Case of the Day: Dedon GmbH v. Janus et Cie
Posted on March 1, 2011
The case of the day, Dedon GmbH v. Janus et Cie (S.D.N.Y. 2011), is a needless procedural tangle. The complexity arose because it was unclear whether an arbitration agreement existed between the parties.
Dedon manufactured high-end outdoor furniture. Janus was its US distributor. Dedon wanted to sell directly to US retailers, but Janus asserted that under a written but unsigned contract (Dedon claimed it was only a draft that had never been agreed), Janus had the right to be exclusive distributor through 2011. The unsigned agreement (or draft) contained an arbitration clause requiring arbitration before the ICC in London. Janus commenced an arbitration, and Dedon sued in the SDNY, seeking a declaration that no contract (and thus no arbitration agreement) existed. Somewhat surprisingly, Dedon did not seek to enjoin Janus (which was within the court’s personal jurisdiction) from proceeding in London. Instead, Dedon sought to persuade the ICC in London that there was no prima facie basis to believe that an arbitration agreement existed. But the ICC disagreed and directed Dedon to file an answer, which Dedon did. The ICC then proceeded to constitute the tribunal. Janus, in the New York action, moved to compel arbitration (or in the alternative, to stay).
In an earlier decision, Judge McMahon denied Janus’s motion to compel arbitration without prejudice on the grounds that under US law (the Granite Rock Co. v. Teamsters decision in particular), it was for the court, not the tribunal, to decide the existence of an arbitration agreement, as distinguished from deciding whether an agreement to arbitrate was void, illegal, etc.). The judge also refused to find that Dedon had waived its objections to arbitration by participating in the London proceedings, because it had continually reserved its rights to object. The Second Circuit affirmed, setting up a trial on the issue of the existence of the contract.
In the new decision, Dedon argued that the court should have denied the motion to compel arbitration with prejudice rather than without prejudice, i.e., that there was no need for a trial on the issue whether an arbitration agreement existed. The existence of the agreement was important both because Janus wanted to compel arbitration and because, if the court found that an arbitration agreement did exist, then Dedon’s claim against Dedon for tortious intererence in its contractual relationships with the US retailers could not be heard in the SDNY.
Article II(3) of the New York Convention requires the court to refer the parties to arbitration if the parties have made an “agreement within the meaning of this article”, that is, an “agreement in writing”. Article II(2) provides:
The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.
In Kahn Lucas Lancaster, Inc. v. Lark Int’l Ltd., 186 F.3d 210 (2d Cir. 1999), the Second Circuit had held that a court had jurisdiction to compel arbitration in a case subject to the New York Convention only if the agreement was signed by the parties, or else if it constituted an exchange of letters or telegrams. In Sarhank Group v. Oracle Corp., 404 F.3d 657 (2d Cir. 2005), the Second Circuit held that the existence of the signed agreement was not a matter of the court’s jurisdiction, but rather a merits question.
The court denied Dedon’s argument. Dedon’s motion was premised on the notion that there could be no arbitration agreement unless it was a “signed agreement” enforceable under the Convention, but the noted that even if the agreement to arbitrate was not enforceable in the US court via a motion to compel arbitration, the agreement to arbitrate might still be enforceable under the law applicable to the agreement. The court determined that it was necessary to hold a trial on that issue, that is, on whether the parties had made an arbitration agreement, even if the agreement could not be enforced under the Convention.
One lesson of the case, it seems to me, doesn’t have anything to do with the details of the holding. Instead, the lesson is to avoid getting into a situation where it is unclear whether a written contract between the parties exist. I suppose it is not really shocking that sophisticated parties who can hire lawyers on the back end to litigate threshold issues such as arbitrability on two continents cannot hire lawyers on the front end to arrange their contractual relationships so as to avoid such problems.