Cerner Middle East Limited v. Belbadi Enterprises LLC ( 2019 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
CERNER MIDDLE EAST LIMITED, a No. 17-35157
Cayman Islands Exempted
Company, D.C. No.
Plaintiff-Appellant, 3:16-cv-05706-
RBL
v.
BELBADI ENTERPRISES LLC, a OPINION
U.A.E. Limited Liability Company;
VANDEVCO LIMITED, a Washington
Corporation,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Washington
Ronald B. Leighton, District Judge, Presiding
Argued and Submitted October 12, 2018
Portland, Oregon
Filed September 23, 2019
Before: Richard R. Clifton and Consuelo M. Callahan,
Circuit Judges, and Roger T. Benitez,* District Judge.
Opinion by Judge Clifton
*
The Honorable Roger T. Benitez, United States District Judge for
the Southern District of California, sitting by designation.
2 CERNER MIDDLE EAST LTD. V. BELBADI ENTERS.
SUMMARY**
Removal / International Arbitration
The panel reversed the district court’s order denying
plaintiff’s motion to remand to state court an action that had
been removed to federal court on the basis that it related to an
international arbitration award.
9 U.S.C. § 205 authorizes the removal by a defendant of
an action previously filed in state court if the action relates to
an arbitration agreement or award under the Convention on
the Recognition and Enforcement of Foreign Arbitral
Awards. The panel concluded that the outcome of this case
could not conceivably be affected by an arbitration award
arising from a dispute concerning a contract for the
development of medical information software. Specifically,
the arbitration award could not have preclusive effect over
whether certain entities were alter egos or over the amount of
damages that certain entities owed to the plaintiff; the factual
findings in the arbitration award could not affect the outcome
of this case; and the possibility that the district court could
find persuasive the legal analysis contained in the arbitration
award was insufficient. The panel therefore held that the
action did not relate to an arbitration agreement under the
Convention. Accordingly, 28 U.S.C. § 205 did not authorize
removal of the action to federal court or provide federal
subject matter jurisdiction over this case.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
CERNER MIDDLE EAST LTD. V. BELBADI ENTERS. 3
The panel reversed the district court’s order and remanded
with instructions to remand the case to state court.
COUNSEL
Warren E. Gluck (argued), Samuel Spital, and Stosh Silivos,
Holland & Knight LLP, New York, New York; David J.
Elkanich and Garrett S. Garfield, Holland & Knight LLP,
Portland, Oregon; for Plaintiff-Appellant.
Paul H. Trinchero (argued) and Gary I. Grenley, Garvey
Schubert Barer, Portland, Oregon, for Defendants-Appellees.
OPINION
CLIFTON, Circuit Judge:
This appeal presents questions regarding the removal
from state court to federal court of an action that arguably
relates to an international arbitration award. Under 9 U.S.C.
§ 205, a defendant is authorized to remove to federal court an
action previously filed in state court that “relates to an
arbitration agreement or award falling under” the Convention
on the Recognition and Enforcement of Foreign Arbitral
Awards of June 10, 1958, sometimes described as the “New
York Convention.” Plaintiff-Appellant Cerner Middle East
Limited filed an action in Washington state court against
Defendants-Appellees Belbadi Enterprises, LLC and
Vandevco Limited. Defendants removed the action to federal
district court. Cerner moved to remand it to state court,
arguing that the removal was improper and that the federal
court lacked subject matter jurisdiction over the action. The
4 CERNER MIDDLE EAST LTD. V. BELBADI ENTERS.
district court denied that motion to remand, holding that it
could exercise jurisdiction under 9 U.S.C. § 205.
In our view, this case is not related to an international
arbitration agreement or award, as that term is used in the
statute, and no other basis for federal jurisdiction has been
offered by Defendants. We therefore reverse the district
court’s denial of Cerner’s motion to remand and remand the
case to the district court with instructions that it be remanded
to the Washington state court.
I. Background
This action is one of several disputes between Cerner, on
one side, and Ahmed Saeed Mohammad Al Badi Al Dhaheri1
and entities controlled by Dhaheri, on the other. 2
Plaintiff Cerner Middle East Limited (which will be
identified in this opinion as “Cerner”) is a Cayman Islands
corporation with its principal place of business in Kansas
City, Missouri. It is a subsidiary of Cerner Corporation, a
medical services technology company based in Kansas City,
1
As sometimes happens with names translated from another
language, Dhaheri’s name has been spelled in various ways. We use the
spelling used in the brief filed in this appeal on behalf of the corporations
affiliated with him.
