Ishwar Jain v. Henri Courier de Mere

• Decision Date: 03 April 1995
• Docket Number: No. 94-3314,94-3314
• Parties: Ishwar JAIN, Petitioner-Appellant, v. Henri Courier de MERE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 686

51 F.3d 686

Ishwar JAIN, Petitioner-Appellant, v. Henri Courier de MERE, Respondent-Appellee.

No. 94-3314.

United States Court of Appeals Seventh Circuit.

Argued Feb. 15, 1995.

Decided April 3, 1995.

Catherine A. Nelson, Bedell Akin Tippins (argued), Keck, Mahin & Cate, Chicago, IL, for Ishwar D. Jain.

Daniel A. Wolf (argued), Marc K. Schwartz, Batler & Schwartz, Buffalo Grove, IL, for Henri Courier de Mere.

Before WOOD, Jr., FLAUM, and EASTERBROOK, Circuit Judges.

FLAUM, Circuit Judge.

This case presents an issue of first impression: whether federal courts have power to compel arbitration between two foreign nationals where their arbitration agreement fails to specify a location for the arbitration or a method of choosing arbitrators. We hold that federal courts have this power and therefore reverse the decision of the district court.

I.

Henri Courier de Mere, a citizen of France, owns a number of patents pertaining to electronic ballasts for fluorescent and gas discharge lamps that he invented. de Mere signed a contract with Ishwar D. Jain, a citizen of India, whereby Jain agreed to help market these inventions. The contract between de Mere and Jain provides that "Any disagreement arising out of this contract may only be presented to an arbitrary commission applying French laws." The contract is silent as to the location of the arbitration and the method of appointment of the arbitrator.

On August 25, 1993, de Mere entered into a license agreement with Motorola Lighting, Inc. of Illinois. This agreement, which Jain had helped promote and negotiate in Illinois, provided for certain royalty payments from Motorola to de Mere. According to the marketing contract, de Mere then paid Jain $25,000, ten percent of the first advanced royalty payment from Motorola. Jain believes that the marketing contract also entitles him to a percentage of other money Motorola has paid de Mere; de Mere disagrees and has refused to give Jain anything beyond the $25,000.

Pursuant to the contract, Jain served de Mere with a demand for arbitration on March 18, 1994. Jain sought arbitration in Illinois under the Commercial Arbitration Rules of the American Arbitration Association ("AAA"), and the AAA designated an arbitrator and scheduled a hearing for July 25-26, 1994. De Mere objected to the appointment of the AAA as the arbitrary commission and to its selection of an arbitrator. De Mere contended that the only appropriate jurisdiction under the contract lay in France.

Jain petitioned the District Court for the Northern District of Illinois to compel arbitration in Illinois. The district court held that it had jurisdiction under the Federal Arbitration Act (the "Act"), 9 U.S.C. Sec. 1 et seq., and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"), 21 U.S.T. 2517, but ruled that the Act did not permit it to compel arbitration in this case. The court determined that the contract's failure to specify either the location of the arbitration or the method of appointing an arbitrator left it powerless to enforce the arbitration agreement between de Mere and Jain. After the district court denied a motion for reconsideration, this appeal followed.

II.

Jain contends that the district court incorrectly determined that it could not compel arbitration in this case. Specifically, Jain asserts that 9 U.S.C. Secs. 4 & 5, which empower a district court to compel arbitration in its own district and to appoint an arbitrator, give the district court all the authority it needs to refer the case to arbitration in the Northern District of Illinois. We review this question of statutory interpretation de novo. United States v. Holloway, 991 F.2d 370, 372 (7th Cir.1993).

The Federal Arbitration Act governs the enforcement, validity, and interpretation of arbitration clauses in commercial contracts in both state and federal courts. Allied-Bruce Terminix Companies, Inc. v. Dobson, --- U.S. ----, ---- - ----, 115 S.Ct. 834, 837-39, 130 L.Ed.2d 753 (1995); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983). Chapter 2 of the Act, 9 U.S.C. Secs. 201-208, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, controls arbitration disputes in the international context. In general, the Act creates a strong presumption in favor of arbitration, especially in international commercial agreements. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638-40, 105 S.Ct. 3346, 3359-61, 87 L.Ed.2d 444 (1985); Scherk v. Alberto Culver Co., 417 U.S. 506, 519-20, 94 S.Ct. 2449, 2457, 41 L.Ed.2d 270 (1974).

