BALKRISHNA SETTY, individually and as general partner in Shrinivas Sugandhalaya Partnership with Nagraj Setty; SHRINIVAS SUGANDHALAYA (BNG) LLP, Plaintiffs-Appellees, v. SHRINIVAS SUGANDHALAYA LLP, Defendant-Appellant.
No. 18-35573
United States Court of Appeals for the Ninth Circuit
July 7, 2021
D.C. No. 2:17-cv-01146-RAJ
Before: Dorothy W. Nelson, Johnnie B. Rawlinson, and Carlos T. Bea, Circuit Judges.
FOR PUBLICATION
On Remand from the United States Supreme Court
Opinion by Judge D. W. Nelson; Dissent by Judge Bea
SUMMARY**
Arbitration
On remand from the Supreme Court, the panel affirmed the district court’s order denying defendant’s motion to compel arbitration against plaintiffs pursuant to the New York Convention and to grant a stay pending arbitration.
In a prior
SS Mumbai argued that, based on the arbitration provision, Indian law applied to the question whether SS Mumbai could compel Bangalore to arbitrate. The panel declined to apply Indian law because whether SS Mumbai could enforce the partnership deed as a non-signatory was a threshold issue for which the panel did not look to the agreement itself. Moreover, the deed’s arbitration provision applied to disputes “arising between the partners” and not also to third parties such as SS Mumbai.
In this case involving the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or New York Convention, the panel applied federal substantive law in determining the arbitrability of federal claims by or against non-signatories to the arbitration agreement. On remand following GE Energy (holding that the New York Convention does not conflict with the enforcement of arbitration agreements by non-signatories under domestic-law equitable estoppel doctrines), the panel accepted that a non-signatory could compel arbitration in a New York Convention case. The panel concluded, however, that as a factual matter, the allegations here did not implicate the agreement that contained the arbitration clause—a prerequisite for compelling arbitration under the equitable estoppel framework. Accordingly, the district court did not abuse its discretion in rejecting SS Mumbai’s argument that SS Bangalore should be equitably estopped from avoiding arbitration.
Dissenting, Judge Bea would hold that whichever background body of state contract law that governs the arbitration agreement governs equitable estoppel claims to compel arbitration under the Federal Arbitration Act, regardless whether the arbitration agreement is primarily governed by the FAA or the New York Convention, and would remand to the district court for the district court to perform the choice of law analysis in the first instance.
COUNSEL
Brian W. Esler and Vanessa L. Wheeler, Miller Nash Graham & Dunn LLP, Seattle, Washington, for Defendant-Appellant.
Scott S. Brown, Mixon Firm LLC, Birmingham, Alabama; Benjamin J. Hodges and Devra R. Cohen, Foster Garvey PLLC, Seattle, Washington; for Plaintiffs-Appellees.
OPINION
D.W. NELSON, Circuit Judge:
Shrinivas Sugandhalaya LLP (“SS Mumbai”) appeals from the district court’s order denying its motion to compel arbitration against Balkrishna Setty and Shrinivas Sugandhalaya (BNG) LLP (collectively, “SS Bangalore”) and denying SS Mumbai’s motion to grant a stay pending arbitration.
Relying on Yang v. Majestic Blue Fisheries, LLC, 876 F.3d 996 (9th Cir. 2017), we previously held that SS Mumbai could not equitably estop SS Bangalore from avoiding arbitration, and thus affirmed the district court’s order. Setty v. Shrinivas Sugandhalaya LLP, 771 F. App’x 456 (9th Cir. 2019). The Supreme Court granted certiorari, vacated the judgment, and remanded for further consideration in light of GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020). See Shrinivas Sugandhalaya LLP v. Setty, No. 19-623, 2020 WL 3038281, at *1 (U.S. June 8, 2020).
We have jurisdiction under
The parties dispute whether the law of India or federal common law applies to the question of whether SS Mumbai, a non-signatory to the Partnership Deed containing an arbitration provision, may compel SS Bangalore to arbitrate.