2
Another one of those disputes resulted in an appeal from a decision
by the U.S. District Court for the District of Oregon, argued to the same
panel of this court on the same day. Although there is substantial overlap
in the factual background, the issues in the two appeals are distinct and
they are resolved in separate opinions. See Cerner Middle East Limited
v. iCapital, LLC, No. 17-35514, ___ F.3d ____ (9th Cir. 2019).
CERNER MIDDLE EAST LTD. V. BELBADI ENTERS. 5
whose revenue in 2018 was in excess of $5 billion and whose
stock is listed on the NASDAQ exchange.
Dhaheri, a businessman with substantial holdings, is a
citizen and domiciliary of the United Arab Emirates
(“UAE”). He is not a party to the current action, but Cerner
alleges that Dhaheri owns and controls Defendant Belbadi
Enterprises, LLC, a UAE corporation with its principal place
of business in Abu Dhabi, UAE. Cerner further alleges that
Belbadi is the owner of Defendant Vandevco Limited, that
Vandevco is a Washington corporation with its principal
place of business in Vancouver, Washington, and that
Vandevco owns, through other entities, the Vancouver
Center, a mixed residential and commercial development in
Vancouver. Cerner alleges that Vandevco is an alter ego of
Belbadi for jurisdictional and liability purposes. Other
entities related to Dhaheri that are involved in the history of
this dispute, though not parties in this action, include iCapital
S/E, a UAE sole proprietorship through which Dhaheri did
business, and iCapital, LLC, a UAE limited liability company
also owned and controlled by Dhaheri.
The disputes arose from a contract originally entered into
between Cerner and iCapital S/E. In 2008, the United Arab
Emirates Ministry of Health awarded iCapital S/E a contract
to develop medical information software for use in the UAE.
iCapital S/E and Cerner signed a contract (the “Cerner
Business Agreement” or “CBA”) under which Cerner would
provide hardware, software, and services for the UAE project.
The CBA required the parties to submit any disputes to
binding arbitration under the rules of the International
Chamber of Commerce (“ICC”), specified that the seat of
arbitration shall be in Paris, France, and stated that the
language of an arbitration shall be English. The contract also
6 CERNER MIDDLE EAST LTD. V. BELBADI ENTERS.
contained a choice of law clause that stated that it “shall be
governed by, construed, interpreted and enforced in
accordance with the laws of the State of Missouri[.]”
Cerner filed a request for arbitration with the ICC in
September 2012. It contended that iCapital S/E had failed to
make payments that were due under the CBA. It also
complained that iCapital S/E, a sole proprietorship, had been
reorganized into iCapital, LLC, a limited liability company,
without Cerner’s consent, which Cerner alleged was contrary
to the terms of the CBA.
The dispute appeared to have been settled three months
later. The settlement divided iCapital’s liability into two
parts: the amount that iCapital owed Cerner for the work
already completed under the CBA (the “Overdue Amount”),
and the amount that iCapital would owe Cerner for the future
work contemplated by the CBA (the “Future Payments”).
The liability of iCapital for the Overdue Amount was
addressed in a Settlement and Payment Agreement
(“Settlement Agreement”) signed by Cerner and iCapital,
LLC. It set the amount owed to Cerner for past performance
and waived claims for past acts or omissions by the other
party and its affiliates and their directors, officers, employees,
agents, and representatives. iCapital, LLC agreed to pay
Cerner the owed amount by issuing a series of post-dated
checks. The liability for Future Payments was addressed in
Amendment No. 5 to the CBA, also signed by Cerner and
iCapital, LLC. That Amendment “re-schedule[d] the Future
Payments owed to Cerner” under the original CBA.
Amendment No. 5 also revised the language of the
original CBA’s arbitration clause, retaining the elements
described above that required the parties to submit any
CERNER MIDDLE EAST LTD. V. BELBADI ENTERS. 7
disputes to binding arbitration under the rules of the ICC, to
be conducted in English in Paris. The Settlement Agreement
adopted the arbitration clause set forth in Amendment No. 5
to the CBA, and the choice of law clause set forth in the
original CBA.
