Balkrishna Setty v. Shrinivas Sugandhalaya LLP ( 2021 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BALKRISHNA SETTY, individually No. 18-35573
and as general partner in Shrinivas
Sugandhalaya Partnership with D.C. No.
Nagraj Setty; SHRINIVAS 2:17-cv-01146-
SUGANDHALAYA (BNG) LLP, RAJ
Plaintiffs-Appellees,
v. OPINION
SHRINIVAS SUGANDHALAYA LLP,
Defendant-Appellant.
On Remand from the United States Supreme Court
Filed January 20, 2021
Before: Dorothy W. Nelson, Johnnie B. Rawlinson, and
Carlos T. Bea, Circuit Judges.
Opinion by Judge D. W. Nelson;
Dissent by Judge Bea
2 SETTY V. SHRINIVAS SUGANDHALAYA
SUMMARY *
Arbitration
On remand from the Supreme Court, the panel affirmed
the district court’s order denying defendant’s motions to
compel arbitration and to grant a stay pending arbitration in
a civil case.
The panel previously held that defendant could not
equitably estop plaintiffs from avoiding arbitration, and thus
affirmed the district court’s order. 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,
140 S. Ct. 1637 (2020).
On remand, the panel applied federal common law,
rather than the law of India, to the question whether
defendant, a non-signatory to the partnership deed
containing an arbitration provision, could compel plaintiffs
to arbitrate. Reaffirming that Letizia v. Prudential Bache
Securities, Inc., 802 F.2d 1185 (9th Cir. 1986), remains good
law, the panel concluded that federal law applied because the
case involved federal claims and turned on the court’s
federal question jurisdiction.
The panel held that equitable estoppel precludes a party
from claiming the benefits of a contract while
simultaneously attempting to avoid the burdens that contract
imposes. The panel concluded that plaintiffs’ claims were
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
SETTY V. SHRINIVAS SUGANDHALAYA 3
not clearly intertwined with the partnership deed providing
for arbitration. Accordingly, the district court properly
exercised its discretion in rejecting defendant’s argument
that plaintiffs should be equitably estopped from avoiding
arbitration.
Dissenting, Judge Bea disagreed with the majority’s
holding that, not Indian, but U.S. federal common law
governed the issue of equitable estoppel. He wrote that
equitable estoppel claims pressed by nonsignatories under
Chapter 1 of the Federal Arbitration Act are governed by
state law, and this principle also applies to arbitration
agreements governed by the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards, or New York
Convention. Judge Bea would hold that claims to compel
arbitration under Chapter 1 of the FAA are governed by the
domestic contract law of the relevant state or country,
regardless of whether the arbitration agreement is primarily
governed by FAA Chapter 1 or the New York Convention.
COUNSEL
Brian W. Esler and Vanessa L. Wheeler, Miller Nash
Graham & Dunn LLP, Seattle, Washington, for Defendant-
Appellant.
Scott S. Brown, Maynard Cooper & Gale P.C., Birmingham,
Alabama; Benjamin J. Hodges, Foster Pepper PLLC, Seattle,
Washington; for Plaintiffs-Appellees.
4 SETTY V. SHRINIVAS SUGANDHALAYA
OPINION
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, 140 S. Ct.
1637 (2020). See Shrinivas Sugandhalaya LLP v. Setty, No.
19-623, 2020 WL 3038281, at *1 (U.S. June 8, 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.
SETTY V. SHRINIVAS SUGANDHALAYA 5
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.
Under Letizia v. Prudential Bache Securities, Inc., we
apply “federal substantive law,” for which we look to
“ordinary contract and agency principles,” in determining
the arbitrability of federal claims by or against
nonsignatories to an arbitration agreement. 802 F.2d 1185,
1187 (9th Cir. 1986). The more recent decisions instead
applying “relevant state contract law” all involved only
state-law claims, and also relied on the court’s diversity
jurisdiction. See In re Henson, 869 F.3d 1052, 1059 (9th Cir.
