Sherwood Marketing Group, LLC v. Intertek Testing Services, N.A., Inc., 3:17-cv-00782

Background

Sherwood Marketing Group (California) sold rice cookers manufactured by Zhongshan Leeper (China). Sherwood requested third‑party safety testing to UL and CSA standards.
Leeper contracted with Intertek (Delaware corp.) and submitted samples to Intertek’s Guangzhou laboratory; Intertek issued test reports, ETL data sheets, and authorizations to mark indicating compliance.
Sherwood relied on those certifications, shipped products to retailers, then discovered heating/electrical failures in models with non‑detachable power cords and initiated a recall.
Independent testing suggested Intertek failed to perform required temperature testing or otherwise misrepresented results; Sherwood sued Intertek for negligent misrepresentation, fraudulent misrepresentation, and UCL violations.
Intertek moved to dismiss or stay under an arbitration clause in the Certification Agreement between Intertek and Leeper that requires CIETAC arbitration in Beijing; Sherwood is not a signatory.
The district court found Sherwood’s claims arose from Intertek’s performance under the Certification Agreement and concluded Sherwood is equitably estopped from avoiding arbitration; the FAC was dismissed without prejudice and leave to amend was granted.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Sherwood (nonsignatory) is bound by arbitration clause	Sherwood is not a signatory and its claims do not arise from the Certification Agreement	Arbitration clause in Leeper–Intertek agreement covers disputes connected to testing; Sherwood is bound as it knowingly relied on and benefited from the agreement	Court: Sherwood is not a third‑party beneficiary, but is equitably estopped and therefore bound
Whether Sherwood is a third‑party beneficiary of the Certification Agreement	The certification/reporting process benefited Sherwood as the ultimate seller	Agreement contains no express intent to benefit Sherwood; Intertek disclaimed guaranteeing third‑party acceptance	Court: No — agreement lacks language showing intent to confer contractual rights on Sherwood
Whether equitable estoppel applies to force arbitration	Sherwood argues any benefit was passive and it did not seek to enforce the agreement	Intertek argues Sherwood knowingly exploited the agreement by relying on Intertek’s representations and basing its business decisions on the certifications	Court: Yes — Sherwood’s allegations show active reliance and claims arise from Intertek’s performance under the agreement, so estoppel applies
Appropriate remedy: stay or dismissal	Sherwood sought to litigate in federal court	Intertek sought dismissal rather than stay	Court: Dismissal without prejudice for failure to state a claim (12(b)(6)), with leave to amend within 14 days; if no amendment, case closed

Key Cases Cited

Preston v. Ferrer, 552 U.S. 346 (2008) (FAA expresses national policy favoring arbitration)
Southland Corp. v. Keating, 465 U.S. 1 (1984) (federal arbitration policy preempts state law disfavouring arbitration)
Dean Witter Reynolds v. Byrd, 470 U.S. 213 (1985) (district courts must enforce arbitration agreements and stay proceedings)
Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126 (9th Cir. 2000) (court’s role is to decide existence/scope of arbitration agreement)
Comer v. Micor, Inc., 436 F.3d 1098 (9th Cir. 2006) (limits on applying equitable estoppel to bind nonsignatories to arbitration)
Tracer Research Corp. v. Nat'l Envtl. Servs. Co., 42 F.3d 1292 (9th Cir. 1994) (arbitration depends on contractual consent)
Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013) (nonsignatory cannot invoke arbitration absent exceptions)
E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d 187 (3d Cir. 2001) (equitable estoppel where nonsignatory knowingly exploits agreement)
Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260 (5th Cir. 2004) (equitable estoppel principle: cannot accept benefits and repudiate burdens)