738 F.2d 1473 (9th Cir. 1984), 81-5359, Lake Communications, Inc. v. ICC Corp.

Docket Nº:81-5359.
Citation:738 F.2d 1473
Party Name:LAKE COMMUNICATIONS, INC., Plaintiff-Appellant, v. ICC CORPORATION, a Korean corporation, Kologel Co., Ltd., a California corporation, Allways International, Inc., an Illinois corporation, Defendants-Appellees. ALLWAYS INTERNATIONAL, INC., an Illinois corporation, Kologel Co., Ltd., a California corporation, Counterclaimants-Appellees, v. LAKE COMM
Case Date:August 02, 1984
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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738 F.2d 1473 (9th Cir. 1984)

LAKE COMMUNICATIONS, INC., Plaintiff-Appellant,


ICC CORPORATION, a Korean corporation, Kologel Co., Ltd., a

California corporation, Allways International,

Inc., an Illinois corporation,


ALLWAYS INTERNATIONAL, INC., an Illinois corporation,

Kologel Co., Ltd., a California corporation,



LAKE COMMUNICATIONS, INC., Leo Kassin, Counterclaimants,


No. 81-5359.

United States Court of Appeals, Ninth Circuit

August 2, 1984

Argued and Submitted Dec. 8, 1981.

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[Copyrighted Material Omitted]

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Mark B. Scott, San Francisco, Cal., for plaintiff-appellant.

Michael J. Dennis, Los Angeles, Cal., Thomas E. Johnson, Chicago, Ill., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before BROWNING, Chief Judge, FLETCHER, Circuit Judge, and VON DER HEYDT, [*] District Judge.

BROWNING, Chief Judge:

This is an appeal from an order of the district court staying litigation of certain pendent claims and counterclaims in an antitrust suit and instructing the parties to arbitrate these claims.

Lake Communications, Inc. (Lake), an Illinois corporation, entered into agreements with ICC Corporation (ICC), a Korean corporation, under which ICC was to purchase electronic products manufactured to Lake's specifications by Korean companies and resell them to Lake for marketing in the United States. After substantial shipments had been made, received, and paid for, a disagreement arose. Lake filed this action against ICC and its wholly owned American subsidiaries, Allways International, Inc. (Allways) and Kologel Company, Ltd. (Kologel), alleging violations of section 1 of the Sherman Act, 15 U.S.C. Sec. 1, section 2(a) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. Sec. 13, and provisions of California statutory and common law.

According to Lake, ICC agreed to act exclusively for Lake in purchasing electronic equipment from Korean manufacturers, and to ship that equipment to Lake through Kologel, ICC's "Chicago branch." Lake claims it gave ICC confidential information regarding the identity and purchasing requirements of its customers. Lake also furnished ICC with Lake's trademarks and trade names to be permanently affixed to each unit, and with Lake's distinctive packaging. ICC was to provide quality control by inspecting and testing the electronics in Korea prior to shipment. Lake had the exclusive right to market the electronics in the United States. In return, ICC was to receive a commission of one percent of the purchase price.

The first three counts of Lake's complaint allege federal antitrust claims. Count I alleges that ICC, Allways, and Kologel conspired to eliminate Lake as a competitor in the sale of electronics in violation of section 1 of the Sherman Act by: (1) intentionally shipping defective electronics to Lake; (2) selling electronics to customers of Lake at prices lower than those charged Lake; (3) forming Tancredi, a division of Kologel, to sell to Lake's customers electronics infringing Lake's trademarks and designs; (4) wrongfully appropriating Lake's customers by unfair and predatory practices; and (5) wrongfully disparaging Lake and its electronics.

Count II realleges the conspiracy to eliminate Lake as a competitor, but by different means: (1) causing Kologel to distribute electronics with functional and nonfunctional features identical to Lake's; (2) causing Kologel to market electronics under the name Tancredi that were confusingly similar to Lake's; and (3) deliberately infringing Lake's trademarks with intent to pass off Tancredi electronics as Lake electronics. Count III alleges that in violation of section 2(a) of the Clayton Act as amended

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by the Robinson-Patman Act, ICC and Kologel sold electronics to Lake's customers at prices lower than those at which they sold electronics of the same kind and quality to Lake.

The remaining thirteen counts allege various state claims. The first four allege violations of state antitrust and unfair competition laws. Counts IV, V, and VI incorporate the factual allegations of Counts I, II, and III and charge violations of California's Cartwright Act, Cal.Bus. & Prof.Code Secs. 16700-16758, and California's Unfair Trade Practices Act, Cal.Bus. & Prof.Code Secs. 17000-17101. Count VII incorporates the factual allegations of Counts I, II, and III and charges common law unfair competition.