2017) (citing Kramer v. Toyota Motor Corp., 705 F.3d 1122,
1128 (9th Cir. 2013) (citing Arthur Andersen LLP v.
Carlisle, 556 U.S. 624, 632 (2009))); see also GE Energy
Power, 140 S. Ct. at. 1642 (plaintiffs’ lawsuit brought state-
law tort and warranty claims). Letizia thus remains good
law. And because this case, like Letizia, involves federal
claims and turns on the court’s federal question jurisdiction,
it controls.
“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
6 SETTY V. SHRINIVAS SUGANDHALAYA
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.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.
SETTY V. SHRINIVAS SUGANDHALAYA 7
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. 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 also
governs equitable estoppel claims to compel arbitration
pursued under Chapter 1 of the Federal Arbitration Act
(“FAA”), 9 U.S.C. §§ 1 et seq. We should not hold
differently here.
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. Plaintiff-
Appellee Balkrishna founded Shrinivas Sugandhalaya
8 SETTY V. 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 federal
question, trademark, and supplemental jurisdiction. 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
Alabama to the Western District of Washington under
28 U.S.C. § 1404(a). SS Mumbai moved to dismiss or stay
the case in favor of arbitration, arguing that Plaintiff-
Appellees should be equitably estopped from avoiding the
arbitration clause present in the Partnership Deed. The
district court denied the motion, ruling against SS Mumbai’s
SETTY V. SHRINIVAS SUGANDHALAYA 9
claim of equitable estoppel. The district court did not
address the question of which law of equitable estoppel
should apply—the choice of law issue. Instead, the court
analyzed the equitable estoppel claim under generalized
estoppel doctrine drawn from Ninth Circuit cases. 1
On appeal, we affirmed the district court. See Setty v.
Shrinivas Sugandhalaya LLP, 771 F. App’x 456 (9th Cir.
2019) (unpublished), cert. granted, judgment vacated,
141 S. Ct. 83 (2020). However, rather than affirm on the
merits of the equitable estoppel claim, we held instead that
nonsignatory SS Mumbai was barred from compelling
arbitration under the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards (“New York
Convention”) as interpreted by Yang v. Majestic Blue
Fisheries, LLC, 876 F.3d 996 (9th Cir. 2017). Setty, 771 F.
App’x at 457. SS Mumbai sought and obtained certiorari
from the Supreme Court, which vacated our prior decision
and remanded the case in light of its decision in GE Energy
Power Conversion France SAS v. Outokumpu Stainless
USA, LLC, 140 S. Ct. 1637 (2020), which overruled Yang.
See Setty, 141 S. Ct. at 83.
II
Before the panel can answer whether we should reverse
the district court’s denial of SS Mumbai’s motion to compel
arbitration on the basis of equitable estoppel, we must first
1
The district court cited to both Kramer v. Toyota Motor Corp.,
705 F.3d 1122, 1128 (9th Cir. 2013) (applying California state equitable
estoppel doctrine) and Rajagopalan v. NoteWorld, LLC, 718 F.3d 844,
847 (9th Cir. 2013) (applying Washington state equitable estoppel
doctrine).
10 SETTY V. SHRINIVAS SUGANDHALAYA
resolve the choice of law issue. 2 The majority asserts federal
common law governs. I disagree. 3 As we will see, the
Supreme Court has made clear that substantive state law
governs equitable estoppel claims pursued under Chapter 1
of the FAA. That the Supreme Court has now ruled that
nonsignatories to arbitration agreements governed by the
New York Convention may compel arbitration under
Chapter 1 of the FAA should not alter that outcome.
2
In GE Energy, the Supreme Court noted that the choice-of-law
issue remained an open question:
Because the Court of Appeals concluded that the
Convention prohibits enforcement by nonsignatories,
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. Those questions can be addressed on
remand. We hold only that the New York Convention
does not conflict with the enforcement of arbitration
agreements by nonsignatories under domestic-law
equitable estoppel doctrines.
