S.D. Texas Sends Case Removed Under 9 U.S.C. § 205 Back to State Court

The Southern District of Texas has remanded a case removed to federal district court pursuant to 9 U.S.C. § 205 because the requirements for allowing a nonsignatory to compel arbitration with a signatory were not satisfied and no other basis for federal jurisdiction existed.

In QPro Inc. v. RTD Quality Servs. United States, No. H-09-3904, (S.D. Tex. January 4, 2011), QPro Inc. (“QPro”), a Texas company that performs nondestructive testing and inspection of coated, insulated pipes, leased technology through a nonexclusive licensing agreement from Applus RTD, a Dutch company, to perform its work. The lease agreement between QPro and Applus RTD contained an arbitration clause which stated,

Each party undertakes to make its best effort to settle amicably any dispute with the other party arising out of or relating to this agreement. If such settlement efforts fail, disputes arising in connection with the present agreement shall be finally settled under the then current Rules of Conciliation and Arbitration of the International Chamber of Commerce in The Hague, The Netherlands. The arbitration proceedings shall be held in The Netherlands. The language of the arbitration shall be in English.

Additionally, the lease provided “[t]he validity and interpretation of this agreement and the legal relations of the parties to it shall be governed by the laws of The Netherlands.”

In 2006, QPro began a three year service agreement with Dow Chemical Company. In 2007, Applus RTD unsuccessfully attempted to acquire QPro. According to QPro, Applus RTD refused to lease QPRO additional equipment and attempted to put the company out of business through its subsidiary RTD Quality Services USA (“RTD”). QPro alleged that RTD induced Dow Chemical to reduce services provided by QPro and eventually rebid its contract with QPro, which resulted in a majority of the work being awarded to another company.

QPro sued RTD in a Texas state court for tortious interference of the contract between QPro and Dow Chemical Company. RTD removed the case to federal court “under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. §§ 201–08, based on an arbitration agreement between QPro and Applus RTD.” In June 2010, the Southern District of Texas denied QPro’s motion to remand the case,

because under 9 U.S.C. § 203, a defendant has the right to remove an action or proceeding that “relates to an arbitration agreement or award falling under the Convention . . . any time before the trial thereof. . . to the district court of the United States for the district and division embracing the place where the action or proceeding is pending.” 9 U.S.C. § 205 (emphasis added).

The Southern District of Texas also directed RTD to file a motion to compel arbitration no later than June 18, 2010. After RTD filed its motion to compel, QPro again asked the court to remand the case to Texas state court.

The Southern District began its review of QPro’s new motion to remand by stating the issue of arbitrability was for a court to decide,

When, as here, the issue is whether a nonsignatory to an arbitration clause may enforce it against a signatory, the courts have viewed that as a matter for the court to decide. See, e.g., Arthur Andersen LLP v. Carlisle, — U.S. —-, 129 S. Ct. 1896, 1902 (2009).

…

Following the reasoning of the First, Second, and Federal Circuits, an arbitrator in an ICC arbitration would have jurisdiction to decide issues of arbitrability, but only between the parties to the arbitration agreement, here, QPro and Applus. The cases extending this reasoning and allowing a nonsignatory to compel a signatory to arbitrate issues of arbitrability involve a nonsignatory defendant that essentially stood in the shoes of a signatory to the arbitration agreement when defending the suit.

In order to determine arbitrability, the court examined “Grigson v. Creative Artists Agency, LLC, in which the Fifth Circuit adopted equitable estoppel as a basis for a nonsignatory to compel a signatory to arbitrate a claim, and its progeny. 210 F.3d 524 (5th Cir. 2000).” According to the court, the Grigson doctrine “recognizes that it would be unfair to allow a plaintiff to rely on a contract when it works to its advantage, and repudiate it when it works to its disadvantage.”

The Southern District next determined,

[t]he tortious interference claim by QPro against RTD does not rely on the terms of the lease agreement between RTD and Applus. The close relationship between the alleged tortious interference and the underlying contractual obligations necessary to allow the nonsignatory to the contract to enforce the arbitration clause is not present.

The court continued its examination by stating,

The second basis for compelling arbitration discussed in Grigson is only met if a signatory to the arbitration clause alleges interdependent conduct by both a signatory and a nonsignatory to the arbitration agreement and the nonsignatory defendant seeks to compel the signatory plaintiff to arbitrate all claims.

…

In the present case, QPro did not sue Applus. QPro did not allege misconduct by Applus. QPro alleged that Applus had a connection with the facts of this case, but that is insufficient. As stated in Grigson, the standard is “substantially concerted and interdependent misconduct . . . .” 210 F.3d at 527. A court can consider what RTD did without considering what Applus did. The second prong of Grigson is not met.

Finally, the Southern District addressed QPro’s motion for remand,

Under Beiser, this case should now be remanded. QPro’s claim is based on state law and this court has found that the claim is not arbitrable. Absent § 205, no other basis for federal jurisdiction exists. Beiser holds that although removal of state law claims may be initially proper under § 205 as claims that “relate to” an arbitration agreement, once they are determined not to be arbitrable, remand to state court is appropriate. 284 F.3d at 674; see also Certain Underwriters at Lloyd’s v. Warrantech Corp., 4:04-CV-208-A, 2004 U.S. Dist. LEXIS 29953, at *8 (N.D. Tex. Sept. 23, 2004)…

The Southern District of Texas held the requirements for allowing a nonsignatory to an arbitral agreement to compel arbitration with a signatory were not satisfied, denied RTD’s motion to compel arbitration and granted QPro’s motion to remand the case to Texas state court.

Technorati Tags: arbitration, ADR, law