Federal Equitable Decoupling Law Compulsory Arbitration Application Denied: United States Court of Appeals for the Ninth Circuit

In the recent Balkrishna Setty v Shrinivas Sugandhalaya LLP case, the court denied the motion to enforce arbitration under the Federal Equitable Decoupling Act. According to the facts, the Balkrishna and Nagaraj Setty brothers signed a partnership agreement whereby they became co-owners of the incense maker. The brothers later set up their own competing production companies in separate Indian cities, i.e. Bangalore and Mumbai. The plaintiff, whose business is based in Bangalore, sued the other brother and his U.S. distributor for allegedly obtaining the SS-related trademarks in the U.S. by falsely stating that no other person, including the plaintiff’s company, could use the Brands are authorized.

The defendant requested that the arbitration proceedings be enforced and the litigation suspended because the partnership document contained an arbitration clause. The Ninth Circuit Panel considered SS Mumbai’s motion to force arbitration twice. The defendant argued that the plaintiff should be fairly prevented from circumventing the arbitration clause in the partnership deed. However, the district court denied the motion stating that the general ninth circle doctrine doubles the doctrine.

The appellate court also ruled that the unsigning defendant was barred from compulsory arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, i.e. the New York Convention. It has been interpreted in such a way that the Convention requires the parties to actually sign an agreement to settle their disputes in order to enforce arbitration. This happened in the first review. In the second review, the court stated that the Indian choice of law provision was included in the partnership deed because a non-signatory was a threshold issue for which the court would not examine the agreement itself. In the present case, the case concerns the federal claims and jurisdiction over the federal question of the court. As a result, the court again refused to apply Indian law and instead applied substantive federal law as well as customary contract and agency principles.

Therefore, the Ninth Circle reaffirmed the District Court’s decision to reject the defendant’s request for compulsory arbitration.

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