China Nat. Metal v. Apex Digital, Inc.

• Decision Date: 16 August 2004
• Docket Number: No. 03-55231.,03-55231.
• Citation: 379 F.3d 796
• Parties: CHINA NATIONAL METAL PRODUCTS IMPORT/EXPORT COMPANY, Petitioner-Appellee, v. APEX DIGITAL, INC., Respondent-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

379 F.3d 796

CHINA NATIONAL METAL PRODUCTS IMPORT/EXPORT COMPANY, Petitioner-Appellee, v. APEX DIGITAL, INC., Respondent-Appellant.

No. 03-55231.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 10, 2004.

Filed August 16, 2004.

Kenneth R. O'Rourke and Kevin M. Yopp, O'Melveny & Myers, L.L.P., Los Angeles, CA, for the respondent-appellant.

Jeffrey S. Gordon, Gina Guerra and J. Raymond Warner, Kaye Scholer, L.L.P., Los Angeles, CA, for the petitioner-appellee.

Appeal from the United States District Court for the Central District of California; Robert J. Timlin, District Judge, Presiding. D.C. No. CV-02-00631-RT.

Before: HARRY PREGERSON, M. MARGARET McKEOWN, and JAY S. BYBEE, Circuit Judges.

BYBEE, Circuit Judge:

Apex Digital, Inc. ("Apex") appeals an order confirming an arbitral award obtained against it following an arbitration proceeding in Beijing. It claims that the parties' arbitration clause required China National Metal Products Import/Export Company ("China National") to bring any claim against Apex as a counterclaim in an arbitral proceeding previously initiated by Apex in Shanghai.

Apex argues that the arbitrating body, the China International Economic and Trade Arbitration Commission ("CIETAC"), disregarded the parties' arbitration clause by permitting separate arbitration of Apex's and China National's claims. This irregularity, Apex asserts, provides it with a defense against confirmation of the Beijing arbitral award under Article V, § 1(d) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art. V, § 1, reprinted in 9 U.S.C.A. § 201 note (West 2000) (hereinafter, "Convention"), and Apex claims that the district court erred by recognizing and enforcing the CIETAC Beijing arbitral award. We disagree and affirm the confirmation of the award.

FACTS AND PROCEEDINGS BELOW

Apex, a U.S. importer of electronics equipment, and China National, a Chinese exporter, entered into a series of written sales agreements for DVD players (the "purchase orders"). The purchase orders specified the type and number of DVD players Apex ordered as well as the price for each type of DVD player. Paragraph 15 of each of the purchase orders provides:

ARBITRATION: All dispute[s] arising from or in connection with this Contract shall be submitted to [CIETAC] for arbitration which shall be conducted by the Commission in Beijing or by its Shenzhen Sub-Commission in Shenzhen or by its Shanghai Sub-Commission in Shanghai at the Claimant's option in accordance with the Commission's arbitration rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties.

China National shipped the DVD players that Apex agreed to purchase under the purchase orders.

Apex received numerous customer complaints concerning defects in the DVD players and experienced a higher than normal return rate with respect to some of the models. Nonetheless, Apex continued to order DVD players from China National and to ship them to its retailers.

In late 2000, Apex notified China National that it was in breach of the purchase orders because a large number of its DVD players were defective and because it had failed to pay intellectual property royalties for technology employed in the players. In early 2001, Apex began withholding payment on China National invoices for those DVD players imported between August and November 2000. China National demanded payment, but Apex refused to pay.

In February 2001, China National filed an attachment application in the U.S. District Court for the Central District of California to ensure that, were it to prevail against Apex in arbitration, it could recover. Although the magistrate judge granted the application, the District Court set aside that order, dismissed China National's claims, and referred the matter to arbitration before CIETAC. China Nat'l Metal Prods. Import/Export Co. v. Apex Digital, Inc., 155 F.Supp.2d 1174 (C.D.Cal.2001).

On March 6, 2001, Apex commenced arbitration proceedings against China National by filing a Statement of Claims concerning nine of the purchase orders with the CIETAC Sub-Commission in Shanghai. On March 12, 2001, China National filed its own Statement of Claims concerning eight of the same purchase orders with CIETAC in Beijing. Apex objected to China National's arbitration application. It asserted that China National should be required to raise its claims as counterclaims in the Shanghai arbitration, where Apex had already filed for an arbitration concerning eight of the same purchase orders. CIETAC rejected Apex's objections and concluded that CIETAC could entertain the two arbitrations separately. It reasoned the arbitrations were not "entirely the same," noting that the Shanghai arbitration involved one additional contract than the Beijing arbitration, China National had complied with all requirements for arbitration before CIETAC, and CIETAC lacked authority to force China National to raise its claims as counterclaims in the Shanghai arbitration.