The present arbitration dispute clearly lies within the domain of chapter 2. Chapter 2 mandates that any commercial arbitral agreement, unless it is between two United States citizens, involves property located in the United States, and has no reasonable relationship with one or more foreign states, falls under the Convention. 9 U.S.C. Sec. 202. Chapter 2 also stipulates that "[a]n action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States ... shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy." 9 U.S.C. Sec. 203. De Mere and Jain are not United States citizens, and the relation between de Mere and Jain was commercial. Accordingly, Jain's suit meets chapter 2's jurisdictional requirements. Cf. Sumitomo Corp. v. Parakopi Compania Maritima, S.A., 477 F.Supp. 737, 740-41 (S.D.N.Y.1979), aff'd, 620 F.2d 286 (2d Cir.1980); Andros Compania Maritima, S.A. v. Andre & Cie., S.A., 430 F.Supp. 88, 90 (S.D.N.Y.1977); Antco Shipping Co., Ltd. v. Sidermar S.p.A., 417 F.Supp. 207, 215-17 (S.D.N.Y.1976). Jurisdiction in this case also rests solely on chapter 2. Because they are both foreigners, Jain and de Mere are not diverse parties for the purposes of 28 U.S.C. Sec. 1332, and Jain's royalty claim raises no federal question beyond arbitration. Chapter 2 thus demarcates the beginning and the end of our authority in this case.

Both Jain and de Mere concede that we cannot refer this matter to arbitration unless the district court has the authority to order arbitration to proceed in a particular place. ¹ Chapter 2 offers two potential statutory bases for compelling arbitration in this case. First, Sec. 206 provides that any court with jurisdiction under chapter 2 "may direct that arbitration be held in accordance with the agreement at any place therein provided for; whether that place is within or without the United States. Such court may also appoint arbitrators in accordance with the provisions of the agreement." 9 U.S.C. Sec. 206. Because the contract between Jain and de Mere does not identify an arbitration site, Sec. 206 does not allow a court to grant Jain's motion to compel arbitration. See Bauhinia Corp. v. China Nat. Machinery & Equipment Import & Export Corp., 819 F.2d 247, 250 (9th Cir.1987).

Second, Sec. 208 indicates that "Chapter 1 applies to actions and proceedings brought under [chapter 2] to the extent that [chapter 1] is not in conflict with this chapter or the Convention as ratified by the United States." Chapter 1, which contains the general provisions regarding arbitration, allows that:

A party aggrieved by the alleged failure, neglect, or refusal of another party to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under Title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement.... The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed.

9 U.S.C. Sec. 4. In contrast to Sec. 206, Sec. 4 not only permits but requires a court to compel arbitration in its own district when no other forum is specified. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lauer, 49 F.3d 323, 327 (7th Cir.1995); Snyder v. Smith, 736 F.2d 409, 419-20 (7th Cir.), cert. denied, 469 U.S. 1037, 105 S.Ct. 513, 83 L.Ed.2d 403 (1984). Indeed, a district court compelling arbitration under Sec. 4 lacks the power to order arbitration to proceed outside its district. Snyder, 736 F.2d at 418. Thus, the court may only refer the case to arbitration in the Northern District of Illinois if Sec. 4 applies.

Without question, chapter 2 incorporates Sec. 4 to some degree. Where an arbitration agreement specifies an arbitration site, Sec. 4 is admittedly incompatible with chapter 2. If the agreement calls for arbitration within the district in which the action is brought, both Sec. 4 and Sec. 206 permit the court to compel arbitration there; section 4 is at most redundant. If the agreement calls for arbitration outside of the district in which the action is brought, the limits of Sec. 4 directly conflict with the district court's powers under Sec. 206, and Sec. 208 would render Sec. 4 inapplicable.

Where, however, an arbitration agreement contains no provision for location, Sec. 4 would supplement Sec. 206 by giving a court the ability to compel arbitration in its own district. Under this circumstance, Sec. 4 and Sec. 206 conflict only if one assumes that Congress intended Sec. 206 to be the exclusive method by which courts could order arbitration. But if Sec. 206 were exclusive, courts would have less power...