CURRENT MONTH (July 2019)
Certiorari Grant: Nonparty Compelling Arbitration under N.Y. Convention
By Keith R. Fisher
Recently, the U.S. Supreme Court granted certiorari on whether the New York Convention on the Enforcement of Foreign Arbitral Awards permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel. The case, GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, No. 18-1048 (cert. granted June 28, 2019), involves a foreign corporation that operates an Alabama steel plant through a U.S. subsidiary, Outokumpu Stainless USA, LLC (“Outokumpu”). Outokumpu is a party (as successor in interest) to a contract with F.L. Industries, Inc. (“FLI”), a German company, to provide cold rolling mills (“CRMs”), which are used in the production of certain steel products. FLI later contracted with GE Energy Power Conversion France SAS (“GE Energy”), a French subsidiary of General Electric. Both contracts contained arbitration agreements.
Outokumpu and GE Energy became involved in a dispute over failed CRMs. Outokumpu filed suit in Alabama state court, and GE Energy removed the case to federal court and moved to compel arbitration under the New York Convention. When Outokumpu sought a remand to state court, the district court denied remand and granted GE Energy’s motion to compel arbitration.
On appeal, the 11th Circuit affirmed the ruling on the remand issue on the ground that the district court properly maintained jurisdiction because the dispute “related to” the arbitration agreement at issue; but the court of appeals reversed the granting of the motion to compel arbitration, because the New York Convention requires that the parties signed a written agreement to arbitrate. Here, the 11th Circuit said, no agreement was “signed” by both parties: At the time Outokumpu entered into the contract with FLI, GE Energy was a stranger to that contract, and had not yet entered into its own subcontractor relationship with FLI, through which GE Energy is seeking to enforce the Outokumpu – FLI arbitration provision.
The issues before the Supreme Court focus on interpretation of the language of the New York Convention and provisions of the Federal Arbitration Act.
Yacht Owner’s Failure to Prove Damages to a Reasonable Certainty Proved Fatal to Its Contract Claims
In SelectSun GmbH v. Porter, Inc., No. 18-3149, 2019 WL 2587836 (7th Cir. June 25, 2019), the United States Court of Appeals for the Seventh Circuit held that a yacht owner’s failure to establish damages with reasonable certainty barred its breach of contract and breach of warranty claims against the yacht’s manufacturer. Citing specific problems with the yacht, the owner sought damages for the full purchase price of the yacht ($1,000,000) without alternatively seeking to recover the particular costs associated with the yacht’s problems. Moreover, the owner failed to rebut the manufacturer’s evidence that the yacht could be fixed for only $2,000. This all-or-nothing approach to damages – insisting that the yacht was literally worthless and demanding its full purchase price, instead of the more discrete repair costs – backfired. Damages are an essential element of any contract claim. In Indiana, the breach of contract claim required a reasonable calculation of damages resulting from the breach supported by evidence in the record and not based on speculation, and the breach of warranty claim required a showing of the cost to repair or replace the yacht, or proving its fair market value. Because this essential element was lacking, the Court did not need to reach the other serious issues with the owner’s claims – including that the owner was not even in contractual privity with the manufacturer. As the Court noted, “[c]ontractual disputes can be messy and present many tangled knots.” This opinion underscores the importance of proving damages to a reasonable certainty, and shows that the failure to do so can be fatal to a contract claim.
Beware the Unintended Consequences of Disclosing Trade Secrets During Trial
In Title Source, Inc. v. Housecanary, Inc., No. 04-18-00509-CV, 2019 WL 2996974 (Tex. App. July 10, 2019), the Fourth Court of Appeals in Texas reversed the trial court’s order sealing trial exhibits that contained trade secret material on the ground that the exhibits were displayed without restriction during the jury trial of the matter. Before trial, the parties entered into a stipulated protective order that set forth the procedures for designating and maintaining documents and information as confidential. Importantly, the protective order required the parties to obtain a separate order governing the use of documents containing trade secret information at trial. During the seven-week jury trial, Housecanary displayed and read from fourteen exhibits in open court at trial that allegedly contained Housecanary’s trade secrets. After the trial, Housecanary moved the trial court to seal those fourteen exhibits on the ground that they revealed Housecanary’s trade secrets, and the court granted Housecanary’s motion, sealing the exhibits.
On appeal, the Fourth Court of Appeal reversed, finding, that, among other things, the trial court erred in sealing the exhibits that had been publicly displayed during the jury trial. The Court noted that the Texas Uniform Trade Secret Act requires that a trade secret owner take “reasonable measures under the circumstances to keep the information secret.” Title Source, Inc. v. Housecanary, Inc., No. 04-18-00509-CV, 2019 WL 2996974, at *11 (Tex. App. July 10, 2019). The Court reasoned that by displaying the exhibits at trial and failing to obtain an agreement or order regarding the confidentiality of the trial exhibits, Housecanary did not take reasonable measures to keep the information secret, and, hence, the trial court erred in sealing the exhibits. Id. This case serves as a reminder to all litigators and businesses alike to take steps to protect your trade secret information throughout all stages of litigation.
Amazon May Be Drowning in Strict Liability
In State Farm Fire & Cas. Co. v. Amazon.com, Inc., No. 18-CV-261-JDP, 2019 WL 3304887 (W.D. Wis. July 23, 2019), the United District Court of Wisconsin held that Amazon.com (“Amazon”) may be held strictly liable for a defective product sold by a third-party on Amazon’s website. Luke Cain bought a faucet from XMJ a Chinese company. The faucet malfunctioned and flooded Mr. Caine’s home. According to Wisconsin Statute § 895.047(2), strict liability can extend to entities other than the manufacture if the seller assumed one of the responsibilities of the manufacture or neither the manufacture nor the insurer is subject to service of process within the state. Amazon argued they are not the “seller” because Amazon did not maintain or transfer title to Mr. Cain. First, the Court examined Wis. Stat. § 895.047 and found that the statute was written to prefer that liability rest with the manufacture. Even so, without the manufacture in the jurisdiction, the entity responsible for getting the defective product into Wisconsin is liable. To be responsible for getting the product into the stream of Wisconsin commerce, the entity must have been an integral part of the chain of distribution. The Court reasoned that Amazon provided the only channel for XMJ to get the faucet into the stream of commerce; Amazon received a fee on the sale of the faucet, and Amazon was in the position to insure against a risk of defective products. Additionally, Amazon made XMJ register their products and had the right to halt the sale of any XMJ products, Amazon’s agreement with XMJ included an indemnification clause, Amazon listed XMJ products among Amazon’s own products on Amazon.com, and Amazon agreed to process returns and refunds if XMJ was unresponsive to customers who required a refund for defective products. For these reasons, the Court held that Amazon was an integral entity in the chain of distribution and, thus, found Amazon strictly liable for XMJ’s defective product. This case may prompt Amazon and other online retailers to examine their potential liability under applicable state laws for defective third-party products.