140 S. Ct. at 1648 (emphasis added).
3
I do agree with the majority, however, that we should not credit the
choice-of-law provision within the Partnership Deed to resolve the
threshold issue of what law governs the equitable estoppel claim because
SS Mumbai has yet to show the Partnership Deed is enforceable by
nonsignatory SS Mumbai against the signatory Plaintiff-Appellees. See
In re Henson, 869 F.3d 1052, 1059 (9th Cir. 2017) (holding that the
choice-of-law provision would not govern an equitable estoppel claim to
compel arbitration under the FAA because the signatory and
nonsignatory “never agreed” to be governed by the choice-of-law
provision).
SETTY V. SHRINIVAS SUGANDHALAYA 11
A
1
The FAA ensures covered arbitration agreements are
held “valid, irrevocable, and enforceable.” 9 U.S.C. § 2. We
have held that this substantive mandate permits federal
substantive law rather than state law to govern certain issues
arising in litigation involving the FAA, most notably, the
scope of arbitration provisions. Tracer Research Corp. v.
Nat’l Envtl. Servs. Co., 42 F.3d 1292, 1294 (9th Cir. 1994)
(“[T]he scope of the arbitration clause is governed by federal
law.”).
That said, federal substantive law does not govern all
questions arising under the FAA. The FAA did not “alter
background principles of state contract law regarding the
scope of agreements (including the question of who is bound
by them).” Arthur Andersen LLP v. Carlisle, 556 U.S. 624,
630 (2009). Rather, application of “traditional principles of
state law” is permitted under Chapter 1 of the FAA to “allow
a contract to be enforced by or against nonparties to the
contract through assumption, piercing the corporate veil,
alter ego, incorporation by reference, third-party beneficiary
theories, waiver and estoppel.” 4 Id. at 631 (citations
omitted).
4
FAA Chapter 1, Section 2 reads:
A written provision in any maritime transaction or a
contract evidencing a transaction involving commerce
to settle by arbitration a controversy thereafter arising
out of such contract or transaction, or the refusal to
perform the whole or any part thereof, or an agreement
in writing to submit to arbitration an existing
12 SETTY V. SHRINIVAS SUGANDHALAYA
And so, for arbitration agreements entered into in the
United States, federal courts have been required to apply
“relevant state contract law” and not federal common law to
the issue whether a nonsignatory may compel arbitration
under a theory of equitable estoppel. Id. at 632 (“We hold
. . . that a litigant who was not a party to the relevant
arbitration agreement may invoke [Chapter 1 of the FAA] if
the relevant state contract law allows him to enforce the
agreement.”); GE Energy, 140 S. Ct. at 1643 (“Chapter 1 of
the Federal Arbitration Act (FAA) permits courts to apply
state-law doctrines related to the enforcement of arbitration
agreements.”).
Since Arthur Andersen, the Ninth Circuit has repeatedly
applied state contract law any time a nonsignatory has
sought to compel arbitration under Chapter 1 of the FAA. In
Kramer v. Toyota Motor Corp., we acknowledged that “[t]he
United States Supreme Court has held that a litigant who is
not a party to an arbitration agreement may invoke
arbitration under the FAA if the relevant state contract law
allows the litigant to enforce the agreement. We therefore
look to California contract law to determine whether . . . a
nonsignatory[] can compel arbitration.” 705 F.3d 1122,
1128 (9th Cir. 2013) (citing Arthur Andersen, 556 U.S.
at 632).
We reaffirmed that proposition in In re Henson, 869 F.3d
1052 (9th Cir. 2017). There, as here, a nonsignatory
defendant sought to compel arbitration against a plaintiff
controversy arising out of such a contract, transaction,
or refusal, shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for
the revocation of any contract.
