Sourcing Unlimited, Inc. v. Asimco Intern., Inc.

• Decision Date: 22 May 2008
• Docket Number: No. 07-2754.,07-2754.
• Citation: 526 F.3d 38
• Parties: SOURCING UNLIMITED, INC., d/b/a Jumpsource, Plaintiff, Appellee, v. ASIMCO INTERNATIONAL, INC. and John F. Perkowski, Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

526 F.3d 38

SOURCING UNLIMITED, INC., d/b/a Jumpsource, Plaintiff, Appellee, v. ASIMCO INTERNATIONAL, INC. and John F. Perkowski, Defendants, Appellants.

No. 07-2754.

United States Court of Appeals, First Circuit.

Heard April 9, 2008.

Decided May 22, 2008.

Victor Genecin with whom Colter L. Paulson, Squire, Sanders & Dempsey L.L.P., Craig R. Smith, Thomas A. Brown, and Fish & Richardson PC were on brief for appellants.

Keith L. Sachs with whom Florian Bruno and Metaxas, Norman & Pidgeon, LLP were on brief for appellee.

Before LYNCH, Circuit Judge, MERRITT,^* Senior Circuit Judge, and HOWARD, Circuit Judge.

LYNCH, Circuit Judge.

This case raises the question of whether a corporate signatory to a written partnership agreement that requires international arbitration of their commercial disputes may escape arbitration of such disputes by naming as defendants two non-signatories, on the basis that there was no written agreement to arbitrate with those defendants. We hold the answer is no, and reverse the contrary decision of the district court. We remand with instructions to enter an order compelling arbitration and to dismiss the case.

I.

Plaintiff Sourcing Unlimited, Inc., d/b/a Jumpsource, is a Massachusetts corporation based in Danvers that provides mechanical parts for the U.S. commercial and industrial equipment industry. Jumpsource operates five manufacturing facilities in the United States and China; it also maintains two offices in China and contracts with other Chinese manufacturers to produce parts.

In late 2003, Jumpsource sought a larger manufacturing company to help it cope with filling high-volume contracts. Jumpsource's CEO, Michael Porter, began negotiating a business partnership with John Perkowski, Chairman and CEO of Asimco Technologies, Inc. ("ATL"), a Delaware corporation headquartered in China. Those negotiations resulted in a written partnership agreement (the "Agreement") in October 2004.

In addition to acting as Chairman and CEO of ATL, Perkowski was also Chairman of Asimco International, Inc. ("Asimco"). Asimco is a subsidiary of ATL and is based in Southfield, Michigan. It was not listed as a party to the Agreement.¹

Under the Agreement, Jumpsource agreed to abandon certain of its manufacturing operations in China and turn them over to ATL. This freed Jumpsource to focus its efforts on sales and marketing in the United States. The Agreement listed existing and impending contracts held by Jumpsource and indicated how the companies would split profits on those contracts. The companies agreed that ATL would invoice the partnership's customers in the United States for orders received and remit payment to Jumpsource on a monthly basis. ATL agreed, for its part, "not to circumvent Jumpsource in relationships" with its existing customers. The companies further agreed to be "exclusive partner[s]" in the "U.S. Golf and Turf, Industrial Vehicle and Light Construction Markets."

The Agreement concluded with a broadly-worded arbitration clause and a complementary choice-of-law clause:

This agreement shall be governed by, and construed in accordance with, the laws of the P.R. China, without regard to conflicts of laws principles thereof. Any action to enforce, arising out of, or relating in any way to, any of the provisions of this agreement shall be brought in front of a P.R. China arbitration body.

The Agreement was signed by Porter and by Wilson Ni, President of ATL. The Agreement is not signed by any corporate subsidiary of ATL, nor is there the usual boilerplate language binding all corporate subsidiaries, affiliates, assigns, etc. One clause of the Agreement, however, requires Jumpsource to keep confidential "any information provided to Jumpsource by ASIMCO about ASIMCO or any ASIMCO Company and its business methods."

The business relationship soured. Jumpsource filed suit in Massachusetts Superior Court in June 2007, asserting a number of tort, contract, and statutory claims.² Notably, the complaint named only Asimco and Perkowski — not ATL — as defendants.

The complaint alleged that in addition to the written partnership Agreement between Jumpsource and ATL, Jumpsource had entered into an oral contract with Perkowski. The complaint alleged that Jumpsource and Perkowski agreed that Asimco would deliver parts produced by the Jumpsource-ATL partnership to their customers in the United States. Asimco would invoice the customers, retain partnership profits in the United States, and split those profits with Jumpsource according to the terms of the written Jumpsource-ATL Agreement. Jumpsource alleged that the agreement with Asimco adopted the written Agreement's terms forbidding Asimco to compete with Jumpsource in certain markets. The complaint does not mention any oral agreement between Jumpsource and Asimco to arbitrate their disputes, and Jumpsource says a court must then infer that there was no such arbitration agreement.³

The complaint described Asimco's alleged breach of the oral contract: that Asimco inflated expenses, concealed invoices, and attempted to generate additional business from existing Jumpsource customers without informing Jumpsource. Asimco allegedly rebuffed repeated requests by Jumpsource for an accounting. When Asimco finally did provide sales figures to Jumpsource, Asimco allegedly under-reported those numbers by $1 million and blocked Jumpsource's efforts to audit ATL's operations in China. Asimco, allegedly, had paid Jumpsource a mere $125,000 in spite of invoicing the Jump-source-ATL partnership's customers close to $4 million.