To induce Cerner to enter the settlement, Belbadi, an
entity not previously involved in the transaction, entered into
two separate agreements to guarantee the obligations of
iCapital, LLC (collectively, the “Guarantees”). In the first
agreement, the “Corporate Guarantee,” Belbadi guaranteed
iCapital’s obligation to pay the Overdue Amount. In the
second agreement, the “Corporate Security Guarantee,”
Belbadi guaranteed iCapital’s obligation to make the Future
Payments.
Unfortunately, the settlement did not bring a lasting
peace. In August 2013, Cerner initiated with the ICC a
second request for arbitration against iCapital, LLC and
Dhaheri, contending, among other things, that iCapital, LLC
had failed to make payments called for by the Settlement
Agreement. iCapital responded to the notification by
objecting to the arbitration. Dhaheri declined to respond to
correspondence from the arbitration administrator. The
International Court of Arbitration of the ICC concluded that
the arbitration should proceed against both respondents and
appointed a three-member arbitral tribunal (“Tribunal”).
That Tribunal issued its award in July 2015 (the
“Arbitration Award”). It determined that it had jurisdiction
over both iCapital, LLC and Dhaheri personally. Its Award
held both iCapital, LLC and Dhaheri liable to Cerner for
more than $62 million in damages. After the Tribunal ruled
in its favor, Cerner filed a series of actions in the United
8 CERNER MIDDLE EAST LTD. V. BELBADI ENTERS.
States that sought to enforce either the Guarantees or the
Arbitration Award.
This is one of those actions. It was initiated on July 20,
2016, when Cerner filed a verified complaint in Washington
state court naming Belbadi and Vandevco as defendants.
Cerner alleged that Belbadi breached the Guarantees and that
Vandevco, as Belbadi’s alter ego, was equally liable. Cerner
sought more than $62 million in damages, plus interest,
attorneys’ fees, and costs. It also sought attachment of the
shares in Vandevco owned by Belbadi. Cerner attached
several documents to its complaint, including the Guarantees,
the Settlement Agreement, Amendment No. 5 to the CBA,
and the Arbitration Award.
Defendants responded by removing the case to federal
court. Defendants’ notice of removal asserted that the district
court could exercise subject matter jurisdiction under
9 U.S.C. § 205, because this case was related to the
Arbitration Award.
After removal, the parties filed competing motions.
Cerner moved to remand the action to state court, arguing that
removal was improper and that the district court lacked
federal subject matter jurisdiction. Defendants maintained
that the action should be dismissed entirely because Belbadi
was not subject to personal jurisdiction for these claims in
any Washington court, state or federal.
The district court ruled in favor of Belbadi on both
motions. It denied Cerner’s motion to remand, concluding
that removal of the case to federal court was proper because
this case was related to the Arbitration Award. The district
court reasoned that the Award could affect the questions of
CERNER MIDDLE EAST LTD. V. BELBADI ENTERS. 9
alter ego liability raised by Cerner’s claims. It then granted
Belbadi’s motion to dismiss for lack of personal jurisdiction
because it held that Belbadi lacked sufficient connections to
the State of Washington to subject it to the personal
jurisdiction of a court in Washington.
A timely notice of appeal was filed by Cerner.
II. Discussion
It has famously been observed that “‘[j]urisdiction’ is a
word of many, too many, meanings.” United States v.
Vanness, 85 F.3d 661, 663 n.2 (D.C. Cir. 1996); see also Steel
Co. v. Citizens for a Better Environment, 523 U.S. 83, 90
(1998) (quoting Vanness). The arguments of the parties
before the district court, repeated here, reflect three distinct
forms of jurisdiction. One is whether a federal court has
subject matter jurisdiction over the claims at issue in this
case. Cerner contends that Congress has not authorized the
federal courts to exercise jurisdiction over these claims and
asserts that we should direct the district court to remand this
case to state court. In addition, Cerner argues that the case
that it initially filed in state court was not properly removed
to federal court, contending that the district court lacked a
second form of jurisdiction, namely removal jurisdiction,
separate from and in addition to lacking federal subject matter
jurisdiction.3
3
Although it is not clear that proper removal is actually
“jurisdictional” in the more traditional sense, see Caterpillar Inc. v. Lewis,
519 U.S. 61, 64 (1996) (holding that the “fail[ure] to remand a case
improperly removed is not fatal to the ensuing adjudication if federal
jurisdictional requirements are met at the time judgment is entered”), the
term “removal jurisdiction” is often used. See, e.g., Kircher v. Putnam
Funds Trust, 547 U.S. 633, 642–44 (2006).