Counts VIII through XVI allege various non-antitrust common law causes of action: breach of contract, breach of fiduciary and common law duties, breach of warranty, deceit, malicious interference with contract, loss of prospective economic advantage, trade mark infringement, and indemnity.

ICC filed a motion to dismiss for lack of personal jurisdiction. 1 Allways and Kologel counterclaimed against Lake and Leo Kassin, Lake's president, to recover the purchase price or value of electronics delivered to Lake, alleging breach of contractual and common law duties and nonpayment for goods received. Both also sought damages for abuse of process, alleging Lake's antitrust claims were groundless, and that Lake instituted this litigation in order to preempt ICC's anticipated collection suit in the state courts in Illinois, where Lake, Allways, and Kassin resided. This successfully postponed ICC's recovery pending resolution of this litigation.

Allways and Kologel moved to dismiss the action or to stay further proceedings pending arbitration pursuant to a provision printed on the back of six sales notes between Lake and ICC. The provision stated that any unresolved dispute "arising out of or relating to this contract or the breach thereof ... shall be arbitrated in the Republic of Korea, under the rule of the Republic of Korea and in accordance with the rules of procedure of the Korean Commercial Arbitration Association."

The district court denied the motion to dismiss, granted the motion to stay in part, and ordered Lake and ICC to proceed to arbitration. This appeal followed. On Lake's motion, this court stayed implementation of the district court's order.

I. Preliminary Matters


Appellees challenge our jurisdiction to review the district court's order. Lake's complaint seeks money damages and is primarily an action at law. The relief sought by appellees, a stay of the litigation pending arbitration, is equitable in nature. The district court order granting a partial stay is therefore appealable under 28 U.S.C. Sec. 1292(a)(1) as an interlocutory order granting an injunction. See Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458, 1461-62 (9th Cir.1983); ATSA of California, Inc. v. Continental Insurance Co., 702 F.2d 172, 173-74 & n. 2 (9th Cir.1983); Wren v. Sletten Construction Co., 654 F.2d 529, 532-33 (9th Cir.1981); Varo v. Comprehensive Designers, Inc., 504 F.2d 1103, 1103 & n. 1 (9th Cir.1974).


The district court's order not only directed Lake and ICC to proceed to arbitration, but also stated that "any interested parties who wish to voluntarily participate" could do so. Allways indicated its intention to accept the invitation. Lake objects on the ground that only Lake and ICC are parties to the six sales notes, and Lake has not agreed to arbitrate with Allways. See Moses Cone Memorial Hospital v. Mercury

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Construction Corp., 460 U.S. 1, ----, 103 S.Ct. 927, 939, 74 L.Ed.2d 765 (1983). ICC offers a variety of theories upon which Allways may establish a right to arbitrate, but those that have substance require factual determinations the district court has not yet made. See ATSA of California, 702 F.2d at 176. Unless and until such determination is made, Allways' counterclaims against Lake cannot be referred to arbitration. The district court may, however, stay litigation of these counterclaims if it finds that course advisable in view of their interdependence with claims properly referred to arbitration. Moses Cone Memorial Hospital, 460 U.S. at ---- n. 23, 103 S.Ct. at 939 n. 23; Sam Reisfeld & Son Import Co. v. S.A. Eteco, 530 F.2d 679, 681 (5th Cir.1976).


Lake contends appellees waived any right to arbitration they may have had. Waiver of arbitration is not readily found. Shinto Shipping Co. v. Fibrex & Shipping Co., 572 F.2d 1328, 1330 (9th Cir.1978). More is required than action inconsistent with an arbitration provision; prejudice to the party opposing arbitration must also be shown. ATSA of California, 702 F.2d at 175; Shinto, 572 F.2d at 1330.

ICC did not seek arbitration until more than a year after the complaint was filed, but ICC had not yet filed an answer. Moreover, shortly after suit was filed ICC submitted a motion to dismiss alluding to the arbitration provision in the sales notes and giving notice of ICC's intention to rely upon it. But even assuming ICC's actions were somehow inconsistent with its attempt to seek arbitration, Lake has shown no prejudice. Lake argues that ICC initiated discovery, but only limited discovery has occurred, consisting primarily of the taking of the deposition of Lake's president.


Lake argues that ICC has no arbitrable claim against Lake because Allways paid ICC in full for the merchandise shipped to Lake, a fact said to be established by an affidavit of the president of Allways filed in support of a motion under 28 U.S.C. Sec. 1404(a). This argument goes to the merits of ICC's claim rather than its arbitrability. Whether ICC's claim for payment is valid is for the arbitrator to decide. The Fifth Circuit rejected an argument analogous to Lake's in City of Meridan, Mississippi v. Algernon Blair, Inc., 721 F.2d 525, 529 (5th Cir.1983). 2 Moreover, the fact that ICC may have been paid has no effect on ICC's right to invoke the arbitration clause in connection with Lake's claims...

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