Defendants Asimco and Perkowski removed the case to the U.S. District Court in Massachusetts on diversity grounds. Defendants then filed motions to dismiss. Asimco's motion, in addition to arguing that the complaint failed to state valid claims, cited Chapter 2 of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 201-208, as a basis for dismissal "in favor of arbitration." Asimco Int'l, Inc.'s Mot. to Dismiss at 18, Sourcing Unlimited, Inc. v. Asimco Int'l, Inc., No. 07-cv-11321 (D.Mass. Aug. 31, 2007).

That citation was significant. Chapter 2 of the FAA implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Sept. 30, 1970, 21 U.S.T. 2517, T.I.A.S. No. 6997, reprinted at 9 U.S.C.A. § 201, at 511 (West 1999) [hereinafter New York Convention]. Chapter 2 governs how U.S. courts treat agreements to arbitrate international commercial disputes. Asimco's motion argued that the arbitration clause in the Jumpsource-ATL contract was subject to Chapter 2 and the New York Convention because (1) there was a written arbitration agreement; (2) the agreement provided for arbitration in the territory of a signatory to the Convention; (3) the agreement arose in a commercial relationship; and (4) the commercial relationship is related with a foreign state. Cf. DiMercurio v. Sphere Drake Ins., PLC, 202 F.3d 71, 74 n. 2 (1st Cir.2000) (outlining appropriate inquiry for applicability of Chapter 2). Jumpsource has not disputed that the arbitration clause in the Jumpsource-ATL Agreement is subject to the New York Convention and Chapter 2 of the FAA.

Asimco's motion to dismiss characterized the oral agreement between Jumpsource and Perkowski as a modification of the Jumpsource-ATL Agreement, not a stand-alone contract.⁴

Asimco argued that Jumpsource should not be permitted to evade its obligation to arbitrate under the Jumpsource-ATL contract by suing a non-signatory subsidiary and a corporate officer of ATL for matters that all clearly arise from the Agreement. Asimco framed its argument in terms of equitable estoppel, noting that the issues Jumpsource sought to litigate "are intertwined with the agreement that [Jumpsource] has signed." As such, Asimco requested that Jumpsource's complaint "be dismissed in favor of arbitration" in China.

Jumpsource responded that its claims derive not from the Jumpsource-ATL Agreement, but from the separate oral contract between Jumpsource and Asimco. That oral contract, unlike the Jumpsource-ATL contract, did not contain any agreement to arbitrate. Jumpsource denied that estoppel provided grounds for Asimco, as a non-signatory, to invoke a right to arbitrate under the Jumpsource-ATL partnership Agreement.

On November 6, 2007, the district court issued a summary order that, in relevant part, stated the following:

The Motion to Dismiss . . . on the ground that arbitration must take place in China is DENIED. [Jumpsource] is not a party to any such contract with ASIMCO.

Order, Sourcing Unlimited, No. 07-cv-11321 (D.Mass. Nov. 6, 2007). The district court gave no reasons to support its ruling other than that Jumpsource had not signed an arbitration agreement with Asimco. The net effect of the district court order is to deny arbitration and allow the merits of the dispute to proceed in the district court.

II.

A. Appellate Jurisdiction

Jumpsource has moved to dismiss this interlocutory appeal for lack of appellate jurisdiction. Jumpsource's primary contention is that appellate jurisdiction is lacking because Asimco is not a signatory to a written arbitration agreement. We reject the argument and hold that we have jurisdiction.

The FAA, through 9 U.S.C. § 16(a)(1), creates three explicit statutory exceptions to the ordinary rule against interlocutory appeals. Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 550 (1st Cir.2005).⁵ The FAA authorizes interlocutory appeals from district court orders disfavoring arbitration:

An appeal may be taken from —

(1) an order —

(A) refusing a stay of any action under [9 U.S.C. § 3],

(B) denying a petition under [9 U.S.C. § 4] to order arbitration to proceed,

(C) denying an application under [9 U.S.C. § 206] to compel arbitration. . . .

9 U.S.C. § 16(a). Congress enacted the FAA to implement "the national policy favoring arbitration" and "[t]o overcome judicial resistance to arbitration." Buckeye Check Cashing, Inc. v. Cardegna, ...