9 U.S.C. § 2.
SETTY V. SHRINIVAS SUGANDHALAYA 13
(who had agreed to arbitrate with a third party) under the
theory of equitable estoppel. Id. at 1056–57. The Court, in
granting a writ of mandamus, held that state law applies to
the issue whether equitable estoppel is available, and that
when determining which state law governs “whether [a]
nonsignatory[] can compel arbitration under the doctrine of
equitable estoppel,” “we apply the choice-of-law principles
of the forum state.” Id. at 1059.
Indeed, even this panel has agreed that “[u]nder the
FAA, a non-signatory may invoke arbitration if state law
permits.” 5 Setty, 771 F. App’x at 456 (emphasis added).
Thus, under both Supreme Court and our own precedent
(including this panel’s original decision), equitable estoppel
claims pressed by nonsignatories under Chapter 1 of the
FAA are governed by state law. Up until today, we did not
need to apply this principle to arbitration agreements
governed by the New York Convention. But with the
Supreme Court’s decision overruling Yang, this is the
question now before the panel.
2
“The New York Convention is a multilateral treaty that
addresses international arbitration,” ensuring that foreign
5
This holding from our panel’s previous decision may qualify for
“law of the case” enforcement to require the panel to apply state law, not
federal law, to the equitable estoppel issue before us. Under the law of
the case doctrine, “a court is generally precluded from reconsidering an
issue that has already been decided by the same court, or a higher court
in the identical case.” Thomas v. Bible, 983 F.2d 152, 154 (9th Cir.
1993). The Supreme Court overruled Yang, but did not disturb the
panel’s holding that state law would have applied to the issue absent
Yang’s preclusion holding.
14 SETTY V. SHRINIVAS SUGANDHALAYA
arbitral awards are recognized in each of the ratifying
countries and that foreign-based arbitration agreements are
enforceable. 6 GE Energy, 140 S. Ct. at 1644. Congress
statutorily implemented the New York Convention within
Chapter 2 of the FAA. 9 U.S.C. §§ 201 et seq. In so doing,
however, Congress ensured that Chapter 1 of the FAA would
still apply to actions and proceedings brought pursuant to
arbitration agreements covered by the New York
Convention, with exception of any provision within Chapter
1 that conflicts with the New York Convention. 9 U.S.C.
§ 208; GE Energy, 140 S. Ct. at 1644.
In Yang, we addressed whether FAA Chapter 1’s clause
permitting nonsignatories to compel arbitration under
equitable estoppel and other traditional contract law theories
described in Arthur Andersen conflicted with the New York
Convention. Yang, 876 F.3d at 1002–03. We held that it
did, and that nonsignatories were barred from using Chapter
1 of the FAA to compel arbitration if the relevant arbitration
agreement was governed by the New York Convention. Id.
Relying on Yang, this panel held in our first decision that
because SS Mumbai was a nonsignatory to Balkrishna and
Nagraj’s Partnership Deed and its arbitration clause, and
because that agreement was governed by the New York
Convention, SS Mumbai was not entitled to pursue a theory
of equitable estoppel that relied on FAA Chapter 1. Setty,
771 F. App’x at 456.
However, the Supreme Court has since overruled Yang.
The Supreme Court held instead that nothing in the New
York Convention conflicted with “the application of
6
A commercial arbitration agreement is governed under the New
York Convention and Chapter 2 of the FAA unless it “is entirely between
citizens of the United States” and does not reasonably relate to one or
more foreign states. 9 U.S.C. § 202.
SETTY V. SHRINIVAS SUGANDHALAYA 15
domestic equitable estoppel doctrines permitted under
Chapter 1 of the FAA.” GE Energy, 140 S. Ct. at 1645–46.
Thus, Yang’s restriction barring nonsignatories to
agreements governed by the New York Convention from
compelling arbitration as permitted under Chapter 1 of the
FAA has been removed.
B
On remand, this case raises a question we neither
considered nor answered in the earlier appeal: what law
applies to equitable estoppel claims pursued under Chapter
1 of the FAA for those arbitration agreements governed by
the New York Convention. This is not a difficult issue, but
it is the basis for this dissent.