To argue that Indian law applies, SS Mumbai points to the Partnership Deed’s arbitration provision. But whether SS Mumbai may enforce the Partnership Deed as a non-signatory is a “threshold issue” for which we do not look to the agreement itself. See Casa del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, 816 F.3d 1208, 1211 (9th Cir. 2016). Moreover, the Partnership Deed’s arbitration provision applies to disputes “arising between the partners” and not also to third party such as SS Mumbai. See Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1045 (9th Cir. 2009). We decline to apply Indian law on the basis of the Partnership Deed.
The New York Convention and its implementing legislation emphasize the need for uniformity in the application of international arbitration agreements. See Certain Underwriters at Lloyd’s v. Argonaut Ins. Co., 500 F.3d 571, 580–818 (7th Cir. 2007) (“The Supreme Court has recognized that in the context of the New York Convention, uniformity of the law is of paramount importance” and concluding application of state-specific law would undermine this purpose). In cases involving the New York Convention, in determining the arbitrability of federal claims by or against non-signatories to an arbitration agreement, we apply “federal substantive law,” for which we look to “ordinary contract and agency principles.” Letizia v. Prudential Bache Secs., Inc., 802 F.2d 1185, 1187 (9th Cir. 1986); Casa del Caffe, 816 F.3d at 1211 (concluding that “[b]ecause this case arises under Chapter 2 of the Federal Arbitration Act, the issue of whether the Commercial Contract constituted a binding agreement is governed by federal common law”) (citing Argonaut Ins. Co., 500 F.3d at 577–78).1
In GE Energy, the Supreme Court specifically concluded, “[w]e hold only that the New York Convention does not conflict with the enforcement of arbitration agreements by non-signatories under domestic-law equitable estoppel doctrines.” 140 S. Ct. at 1648. The Court “did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that determination.” Id. On remand
“Equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes.” Mundi, 555 F.3d at 1045 (citation and internal quotation marks omitted). In the arbitration context, the doctrine has generated various lines of cases, including one involving “a nonsignatory seeking to compel a signatory to arbitrate its claims against the nonsignatory.” Id. at 1046–47. 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). “We have never previously allowed a non-signatory defendant to invoke equitable estoppel against a signatory plaintiff[.]” Id.
Here, the claims have no relationship with the partnership deed containing the arbitration agreement at issue in this appeal. SS Bangalore’s claims against SS Mumbai are not clearly “intertwined” with the Partnership Deed providing for arbitration. To be sure, the crux of several claims is that the Partnership, and not SS Mumbai, is the true owner of the disputed marks. But the Partnership does not own the marks because of any provision of the Partnership Deed, but rather because of the Partnership’s “prior use” of the marks over several years. Moreover, any allegations of misconduct by Nagraj Setty (a signatory to the Partnership Deed) are not clearly intertwined with SS Bangalore’s claims against SS Mumbai.
Thus, the district court did not abuse its discretion in rejecting SS Mumbai’s argument that SS Bangalore should be equitably estopped from avoiding arbitration.
Because the district court did not err in denying SS Mumbai’s motion to compel arbitration, it did not abuse its discretion in denying SS Mumbai’s motion to stay the proceedings pending arbitration. See Alascom, 727 F.2d at 1422.
AFFIRMED.
BALKRISHNA SETTY, individually and as general partner in Shrinivas Sugandhalaya Partnership with Nagraj Setty; SHRINIVAS SUGANDHALAYA (BNG) LLP, Plaintiffs-Appellees, v. SHRINIVAS SUGANDHALAYA LLP, Defendant-Appellant.
BEA, Circuit Judge, dissenting:
On remand from the Supreme Court, we are faced with the question of which equitable estoppel law governs an Indian company’s motion to compel another Indian company and its Indian owner to arbitration based on an agreement entered into in India, signed by two Indian brothers (who own the Indian companies), and governing conduct in India and the United States. The majority holds that, not Indian, but U.S. federal common law governs the issue.
