Bel-Ray Co., Inc. v. Chemrite Ltd.

• Decision Date: 28 June 1999
• Docket Number: BEL-RAY
• Citation: 181 F.3d 435
• Parties: (3rd Cir. 1999) COMPANY, INC. v. CHEMRITE (PTY) LTD.; LUBRITENE (PTY) LTD.; IVOR H. KAHN; CESARE CARBONARE; IAN ROBERTSON; PIERRE VAN DER RIET LUBRITENE (PTY) LTD.; IVOR H. KAHN; CESARE CARBONARE; IAN ROBERTSON; PIERRE VAN DER RIET, APPELLANTS NO. 98-6297
• Court: U.S. Court of Appeals — Third Circuit

Page 435

181 F.3d 435 (3rd Cir. 1999)

BEL-RAY COMPANY, INC. v. CHEMRITE (PTY) LTD.; LUBRITENE (PTY) LTD.; IVOR H. KAHN; CESARE CARBONARE; IAN ROBERTSON; PIERRE VAN DER RIET LUBRITENE (PTY) LTD.; IVOR H. KAHN; CESARE CARBONARE; IAN ROBERTSON; PIERRE VAN DER RIET, APPELLANTS

NO. 98-6297

U.S. Court of Appeals, Third Circuit

Argued March 1, 1999

Decided June 28, 1999

On Appeal From the United States District Court For the District of New Jersey (D.C. Civil Action No. 98-cv-00424) District Judge: Honorable Katherine S. Hayden

[Copyrighted Material Omitted]

Sanford D. Brown (Argued) Cerrato, Dawes, Collins, Saker & Brown 509 Stillwells Corner Road P.o. Box 6009 Freehold, NJ 07728 Attorney for Appellees

Louis R. Moffa, Jr. (Argued) Edward J. McBride, Jr. Schnader, Harrison, Segal & Lewis 220 Lake Drive East - Suite 200 Cherry Hill, NJ 08002-1165 Attorney for Appellants

Before: Stapleton, Rendell and Aldisert, Circuit Judges

Stapleton, Circuit Judge

Lubritene Ltd. ("Lubritene") and four of its directors and officers appeal the District Court's order compelling them to arbitrate claims brought against them by Bel-Ray Company, Inc. ("Bel-Ray"). Lubritene claims the District Court erroneously concluded that it was bound under its predecessor's arbitration agreement. The directors and officers contend that the District Court erred because it lacked personal jurisdiction over them, and because they are not bound by their corporate principal's agreement to arbitrate. We agree that Lubritene is bound to arbitrate this dispute and that the District Court had personal jurisdiction over the directors and officers. We conclude, however, that the directors and officers are not bound to arbitrate Bel-Ray's claims against them. Accordingly, we will affirm in part and reverse in part.

I.

Bel-Ray is a New Jersey corporation engaged in the business of manufacturing specialty lubricants for the international mining, industrial and consumer markets. Bel-Ray has developed special formulas and blending technology for its products and maintains them in the highest confidentiality. Between 1983 and 1996, Bel-Ray entered into a series of agreements with Chemrite (Pty.) Ltd., a South African corporation, for the blending and distribution of Bel-Ray products in South Africa. Ivor H. Kahn, Cesare Carbonare, Ian Robertson, and Pierre Van Der Riet (the "Individual Appellants") were officers or directors, as well as shareholders, of Chemrite.

In January of 1996, the parties entered into the most recent set of these agreements (the "Trade Agreements") by executing a (i) Distributor Sales Agreement, (ii) Blending Manufacturing License Agreement, and (iii) License Agreement to Trade Name. The Trade Agreements allowed Chemrite to market and sell Bel-Ray products, and to produce and market products under Bel-Ray's trade name in South Africa. Each agreement contains two clauses relevant to this appeal. First, each agreement required arbitration of "any and all disputes relating to th[e] agreement or its breach" in Wall Township, New Jersey. (A38; A60; A86) Arbitration was to proceed under the American Arbitration Association rules and New Jersey substantive law. Second, the agreements specifically require Bel-Ray's written consent to any assignment of Chemrite's interests under the Trade Agreements.

On August 20, 1996, Chemrite sent Bel-Ray a fax indicating that it had changed its name to "Lubritene (Pty) Ltd." The change became more than nominal on October 10, 1996, when Chemrite sold its lubricant business, expressly including its rights under the Trade Agreements to Lubritene, a newly formed business entity, and Chemrite entered liquidation. Lubritene continued Chemrite's lubricant business at the same location with the same employees and management, and the Individual Appellants became Lubritene shareholders, directors and officers. Lubritene and Bel-Ray continued to conduct business in the same manner under the Trade Agreements. In November of 1996, Lubritene sent Bel-Ray a package of documents that included the October 10th sale of assets documents and thereby informed Bel-Ray that Lubritene was a new and separate company.

