The Partnership Deed With The Arbitration Clause Was Entered Into In India, But The Court Applied US Federal Substantive Law To The Equitable Estoppel Issue.
Incense for sale in Bangalore. Author: Meanest Indian. Creative Commons License.
Appellant/Defendant Shrinivas Sugandhalaya LLP (SS Mumbai), in a lawsuit with Appellees/Plaintiffs (SS Bangalore), sought to enforce an arbitration provision in a Partnership Deed, relying on the doctrine of equitable estoppel. SS Mumbai failed in its efforts to compel arbitration, and appealed. Setty v. Shrinivas Sugandhalaya, No. 18-3557 (9th Cir. 1/20/21) (Nelson, Rawlinson, dissent, Bea).
The doctrine of equitable estoppel provides that one cannot accept the benefits of a contract and avoid the burdens, in this case, a requirement to arbitrate. SS Mumbai's problem was that the Partnership Deed containing the arbitration clause had been signed by two brothers, but SS Mumbai was a company and a nonsignatory. The majority opinion holds that federal substantive law must be applied to determine whether equitable estoppel can be applied to prevent the plaintiff from avoiding arbitration. Judge Nelson explains that under federal substantive law, for equitable estoppel to apply, "it is 'essential . . . that the subject matter of the dispute [is] intertwined with the contract providing for arbitration.' Rajagopalan v. NoteWorld, LLC, 718 F.3d 844, 847 (9th Cir. 2013)." Finding intertwinement to be lacking here, the majority held equitable estoppel did not apply, and thus, the arbitration provision could not be enforced against the nonsignatory.
Judge Bea has written an interesting dissent. For one thing, the facts of the case are interesting. Two brothers took over their father's incense business in India after the father died, and ended up as incensed competitors in a lawsuit involving federal trademark claims and state tort claims. The Partnership Deed was negotiated and entered into in India under Indian law. The father's firm was in Mumbai. SS Bangalore and SS Mumbai, nonsignatories to the agreement, were Indian companies owned by Indian nationals. Applying choice of law principles, Judge Bea opines that substantive Indian law would likely apply to the estoppel issue. He would have remanded to the district court to apply choice of law principles. The district court would then have had to determine which substantive law applied, and then apply the correct law to determine whether equitable estoppel could be applied.
COMMENT: Following the route proposed by the dissent would have added complexity, though it might have led to the same destination.
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