Setty v. Shrinivas Sugandhalaya LLP, No. 18-35573 (9th Cir. 2021)
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On remand from the Supreme Court in light of GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020), the Ninth Circuit affirmed the district court's order denying defendant's motions to compel arbitration and to grant a stay pending arbitration.
Rather than apply the law of India, the panel applied federal common law to the issue of whether defendant, a non-signatory to the partnership deed containing an arbitration provision, could compel plaintiffs to arbitrate. The panel applied Letizia v. Prudential Bache Securities, Inc., 802 F.2d 1185 (9th Cir. 1986), which remains good law, and concluded that federal law applied because the case involved federal claims and turned on the court's federal question jurisdiction. The panel held that equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes. In this case, the district court did not abuse its discretion in rejecting SS Mumbai's argument that SS Bangalore should be equitably estopped from avoiding arbitration.
Court Description: Arbitration. On remand from the Supreme Court, the panel affirmed the district court’s order denying defendant’s motions to compel arbitration and to grant a stay pending arbitration in a civil case. The panel previously held that defendant could not equitably estop plaintiffs from avoiding arbitration, and thus affirmed the district court’s order. 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). On remand, the panel applied federal common law, rather than the law of India, to the question whether defendant, a non-signatory to the partnership deed containing an arbitration provision, could compel plaintiffs to arbitrate. Reaffirming that Letizia v. Prudential Bache Securities, Inc., 802 F.2d 1185 (9th Cir. 1986), remains good law, the panel concluded that federal law applied because the case involved federal claims and turned on the court’s federal question jurisdiction. The panel held that equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes. The panel concluded that plaintiffs’ claims were SETTY V. SHRINIVAS SUGANDHALAYA 3 not clearly intertwined with the partnership deed providing for arbitration. Accordingly, the district court properly exercised its discretion in rejecting defendant’s argument that plaintiffs should be equitably estopped from avoiding arbitration. Dissenting, Judge Bea disagreed with the majority’s holding that, not Indian, but U.S. federal common law governed the issue of equitable estoppel. He wrote that equitable estoppel claims pressed by nonsignatories under Chapter 1 of the Federal Arbitration Act are governed by state law, and this principle also applies to arbitration agreements governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or New York Convention. Judge Bea would hold that claims to compel arbitration under Chapter 1 of the FAA are governed by the domestic contract law of the relevant state or country, regardless of whether the arbitration agreement is primarily governed by FAA Chapter 1 or the New York Convention.
This opinion or order relates to an opinion or order originally issued on June 6, 2019.
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