which WD-40 may have conducted already for the new formula, or the research and development work which WD-40 intends to conduct henceforth, and as I am not aware of the new specifications for the WD-40 product, I suggest that this Agreement be executed after this information is established. Otherwise, my agreeing to the Agreement at present will clearly not include the scope of work, cost of product, and IQ's responsibilities for the new formula WD-40 products.

         IQ requested that the parties meet to discuss IQ's concerns.

         At the parties' meeting on April 10, 1996, IQ agreed to execute the Manufacturing and License and Product Purchase Agreement (the "1996 Agreement"), but added a handwritten notation expressly limiting the definition of the "Product" to which the agreement applied to "a penetrating, lubricating spray product identified and labeled 'WD-40' based on propane/butane-propelled formulation and specifications." This revision was initialed by both parties and dated April 10, 1996, the same date the 1996 Agreement was executed.

         The 1996 Agreement is the only contract between the parties that contains an arbitration clause. This clause provides:

Any controversy or claim arising out of, or related to this Agreement, or any modification or extension thereof, shall be settled by arbitration in accordance with the Arbitration Rules of the American Arbitration Association . . . .

         The 1996 Agreement also includes an integration clause, which states that the agreement "may be amended or modified only by a written instrument signed by an officer of both parties."

         After receiving WD-40's assurances that it had performed extensive testing of the carbon dioxide-based formula, IQ began manufacturing WD-40 products with that formula and new specifications. The parties did not consider executing any other written agreement until 2011.

         In 2011, WD-40 issued a Request for Proposal (RFP) to restructure its supply-chain business model and asked its packagers-including IQ-to bid for long-term supply agreements. WD-40 selected IQ's bid in July 2011, and gave written notice of its intent to terminate the 1996 Agreement to allow the parties to negotiate a new long-term agreement.

         During the parties' negotiations of the new long-term agreement, IQ informed WD-40 that an internal audit had revealed a problem with WD-40's packaging specifications. IQ recommended that WD-40 address the alleged problem by revising its design and specifications. IQ also expressed concerns about WD-40's quality control specifications ...

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