The case of the day is Goel v. Ramachandran (S.D.N.Y. 2011). Vikas Goel, a resident of Dubai, was the founder of eSys Technologies Pte Ltd., a computer equipment distributor organized under the laws of Sinagpore and doing business there. All of the shares of eSys were owned by Rainforest Trading Ltd., a British Virgin Islands holding company. In 2006, eSys was in need of capital, so it and Goel entered into a subscription agreement with Teledata Informatics, under which Teledata was to purchase 51% of eSys’s shares (technically, Teledata was purchasing shares of the holding company, Rainforest) for $105 million. The claim in the case was that instead of paying Goel and eSys for the shares, Teledata “repeatedly diverted small amounts of money that it had deposited into the Rainforest bank account” to two of the defendants, Bunge Ltd. and Bunge S.A., and to companies controlled by the other defendant, Anush Ramachandran, a resident of New York and an officer of Teledata.

Goel and eSys sued Ramachandran and Bunge in the New York Supreme Court, alleging that Ramachandran defrauded Goel and asserting claims for unjust enrichment, tortious interference, etc. Goel and eSys also initiated an arbitration in Singapore against Teledata under the subscription agreement’s arbitration clause, which required arbitration of all disputes related to the agreement.

Ramachandran removed the case to the federal court, and Goel and eSys moved to remand. Removal was governed by § 205 of the FAA, which provides:

Where 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 defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. 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. For the purposes of Chapter 1 of this title any action or proceeding removed under this section shall be deemed to have been brought in the district court to which it is removed.

The judge honed in on the interesting issue right away:

There are certainly cases involving non-signatories to an applicable arbitration agreement, both where a signatory defendant seeks to compel a non-signatory plaintiff to arbitrate its claims, and where a non-signatory defendant seeks to compel a signatory plaintiff. However, the Court has found no case where a non-signatory defendant has removed a case under § 205 as related to an arbitration agreement to which the defendant is not a party and also is not seeking to compel or participate in an arbitration.

Note that this is closely related to the observation I made in the post on Simmons v. Sabine River Authority, where the defendant removed the case under § 205 but then apparently did not seek to compel arbitration. Indeed, the court in the Goel case paid some attention to the Fifth Circuit’s precedents, including Acosta, which played a role in the Sabine River case.

The court adopted the Fifth Circuit’s broad construction of the “relates to” language in § 205, but even on that broad construction, it held that Ramachandran had not shown that the action related to the arbitration agreement. Since he was not a party to the arbitration and has refused to be bound by the arbitration’s outcome, there was no explanation of how the arbitration’s outcome could possibly affect the court case.

On the more interesting question—the question whether a defendant can remove a case under § 205 when it does not intend to compel arbitration or to seek to confirm an arbitral award— the court held that it lacked jurisdiction.

The court reviews the precedents, or rather the lack of precedents, that justified its decision. The decision also seems sound as a matter of policy. The policy of the FAA is to promote enforcement of agreements to arbitrate. But where the litigation really has nothing to do with the arbitration, the broad language of § 205 shouldn’t be used to give the defendant access to a federal forum that it otherwise would lack.