Chidambaram et al v. Sekkappan et al
Filing
12
ORDER granting Defendants' 4 Motion to Compel Arbitration. Plaintiff's 5 Motion to Remand is DENIED. These proceedings are STAYED until the arbitrator resolves the underlying arbitration. Signed by Judge Richard W. Story on 5/20/2014. (cem)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
CHIDAMBARAM
CHIDAMBARAM and MEENA
A. CHIDAMBARAM,
Plaintiffs,
v.
KANNAPPAN SEKKAPPAN and
T.D. SRINIVASAN,
Defendants.
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CIVIL ACTION NO.
1:13-CV-2958-RWS
ORDER
This case is before the Court on Defendants’ Motion to Compel
Arbitration [4] and Plaintiffs’ Motion to Remand to State Court [5].
Background
From August 2006 through August 2007, Defendants solicited Plaintiffs
and others to invest in Reliant Metropolitan Developers Private Ltd.
(“Reliant”), an Indian company handling two real estate development projects
in Hyderabad, India. Plaintiffs allege that at the time of their introduction to
Defendants and at all material times thereafter, Defendants “held themselves out
to be, and were in fact, Directors, principals, owners, and/or controlling persons
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of Reliant, with authority to act for and legally bind Reliant.” (Compl., [1-1] ¶
15.) During the solicitation period, Defendants held multiple internet and
teleconference meetings with Plaintiffs, and emailed and met with them in
person. According to Plaintiffs, numerous representations made by Defendants
concerning the Reliant investment and Reliant’s purported activities in India
“were either untrue when made, were incomplete, or, when combined with
other representations by Defendants, were materially misleading and false.”
(Compl., [1-1] ¶ 24.) The Complaint details many alleged misrepresentations
made by Defendants during the solicitation period. (See Compl., [1-1] ¶¶ 2528.) Plaintiffs allege that they “reasonably relied on the false and misleading
representations of Defendants in making their investments in Reliant.”
(Compl., [1-1] ¶ 31.)
Ultimately, Plaintiffs made three separate investments in Reliant:
$81,726 on January 24, 2007; $22,779 on January 25, 2007; and $49,726 on
September 22, 2007. The first-round investments from January 2007 were
memorialized in an investment agreement between Plaintiffs and Reliant
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(“Investment Agreement”).1 The Investment Agreement laid out the duties and
responsibilities of the signatories. It also included an arbitration clause: “All
disputes arising out of this agreement or in connection there with shall be
settled by arbitration. The place of arbitration shall be Hyberabad, India.”
(Investment Agreement, [1-15] at 10 of 12.)
In June 2008, Defendants informed Plaintiffs that Reliant’s first
development project was not doing well due to falling land prices and cessation
of new development projects in India. They told Plaintiffs that the project
would “break even at best” and that Reliant was attempting to sell the first
development property and invest the proceeds in Reliant’s second project.
However, in mid-2009, Defendants told Plaintiffs that the second project had
title issues and Plaintiffs’ investment in that property would be a total loss. In
February 2012, Defendants conveyed to Plaintiffs that the first Reliant property
had been sold for approximately 13% of its original purchase price and Reliant
would attempt to “settle” Plaintiffs’ investments based upon the sale. But,
1
Plaintiffs never executed an agreement related to the second-round investment
in September 2007. Thus, the Investment Agreement is the only contract at issue in
this case.
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according to Plaintiffs, Reliant did not sell the property and in fact still owned it
at the time Plaintiffs filed suit in state court.
In July 2012, Defendant Sekkappan presented Plaintiffs with an offer:
Reliant would repurchase Plaintiffs’ interest in the company for approximately
12.85% of the initial cost of Plaintiffs’ investments if Plaintiffs released all
claims against Reliant and Defendants. Plaintiffs enumerate several alleged
misrepresentations made by Defendants and Reliant regarding this proposed
settlement. (See Compl., [1-1] ¶ 45.) Plaintiffs allege: these misrepresentations
“were made in an effort to further defraud Plaintiffs and other Reliant investors
by trying to convince them that their investments had resulted in near total
losses and that the settlement offers represented the best possible recoveries for
Plaintiffs and other Reliant investors.” (Compl., [1-1] ¶ 46.)