In the Spring of 1997, the parties engaged in a series of negotiations. These negotiations were initially motivated by Bel-Ray's interest in acquiring a stake in Lubritene. When it became clear that such an acquisition was not in the cards, the negotiations turned to focus upon modifying the Trade Agreements to add additional industrial products and to extend their terms to six years. During negotiating sessions in South Africa, Lubritene representatives queried Bel-Ray representative Linda Kiefer as to whether Bel-Ray believed there was a legally binding agreement between Lubritene and Bel-Ray. According to Keifer:

"[she] explained to them that, not being an attorney, [she] could not comment on the legal enforceability of the [Trade Agreements], but told them that Bel-Ray's attorneys had advised [her] that technically and legally we do have an agreement. Moreover, [she] pointed out that both Bel-Ray and Lubritene had continued to conduct business in the same manner without interruption, since the agreements were signed . . . [and] that [she] understood from Bel-Ray's attorneys that as long as we both continued to do business according to the terms of the existing agreements while we discussed a possible new relationship, Bel-Ray had an implied agreement with Lubritene on the same terms as the existing agreements with Chemrite."

(A285). Six Lubritene affiants, however, contend that Keifer stated that "technically and legally there is no agreement between Lubritene and Bel-Ray" because any assignment of the Chemrite agreement required Bel-Ray's written consent, which had not yet been granted.

Soon after these negotiations, a former Lubritene director brought internal corporate documents to Bel-Ray's attention. Among these documents were the minutes of a Lubritene board meeting held in anticipation of the Spring 1997 negotiations "to resolve the legal stance Lubritene (Pty) Ltd must take in respect of the Bel-Ray Company Inc[.] agreement." (A127) Lubritene's counsel advised the board at the meeting that:

"while admittedly the [Trade Agreements were] entered into between Chemrite Southern Africa (Pty) Ltd[.,] and Bel-Ray Company Inc.[,] after the deregistration/liquidation of Chemrite Southern Africa (Pty) Ltd[.], Bel-Ray still continued to deal commercially with Lubritene (Pty) Ltd and therefore, Bel-Ray's conduct has basically assumed that the assigned agreements were in fact assigned to Lubritene (Pty) Ltd.[.] However, the agreements state that the transfer of the agreements must be approved in writing by Bel-Ray."

Id. The board then resolved to (i) liquidate Chemrite; (ii) "continue to trade with Bel-Ray Company Inc as is and not [to] suggest any changes to the current agreement when Linda Kiefer and Bernie Meeks visit South Africa in April"; (iii) create another new company and transfer all of Lubritene's business other than Bel-Ray to that company so that Lubritene "will have no assets" and"[i]f Bel-Ray decides to take legal action against Lubritene (Pty) Ltd, there will be nothing left in the company and hence Bel-Ray will not recover any damages"; and (iv) when Bel-Ray seeks to renew the Trade Agreements to inform them that the Trade Agreements were with Chemrite, "which does not exist anymore and that the agreements are no longer valid." Id. The minutes end by instructing that "[i]t is vital that we do not alert Bel-Ray to our plans and hence we must be very cautious and circumspect when we ALL meet with them in April." Id. (emphasis in original).

Bel-Ray alleges that these minutes and the other documents brought to them by the former Lubritene director reveal that Lubritene, and the Individual Appellants as its officers and directors, conspired to misappropriate Bel-Ray's technology and other proprietary information and intentionally defrauded Bel-Ray by leading it to believe that Lubritene would abide by the Trade Agreements. Additionally, they allege that Lubritene marketed Bel-Ray products falsely under Lubritene's trade name, and conversely marketed inferior Lubritene products under Bel-Ray's trade name thereby damaging Bel-Ray's business reputation.

Bel-Ray filed this action in the United States District Court for the District of New Jersey to compel Lubritene and the Individual Appellants to arbitrate their claims under the Trade Agreements' arbitration clauses. Bel-Ray alleges that Lubritene's actions amount to the business torts of (i) unfair competition, (ii) fraud, and (iii) misappropriation. Bel-Ray also claims that these same actions constitute breaches of the Trade Agreements.¹

Lubritene and the Individual Appellants, jointly represented, filed an answer asserting inter alia lack of personal jurisdiction and counterclaims. The counterclaims alleged that Bel-Ray had commenced related proceedings in South Africa to enjoin Lubritene from continuing to use its intellectual property and trade name, and requested the District Court to either (i) stay the proceedings, or (ii) enjoin Bel-Ray from seeking to compel arbitration because it had waived its right to arbitrate by initiating the South African litigation. Two months later, the Individual Appellants filed a motion on their counterclaims requesting a stay, or alternatively, summary judgment enjoining Bel-Ray from seeking to compel arbitration.

The District Court denied the appellants' motion. Months later, the Court granted Bel-Ray summary judgment and entered an order compelling arbitration on August 10, 1998. Lubritene and the Individual Appellants appeal this order.

II.

The District Court had jurisdiction under 9 U.S.C.§ 203 because this action to compel arbitration between international parties falls under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. See 9 U.S.C. §§ 201-208. We have...