I dissent. The Supreme Court and Ninth Circuit have time and again held that whichever background body of state contract law that governs the arbitration agreement governs equitable estoppel claims to compel arbitration pursued under the Federal Arbitration Act (“FAA”),
After their father’s death, brothers Balkrishna and Nagraj Setty signed a Partnership Deed agreeing to joint ownership of Shrinivas Sugandhalaya, their late father’s incense manufacturing company. The Partnership Deed was “made and entered into at Mumbai [India] on this 24th December 1999.” The Partnership Deed contained an arbitration clause requiring that “[a]ll disputes of any type whatsoever in respect of the partnership arising between the partners either during the continuance of this partnership or after the determination thereof shall be decided by arbitration . . . .”
For a time, the Setty brothers jointly operated their father’s company, but soon they decided to split up and operate their own incense manufacturing firms, though still under the same trademark. Plaintiff-Appellee Balkrishna founded Shrinivas Sugandhalaya (BNG) LLP (“SS Bangalore”) operating out of Bangalore, while brother Nagraj founded Shrinivas Sugandhalaya LLP operating out of Mumbai (“SS Mumbai”). Neither SS Bangalore nor SS Mumbai were signatories to the Partnership Deed and its arbitration clause. Since then, the two brothers and their companies have competed against each other in the incense market, ultimately leading to the present dispute over trademark rights in the United States.
Plaintiff-Appellees Balkrishna and SS Bangalore brought suit against SS Mumbai and its U.S. distributor in federal court in Alabama. The complaint did not name Nagraj Setty (SS Mumbai’s owner) as a defendant. Plaintiff-Appellees claimed federal jurisdiction based on the district court’s authority to hear federal question, trademark, and supplemental claims. See
The suit was transferred from the Northern District of Alabama to the Western District of Washington under
On appeal, we affirmed the district court. See Setty v. Shrinivas Sugandhalaya LLP, 771 F. App’x 456 (9th Cir. 2019) (unpublished), cert. granted, judgment vacated, 141 S. Ct. 83 (2020). However, rather than affirm on the merits of the equitable estoppel claim, we held instead that nonsignatory SS Mumbai was barred from compelling
II
Before the panel can answer whether we should reverse the district court’s denial of SS Mumbai’s motion to compel arbitration on the basis of equitable estoppel, we must first resolve the choice of law issue.3 The majority asserts federal
common law governs. I disagree. As we will see, the Supreme Court has made clear that state substantive law governs equitable estoppel claims pursued under the FAA. The Supreme Court has now ruled that nonsignatories to arbitration agreements governed by the New York Convention are not precluded from compelling arbitration under the FAA. That the agreement is otherwise governed by the New York Convention should not alter the choice of law doctrine established by the Supreme Court.
A
1
The FAA ensures covered arbitration agreements are held “valid, irrevocable, and enforceable.”
Because the Court of Appeals concluded that the Convention prohibits enforcement by nonsignatories, the court did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that determination. Those questions can be addressed on remand. We hold only that the New York Convention does not conflict with the enforcement of arbitration agreements by nonsignatories under domestic-law equitable estoppel doctrines.
140 S. Ct. at 1648 (emphasis added).
That said, federal substantive law does not govern all questions arising under the FAA. The Supreme Court in Arthur Andersen LLP v. Carlisle held that the FAA did not “alter background principles of state contract law regarding the scope of agreements (including the question of who is bound by them).” 556 U.S. 624, 630 (2009). Rather, application of “traditional principles of state law” is permitted under the FAA to “allow a contract to be enforced by or against nonparties to the contract through assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.” Id. at 631 (citations omitted).
