Two brothers in India formed a partnership to carry on the family business. Their partnership agreement contained a clause requiring the brothers to resolve all disputes “of any type whatsoever in respect of the partnership” by arbitration in India. Later, the brothers each also started separate companies. A dispute arose between the brothers regarding the rights to use certain trademarks. One brother (and his company) sued the other brother’s company (but not the other brother) in federal district court in Seattle, alleging violations of the federal Lanham Act governing trademark rights. The other brother’s company (Shrinivas Sugandhalaya, LLP) hired Brian Esler and the lawyers at Miller Nash to defend it.
We moved to stay the district court litigation and refer the dispute to arbitration as was required by the partnership agreement. The Federal Arbitration Act generally governs motions involving arbitration rights; however, when at least one of the parties to the arbitration agreement is not a citizen of the United States, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the “New York Convention”) may also apply. The New York Convention is an international treaty, signed by 163 countries, that is intended to make enforcement of arbitration agreements and awards easier. Among other things, the New York Convention requires member states to recognize and enforce “an agreement in writing” to arbitrate. The New York Convention’s definition of an “agreement in writing” states that it shall include any arbitral clause “signed by the parties.” While our client was owned and managed by one of the brothers who signed the arbitration agreement, and the lawsuit against it arose out of a partnership dispute, our client was technically not a signatory to the arbitration agreement. Nonetheless, we argued that under Indian law (which governed the partnership and the parties) as well as equivalent U.S. law, our client should be able to enforce the arbitration clause, stay or dismiss the federal court case, and have the issues decided by arbitration in India.
The federal district court denied our motion, which would have allowed the lawsuit against our client to continue here in the United States. We appealed, but the Ninth Circuit affirmed the district court, holding that as a non-signatory to the contract containing the arbitration clause, our client had no rights to stay the case or compel arbitration. So we petitioned for a writ of certiorari to the United States Supreme Court, asking it to review and reverse the Ninth Circuit’s decision, arguing that there was a split of authority in the circuits on the issue of whether rights under the New York Convention could be enforced by non-signatories, and that the lower courts’ refusal to grant a stay of litigation contradicted previous Supreme Court precedent.
Shortly before we filed, another party with a case in the Eleventh Circuit also sought Supreme Court review of the question of whether only a party that actually signed an arbitration agreement could enforce that agreement under the New York Convention. The Supreme Court accepted that petition, and set that case for oral argument in January. On Monday, June 1, the Supreme Court announced its decision in that case: GE Energy v. Outokumpu. There, a unanimous Supreme Court held that non-signatories have the right to compel arbitration of agreements that are subject to the New York Convention by using traditional legal and equitable principles (including equitable estoppel). The Court recognized that the New York Convention contemplates using domestic legal principles as gap-fillers to the minimum standards contained in the Convention. By doing so, the Court brought federal practice in line with the practice in many other signatory countries, where non-signatories are often allowed to enforce arbitration agreements.
However, our client’s petition raised not only the issue argued by GE Energy (i.e., whether non-signatories were categorically barred from compelling arbitration when the agreement is subject to the New York Convention), but also a separate and equally important issue: whether a foreign defendant’s right to stay litigation under Section 3 of the Federal Arbitration Act is conditioned upon that defendant’s right to compel arbitration? Today, the Supreme Court granted our client’s petition for a writ of certiorari on that issue as well, vacated the Ninth Circuit’s judgment and remanded the case to the Ninth Circuit for further consideration in light of the Court’s decision in GE Energy. We are hopeful that, in light of the Supreme Court’s unanimous decision, the Ninth Circuit will now agree with us, stay or dismiss the federal court proceedings, and direct the parties to arbitrate the trademark dispute in India.
