Setty v. Shrinivas Sugandhalaya LLP

• Decision Date: 20 January 2021
• Docket Number: No. 18-35573,18-35573
• Citation: 986 F.3d 1139
• Parties: Balkrishna SETTY, individually and as general partner in Shrinivas Sugandhalaya Partnership with Nagraj Setty; Shrinivas Sugandhalaya (BNG) LLP, Plaintiffs-Appellees, v. SHRINIVAS SUGANDHALAYA LLP, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

986 F.3d 1139

Balkrishna SETTY, individually and as general partner in Shrinivas Sugandhalaya Partnership with Nagraj Setty; Shrinivas Sugandhalaya (BNG) LLP, Plaintiffs-Appellees,

v.SHRINIVAS SUGANDHALAYA LLP, Defendant-Appellant.

No. 18-35573

United States Court of Appeals, Ninth Circuit.

Filed January 20, 2021

D.W. NELSON, Circuit Judge:

Shrinivas Sugandhalaya LLP ("SS Mumbai") appeals from the district court's order denying its motion to compel arbitration against Balkrishna Setty and Shrinivas Sugandhalaya (BNG) LLP (collectively, "SS Bangalore") and denying SS Mumbai's motion to grant a stay pending arbitration.

Relying on Yang v. Majestic Blue Fisheries , LLC, 876 F.3d 996 (9th Cir. 2017), we previously held that SS Mumbai could not equitably estop SS Bangalore from avoiding arbitration, and thus affirmed the district court's order. Setty v. Shrinivas Sugandhalaya LLP , 771 F. App'x 456 (9th Cir. 2019). The Supreme Court granted certiorari, vacated the judgment, and remanded for further consideration in light of GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC , ––– U.S. ––––, 140 S. Ct. 1637, 207 L.Ed.2d 1 (2020). See Shrinivas Sugandhalaya LLP v. Setty , ––– U.S. ––––, 141 S.Ct. 83, 207 L.Ed.2d 168 (2020).

We have jurisdiction under 9 U.S.C. § 16. We review the denial of a motion to compel arbitration de novo and the district court's decision regarding equitable estoppel for abuse of discretion. Nguyen v. Barnes & Noble Inc. , 763 F.3d 1171, 1175, 1179 (9th Cir. 2014). We review the denial of a motion to stay pending arbitration for abuse of discretion. Alascom, Inc. v. ITT North Elect. Co. , 727 F.2d 1419, 1422 (9th Cir. 1984). We affirm.

The parties dispute whether the law of India or federal common law applies to the question of whether SS Mumbai, a non-signatory to the Partnership Deed containing an arbitration provision, may compel SS Bangalore to arbitrate.

To argue that Indian law applies, SS Mumbai points to the Partnership Deed's arbitration provision. But whether SS Mumbai may enforce the Partnership Deed as a non-signatory is a "threshold issue" for which we do not look to the agreement itself. See Casa del Caffe Vergnano S.P.A. v. ItalFlavors, LLC , 816 F.3d 1208, 1211 (9th Cir. 2016). Moreover, the Partnership Deed's arbitration provision applies to disputes "arising between the partners" and not also to third party such as SS Mumbai. See Mundi v. Union Sec. Life Ins. Co. , 555 F.3d 1042, 1045 (9th Cir. 2009). We decline to apply Indian law on the basis of the Partnership Deed.

Under Letizia v. Prudential Bache Securities, Inc. , we apply "federal substantive law," for which we look to "ordinary contract and agency principles," in determining the arbitrability of federal claims by or against nonsignatories to an arbitration agreement. 802 F.2d 1185, 1187 (9th Cir. 1986). The more recent decisions instead applying "relevant state contract law" all involved only state-law claims, and also relied on the court's diversity jurisdiction. See In re Henson , 869 F.3d 1052, 1059 (9th Cir. 2017) (citing Kramer v. Toyota Motor Corp. , 705 F.3d 1122, 1128 (9th Cir. 2013) (citing Arthur Andersen LLP v. Carlisle , 556 U.S. 624, 632, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009) )); see also GE Energy Power , 140 S. Ct. at. 1642 (plaintiffs’ lawsuit brought state-law tort and warranty claims). Letizia thus remains good law. And because this case, like Letizia , involves federal claims and turns on the court's federal question jurisdiction, it controls.

"Equitable estoppel precludes a party from claiming the benefits of a contract while simultaneously attempting to avoid the burdens that contract imposes." Mundi , 555 F.3d at 1045 (citation and internal quotation marks omitted). In the arbitration context, the doctrine has generated various lines of cases, including one involving "a nonsignatory seeking to compel a signatory to arbitrate its claims against the nonsignatory." Id. at 1046–47. For equitable estoppel to apply, it is "essential ... that the subject matter of the dispute [is] intertwined with the contract providing for arbitration." Rajagopalan v. NoteWorld, LLC , 718 F.3d 844, 847 (9th Cir. 2013). "We have never previously allowed a non-signatory defendant to invoke equitable estoppel against a signatory plaintiff[.]" Id.