Pursuant to GE Energy, nonsignatories to New York
Convention-governed arbitration agreements are now
authorized to compel arbitration using domestic contract law
doctrines. In ruling that the New York Convention did not
conflict with this provision of FAA Chapter 1, GE Energy
merely removed an obstacle that had prevented application
of existing FAA Chapter 1 doctrine. GE Energy did not alter
the familiar framework of Arthur Andersen, Kramer, or In
re Henson in any way.
I would hold, simply, that whether a particular contract
is governed by the New York Convention or not, an
equitable estoppel claim to compel arbitration is brought
pursuant to FAA Chapter 1, which requires that state
contract law (or in the case of a foreign contract, the foreign
state’s contract law) governs the issue.
After all, it is under the provisions of Chapter 1 of the
FAA that nonsignatories are permitted to compel arbitration
using equitable estoppel. Neither the New York Convention
16 SETTY V. SHRINIVAS SUGANDHALAYA
nor Chapter 2 of the FAA speak to the issue. See GE Energy,
140 S. Ct. at 1645 (“[N]othing in the text of the [New York]
Convention conflicts with the application of domestic
equitable estoppel doctrines permitted under Chapter 1 of the
FAA.” (citations omitted)). We have already held that
Chapter 1 of the FAA directs that the domestic background
principles of contract law—i.e., state contract law—govern
that question for U.S.-based agreements. See supra § II.A.1.
I see no reason to hold that settled FAA Chapter 1 law should
somehow apply differently to nonsignatories of agreements
otherwise governed by the New York Convention. 7
Here, the relevant contract law that governs the
Partnership Deed should govern SS Mumbai’s equitable
estoppel claim. But the majority holds that federal law
governs because the contract is also subject to FAA Chapter
2. According to the majority, we should impose federal law
on foreign-based parties to arbitration agreements and ignore
7
Our previous decision in Casa del Caffe Vergnano S.P.A. v.
ItalFlavors, LLC is worth distinguishing. 816 F.3d 1208 (9th Cir. 2016).
There, we examined whether an international arbitration agreement
governed by the New York Convention was a valid contract; the issue
did not involve nonsignatories seeking to compel arbitration by way of
domestic contract doctrines. In determining choice of law, we stated:
“Because 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.” Id. at 1211. That
holding is inapplicable here. First, unlike the issue in ItalFlavors,
whether a nonsignatory may compel arbitration under principles of
equitable estoppel is governed by Chapter 1 of the FAA, even if the
arbitration agreement is governed by Chapter 2 and the New York
Convention. See GE Energy, 140 S. Ct. at 1643. Second, ItalFlavors
was decided prior to the Supreme Court’s decision in GE Energy, which
guides our analysis here. Indeed, when ItalFlavors was decided, Yang
still barred non-signatory litigants from even raising claims pursuant to
FAA Chapter 1 if the arbitration agreement was governed by the New
York Convention.
SETTY V. SHRINIVAS SUGANDHALAYA 17
the domestic contract law upon which the particular
arbitration agreement was formed.
C
The majority holds that federal, not state, substantive law
governs “the arbitrability of federal claims by or against
nonsignatories to an arbitration agreement.” For that
proposition, the majority relies on a single case: Letizia v.
Prudential Bache Securities, Inc., 802 F.2d 1185 (9th Cir.
1986). In attempting to distinguish Ninth Circuit and
Supreme Court holdings to the contrary, the majority asserts
that for claims brought pursuant to federal question
jurisdiction, federal substantive law always governs the
dispute and all attendant issues, and that those cases cited by
the dissent are inapplicable simply because they were
brought pursuant to diversity jurisdiction.
The majority’s reliance on Letizia is misplaced. Letizia
was a securities fraud case decided in 1986 wherein Letizia,
who had invested in Prudential Bache and signed an
arbitration agreement with that defendant, sued Prudential
Bache as well as Prudential Bache’s nonsignatory
employees for fraud. Id. at 1186–87. The nonsignatory
employees sought arbitration under the agreement that
Letizia and Prudential Bache signed. The Ninth Circuit
determined that federal substantive law applies to the
question of whether the nonsignatories may enforce that
agreement:
“Because the issue involves the arbitrability
of a dispute, it is controlled by application of
federal substantive law rather than state law.