Plaintiffs claim that following the proposed settlement, they “first had
reason, and did in fact begin, to suspect that Defendants had not been truthful
with investors concerning the status of their investments.” (Compl., [1-1] ¶ 49.)
They further allege, “[a]t or around the same time, Defendants refused
Plaintiffs’ request to see documentary evidence of the purported land
transactions.” (Compl., [1-1] ¶ 49.) “As a result of their suspicions, Plaintiffs
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undertook to investigate the factual accuracy of certain of Defendants’
representations . . . .” (Compl., [1-1] ¶ 50.) “Only after such investigation did
Plaintiffs learn . . . that numerous of Defendants’ prior representations made to
Plaintiffs and other Reliant investors during Defendants’ solicitation of
investments in Reliant, as well as representations made after Plaintiffs acquired
Reliant Interests . . ., were either untrue when made, incomplete, or, when
combined with other representations by Defendants, materially misleading and
false.” (Compl., [1-1] ¶ 51.)
Plaintiffs allege, “[u]pon information and belief, Reliant is not an
operating company, is not actively engaged in any business and has no source
of revenue.” Currently, the Reliant interests acquired by Plaintiffs have no
market value and Plaintiffs have suffered the loss of their entire investment.
Plaintiffs argue that their loss was proximately caused by Defendants’
misrepresentations and omissions. Plaintiffs’ claims against Defendants
include: (1) common law fraud and fraudulent inducement, (2) negligent
misrepresentation, and (3) violations of the Georgia RICO Act. Plaintiffs seek
compensatory damages, punitive damages and attorneys’ fees.
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Plaintiffs filed suit against Defendants in Superior Court of Cobb County
on January 25, 2013. On May 13, 2013, Defendants filed a motion to dismiss
or, in the alternative, to compel arbitration pursuant to the arbitration clause in
the Investment Agreement. After Defendants’ motion was fully briefed by the
Parties, the superior court held a hearing on the motion. On July 15, 2013, the
superior court denied Defendants’ motion and ordered the Parties to mediate
their dispute. Defendants requested a certificate of immediate review, which
the court did not grant. Defendants subsequently retained new counsel. On
September 4, 2013, the Parties attended mediation, but that same day,
Defendants removed the suit to this Court.
Discussion
I.
Plaintiffs’ Motion to Remand for Procedurally Defective Removal
and Lack of Subject Matter Jurisdiction
A.
Procedural Defects in Defendants’ Removal
Plaintiffs argue that Defendants’ removal was defective for two reasons:
(1) it was untimely under 28 U.S.C. § 1446(b)(1), and (2) Defendants failed to
include the full record with their filing as required by 28 U.S.C. § 1446(a).
Defendants counter that removal was proper under the Convention on the
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Recognition and Enforcement of Foreign Arbitral Awards (“Convention”), 9
U.S.C. §§ 201, et seq. Section 205 of the Convention provides:
Where the subject matter of an action or proceeding 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 . . . . 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.
9 U.S.C. § 205. According to Defendants, the Convention renders § 1446(b)’s
30-day removal deadline inapplicable, and they had a right to remove the matter
at any time before trial. Further, they argue, their inadvertent omission of the
superior court’s summons of Defendant Srinivasan, which they later included in
a supplement to their removal notice, is not grounds for remand. The Court
agrees with Defendants.
Plaintiffs cite Velchez v. Carnival Corp., 331 F.3d 1207 (11th Cir. 2003),
in support of their argument that removal was untimely. However, in Velchez,
the Circuit Court explicitly avoided stating an opinion “as to the correctness of
the district court’s conclusion that 9 U.S.C. § 205 retains the thirty-day time
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limit from § 1446(b).” 331 F.3d at 1209, n.3. Defendants, on the other hand,
cite multiple district court cases from this circuit holding that the 30-day limit
does not apply to cases removed under the Convention. (See Def.s’ Resp., [10]
at 6 of 31.)
