Teledyne, Inc. v. Kone Corp.

• Decision Date: 18 January 1990
• Docket Number: No. 88-6120,88-6120
• Citation: 892 F.2d 1404
• Parties: TELEDYNE, INC., Teledyne Canada Limited, and Teledyne CM Products, Inc., Plaintiffs-Appellants, v. KONE CORPORATION, Outokumpu Oy and Rammer Oy, Finnish corporations, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1404

892 F.2d 1404

TELEDYNE, INC., Teledyne Canada Limited, and Teledyne CM Products, Inc., Plaintiffs-Appellants, v. KONE CORPORATION, Outokumpu Oy and Rammer Oy, Finnish corporations, Defendants-Appellees.

No. 88-6120.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Aug. 9, 1989.

Decided Oct. 10, 1989.

As Amended Jan. 18, 1990.

James G. Hunter, Latham & Watkins, Chicago, Ill., and John J. Lyons and Michael H. Steinberg, Latham & Watkins, Los Angeles, Cal., for plaintiffs-appellants.

Michael Evan Jaffe, Lorie S. Gildea, and Sharon Lindan, Arent, Fox, Kintner, Plotkin & Kahn, Washington, D.C., and Robert E. Freitas and W. Douglas Kari, Orrick, Harrington & Sutcliffe, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before BROWNING, FARRIS and CANBY, Circuit Judges.

FARRIS, Circuit Judge:

A Canadian corporation brought suit in California state court against a private Finnish corporation and two state-owned Finnish corporations. The entire case was removed to federal district court and later dismissed on a series of jurisdictional grounds. This appeal raises difficult issues regarding the scope of removal jurisdiction under the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1330(a) and 1441(d), the interpretation of the Federal Arbitration Act, 9 U.S.C. § 2, and the application of settled principles of personal jurisdiction. We affirm.

BACKGROUND

Teledyne Canada Limited is a Canadian corporation. In 1980, Kone Corporation, a privately-owned Finnish company, granted Teledyne an exclusive distributorship in the Shortly thereafter, Kone and Teledyne began negotiating a new agreement. On April 10, 1986, representatives from both companies signed a document appointing Teledyne as the exclusive distributor of Kone's hydraulic breakers in the United States (and several other countries) for a period of three years with a three year option to renew. Although the document was signed, the front page stated: "DRAFT (to be finalized by KONE legal department)." No further action was taken with regard to this document by either party; Teledyne alleges no other outward manifestation of agreement. However, there is some evidence that Kone's insiders regarded the April 10 Draft as creating enforceable rights and obligations. ¹ The Draft contained an arbitration provision which provides: "Any dispute which may arise between the parties in connection with this agreement shall be finally settled under the rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the rules."

                United States for hydraulic breakers manufactured by Kone.   Kone terminated this agreement on March 6, 1985
                

During the time it was negotiating with Teledyne, Kone was also negotiating with Outokumpu Oy, an 81% state-owned Finnish corporation. Teledyne alleges that it first received notice of these negotiations on May 16, 1986, when Outokumpu publicly announced that it was in the process of purchasing Kone's hydraulic breaker division. On May 31, Kone transferred its hydraulic breaker division to Rammer Oy, Outokumpu's subsidiary. The parties dispute whether the transfer was simply an asset sale, or whether both assets and liabilities were passed to Rammer. Teledyne claims that the contract transferred whatever rights and obligations Kone had pursuant to the April 10 Draft.

Teledyne alleges that Kone, Outokumpu, and Rammer conspired to hide the details of the hydraulic breaker division sale, so that Teledyne would be delayed in either enforcing its rights under the April 10 Draft or finding an alternative supplier. It claims that the defendants first denied that obligations under the Draft were transferred to Rammer, then denied that the Draft was an enforceable contract, and finally made disparaging remarks about Teledyne's new product line. Teledyne claims that each of these actions was taken in bad faith and was motivated by the desire to handicap a competitor.

In 1987, Teledyne Canada, a Canadian subsidiary (Teledyne CM Products, Inc.), and an American subsidiary (Teledyne, Inc.) filed suit in Los Angeles Superior Court against Kone, Outokumpu, and Rammer. Outokumpu, as an instrumentality of a foreign state, removed the entire action to federal district court. The district court dismissed the claims against Kone on the ground that they were governed by the arbitration provision in the April 10 Draft. In so holding, the district court rejected the argument that it lacked subject matter jurisdiction. The court later dismissed all claims against Outokumpu and Rammer, holding that there was no personal jurisdiction and that California was an inconvenient forum.