18 SETTY V. SHRINIVAS SUGANDHALAYA
Bayma v. Smith Barney, Harris Upham &
Co., 784 F.2d 1023, 1025 (9th Cir. 1986).”
Letizia, 802 F.2d at 1187.
The majority cites to Letizia for the proposition that all
issues arising in arbitration disputes are governed by federal
substantive law, but adds in a qualifier not present in
Letizia’s holding: limiting Letizia only to cases where the
complaint alleges federal rather than state law claims. To be
sure, the FAA provides a substantive mandate ensuring the
“enforceability of arbitration agreements” and that in
applying this mandate, we are applying “substantive federal
law.” Arthur Andersen, 556 U.S. at 630. However, as
discussed above, the Supreme Court has in effect abrogated
Letizia’s broad holding by making clear that the FAA does
not allow federal courts to apply federal common law to all
questions in disputes involving arbitration. The Supreme
Court stated quite clearly that “state law . . . is applicable to
determine which contracts are binding under § 2 and
enforceable under § 3 if that law arose to govern issues
concerning the validity, revocability, and enforceability of
contracts generally.” Id. at 630–31. The majority’s reliance
on Letizia to hold otherwise is entirely inconsistent with the
Supreme Court’s holding in Arthur Andersen.
The majority provides no support for its holding that
subject matter jurisdiction dictates whether federal or state
substantive law governs claims to compel arbitration by way
of domestic contract law theories permitted under Chapter 1
of the FAA. Letizia itself held that all issues involving the
arbitrability of a dispute are controlled by federal substantive
law. See Letizia, 802 F.2d at 1187. It did not differentiate
between cases brought pursuant to federal question or
diversity jurisdiction.
SETTY V. SHRINIVAS SUGANDHALAYA 19
The majority is correct that In re Henson, Kramer,
Arthur Andersen, and GE Energy were brought pursuant to
diversity jurisdiction and concerned state law claims.
However, neither the Supreme Court nor the Ninth Circuit
has ever relied on the subject matter jurisdiction or the nature
of the claims in holding that state law governs equitable
estoppel under FAA Chapter 1. That claimed distinction is
novel to the majority. Without supporting authority or any
reasoned consideration as to why it should make a
difference, we should not elevate this distinction without a
difference to override more recent, consistently applied
Supreme Court and Ninth Circuit FAA Chapter 1 precedent.
III
Had we held that the substantive law of the relevant state
or country, rather than federal law, applies to SS Mumbai’s
claim for equitable estoppel, the next step would have been
to perform a choice-of-law analysis to determine which
domestic law governs this claim. In choosing which law to
apply, the first question would have been whether federal or
state choice-of-law principles apply. The next step would
have been to apply the correct principles to the facts of the
case. I would remand to the district court to resolve these
determinations in the first instance, but I suspect that
application of Indian contract law would be the result.
A
Determining which choice-of-law principles govern is
typically resolved according to the nature of the claim and
the subject matter jurisdiction of the case. See Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Federal
question jurisdiction is met for Plaintiff-Appellees’
trademark claims under federal trademark law, with
supplemental jurisdiction over the pendant state law claims.
20 SETTY V. SHRINIVAS SUGANDHALAYA
Federal courts apply the choice-of-law rules of the forum
state for claims brought pursuant to diversity and
supplemental jurisdiction. Destiny Tool v. SGS Tools Co.,
344 F. App’x 320, 321 (9th Cir. 2009) (“When a federal
court exercises supplemental jurisdiction over state law
claims, it applies the choice-of-law rules of the forum state.
The same is true when a federal court sits in diversity.”
(citations omitted)).
