Clientron Corp. v. Devon It, Inc., Civil Action No. 13–05634.

• Decision Date: 08 August 2014
• Docket Number: Civil Action No. 13–05634.
• Citation: 35 F.Supp.3d 665
• Parties: CLIENTRON CORP., Plaintiff v. DEVON IT, INC., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

35 F.Supp.3d 665

CLIENTRON CORP., Plaintiff
v.
DEVON IT, INC., Defendant.

Civil Action No. 13–05634.

United States District Court, E.D. Pennsylvania.

Signed Aug. 8, 2014

Motion granted in part and denied in part.

[35 F.Supp.3d 668]

George J. Krueger, Fox Rothschild LLP, Philadelphia, PA, Jeffrey C.P. Wang, WHGC PLC, Newport Beach, CA, John D. Vanlobensels, John D. Vanlobensels WHGC PLC, Mountain View, CA, for Plaintiff.

Gary M. Samms, Richard P. Limburg, Obermayer Rebbmann Maxwell & Hippell LLP, Philadelphia, PA, for Defendant.

MEMORANDUM RE DEVON'S MOTION TO DISMISS CLIENTRON'S PETITION TO ENFORCE ITS ARBITRATION AWARD/FOREIGN MONEY JUDGMENT
BAYLSON, District Judge.

TABLE OF CONTENTS

I.	Introduction	669
II.	The NY Convention	670

A.	An Argument Rejecting the Reciprocity Requirement	672
B.	The Reciprocity Requirement Controls	674

III.	Diversity Jurisdiction Exists for the Pennsylvania State Law Claim	677
IV.	Legal Standard	677

A.	Standard of Review	677
B.	Pennsylvania's Uniform Foreign Money Judgment Recognition Act	678

V. Discussion
680

A.	Does Clientron Possess a Foreign Judgment as Defined by the UFMJRA?	680
B.	Was the Proceeding Contrary to an Agreement Between the; Parties?	681

1.	Legal Standard for Determining Foreign Law	682
2.	Findings Regarding Taiwan Law	683
3.	The Contract at the Center of the Dispute	685
4.	Testimony at the Hearing	686

a.	Yun Cheng Liu	687
b.	Ming Yan Shieh	687
c.	Chung Tuh Lee	688

5.
Discussion
690

a.	There Is an Agreement to Arbitrate	690
b.	The Arbitration Decision Is Final and Enforceable in; Taiwan	691
c.	The Disputed Products Are Not Within the Scope of the SPA	691

i.	The Text of the SPA Contains a Mechanism for Incorporating New or Replacement Products	692
ii.	A Broad Reading of the Agreement to Cover All Thin–Client Products Undermines the; Agreement's Structure	692
iii.	Clientron's Proffered Interpretation of the Words “Any Dispute” Is Overly Broad and Ignores How That Phrase Operates Within the Agreement as a Whole	692
iv.	Devon's Request for Repair Warranties Provides Some Support for the Contention That Devon Intended the Disputed Products to Be Covered by the SPA	693
v.	The Draft Release Agreement Is Not Probative of the Parties' Intent as to the Scope of the SPA	693
vi.	The Draft Supply Agreement Supports Devon's; Contention That the Parties Did Not Intend; the SPA to Cover the Disputed Products	695

VI.
Summary and Conclusions
696

[35 F.Supp.3d 669]

I. Introduction

Plaintiff Clientron Corp., a Taiwan company, seeks to enforce an arbitration award obtained in Taiwan against Defendant Devon IT, Inc., a Pennsylvania company. On August 15, 2008, the parties entered into a Supply and Purchase Agreement (“SPA”) for the manufacture and delivery of thin-client computer components.¹ ECF 1 at 25. According to Clientron, § 13.3 of the SPA contains an arbitration clause. ECF 1 at 21.

Appendix A1 of the SPA indicates that the agreement covers only one type of product: TC2. A dispute arose between the parties regarding Devon's failure to make payment for three products not mentioned in the Appendix of the SPA: TC2D, TC5c, and TC5d (hereinafter, “the disputed products” or “the disputed thin-client products”). Clientron responded by initiating arbitration proceedings in Taiwan through the Chinese Arbitration Association. At the arbitration, Devon objected to the proceedings, arguing, among other things, that the SPA did not govern the purchase of TC2D, TC5c, and TC5d, and thus the arbitration panel lacked jurisdiction to hear the dispute. Over the course of the arbitration, the panel issued an Interim Arbitration Award, ECF 38–1 at 4, which addressed Devon's procedural and jurisdictional objections, and a Final Arbitration Award, ECF 11–2 at 15, which addressed the merits of the dispute.