SS Bangalore's claims against SS Mumbai are not clearly "intertwined" with the Partnership Deed providing for arbitration. To be sure, the crux of several claims is that the Partnership, and not SS Mumbai, is the true owner of the disputed marks. But the Partnership does not own the marks because of any provision of the Partnership Deed, but rather because of the Partnership's "prior use" of the marks over several years. Moreover, any allegations of misconduct by Nagraj Setty (a signatory to the Partnership Deed) are not clearly intertwined with SS Bangalore's claims against SS Mumbai.

Thus, the district court did not abuse its discretion in rejecting SS Mumbai's argument that SS Bangalore should be equitably estopped from avoiding arbitration.

Because the district court did not err in denying SS Mumbai's motion to compel arbitration, it did not abuse its discretion in denying SS Mumbai's motion to stay the proceedings pending arbitration. See Alascom , 727 F.2d at 1422.

AFFIRMED.

BEA, Circuit Judge, dissenting:

On remand from the Supreme Court, we are faced with the question of which equitable estoppel law governs an Indian company's motion to compel another Indian company and its Indian owner to arbitration based on an agreement entered into in India, signed by two Indian brothers (who own the Indian companies), and governing conduct in India. The majority holds that, not Indian, but U.S. federal common law governs the issue.

I dissent. The Supreme Court and Ninth Circuit have time and again held that whichever background body of state contract law that governs the arbitration agreement also governs equitable estoppel claims to compel arbitration pursued under Chapter 1 of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1 et seq . We should not hold differently here.

I

After their father's death, brothers Balkrishna and Nagraj Setty signed a Partnership Deed agreeing to joint ownership of Shrinivas Sugandhalaya, their late father's incense manufacturing company. The Partnership Deed was "made and entered into at Mumbai [India] on this 24th December 1999." The Partnership Deed contained an arbitration clause requiring that "[a]ll disputes of any type whatsoever in respect of the partnership arising between the partners either during the continuance of this partnership or after the determination thereof shall be decided by arbitration ...."

For a time, the Setty brothers jointly operated their father's company, but soon they decided to split up and operate their own incense manufacturing firms. Plaintiff-Appellee Balkrishna founded Shrinivas Sugandhalaya (BNG) LLP ("SS Bangalore") operating out of Bangalore, while brother Nagraj founded Shrinivas Sugandhalaya LLP operating out of Mumbai ("SS Mumbai"). Neither SS Bangalore nor SS Mumbai were signatories to the Partnership Deed and its arbitration clause. Since then, the two brothers and their companies have competed against each other in the incense market, ultimately leading to the present dispute over trademark rights in the United States.

Plaintiff-Appellees Balkrishna and SS Bangalore brought suit against SS Mumbai and its U.S. distributor in federal court in Alabama. The complaint did not name Nagraj Setty, SS Mumbai's owner, as a defendant. Plaintiff-Appellees claimed federal jurisdiction based on federal question, trademark, and supplemental jurisdiction. See 28 U.S.C. §§ 1331, 1338, 1367 ; 15 U.S.C. § 1121. They claim Defendant-Appellant SS Mumbai committed a number of U.S. federal trademark violations, including that SS Mumbai had fraudulently obtained trademark registrations by falsely claiming no other person had the right to use the Shrinivas Sugandhalaya trademarks. The complaint alleges that SS Mumbai "knew that Plaintiff Shrinivas Sugandhalaya (BNG) LLP was authorized by the Partnership to use the SHRINIVAS SUGANDHALAYA mark in the United States." Plaintiff-Appellees also brought two state law claims based on Alabama common law: tortious interference to its business and unfair competition.

The suit was transferred from the Northern District of Alabama to the Western District of Washington under 28 U.S.C. § 1404(a). SS Mumbai moved to dismiss or stay the case in favor of arbitration, arguing that Plaintiff-Appellees should be equitably estopped from avoiding the arbitration clause present in the Partnership Deed. The district court denied the motion, ruling against SS Mumbai's claim of equitable estoppel. The district court did not address the question of which law of equitable estoppel should apply—the choice of law issue. Instead, the court analyzed the equitable estoppel claim under generalized estoppel doctrine drawn from Ninth Circuit cases.¹

On appeal, we affirmed the district court. See Setty v. Shrinivas Sugandhalaya LLP , 771 F. App'x 456 (9th Cir. 2019) (unpublished), cert. granted, judgment vacated , ––– U.S. ––––, 141 S. Ct. 83, 207 L.Ed.2d 168 (2020). However, rather than affirm on the merits of the equitable estoppel claim, we held instead that nonsignatory SS Mumbai was barred from compelling arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") as interpreted by Yang v. Majestic Blue Fisheries, LLC , 876 F.3d 996 (9th Cir. 2017). Setty , 771 F. App'x at 457. SS Mumbai sought and obtained certiorari from the Supreme Court, which vacated our prior decision and remanded the case in light of its decision in GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC , ––– U.S. ––––, 140 S. Ct. 1637, 207 L.Ed.2d 1 (2020), which overruled Yang . See Setty , 141 S. Ct. at 83.

II

Before the panel can answer whether we...