For federal question jurisdiction, there is some
inconsistency as to whether federal courts should apply
federal common law choice-of-law principles or the choice-
of-law principles of the forum state when the particular issue
is governed by substantive state law. For bankruptcy cases
founded on federal question jurisdiction, we have opted to
use federal choice-of-law rules to determine which state law
to apply to pendent state claims. In re Lindsay, 59 F.3d 942,
948 (9th Cir. 1995) (“In federal question cases with
exclusive jurisdiction in federal court, such as bankruptcy,
the court should apply federal, not forum state, choice of law
rules.”). Outside of bankruptcy, however, when the
particular issue is ultimately determined by state rather than
federal law (as here), the Ninth Circuit and the lower courts
have sometimes applied the forum state’s choice-of-law rule.
See S.E.C. v. Elmas Trading Corp., 683 F. Supp. 743, 748
(D. Nev. 1987), aff'd w/o opinion, 865 F.2d 265 (9th Cir.
1988) (“If one of the purposes of Erie was to avoid this
unwieldy body of federal common law, and to assure that
substantive matters of purely state interest are decided by
state law, it thus seems logical to use the state choice of law
rules here, rather than to look to federal common law. This
policy leads the Court to apply the rule of Klaxon to cases
founded upon federal question jurisdiction where state law
controls the issue to be decided.”); Paracor Fin., Inc. v. Gen.
Elec. Capital Corp., 96 F.3d 1151, 1164 (9th Cir. 1996)
SETTY V. SHRINIVAS SUGANDHALAYA 21
(“The first step in interpreting the clause is to apply the
correct choice-of-law rules. In a federal question action
where the federal court is exercising supplemental
jurisdiction over state claims, the federal court applies the
choice-of-law rules of the forum state—in this case,
California.” (citing Elmas Trading Corp., 683 F. Supp.
at 747–49)).
Resolution of this question does not appear to be
necessary, as I suspect that under either the choice-of-law
principles of the forum state or federal common law, Indian
contract law applies.
1
If we were to apply state choice-of-law principles, we
would look to the law of the forum in which the court is
located. Paracor, 96 F.3d at 1164. “After a transfer
pursuant to 28 U.S.C. § 1404(a), the transferee district court
generally must apply the state law that the transferor district
court would have applied had the case not been transferred.”
Shannon-Vail Five Inc. v. Bunch, 270 F.3d 1207, 1210 (9th
Cir. 2001).
This action was transferred under 28 U.S.C. § 1404(a)
from the Northern District of Alabama to the Western
District of Washington. Thus, we would apply the choice-
of-law rules of the state of Alabama.
At issue before the panel is whether the application of
the relevant state contract law (equitable estoppel) would
allow a nonsignatory to compel arbitration against a
signatory to an arbitration contract. Therefore, the conflict-
of-law principles governing contract disputes are applicable.
“Alabama applies the traditional doctrine[] of lex loci
contractus to contract claims . . . . The doctrine states that a
22 SETTY V. SHRINIVAS SUGANDHALAYA
contract is governed by the laws of the state where it is made
. . . .” Colonial Life & Acc. Ins. Co. v. Hartford Fire Ins.
Co., 358 F.3d 1306, 1308 (11th Cir. 2004) (citing Cherry,
Bekaert & Holland v. Brown, 582 So. 2d 502, 506
(Ala.1991); Fitts v. Minn. Mining & Mfg. Co., 581 So. 2d
819, 820 (Ala. 1991)).
The Deed of Partnership itself states it was “made and
entered into at Mumbai[, India] on December 24, 1999,” and
this fact is undisputed by the parties. Thus, using Alabama
choice-of-law rules, the issue of equitable estoppel would
likely be determined under the laws of India—if indeed there
is a doctrine of equitable estoppel in India—where the
contract was made.