STANDARD OF REVIEW

The issues of subject matter jurisdiction, personal jurisdiction, and dismissal under the Federal Arbitration Act are reviewed de novo. See Haisten v. Grass Valley Medical Reimbursement Fund, Ltd., 784 F.2d 1392, 1396 (9th Cir.1986); Peter Starr Production Co. v. Twin Continental Films, Inc., 783 F.2d 1440, 1442 (9th Cir.1986). A dismissal on grounds of forum non conveniens is reviewed for abuse of discretion. Timberlane Lumber Co. v. Bank of America, 749 F.2d 1378, 1386 (9th Cir.1984), cert. denied, 472 U.S. 1032, 105 S.Ct. 3514, 87 L.Ed.2d 643 (1985).

DISMISSAL OF CLAIMS AGAINST KONE

Teledyne argues that the trial court erred in dismissing its claims against Kone in favor of arbitration. As an initial matter, we must decide whether the trial court had jurisdiction to make this ruling.

Subject Matter Jurisdiction

The general rule is that a cause of action may be removed to federal court only if it could have been brought originally in federal court. Teledyne sued Kone for breach of the 1980 contract and the 1986-Draft contract. These claims do not "arise under" federal law. They do not fall under 28 U.S.C. § 1332 because two nonresident aliens are not of "diverse citizenship." Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 790 (2d Cir.1980), cert. denied, 449 U.S. 1080, 101 S.Ct. 863, 66 L.Ed.2d 804 (1981). And they do not fall under familiar applications of "pendent jurisdiction" because Kone was not party to any federal claim to which the breach of contract claims could be appended. Compare United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). At least in the absence of clear statutory authorization, see Finley v. United States, --- U.S. ----, 109 S.Ct. 2003, 2007, 104 L.Ed.2d 593 (1989), federal jurisdiction does not extend to such "pendent parties." See, e.g., Aldinger v. Howard, 427 U.S. 1, 96 S.Ct. 2413, 49 L.Ed.2d 276 (1976); Carpenters Southern California Administrative Corp. v. D & L Camp Construction Co., 738 F.2d 999 (9th Cir.1984); Ayala v. United States, 550 F.2d 1196 (9th Cir.1977), cert. dismissed, 435 U.S. 982, 98 S.Ct. 1635, 56 L.Ed.2d 76 (1978).

The trial court read the Federal Sovereign Immunities Act as creating an exception to the pendent party rule. 28 U.S.C. § 1330(a) provides: "The district courts shall have original jurisdiction ... of any nonjury civil action against a foreign state." (Emphasis added). The applicable removal provision provides: "Any civil action brought in a State court against a foreign state ... may be removed by the foreign state." 28 U.S.C. § 1441(d) (emphasis added). Under the language of these provisions, removal of the entire "action" was appropriate because at least one of the defendants qualifies as a "foreign state." See 28 U.S.C. § 1603(a).

The trial court's conclusion that the Foreign Sovereign Immunities Act authorizes pendent party jurisdiction is in accord with a number of decisions from the other circuits. See Arango v. Guzman Travel Advisors Corp., 621 F.2d 1371, 1377 (5th Cir.1980); Liberty Mutual Insurance Co. v. Insurance Corp. of Ireland, 693 F.Supp. 340, 345 (W.D.Pa.1988). See also Mori v. Port Authority of New York and New Jersey, 100 F.R.D. 810, 812 (S.D.N.Y.1984); In re Disaster at Riyadh Airport, Saudi Arabia, on August 19, 1980, 540 F.Supp. 1141, 1143 n. 1 (D.D.C.1982). However, neither the Supreme Court nor this court has faced the issue.

It is true that we have regularly refused to permit the exercise of federal jurisdiction over parties for whom the only claim to such jurisdiction was the pendent jurisdiction doctrine of United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). While Gibbs permits jurisdiction over nonfederal pendent claims, we have rejected the contention that it authorizes the addition of "pendent parties" over whom there is no independent basis of federal jurisdiction. See, e.g., Safeco Ins. Co. v. Guyton, 692 F.2d 551, 555 (9th Cir.1982); Libby, McNeill and Libby v. City Nat'l Bank, 592 F.2d 504, 510 (9th Cir.1978). We have also expressed doubt that Article III of the Constitution permits the exercise of such jurisdiction. See Ayala v. United States, 550 F.2d 1196, 1200 & n. 8 (9th Cir.1977), cert. dismissed, 435 U.S. 982, 98 S.Ct. 1635, 56 L.Ed.2d 76 (1978).

In the present case, however, there is an independent basis for federal jurisdiction over the pendent party. This action falls within the scope of the constitutional grant of diversity jurisdiction, and Congress has authorized the exercise of that jurisdiction in suits against a foreign state filed pursuant to 28 U.S.C. § 1441(d). We therefore join those courts which have held that the

FSIA provides federal jurisdiction over pendent parties, at least where, as here, minimal diversity exists among the adverse parties.

A.

Unlike state courts, the lower federal courts are courts of limited jurisdiction. "It remains rudimentary law that 'as regards all courts of the United States inferior to [the Supreme Court] two things are necessary to create jurisdiction, whether original or appellate. The Constitution must have given to the court...