The Court agrees with the conclusion and analysis of the district courts
cited by Defendants. See, e.g., Sheinberg v. Princess Cruise Lines, Ltd., 269 F.
Supp. 2d 1349, 1352 (S.D. Fla. 2003) (“[T]his Court concludes that given the
plain language of 9 U.S.C. § 205 regarding removal at any time before trial, the
thirty day limit does not apply to removal under the Convention.”); Azevedo v.
Carnival Corp., No. 08-20518-CV, 2008 WL 2261195, at *4 (S.D. Fla. May 30,
2008) (noting courts in this district have “repeatedly rejected” the argument that
removal under the Convention must occur within 30 days and concluding:
“since § 205 of the Convention Act allows for removal of the case at any time
before trial, and because the case was removed prior to trial, the notice of
removal was timely”) (emphasis in original).
If the Convention incorporates § 1446(b)’s 30-day time limit, the express
language allowing for removal at any time before trial is meaningless. Such a
construction is contrary to settled principles of contract interpretation. Thus,
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the Court finds, based on the clear language of the Convention, Defendants’
removal was timely under 9 U.S.C. § 205.
Plaintiffs’ second argument for defective notice is also unpersuasive.
Defendants admit they failed to include the superior court’s summons of
Defendant Srinivasan in their initial removal filing. However, they note, the
original filing did contain a signed Acknowledgment of Service by Defendant
Srinivasan. Further, they cured their mistake by filing a Supplement of
Appendix to Defendants’ Notice of and Petition for Removal [8].
The Eleventh Circuit has found that failure to include all lower-court
papers with a removal filing is not an incurable defect mandating remand.
FDIC v. N. Savannah Prop.s, LLC, 686 F.3d 1254, 1257 n. 1 (11th Cir. 2012).
According to the Circuit Court, such an omission is “merely modal and formal
and [is] completely without effect upon . . . removal, if the case is in its nature
removable . . . .” Id. (quotations and citation omitted). Any papers and
proceedings lacking from the original removal record “may be later supplied.”
Id. (quotations and citation omitted). Thus, the Court will not exercise its
discretion to remand based on this single omission from Defendants’ original
removal filing.
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B.
Lack of Subject Matter Jurisdiction
Next, Plaintiffs argue that remand is required because the Investment
Agreement “does not provide a basis for federal jurisdiction under the
Convention or otherwise.” (Pl.s’ Br., [5-1] at 13 of 28.) Plaintiffs argue: “the
agreement does not satisfy the Convention’s mandatory prerequisite of a written
agreement between the parties requiring arbitration of plaintiffs’ claims against
defendants.”2 (Pl.s’ Br., [5-1] at 13-14 of 28 (emphasis in original).)
According to Plaintiffs, the Convention does not apply to this matter because
the Investment Agreement containing the arbitration clause was executed by
Plaintiffs and Reliant, not Defendants, and Plaintiffs’ tort claims against
Defendants are not dependent upon the Investment Agreement. (Pl.s’ Br., [5-1]
at 14-23 of 28.)
Defendants respond that they, as agents of Reliant, may enforce the
arbitration clause on Reliant’s behalf or, alternatively, they may enforce the
2
Section 202 of the Convention provides: “An arbitration agreement or arbitral
award arising out of a legal relationship, whether contractual or not, which is
considered as commercial . . . falls under the Convention.” 9 U.S.C. § 202. Under
Section 203, “An action or proceeding falling under the Convention shall be deemed
to arise under the laws and treaties of the United States. The district courts of the
United States . . . shall have original jurisdiction over such an action or proceeding,
regardless of the amount in controversy.” 9 U.S.C. § 203.
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clause under the principle of equitable estoppel. Further, they assert, the
arbitration clause is broad enough to encompass Plaintiffs’ tort claims. Again,
the Court agrees with Defendants.