And so, for arbitration agreements entered into in the United States, we have applied “relevant state contract law” and not federal common law to the issue whether a nonsignatory may compel arbitration under a theory of equitable estoppel. Id. at 632 (“We hold . . . that a litigant who was not a party to the relevant arbitration agreement may invoke § 3 [of the FAA] if the relevant state contract law allows him to enforce
Since Arthur Andersen, the Ninth Circuit has repeatedly applied state contract law any time a nonsignatory has sought to compel arbitration under the FAA. In Kramer v. Toyota Motor Corp., we acknowledged that “[t]he United States Supreme Court has held that a litigant who is not a party to an arbitration agreement may invoke arbitration under the FAA if the relevant state contract law allows the litigant to enforce the agreement. We therefore look to California contract law to determine whether . . . a nonsignatory[] can compel arbitration.” 705 F.3d 1122,
1128 (9th Cir. 2013) (citing Arthur Andersen, 556 U.S. at 632).
We reaffirmed that proposition in In re Henson, 869 F.3d 1052 (9th Cir. 2017). There, as here, a nonsignatory defendant sought to compel arbitration against a plaintiff (who had agreed to arbitrate with a third party) under the theory of equitable estoppel. Id. at 1056–57. In granting a writ of mandamus, we held that state law applies to the issue whether equitable estoppel is available, and that when determining which state law governs “whether [a] nonsignatory[] can compel arbitration under the doctrine of equitable estoppel,” “we apply the choice-of-law principles of the forum state.” Id. at 1059.
Indeed, even this panel had agreed that “[u]nder the FAA, a non-signatory may invoke arbitration if state law permits.” Setty, 771 F. App’x at 456 (emphasis added). But that decision has been vacated by the Court.
Thus, under both Supreme Court and our own precedent (including this panel’s since-vacated original decision), equitable estoppel claims pressed by nonsignatories under the FAA are governed by state law. Up until today, we did not need to apply this principle to arbitration agreements governed by the New York Convention. But with the Supreme Court’s decision overruling Yang, this is the question now before the panel.
2
“The New York Convention is a multilateral treaty that addresses international arbitration,” ensuring that foreign arbitral awards are recognized in each of the ratifying countries and that foreign-based arbitration agreements are
enforceable.4 GE Energy, 140 S. Ct. at 1644. Congress statutorily implemented the New York Convention within Title 9, Chapter 2 of the U.S. Code.
In Yang, we addressed whether the FAA’s clause permitting nonsignatories to compel arbitration under equitable estoppel and other traditional contract law theories described in Arthur Andersen conflicted with the New York Convention. Yang, 876 F.3d at 1002–03. We held that it did,
However, the Supreme Court has since overruled Yang, holding instead that the New York Convention did not conflict with “the application of domestic equitable estoppel
doctrines permitted under Chapter 1 of the FAA.” GE Energy, 140 S. Ct. at 1645–46. Thus, Yang’s restriction barring nonsignatories to agreements governed by the New York Convention from compelling arbitration as permitted under the FAA has been lifted.
B
On remand, this case raises a question we neither considered nor answered in the earlier appeal: what law applies to equitable estoppel claims pursued under the FAA for those arbitration agreements otherwise governed by the New York Convention. This is not a difficult issue, but it is the basis for this dissent.
Pursuant to GE Energy, nonsignatories to New York Convention-governed arbitration agreements are now authorized to compel arbitration using domestic contract law doctrines. In ruling that the New York Convention did not conflict with this provision of the FAA, GE Energy merely removed an obstacle that had prevented application of existing FAA doctrine. GE Energy did not alter the familiar framework of Arthur Andersen, Kramer, or In re Henson in any way.
I would hold, simply, that whether a particular contract is governed by the New York Convention or not, a nonsignatory’s equitable estoppel claim to compel arbitration is brought pursuant to the FAA, which requires that state contract law (or in the case of a foreign contract, perhaps the foreign state’s contract law, depending on the state’s choice of law rules) govern the issue.
