Arbitration Process Issues

The District Court of Colorado recently denied Defendant Garmin International’s motions to dismiss and to stay pending arbitration, concluding that Plaintiff MSPBO was not bound by an arbitration agreement to which it was not a signatory.  In late 2006, PhatRat Technology, Inc., (“PhatRat”) entered into a settlement and arbitration agreement (“agreement”) with Garmin International to resolve a licensing dispute. The agreement stipulated that Garmin International would be released from all liability from PhatRat and its affiliates associated with the licensed patents. Seven years later, MSPBO sued Garmin International for patent infringement.

Garmin argued that the dispute as to whether MSPBO was an affiliate of PhatRat, and therefore subject to arbitration, should be covered by the agreement’s arbitration clause. The Court disagreed, holding that a non-signatory cannot be bound to arbitrate unless there is a “close relationship” between the parties and the claims relate to the underlying dispute.  Garmin International alleged that MSPBO was merely a shell company, but the Court found no support for these allegations. The nature of the relationship between the parties is somewhat convoluted. MSPBO and PhatRat shared common ownership, but MSPBO was later sold to Deer Creek Capital, after which they acquired the disputed patent. The Court further found that “the agreement between PhatRat and Garmin contains no clause placing upon PhatRat’s affiliates equal rights and obligations under the agreement.” As such, Garmin International motions were denied and MSPBO would not be bound by the arbitration agreement to which it was not a signatory.  MSPBO, LLC v. Garmin International, Inc., Case No. 13-cv-03388-PAB-KMT (USDC D. Colo Sept. 11, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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A California appellate court recently examined that state’s legislative response to the situation where a party moves to compel arbitration and some of the parties to the dispute are not parties to the arbitration agreement. In a situation including an arbitration provision of a reinsurance agreement, the court interpreted the so-called “third party litigation exception” to compelling arbitration, which according to the Court of Appeals addresses “the special practical problems that arise in multiparty contractual disputes when some or all of the contracts at issue include agreements to arbitrate.” Section 1281.2(c) of the California Code of Civil Procedure provides that a court need not order arbitration if it determines that: (1) a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party; (2) the dispute arises out of the same transaction or series of related transactions; and (3) there is a possibility of conflicting rulings on a common issue of law or fact.  The court concluded that the California statute was not preempted by the Federal Arbitration Act, relying on an opinion of the Untied States Supreme Court which held that the application of the third party litigation exception of section 1281.2(c) to stay the arbitration of a contract dispute involving interstate commerce did not undermine the goals and policies of the FAA, and was not preempted by the FAA.  Arrow Recycling Solutions, Inc. v. Applied Underwriters, Inc., No. B245379 (Cal. Ct. App. Jan. 8, 2015), modified (Cal. Ct. App. Jan. 12, 2015).

This post written by Catherine Acree.

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In early September, a New York district court granted defendants United States Polo Association, Inc. (“USPA”) and Arvind Ltd.’s (“Arvind”) motion to compel arbitration. It further dismissed Ralph Lauren Corporation and its subsidiaries’ (collectively “Ralph Lauren”) complaint alleging breach of contract, fraudulent inducement, and unjust enrichment.

This action was the latest in a longstanding battle between Ralph Lauren and the USPA, who have been actively involved in trademark litigation since 1984. A 2003 settlement resolved disputes concerning USPA’s use of logos and trademarks with their sale of apparel. The settlement further contained an arbitration provision that would govern any dispute between the parties arising from the settlement agreement.

Ralph Lauren alleged that USPA/Arvind breached this settlement agreement by selling products that infringed upon their protected trademarks without language that indicated that the two companies were not affiliated. It also alleged that the defendants waived arbitration by filing to enforce arbitration in India instead of New York. The court rejected Ralph Lauren’s argument that the defendants waived their right to arbitration because Ralph Lauren showed neither substantive prejudice nor prejudice due to excessive cost and time delay. The court found that USPA/Arvind were not attempting to re-litigate any issue in arbitration. It further noted that “[i]t was the Polo plaintiffs, not USPA/Arvind, that filed the present action in the Southern District of New York and that postponed the arbitration proceedings in India,” negating a claim for excessive cost and delay. Finally, the court found that Ralph Lauren’s fraudulent inducement and remaining claims should be handled through arbitration. Ralph Lauren Corp. v. United States Polo Ass’n, No. 13 Civ. 7147 (S.D.N.Y. Sept. 4, 2014).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.