It is undisputed that Defendants are not signatories to the Investment
Agreement. Thus, an exception must be found to the general rule that waiver of
the right to trial requires an express agreement between the parties. Southern
Mills v. Nunes, No. 1:10-CV-3340-RWS, 2011 WL 2358652, at *3 (N.D. Ga.
June 9, 2011). There are three limited exceptions recognized by the Eleventh
Circuit, but only two are relevant to this inquiry.3 First, “under agency or
related principles, the relationship between the signatory and nonsignatory
defendants is sufficiently close that only by permitting the nonsignatory to
invoke arbitration may evisceration of the underlying arbitration agreement
between the signatories be avoided.” Id. (quotations and citation omitted).
Second, “equitable estoppel . . . allow[s] nonsignatories to a contract to compel
arbitration.” Id. (quoting MS Dealer Serv. Corp. V. Franklin, 177 F.3d 942,
3
The third exception relates to third-party beneficiaries to contracts containing
arbitration clauses. There does not appear to be any dispute that Defendants were not
third-party beneficiaries under the Investment Agreement.
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947 (11th Cir. 1999), abrogated on other grounds by, Arthur Andersen LLP v.
Carlisle, 556 U.S. 624 (2009)).4
Under Georgia law, the doctrine of equitable estoppel allows a
nonsignatory to compel arbitration under two circumstances. First, the doctrine
applies “when the signatory to a written agreement containing an arbitration
clause must rely on the terms of the written agreement in asserting its claims
against the nonsignatory.” Order Homes, LLC v. Iverson, 685 S.E.2d 304 (Ga.
Ct. App. 2009); accord MS Dealer, 177 F.3d at 947. Second, “application of
equitable estoppel is warranted when the signatory to the contract containing
the arbitration clause raises allegations of substantially interdependent and
concerted misconduct by both the nonsignatory and one or more of the
signatories to the contract.” Id.; accord MS Dealer, 177 F.3d at 947.
Defendants rest their argument on the second circumstance.
4
In Arthur Andersen, the Supreme Court held that federal courts should apply
state law, not federal law, to determine whether a contract may be enforced by or
against non-parties. 556 U.S. at 630-31. As Defendants note, the distinction makes
no difference here because Georgia law on equitable estoppel is the same as the
federal law applied in MS Dealer. See Order Homes, LLC v. Iverson, 685 S.E.2d 304,
310 (Ga. Ct. App. 2009) (“Arbitration is a matter of contract; therefore, a party cannot
be forced to submit to arbitration if he has not agreed to do so. However, . . .
nonsignatories to an agreement may have a right to compel arbitration under the
doctrine of equitable estoppel . . . .”).
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The Court agrees that Plaintiffs have raised allegations of substantially
interdependent and concerted misconduct by Reliant and Defendants. The
Complaint alleges that at all material times, Defendants were acting as agents
and principals of Reliant “with authority to act for and legally bind Reliant.”
(Compl., [1-1] ¶ 15.) Under traditional agency principles, as Defendants note,
alleged misconduct by Reliant’s agents may be imputed to Reliant.
Additionally, the Complaint contains allegations that Defendants and
Reliant both acted to defraud investors. For example, Plaintiffs allege: (1)
“Reliant and/or its principals used funds invested by Plaintiffs and other Reliant
investors for purposes other than those represented to Plaintiffs and other
investors during Defendants’ solicitation of investments;” and (2) “Contained
within and as part of the proposed settlement documents, Defendants and
Reliant made numerous representations to Plaintiffs (and presumably other
Reliant investors) that were false, incomplete and/or misleading . . . .”; and (3)
Defendants and Reliant offered to “settle” Plaintiffs’ investments in exchange
for Plaintiffs’ release of all claims against Reliant and Defendants, which
prompted Plaintiffs to investigate Reliant’s business. (Compl., [1-1] ¶¶ 28, 45,
49.) Furthermore, as Defendants point out, all allegations regarding
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Defendants’ misconduct and losses suffered by Plaintiffs relate directly to
Plaintiffs’ investments in Reliant – an investment relationship that was
memorialized in the Investment Agreement with Reliant. Therefore, the Court
finds that Defendants are permitted, under the doctrine of equitable estoppel, to
enforce the arbitration clause.5
The remaining issue is whether the arbitration clause encompasses
Plaintiffs’ tort claims. The clause reads: “All disputes arising out of this
agreement or in connection there with shall be settled by arbitration. The place
of arbitration shall be Hyberabad, India.” (Investment Agreement, [1-15] at 10
of 12 (emphasis added).) Thus, the crux of the inquiry is whether Plaintiffs’
tort claims “arise out of” or are “connected with” the Investment Agreement.