In October 2001, the Beijing CIETAC panel conducted an arbitration hearing. In December 2001, the Shanghai CIETAC arbitration panel held its arbitration hearing. The Beijing arbitration panel ruled for China National in May 2002. It rejected Apex's continuing objection to its arbitral jurisdiction, noting that CIETAC had previously decided that issue. The panel then faulted Apex for unjustifiably withholding payment for all goods, both defective and non-defective. It awarded China National $10,718,921 plus interest. The Beijing panel arrived at this sum by deducting the potential dollar value of Apex's counterclaims for all nonconforming DVD players (to be definitively determined in the Shanghai arbitration) from the dollar value of China National's claims for nonpayment of goods.

In June 2002, China National sought enforcement of the Beijing arbitral award in the U.S. District Court. Meanwhile, Apex petitioned a Chinese court in an attempt to vacate the Beijing arbitral award. It argued that the Beijing arbitration panel lacked jurisdiction to accept China National's arbitration application. The Chinese court rejected Apex's application to quash the Beijing arbitral award in August 2002. In January 2003, the U.S. District Court confirmed the final, partial Beijing arbitral award.

On appeal, Apex argues that the Beijing arbitral award resulted from a proceeding that did not accord with the arbitration provision of the parties' purchase orders. According to Apex, the parties agreed to arbitrate their disputes in one of three fora — either Beijing, Shanghai, or Shenzhen — and not in multiple venues. The first party to file, Apex argues, would select the appropriate forum. The parties do not dispute — and CIETAC found — that Apex filed its arbitration application first in Shanghai, and China National filed its arbitration application second in Beijing. CIETAC permitted the two separate but related arbitrations to proceed along parallel paths. Apex argues that only one proceeding, the Shanghai arbitration, should have taken place. It claims China National should have filed any claims as counterclaims in the Shanghai arbitration initiated by Apex.

STANDARD OF REVIEW

Our "review of a foreign arbitration award is quite circumscribed." Ministry of Defense of the Islamic Republic of Iran v. Gould, Inc., 969 F.2d 764, 770 (9th Cir.1992). Rather than review the merits of the underlying arbitration, we review de novo only whether the party established a defense under the Convention. Banco de Seguros del Estado v. Mut. Marine Office, Inc., 344 F.3d 255, 260 (2d Cir.2003).

DISCUSSION

The United States implemented its Convention obligations in domestic law by way of the second chapter of the Federal Arbitration Act ("FAA"). 9 U.S.C. §§ 201-208. Section 207 of the FAA provides that a U.S. court "shall confirm" a foreign arbitral award "unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the [Convention]." 9 U.S.C. § 207. It thereby incorporates by reference the Convention's seven enumerated exceptions or defenses to the mandatory recognition or enforcement of a foreign arbitral award.

Apex invokes the Convention's Article V, § 1(d) defense against enforcement of the Beijing arbitral award. Section 1(d) provides that

Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that ... (d)... the arbitral procedure was not in accordance with the agreement of the parties ...

Convention, art. V, § 1(d) (emphasis added). Apex contends that the twin arbitrations in Shanghai and Beijing violated the arbitral procedure in the parties' purchase orders and that, therefore, § 1(d) now bars enforcement of the Beijing arbitral award.

A. CIETAC did not trump the parties' specific contractual terms with its own arbitral rules.

Apex claims that the arbitrators used the purchase orders'"general reference" to CIETAC's standard arbitration rules to trump the specific contractual provisions of the parties' arbitration clause. Generally, "separately negotiated ... terms are given greater weight than standardized terms or other terms not separately negotiated." Restatement (Second) of Contracts § 203(d).

Cargill Rice, Inc. v. Empresa Nicaraguense Dealimentos Basicos, 25 F.3d 223 (4th Cir.1994), illustrates this principle in the context of an agreement providing for arbitration pursuant to an arbitrating body's rules. In Cargill, the parties' arbitration agreement specifically and expressly provided that "[a]ny dispute ... which may arise in the ... performance of this Contract shall be resolved by arbitral award (decision of arbitrators) chosen by mutual agreement." Id. at 224 (emphasis added). The parties submitted the case for...