Setty v. Shrinivas Sugandhalaya LLP

• Decision Date: 07 July 2021
• Docket Number: No. 18-35573,18-35573
• 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

3 F.4th 1166

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 July 7, 2021

Brian W. Esler and Vanessa L. Wheeler, Miller Nash Graham & Dunn LLP, Seattle, Washington, for Defendant-Appellant.

Scott S. Brown, Mixon Firm LLC, Birmingham, Alabama; Benjamin J. Hodges and Devra R. Cohen, Foster Garvey PLLC, Seattle, Washington; for Plaintiffs-Appellees.

Before: Dorothy W. Nelson, Johnnie B. Rawlinson, and Carlos T. Bea, Circuit Judges.

Dissent by Judge Bea

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.

The New York Convention and its implementing legislation emphasize the need for uniformity in the application of international arbitration agreements. See Certain Underwriters at Lloyd's v. Argonaut Ins. Co. , 500 F.3d 571, 580–81 (7th Cir. 2007) ("The Supreme Court has recognized that in the context of the New York Convention , uniformity of the law is of paramount importance" and concluding application of state-specific law would undermine this purpose). In cases involving the New York Convention, in determining the arbitrability of federal claims by or against non-signatories to an arbitration agreement, we apply "federal substantive law," for which we look to "ordinary contract and agency principles." Letizia v. Prudential Bache Secs., Inc. , 802 F.2d 1185, 1187 (9th Cir. 1986) ; Casa del Caffe , 816 F.3d at 1211 (concluding that "[b]ecause this case arises under Chapter 2 of the Federal Arbitration Act, the issue of whether the Commercial Contract constituted a binding agreement is governed by federal common law") (citing Argonaut Ins. Co. , 500 F.3d at 577–78 ).¹

In GE Energy , the Supreme Court specifically concluded, "[w]e hold only that the New York Convention does not conflict with the enforcement of arbitration agreements by non-signatories under domestic-law equitable estoppel doctrines." 140 S. Ct. at 1648. The Court "did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that determination." Id. On remand following the Supreme Court's decision in GE Energy , we accept that a nonsignatory could compel arbitration in a New York Convention case. We conclude, however, that as a factual matter, the allegations here do not implicate the agreement that contained the arbitration clause—a prerequisite for compelling arbitration under the equitable estoppel framework.

"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.

Here, the claims have no relationship with the partnership deed containing the arbitration agreement at issue in this appeal. 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 and the United States. 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 governs equitable estoppel claims to compel arbitration pursued under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1 et seq .¹ We should not hold differently here solely because the arbitration agreement is otherwise governed by the New York Convention.

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, though still under the same trademark. 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 the district court's authority to hear federal question, trademark, and supplemental claims. 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...