In Shilmann Rocbit, LLC v. American Blasting Consumables, Inc., No. 2:16-cv-0675, the United States District Court for the Southern District of West Virginia considered plaintiff’s Motion to Dismiss the Counterclaims; plaintiff’s Motion to Remand to the Circuit Court of Kanawha County, West Virginia; and defendant’s Motion to Dismiss and Compel Arbitration. At issue was whether a foreign arbitration clause in an exclusive distribution agreement was enforceable.
In March 2014, the plaintiff, Shilmann Rocbit, LLC, entered into an Exclusive Distribution Agreement (“Agreement”) with Riplog Pty Ltd. (“Riplog”), under which plaintiff was to be the exclusive distributor of a piece of mining equipment, known as a “hole plug,” that preserves boreholes to prevent backfilling. The Agreement contained a dispute resolution clause that required all claims arising out of the Agreement to be arbitrated in South Africa, under South African law. In May 2015, Riplog sold hole plugs to the defendant, American Blasting Consumables, Inc., which the plaintiff claimed violated its exclusive right to sell under the Agreement.
On October 13, 2015, the plaintiff filed its Complaint in the Circuit Court of Kanawha County, West Virginia, alleging tortious interference and seeking temporary and permanent restraining orders against the defendant. Before the action was removed, Riplog assigned a partial interest in the Agreement to the defendant for collection of the plaintiff’s account delinquencies. Based on this partial assignment, the defendant filed two (2) counterclaims against the plaintiff. The defendant then removed the case to federal court, arguing jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act (“Convention”), 9 U.S.C. §§ 201 – 208. The plaintiff subsequently moved to remand.
The Court first addressed the plaintiff’s Motion to Remand. In order to confer the federal courts with federal question jurisdiction, the Convention requires only (1) that there be an arbitration agreement that “falls under” the Convention, and (2) that the arbitration agreement “relate to” the matter at hand. With regard to the “falls under” requirement, an agreement “falls under” the Convention whenever (a) there is an agreement in writing to arbitrate, (b) the agreement provides for arbitration in the territory of a Convention signatory, (c) the agreement arises out of a commercial legal relationship, and (d) a party to the agreement is not an American citizen. In this case, the first three (3) requirements were easily satisfied. As for the fourth requirement, the Court determined that because Riplog had only partially conveyed its rights under the Agreement at the time that the Notice of Removal was filed, Riplog (a citizen of South Africa) was still a party to the Agreement. Therefore, all four (4) requirements were met and the Agreement “fell under” the Convention.
With regard to the “relates to” requirement, the Court, relying on decisions from the Fifth and Ninth Circuits, noted that the Convention confers broad removal jurisdiction. The Court went on to conclude that even a non-signatory’s attempt to compel a signatory to arbitrate the signatory’s claim against the non-signatory was sufficient to satisfy the “relates to” requirement. Accordingly, the Court held that the defendant’s removal of the case was proper and denied the plaintiff’s Motion to Remand.
Next, the Court addressed the defendant’s Motion to Compel Arbitration. The Court noted that the inquiry to determine whether an arbitration agreement is enforceable under the Convention is duplicative of its previous four (4)-factor inquiry to determine whether the arbitration agreement “fell under” the Convention. The Court repeated its prior conclusion that the first three (3) factors were easily satisfied. There was one key difference, however, between this analysis and the one that the Court conducted when considering the plaintiff’s Motion to Remand. When considering the plaintiff’s Motion to Remand, the Court was bound to look at the facts as they were at the time the defendant filed the Notice of Removal. This time around, the Court could look at the present facts. Since the Notice of Removal was filed, Riplog had assigned its entire interest in the Agreement to the defendant. Because Riplog was no longer a party, all remaining parties to the Agreement were American citizens. Federal courts have previously held, however, that where the commercial relationship between the American parties bears “some reasonable relation with one or more foreign states,” the arbitration clause may nevertheless be enforceable. Given that the Agreement called for both performance and enforcement abroad, the Court found that sufficient to establish “some reasonable relation with South Africa.” Therefore, the Court found the arbitration clause enforceable. Accordingly, the Court dismissed the plaintiff’s Motion to Dismiss the Counterclaims as moot, and granted the defendant’s Motion to Compel Arbitration, and dismissed the case with prejudice.