Clientron prevailed before the arbitration tribunal and now seeks to enforce its arbitration award for US$6,574,546.17 plus interest against Devon in Pennsylvania. In addition to the enforcement proceeding in this Court, Clientron initiated an enforcement proceeding in Taiwan. On March 28, 2014, the Taiwan enforcement court granted Clientron's petition to enforce its arbitral award. ECF 43 at 5. The parties are also engaged in a revocation proceeding initiated by Devon in Taiwan to set aside the award. To this Court's knowledge, the Taiwan revocation court has not yet rendered a decision.

Clientron's Complaint in this Court has two counts. Clientron seeks enforcement of its foreign arbitration award under (1) the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly called the “NY Convention”), 21 U.S.T. 2517, 330 U.N.T.S. 3, incorporated under Chapter 2 of the Federal Arbitration Act (“FAA”) and codified at 9 U.S.C. §§ 201–208, and under (2) Pennsylvania's

[35 F.Supp.3d 670]

Uniform Foreign Money Judgment Recognition Act (“UFMJRA”), 42 P.S. §§ 22001–22009. The Court has original jurisdiction to enforce foreign arbitration awards falling under the NY Convention. 9 U.S.C. § 203. The Complaint, however, only invokes this Court's diversity jurisdiction under 28 U.S.C. § 1332.

Devon has filed a Motion to Dismiss the Complaint for lack of subject matter jurisdiction and for failure to state a claim. ECF 9.

II. The NY Convention

As an initial matter, Devon contends the Court lacks jurisdiction to enforce the arbitration award under the NY Convention because the award was rendered in Taiwan and Taiwan is not a signatory to the NY Convention. ² Specifically, Devon argues that in ratifying the NY Convention, the United States opted into a reciprocity requirement made available by Article I(3) of the treaty, which precludes enforcement of arbitration awards rendered in non-signatory countries.³ ECF 12 at 5–6.

Relying primarily on the NY Convention's implementing legislation, Clientron argues that Chapter 2 of the FAA—specifically 9 U.S.C. § 202 which defines whether an agreement or an award falls under the NY Convention—does not distinguish between signatory and nonsignatory states. Additionally, it notes that 9 U.S.C. § 207 provides “a court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.” The grounds of refusal or deferral in the convention do not refer to non-signatories. See NY Convention, art. 5. Finally, Clientron asserts that there is nothing in the NY Convention that limits the enforcement of arbitration awards to signatory countries.⁴ ECF 11 at 17. The text of the treaty, however, seems to conflict with this last assertion.

Article I(3) of the NY Convention states

When signing, ratifying or acceding to this Convention, ... any State may on the basis of reciprocity declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State. It may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.

[35 F.Supp.3d 671]

If these optional restrictions are not selected, the NY Convention applies to an arbitration award rendered in any foreign state. See art. I(1) ( “This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal.”).

When the Senate Committee on Foreign Relations considered the NY Convention, it recommended that the Senate consent to ratification and make two declarations relating to the treaty.

[1] The United States of America will apply the Convention, on the basis of reciprocity, to the recognition and enforcement of only those awards made in the territory of another Contracting State.

[2] The United States of America will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the United States.

Sen. Exec. Rep. No. 10, 90th Cong., 2d. Sess. (Sept. 27, 1968). The United States Senate gave its consent to ratify the NY Convention with the two declarations on October 4, 1968, and President Nixon proclaimed the convention ratified on December 11, 1970. Proclamation of Accession of the United States, reprinted at 21 U.S.T. 2517, T.I.A.S. No. 6997 (1970).

Congress incorporated the NY Convention into domestic law by passing Chapter 2 of the FAA. 9 U.S.C. § 201 (“[The NY Convention] shall be enforced in United States courts in accordance with this chapter.”). Section 202 of the chapter describes when an agreement or award falls under the NY Convention.

§ 202. Agreement or award falling under the Convention

An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.
9 U.S.C. § 202.

The first sentence of § 202 clearly mirrors the second declaration made by the Senate when it consented to the NY Convention. What is noticeably absent from § 202, however, is the first declaration made by the Senate, namely that the NY Convention will only be applied to awards made in the territory of another contracting state. This raises a...