. . . In Which We Inaugurate A New Sidebar Category (Foreign Arbitration) And Petitioners Who Successfully Compelled Arbitration In District Court Lawsuit Concerning Coffee Franchise Dispute Get Roasted On Appeal.
Our next case involves a dispute between an Italian corporation seeking to open a coffee franchise in the United States, and two entrepreneurs planning to open an Italian-style coffee house in the United States. Casa Del Caffe Vergnano v. ItalFlavors, No. 13-56091 (9th Cir. March 15, 2016) (Korman, J., writing for maj.; Callahan, J., dissenting). The Rabellinos’ dream of opening a successful coffee shop as a franchise of the Italian corporation, Casa Del Vergnano, failed, and the Rabellinos sued in federal district court in San Diego, alleging that they did not receive the support they had been promised.
The parties, however, had executed a Commercial Contract with an arbitration provision providing for the application of Italian law to contract construction, and arbitration in Geneva under the UNCITRAL Arbitration Rules. Along with the Commercial Contract containing the arbitration clause, the parties had also executed a Hold Harmless Agreement providing that the Commercial Contract “does not have any validity or effectiveness between the parties, as it was prepared and delivered by Casa del Caffe Vergnano S.p.A. solely for the purpose of allowing Mr. Hector Rabellino to submit a copy of it to the pertinent international agencies in order to obtain an entry visa to work in the United States . . .”
The district court held that “the issue of whether the broad arbitration clause contained in the Commercial Contract survives after the [Hold Harmless Agreement] took effect should be submitted to the arbitrator.”
The panel majority held that the parties’ Commercial Contract was not binding, because the Hold Harmless Agreement showed that there was no mutual intention to be bound – and if the Commercial Contract was a sham, the arbitration provision within it could not be enforced, anymore than other terms of a sham contract could be enforced. To reach this conclusion, the Court had to address the parol evidence rule, because the Hold Harmless Agreement, evidencing the sham nature of the Commercial Contract, was executed after the Commercial Contract.
However, because the Commercial Agreement and the Hold Harmless Agreement were executed on the same day, and the latter referred to the former, the panel majority construed the agreements together. Applying principles of federal common law, the panel also held that the parol evidence rule “does not prohibit us from considering the Hold Harmless Agreement because that agreement goes to the issue of whether the parties entered into a binding contract.”
Judge Callahan, dissenting, agreed the majority cited the applicable law, but disagreed on the factual conclusion. She believed that the facts sufficiently supported the district court’s conclusion that the Hold Harmless Agreement was signed separately, and that a dispute over whether and when the Commercial Contract was terminated should have been referred to arbitration. She also observed that the subsequent conduct of the parties showed that they intended to be bound by a contract.
BONUS: (1) A YouTube link to Bach’s coffee cantata. (2) The Wikipedia article includes the translation: “If I couldn't, three times a day, be allowed to drink my little cup of coffee, in my anguish I will turn into a shriveled-up roast goat”; (3) and – a link to Frank Sinatra’s 1946 hit, “They’ve got an awful lot of coffee in Brazil.”
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