After all, it is only because of the provisions of the FAA that nonsignatories are even permitted to compel arbitration using equitable estoppel. The New York Convention does
not speak to the issue. GE Energy, 140 S. Ct. at 1645 (“The Convention is simply silent on the issue of nonsignatory enforcement . . . .”). Instead, the New York Convention instructs us to apply nonconflicting FAA law “to actions and proceedings brought under” the New York Convention.
C
The majority holds that “[i]n cases involving the New York Convention, in determining the arbitrability of federal claims by or against non-signatories to an arbitration agreement, we apply federal substantive law.” First, there is no basis to make the choice of law analysis for a motion to compel arbitration dependent on whether the plaintiff’s claims sound in federal or state law. Second, that an arbitration agreement is otherwise governed by the New York Convention is irrelevant to the choice of law determination for a nonsignatory’s equitable estoppel claim.
For the proposition that the federal nature of a plaintiff’s claims dictates that federal substantive law governs equitable estoppel claims, the majority relies on Letizia v. Prudential Bache Securities, Inc., 802 F.2d 1185 (9th Cir. 1986). Such reliance on Letizia is misplaced. Letizia was a securities fraud case decided in 1986 wherein Letizia, who had invested in Prudential Bache and signed an arbitration agreement with that defendant, sued Prudential Bache as well as Prudential Bache’s nonsignatory employees for fraud. Id. at 1186–87. The nonsignatory employees sought arbitration under the agreement that Letizia and Prudential Bache signed. At that time, we determined that federal substantive law applies to the question of whether the nonsignatories may enforce that agreement:
“Because the issue involves the arbitrability of a dispute, it is controlled by application of federal substantive law rather than state law. Bayma v. Smith Barney, Harris Upham & Co., 784 F.2d 1023, 1025 (9th Cir. 1986).”
Letizia, 802 F.2d at 1187. Letizia held that all issues arising in arbitration disputes are governed by federal substantive
law. To be sure, the FAA provides a substantive mandate ensuring the “enforceability of arbitration agreements” and that in applying this mandate, we are applying “substantive federal law.” Arthur Andersen, 556 U.S. at 630. However, as discussed above, the Supreme Court has in effect abrogated Letizia’s broad holding by making clear that the FAA does not allow federal courts to apply federal common law to all questions in disputes involving arbitration. The Supreme Court stated quite clearly that “state law . . . is applicable to determine which contracts are binding under § 2 and enforceable under § 3 if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally.” Id. at 630–31. The majority’s reliance on Letizia to hold otherwise is entirely inconsistent with the Supreme Court’s holding in Arthur Andersen.
Even if it were not abrogated, the majority’s citation to Letizia to hold that subject matter jurisdiction has bearing on whether federal or state substantive law governs equitable claims is not supported by Letizia’s holding. Letizia itself held that all issues involving the arbitrability of a dispute are controlled by federal substantive law. See Letizia, 802 F.2d at 1187. It did not differentiate between cases brought pursuant to federal question or diversity jurisdiction. Neither the Supreme Court’s nor our own cases have ever relied on the subject matter jurisdiction or the nature of the claims in holding that state law governs equitable estoppel under the
Racketeer Influenced and Corrupt Organizations Act (“RICO”) claims); Shivkov v. Artex Risk Sols., Inc., 974 F.3d 1051, 1058, 1070 (9th Cir. 2020) (same).
For the proposition that federal substantive law applies to all questions arising from international arbitration agreements, majority cites Casa del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, 816 F.3d 1208 (9th Cir. 2016), but that case is not applicable here, in no small measure because that case did not pertain to equitable estoppel claims. In Casa del Caffe, we examined whether an international arbitration agreement governed by the New York Convention was a valid contract; there was no claim by any nonsignatories seeking to compel arbitration by way of domestic contract doctrines. In determining choice of law, we stated: “Because this case arises under Chapter 2 of the Federal Arbitration Act, the issue of whether the Commercial Contract constituted a binding agreement is governed by federal common law.” Id. at 1211. But here, unlike the issue in Casa del Caffe, whether a nonsignatory may compel arbitration under principles of equitable estoppel relies on the FAA, even if interpretation and enforcement of the arbitration agreement by its signatories is governed by the New York Convention. See GE Energy, 140 S. Ct. at 1643. Casa del Caffe was decided prior to the Supreme Court’s decision in GE Energy, which must guide our analysis here. Indeed, when Casa del Caffe was decided, Yang still barred non-signatory litigants from even raising equitable estoppel claims pursuant to the FAA if the arbitration agreement was governed by the New York Convention. Casa del Caffe did not profess to interpret Arthur Andersen and is not a helpful source in determining whether Arthur Andersen’s rule applies to equitable estoppel claims to New York Convention arbitration agreements.