2
Were we to use federal choice-of-law principles, we
would “follow[] the approach of the Restatement (Second)
of Conflict of Laws.” Cassirer v. Thyssen-Bornemisza
Collection Found., 862 F.3d 951, 961 (9th Cir. 2017). The
Second Restatement lists factors relevant to the choice of
law determination:
(a) the needs of the interstate and
international systems; (b) the relevant
policies of the forum; (c) the relevant policies
of other interested states and the relative
interests of those states in the determination
of the particular issue; (d) the protection of
justified expectations; (e) the basic policies
underlying the particular field of law;
(f) certainty, predictability and uniformity of
result; and (g) ease in the determination and
application of the law to be applied.
SETTY V. SHRINIVAS SUGANDHALAYA 23
Restatement (Second) of Conflict of Laws § 6 (Am. L. Inst.
1971). Sections 187 and 188 further guide how the general
choice-of-law principles stated in Section 6 are applicable to
issues of contract, providing that, absent a valid choice-of-
law clause in a contract, the forum with “the most significant
relationship to the transaction and the parties” should
govern. Section 188(2) further breaks down the factors to
consider in making that determination:
(a) the place of contracting; (b) the place of
negotiation of the contract; (c) the place of
performance; (d) the location of the subject
matter of the contract; and (e) the domicil,
residence, nationality, place of incorporation
and place of business of the parties.
Moreover, “[i]f the place of negotiating the contract and the
place of performance are in the same state, the local law of
this state will usually be applied.” Id. § 188(3).
It is undisputed that the Setty brothers negotiated and
entered into the Partnership Deed in India. In agreeing to
continue operating their father’s incense manufacturing firm
in Mumbai, the Setty brothers also performed their
partnership contract in India. Both brothers are of Indian
nationality and were domiciled in India at the time of
contract (indeed, both brothers continue to be domiciled in
India). The Partnership Deed “was formed under the laws
of India.” The clear, justified expectation of all parties to the
Partnership Deed was that it was to be governed under Indian
law. Even the nonsignatory parties to this appeal—SS
Mumbai and SS Bangalore—are both Indian companies
owned by the two Indian brother signatories to the
Partnership Deed, and manufacture the same goods
governed by and pursuant to the Partnership Deed.
24 SETTY V. SHRINIVAS SUGANDHALAYA
Indeed, nothing in the facts suggest any forum apart from
India had any relationship whatsoever with the Partnership
Deed. It would appear to me that India is the forum with the
most significant relationship to the Partnership Deed and that
the traditional principles of Indian contract law may very
well govern whether a signatory may be compelled to
arbitrate with a nonsignatory over an issue arising from that
contract.
B
At this point, however, significant uncertainty remains.
The parties did not discuss in their briefs any of the key
issues remaining in this analysis, including the existence and
contours of India’s equitable estoppel doctrine and how
would it apply to the facts of this case. The parties should
be granted the opportunity to brief and argue this point of
law. I would remand the case to the district court to resolve
the equitable estoppel claim in the first instance, along with
any potential factual disputes that might be necessary to
make that decision.
IV
Because SS Mumbai’s motion is brought pursuant to
Chapter 1 of the FAA, the Supreme Court and Ninth Circuit
precedents governing this question should be adequate to
resolve this issue. Indeed, before the panel is a familiar
question: what law governs a claim by a nonsignatory to
compel arbitration using domestic equitable estoppel under
FAA Chapter 1? The Supreme Court in Arthur Andersen
determined that a litigant who was not a party to an
arbitration agreement may invoke Chapter 1 of the FAA “if
the relevant state contract law allows him to enforce the
agreement.” 556 U.S. at 632. Therefore, I would hold that
claims to compel arbitration under Chapter 1 of the FAA are
SETTY V. SHRINIVAS SUGANDHALAYA 25
governed by the domestic contract law of the relevant state
or country, regardless whether the arbitration agreement is
primarily governed by FAA Chapter 1 or the New York
Convention.
I would remand the case back to the district court to
resolve in the first instance which choice-of-law principles
should be used to determine which contract law should
govern the equitable estoppel issue, apply the principles, and
resolve the equitable estoppel issue.
I respectfully dissent.