Petersen-Dean, Inc. v. SolarWorld Americas, Inc.
3:17-cv-07326
N.D. Cal.
Mar 5, 2018

Background

  • PDI (plaintiff) sued several SolarWorld entities seeking a declaratory judgment that PDI owes no liability under expired supply and guaranty agreements arising from purchase of solar panels (dispute centers on roughly $8.25M in invoices).
  • SWA (defendant, Oregon corp.) had earlier sued PDI/PDS in Oregon federal court; PDI/PDS filed and pursued arbitration demands (JAMS, then FedArb); parties entered an Agreement to Arbitrate under FedArb in Oct. 2017.
  • SWA LLC (a California LLC) is listed in some earlier (2014) agreements but had merged into SWA, and California records show it as “merged out.” PDI did not name SWA LLC in prior arbitration demands or counterclaims.
  • Defendants removed to federal court based on diversity, asserting SWA LLC was fraudulently joined (so complete diversity exists); they also moved to compel arbitration under the Federal Arbitration Act.
  • PDI moved to remand, arguing defendants failed to prove fraudulent joinder and that arbitration agreements do not cover the 2017 invoices. Court found SWA LLC effectively not a proper party due to merger and PDI’s conduct, and found a valid arbitration agreement covering the dispute.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether removal was improper because SWA LLC (CA) destroys diversity SWA LLC is a proper defendant and removal lacks complete diversity SWA LLC was fraudulently joined / merged out and cannot be sued; disregard non-diverse defendant Court: SWA LLC was fraudulently joined / merged into SWA; disregard it and federal diversity jurisdiction stands (remand denied)
Whether PDI's claims fall outside arbitration because agreements expired before 2017 invoices Agreements expired; 2017 invoices post-date arbitration clauses and thus are not covered Multiple executed arbitration agreements and prior litigation/arbitration activity show parties agreed to arbitrate any disputes Court: Agreement to arbitrate is valid and covers the dispute; compel arbitration (motion granted)
Whether PDI is judicially estopped from disputing arbitration scope PDI says scope changed; agreements expired Defendants say PDI previously asserted arbitration and successfully induced dismissal; now changing position Court: PDI took inconsistent positions and previously persuaded tribunal/party; estoppel supports arbitration (alternative rationale)
Whether the arbitration agreement remains in effect despite delays/administrative issues PDI contends FedArb proceedings concluded or agreement no longer governs Defendants point to an integration arbitration agreement and FedArb efforts to appoint substitute arbitrator Court: Agreement remains effective; FedArb designated replacement arbitrator and arbitration must proceed

Key Cases Cited

  • Hunter v. Philip Morris USA, 582 F.3d 1039 (9th Cir.) (strong presumption against fraudulent joinder; burden on defendant to show removal proper)
  • Gaus v. Miles, Inc., 980 F.2d 564 (9th Cir.) (removal statute strictly construed; doubts resolved against removal)
  • Morris v. Princess Cruises, Inc., 236 F.3d 1061 (9th Cir.) (complete diversity requirement for 28 U.S.C. § 1332)
  • McCabe v. General Foods Corp., 811 F.2d 1336 (9th Cir.) (fraudulent joinder when plaintiff fails to state cause against resident defendant)
  • Ritchey v. Upjohn Drug Co., 139 F.3d 1313 (9th Cir.) (defendant must show joined individuals cannot be liable on any theory)
  • Lifescan, Inc. v. Premier Diabetic Servs., 363 F.3d 1010 (9th Cir.) (two-step FAA test: existence and scope of arbitration agreement)
  • Ingle v. Circuit City Stores, Inc., 328 F.3d 1165 (9th Cir.) (apply ordinary state-law contract principles to evaluate arbitration agreement validity)
  • Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S.) (any doubts about arbitrability resolved in favor of arbitration)
  • Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (U.S.) (courts should enforce arbitration agreements where parties agreed to arbitrate dispute)
  • Saint Agnes Med. Ctr. v. PacifiCare of California, 31 Cal.4th 1187 (Cal.) (state law recognition that arbitration agreements reflect parties’ choice to have disputes decided by arbitrator)
  • New Hampshire v. Maine, 532 U.S. 742 (U.S.) (doctrine of judicial estoppel—precludes taking inconsistent positions to gain advantage)
  • Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778 (9th Cir.) (elements for judicial estoppel and its application)
  • United States v. Ibrahim, 522 F.3d 1003 (9th Cir.) (factors considered in applying judicial estoppel)
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