As to the majority’s concern for uniformity in applying arbitration agreements under the New York Convention, that interest is not implicated here. First, each of the out-of-circuit cases upon which the majority relies predates Arthur Andersen. Those cases, it should be obvious, cannot support the conclusion that some exception exists for agreements under the New York Convention to Arthur Andersen’s holding that state law governs equitable estoppel claims. See InterGen N.V. v. Grina, 344 F.3d 134 (1st Cir. 2003); Smith/Enron Cogeneration Ltd. P’ship, Inc. v. Smith Cogeneration Int’l, Inc., 198 F.3d 88 (2d Cir. 1999); Int’l Paper Co. v. Schwabedissen Maschinen & Anlagen CMBH, 206 F.3d 411 (4th Cir. 2000); Certain Underwriters at Lloyd’s v. Argonaut Ins. Co., 500 F.3d 571 (7th Cir. 2007).
Second, any preference that may exist for uniformity as to the interpretation and enforcement of the international agreements by their signatories would not be disturbed by the uniform application of FAA law under Arthur Andersen. We must remember that this case concerns the “application of domestic equitable estoppel doctrines” to international arbitration agreements—which is to say this whole enterprise is definitionally governed by parochial doctrines where a certain amount of nonuniformity comes with the territory. GE Energy, 140 S. Ct. at 1645. But more to the point, equitable estoppel claims are conceptually different than the interpretation and enforcement of the arbitration agreements themselves by the parties. We can and have distinguished between application
one hand and their enforcement by nonsignatories through doctrines such as equitable estoppel on the other. Kramer, 705 F.3d at 1126, 1128 (holding that, although “[t]he scope of an arbitration agreement is governed by federal substantive law,” equitable estoppel claims are governed by “state contract law”). The Supreme Court in GE Energy reinforced the idea that New York Convention did not fundamentally supplant our domestic contract doctrines. Id. (“[T]he Convention requires courts to rely on domestic law to fill the gaps; it does not set out a comprehensive regime that displaces domestic law.”). The conclusion we should draw is that, to the extent uniformity is a primary concern for agreements under New York Convention, it is not so paramount that we should jettison the reasonable choice of law rules handed down by Arthur Andersen and GE Energy.
Finally, I note with confusion the majority’s paean to uniformity of application of arbitration law when the rule it advances arbitrarily treats equitable estoppel claims made pursuant to domestic arbitration agreements differently than those made pursuant international agreements. Uniformity would be better served by treating domestic and international parties alike when they seek justice in the United States.
III
Because SS Mumbai’s motion is brought pursuant to the FAA, the Supreme Court and Ninth Circuit precedents governing this question should be adequate to resolve this issue. Indeed, before the panel is a familiar question: what law governs a claim by a nonsignatory to compel arbitration using domestic equitable estoppel law permitted by the FAA? The Supreme Court in Arthur Andersen determined that a litigant who was not a party to an arbitration agreement may invoke the FAA “if the relevant state contract law allows him to enforce the agreement.” 556 U.S. at 632.
Therefore, I would hold that claims to compel arbitration under the FAA are governed by the domestic contract law of the relevant state or country, regardless whether the arbitration agreement is primarily governed by the FAA or the New York Convention. We should remand to the District Court for it to apply the appropriate choice of law rule.
I respectfully dissent.