California Mediation and Arbitration

International Arbitration: 9th Circuit Holds Case Seeking To Collect International Arbitration Award Properly Belonged In State Court

Collection Efforts Case Was Not Related To International Arbitration Agreement Or Award, And So Belonged In State Court.

    The District Court for the Western District of Washington denied plaintiff Cerner's motion to remand to state court an action that defendants had removed to federal court on the basis that it related to an international arbitration award. 9 U.S.C. section 205 authorizes removal  from state to federal court of an action that "relates to an arbitration agreement or award falling under" the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958. And in fact plaintiff Cerner had obtained an international arbitration award against iCapital, LLC and Dhaheri. Problem was that those two defendants were not the defendants in the state court action brought to enforce the award and alleging alter ego status. So the issue presented in the 9th Circuit appeal of the district court's order denying remand was whether the case fell within section 205 -- whether the case "relates to an arbitration agreement or award falling under the Convention." Cerner Middle East Limited v. Belbadi Enterprises LLC, et al., No. 17-35157 (9th Cir.  9/23/19) (Clifton, Callahan, Benitez).

    Ultimately, the 9th Circuit panel held that the case did not relate to the arbitration agreement. For one thing, the defendants in the case were not the same as the respondents in the arbitration (though maybe they will be found to be related). The arbitration award did not have preclusive effect over issues in the arbitration that would have to be adjudicated, and the findings in the arbitration would be inadmissible hearsay in the lawsuit. That the court might find the legal analysis "persuasive" in the arbitration did not mean that the arbitration "relates to" and "conceivably affects" the arbitration. So the case will be remanded, because removal jurisdiction is lacking.

       BEST LINE IN THE CASE: "It has famously been observed that "'[jurisdiction' is a word of many, too many, meanings.""

Quasi-In Rem Jurisdiction Existed Over Defendant Because Court of Appeal of Paris Confirmed International Arbitration Award And Defendant Owned Property In Oregon.

    In Cerner Middle East Limited v. iCapital, LLC, a U.A.E. Limited Liability Company; Ahmed Saeed Mahoud Al-Badi Al-Dahari,  No. 17-35514 (9th Cir.  9/23/19) (Clifton, Callahan, Benitez), an appeal from the District Court for the District of Oregon, the panel reversed the district court's dismissal, for lack of personal jurisdiction, of an action to enforce a foreign arbitration award against property in Oregon owned by defendants. Note: in the two Cerner cases, the defendants are not the same, and in fact, the district court judges are different. This Cerner case involved efforts to enforce the arbitration award against the arbitration respondent's property in Oregon. The other Cerner case involved efforts to enforce collection against property owned by related entities in Washington. 

    In this case, the panel found that quasi in rem jurisdiction over defendants existed (a) because plaintiff possessed a valid judgment against the defendant; and (b) the defendant owned property in Oregon. A "court of competent jurisdiction" -- to wit, the Court of Appeal of Paris -- confirmed the international arbitration panel's conclusion that the defendant was subject to its jurisdiction, while the appeal from the District Court to the 9th Circuit was pending!

    And so this Cerner case is also reversed and remanded for further proceedings.

    

Foreign Arbitration/Enforceability: Wake Up And Smell The Coffee: Ninth Circuit Holds Foreign Arbitration Foiled By Sham Agreement Concerning Coffee Franchise

. . .  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.”