10 CERNER MIDDLE EAST LTD. V. BELBADI ENTERS.
Belbadi, on the other hand, argues that it is not subject to
the jurisdiction of any court in Washington because the
claims are not connected to Washington and because Belbadi
does not have sufficient contacts with that state to permit a
court in that state to exercise jurisdiction over it. It therefore
contends that we should affirm the district court’s order
dismissing the case for lack of personal jurisdiction.
Reviewing de novo, see Providence Health Plan v.
McDowell, 385 F.3d 1168, 1171 (9th Cir. 2004), we conclude
that the district court erred in denying Cerner’s motion to
remand because the case was not properly removed to federal
court and the federal courts lack federal subject matter
jurisdiction over this case. We do not reach the issue of
personal jurisdiction and leave that issue for the state court
following remand. See Ruhrgas AG v. Marathon Oil Co.,
526 U.S. 574, 586 (1999).
As noted above, 9 U.S.C. § 205 authorizes the removal by
a defendant of an action previously filed in state court if the
action relates to an arbitration agreement or award under the
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, the New York Convention. It is part of a set
of statutes pertaining to that Convention, 9 U.S.C.
§§ 201–208. Section 205 states that “[w]here the subject
matter of an action or proceeding pending in a State court
relates to an arbitration agreement or award falling under the
Convention,” a defendant may “remove such action or
proceeding to the district court of the United States for the
CERNER MIDDLE EAST LTD. V. BELBADI ENTERS. 11
district and division embracing the place where the action or
proceeding is pending.”4
Defendants contend that section 205 both authorized the
removal of this action to federal court and provides for the
federal subject matter jurisdiction necessary for federal courts
to exercise authority over it.5 The key question is whether
4
Section 205 provides, in full:
Where the subject matter of an action or proceeding
pending in a State court relates to an arbitration
agreement or award falling under the Convention, the
defendant or the defendants may, at any time before the
trial thereof, remove such action or proceeding to the
district court of the United States for the district and
division embracing the place where the action or
proceeding is pending. The procedure for removal of
causes otherwise provided by law shall apply, except
that the ground for removal provided in this section
need not appear on the face of the complaint but may be
shown in the petition for removal. For the purposes of
Chapter 1 of this title any action or proceeding removed
under this section shall be deemed to have been brought
in the district court to which it is removed.
9 U.S.C. § 205.
5
A different statute within the same chapter, 9 U.S.C. § 203, speaks
more explicitly to federal subject matter jurisdiction: “An action or
proceeding falling under the Convention shall be deemed to arise under
the laws and treaties of the United States. The district courts of the United
States (including the courts enumerated in section 460 of title 28) shall
have original jurisdiction over such an action or proceeding, regardless of
the amount in controversy.” Defendants do not argue that section 203
applies to provide federal subject matter jurisdiction over this action, but
they contend that section 205 independently grants federal jurisdiction.
12 CERNER MIDDLE EAST LTD. V. BELBADI ENTERS.
this case falls within section 205—whether it “relates to an
arbitration agreement or award falling under the Convention.”
We discussed the meaning of that provision in Infuturia
Global Ltd. v. Sequus Pharmaceuticals, Inc., 631 F.3d 1133
(9th Cir. 2011), where we held that an action was properly
removed if the agreement or award “could conceivably affect
the outcome of the plaintiff’s case.” Id. at 1138 (quoting
Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002))
(emphasis in original). We described the phrase “relates to”
as “plainly broad,” and interpreted it accordingly. Id. In
Infuturia, we concluded that the standard was met because the
defendant “relie[d] on the affirmative defense of collateral
estoppel regarding issues already resolved against the
plaintiff in arbitration.” Id.
