United States / 13 July 2012 / United States, U.S. District Court, District of Nevada / Formostar, LLC, et al. v. Henry Florentius, et al. / 2:11-cv-01166-GMN-CWH
| Country | United States |
| Court | United States, U.S. District Court, District of Nevada |
| Date | 13 July 2012 |
| Parties | Formostar, LLC, et al. v. Henry Florentius, et al. |
| Case number | 2:11-cv-01166-GMN-CWH |
| Applicable NYC Provisions | II |
| Source |
online: PACER |
| Languages | English |
| Summary | The present dispute involves the Plaintiffs Sun Italia LLC, Formostar LLC and Sheer Legacy LLC and the Defendants SoliPax Ltd. and Henry Florentius. Sun Italia and SoliPax had entered into a Business Consulting Agreement (“Agreement”) in January 2008, which contained an arbitration clause providing for arbitration under the auspices of the Shanghai Arbitration Commission. However, Formostar and Sheer Legacy, who were sister companies of Sun Italia and Henry Florentius, who was the president, CEO, manager and sole owner of SoliPax, were not signatories of the Agreement or its arbitration provision. When a dispute arose, the Plaintiffs commenced an action in Missouri state court. The Defendants removed the case to the United States District Court for the District of Nevada pursuant to Section 205 of the Federal Arbitration Act (“FAA”), which grants a federal district court removal jurisdiction over cases it determines relate to an arbitration agreement governed by the NYC, and sought to compel arbitration. The Defendants argued that the Court should remand the case back to state court for lack of subject matter jurisdiction because the parties’ arbitration agreement was not governed by the NYC. Furthermore, the Plaintiffs contended that even if the NYC did apply, that the arbitration agreement was unenforceable because three of the five parties to the proceedings were not signatories to the arbitration clause. The United States District Court for the District of Nevada compelled arbitration upon determining that the arbitration agreement (i) was governed by the NYC; (ii) applied to the present dispute; and (iii) was enforceable under the NYC as against both signatories and non-signatories to the arbitration agreement. The Court first held that it had jurisdiction over the present action because the arbitration agreement in the parties’ Agreement was governed by the NYC and it related to the subject matter of the Plaintiffs’ claims. According to the Court, an arbitration agreement is governed by the NYC if it arises out of a commercial relationship, and one of the parties is not a U.S. citizen or the parties’ relationship has some other foreign connection. Furthermore, an arbitration agreement relates to a pending suit if arbitration could conceivably affect the outcome of the case. In this case the broad arbitration agreement required the Court to refer all of the Plaintiffs’ claims to arbitration, thus, potentially affecting the disposition of the pending suit. Next, the Court considered whether the arbitration agreement met the criteria for enforceability under the NYC, i.e. whether: (i) there was an agreement in writing within the meaning of the NYC; (ii) the agreement provided for arbitration in the territory of a signatory of the NYC; (iii) the agreement arose out of a commercial legal relationship, whether contractual or not; and (iv) a party to the agreement was not an American citizen, or that the commercial relationship had some reasonable relation with one or more foreign states; and lastly, whether any of the affirmative defenses in Article II NYC applied. The Court concluded that the arbitration agreement was enforceable under the NYC. The Court rejected the Plaintiffs’ argument that because some of the parties were not signatories to the arbitration agreement there was no “agreement in writing” within the meaning of Article II NYC. The Court reasoned that non-signatories could be bound by arbitration clauses under general principles of contract and agency law, including principles of equitable estoppel and alter-ego, as was the case here. Lastly, the Court held that none of the affirmative defenses for non-enforcement of an arbitration agreement available under Article II(3) NYC applied. The Court rejected the Plaintiffs’ argument that the arbitration agreement was null and void because some of the parties were non-signatories, or that it was incapable of being performed because some of the parties no longer existed. Finally, the Court held that the Defendants had not waived their right to arbitrate by responding, to a limited extent, to state court proceedings initiated by the Plaintiffs and that the Defendants' response did not prejudice the Plaintiffs in any manner. |
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Attachment (1)
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