Removal From State Court of Case Related to an Arbitration

Removal From State Court of Case Related to an Arbitration in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): On February 7, 2011 in the case Infuturia Global Ltd. v. Sequus Pharmaceuticals, Inc., the U.S. Court of Appeals for the Ninth Circuit affirmed the district court's decision that the case had properly been removed from state court because it was related to an arbitration award. 631 F.3d 1133 (9th Cir. 2011). The case arose out of a dispute over a license agreement between Infuturia, a citizen of the British Virgin Islands, and Yissum, a citizen of Israel. Infuturia sued a third-party, Sequus, a citizen of California, in California state court alleging that Sequus had tortiously interfered with the license agreement. Yissum was not a party to the state court case, but successfully obtained a stay in that case pending an arbitration under the license agreement in Israel. After the arbitration concluded, the state court lifted the stay and the case was removed to federal court pursuant to 9 U.S.C. § 205 of the Federal Arbitration Act, which implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”). Infuturia argued that removal was improper. In federal district court, Sequus raised collateral estoppel as an affirmative defense, arguing that the issues had been resolved in the arbitration in Israel. Excerpts below from the court's decision discuss the basis for holding that the court properly exercised removal jurisdiction under the Federal Arbitration Act. (Footnotes have been omitted.)

Developments

III. Removal Jurisdiction We review de novo a district court's denial of a motion to remand for lack of removal jurisdiction. Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir.2007). We also review de novo questions of statutory interpretation. Beeman v. TDI Managed Care Servs., Inc., 449 F.3d 1035, 1038 (9th Cir.2006).

Title 9 U.S.C. § 205 provides that federal courts have removal jurisdiction [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…. 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. (emphasis added). When interpreting the meaning of this statute, we “look first to its plain language.” United States v. Juvenile Male, 595 F.3d 885, 898 (9th Cir.2010) (citation and alteration omitted). The critical language here is the phrase “relates to.” The Fifth Circuit, which is the first and only circuit court to address the meaning of “relates to” in § 205, construed this language to mean that “whenever an arbitration agreement falling under the Convention could conceivably affect the outcome of the plaintiff's case, the agreement 'relates to' the plaintiff's suit.” Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir.2002). We agree with this interpretation. The phrase “relates to” is plainly broad, and has been interpreted to convey sweeping removal jurisdiction in analogous statutes. See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96–97, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (holding that under § 514(a) of the Employee Retirement Income Security Act, “[a] law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan”); McGuire v. United States, 550 F.3d 903, 911–12 (9th Cir.2008) (holding that under the bankruptcy jurisdiction statute, 28 U.S.C. § 1334(b), “[a] civil proceeding is 'related to' a [bankruptcy] case if the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy” (emphasis added) (citation and internal quotation marks omitted)).

Details

Nothing in § 205 urges a narrower construction. Indeed, the statute invites removal of cases whose relation to an agreement or award under the Convention is based on an affirmative defense by expressly abrogating the “well-pleaded complaint” rule. See 9 U.S.C. § 205 (“[T]he 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.”); Beiser, 284 F.3d at 669 (“[Federal courts] will have jurisdiction under § 205 over just about any suit in which a defendant contends that an arbitration clause falling under the Convention provides a defense. As long as the defendant's assertion is not completely absurd or impossible, it is at least conceivable that the arbitration clause will impact the disposition of the case. That is all that is required to meet the low bar of 'relates to'.”).

Infuturia argues for a narrower interpretation of the statute by citing AtGames Holdings Ltd. v. Radica Games, Ltd., 394 F.Supp.2d 1252 (C.D.Cal.2005). In AtGames, the district court held that “a state court action is [only] removable if (1) the parties to the action have entered into an arbitration agreement, and (2) the action relates to that agreement.” Id. at 1255. AtGames narrows the class of actions removable under § 205 by adding privity of contract to the prerequisites for removal jurisdiction. This holding finds no support in the language of the statute. While AtGames would hinge jurisdiction on the relatedness of the parties, § 205 focuses only on the relatedness of the “subject matter of [the] action … to an arbitration agreement.” Further, although AtGames claims to be consistent with Beiser, nothing in Beiser suggests that only parties privy to an arbitration agreement or award falling under the Convention may seek removal under § 205. Rather, Beiser confers removal jurisdiction “whenever an arbitration agreement … could conceivably affect the outcome of the plaintiff's case….” 284 F.3d at 669. In a case such as this, where the defendant relies on the affirmative defense of collateral estoppel regarding issues already resolved against the plaintiff in arbitration, the arbitral award “could conceivably affect the outcome” of the case. Id.

We find AtGames unpersuasive and decline to add any prerequisites to removal jurisdiction not expressed in the language of the statute. Because Sequus raised an affirmative defense “relat[ing] to” the Infuturia–Yissum arbitral award (which neither party disputes “falls under” the Convention), the district court had removal jurisdiction under 9 U.S.C. § 205.

Resources

See Also

• Private International Law
• International Civil Litigation
• Arbitrations