We apply that standard, but it leads us to a different result
in this case. Defendants offer three arguments as to how the
outcome of this case could conceivably be affected by the
Arbitration Award, but we have not been persuaded. As a
result, we conclude that Section 205 did not provide a proper
basis for removal or for federal subject matter jurisdiction
over this action.6
First, Defendants contend that, as in Infuturia, the
Arbitration Award could have preclusive effect over two
issues: (1) whether Belbadi, Vandevco, and Dhaheri are alter
egos, and (2) the amount of damages that Belbadi and
Vandevco owe Cerner. The arbitration involved a different
set of entities, however. The respondents named in the
arbitration were iCapital, LLC and Dhaheri. The defendants
6
We therefore do not reach the issue of whether section 205 provides
a basis in addition to section 203 for federal subject matter jurisdiction.
CERNER MIDDLE EAST LTD. V. BELBADI ENTERS. 13
in this action are Belbadi and Vandevco. The Arbitration
Award addressed the issue of whether iCapital, LLC and
Dhaheri are alter egos. Cerner’s complaint, in contrast,
alleges that Belbadi, its subsidiary Vandevco, and Dhaheri are
alter egos. The Arbitration Award cannot have preclusive
effect over those allegations. See generally Kleenwell
Biohazard Waste & Gen. Ecology Consultants, Inc. v. Nelson,
48 F.3d 391, 395 n.5 (9th Cir. 1995) (applying Washington
law) (collateral estoppel only applies if the issues raised in
two different cases are “identical”).
Similarly, the Arbitration Award did not determine the
amount of damages that Belbadi and Vandevco may owe
Cerner. Under the Guarantees, Belbadi is liable for the entire
Overdue Amount and all of the Future Payments, offset by
any payments made by iCapital. Belbadi was not a party to
the arbitration and its liability was not adjudicated or
calculated in the Arbitration Award. Because the Arbitration
Award did not resolve those issues, collateral estoppel does
not apply. See id. Cerner concedes that it will have to prove
its claims without relying on the Arbitration Award.
Second, Defendants contend that the factual findings in
the Arbitration Award could affect the outcome of this case.
Those findings would be inadmissible if and when this case
proceeds to a factual adjudication. See generally United
States v. Stinson, 647 F.3d 1196, 1210 (9th Cir. 2011) (a prior
judgment is hearsay if offered to prove the truth of matters
asserted in the judgment). If the complaint is challenged
prior to a factual adjudication, as in the context of a motion
to dismiss, it is the facts alleged that would be at issue and
Cerner could allege the same facts in its complaint without
citing the Arbitration Award at all. The Award itself will not
establish the sufficiency or viability of Cerner’s claims. It is
14 CERNER MIDDLE EAST LTD. V. BELBADI ENTERS.
true that Cerner attached the Arbitration Award as an exhibit
to its complaint, among other documents, but Cerner could
have alleged the same facts in its complaint without citing the
Arbitration Award at all. In any event, the Award never
mentions Vandevco. From our review it appears that the
Award adds nothing meaningful to the detailed alter ego
allegations already contained in the complaint, allegations
that apply to the relevant Defendants, Belbadi and Vandevco.
Third, Defendants assert that the court could find the legal
analysis contained in the Arbitration Award “persuasive,”
even if it lacked preclusive effect. The “relates to” and
“conceivably affect” standard may be broad, but it is not
limitless. The possibility that some discussion in the Award
might conceivably be perceived as persuasive—just as a law
review article might be persuasive—cannot be enough by
itself, unless there is something unique about the Award
being the source of the analysis. The notion that the legal
analysis of a tribunal of three arbitrators, from France,
Jordan, and Ireland, would actually affect the decision of a
federal or state trial court on the claims made in this action is
not realistic. Defendants do not point to specific legal
conclusions in the Award that will plausibly impact the
ultimate adjudication of the claims in this action. The
Arbitration Award would not be controlling as to these
Defendants, and it would not affect the court’s obligation to
correctly interpret controlling law. See Goel v.
Ramachandran, 823 F. Supp. 2d 206, 216 (S.D.N.Y. 2011)
(action not related to arbitration proceedings even if those
proceedings “determine[d] some issues that would also be
relevant to [the case]”).
CERNER MIDDLE EAST LTD. V. BELBADI ENTERS. 15
III. Conclusion
In sum, we conclude that the current action does not
“relate[] to an arbitration agreement or award,” as that term
is used in section 205. That section did not authorize removal
of this action to federal court or provide federal subject
matter jurisdiction over this case. We reverse the district
court’s denial of Cerner’s motion to remand and remand this
case with instructions for the district court to remand this case
to Washington state court.
REVERSED and REMANDED for further
proceedings.