The Eleventh Circuit has shed some light on the meaning of these
operative terms in the context of arbitration clauses. According to the Circuit
5
Having found that the doctrine of equitable estoppel applies, the Court need
not decide whether Defendants have authority to enforce the arbitration clause under
an agency theory. However, the Court is inclined to agree with Plaintiffs that
Defendants have not established a sufficiently close relationship between them and
Reliant such that the arbitration clause would be eviscerated if Defendants were not
permitted to enforce it. Compare Southern Mills, 2011 WL 2358652, at *3-4 (finding,
under agency theory, that a nonsignatory was permitted to enforce an arbitration
clause on behalf of the signatory where the nonsignatory was “the company’s sole
owner, member, and manager”).
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Court, “[t]he term ‘arising out of’ is broad, but it is not all encompassing. In
construing that same term to determine whether a dispute arises out of a
contract, we have explained that the focus is on ‘whether the tort or breach in
question was an immediate, foreseeable result of the performance of contractual
duties.’” Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204, 1218 (11th Cir.
2011) (quoting Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d
1109, 1116 (11th Cir. 2001)). Further, the court stated, “‘[a]rising out of’
requires the existence of some direct relationship between the dispute and the
performance of duties specified by the contract.” Id. Similarly, “‘[c]onnected
with’ denotes the necessity of some direct connection; if it did not, the term
would be meaningless.” Id. at 1219.
The signatories’ contractual duties are laid out in the Investment
Agreement. Under the Agreement, Reliant agreed to, among other things:
minimize and mitigate investors’ losses to the extent possible; act fairly,
transparently, and without negligence; appoint qualified staff and auditors;
obtain necessary approvals, consents and licenses from competent authorities
for the development projects; retain qualified and experienced outside
counselors and consultants; and take steps to comply with rules, regulations,
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and statutes generally and relating to specific development projects.
(Investment Agreement, [1-15] at 8-9 of 12.) Plaintiffs’ allegations, although
characterized as misrepresentations by Defendants, appear to be directly related
to the fulfilment of these contractual obligations: “Reliant did not deploy
satisfactory due diligence processes” or risk management processes; “Reliant
did not retain or partner with appropriate Indian business partners;” Reliant did
not utilize transparent and modern business practices to ensure security of
Plaintiffs’ investments; Reliant failed to perform adequate legal reviews and
due diligence and therefore the development properties had title defects and/or
other legal issues. (See Compl., [1-1] ¶ 28.)
Based on these allegations in the Complaint and the reasons set forth
above regarding application of the equitable estoppel doctrine, the Court finds
that Plaintiffs’ tort claims arise out of and are connected with the Investment
Agreement. Thus, the Convention applies to the Agreement and the Court has
subject matter jurisdiction pursuant to 9 U.S.C. § 203. Accordingly, Plaintiffs’
Motion to Remand is DENIED.
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II.
Defendants’ Motion to Compel Arbitration
Defendants argue, and Plaintiffs do not dispute,6 that the Court may
dissolve the superior court’s order denying Defendants’ motion to compel
arbitration. Indeed, under 28 U.S.C. § 1450, “[a]ll injunctions, orders, and
other proceedings had in [an] action prior to its removal shall remain in full
force and effect until dissolved or modified by the district court.” Defendants
argue that the superior court’s decision was erroneous and should be
reconsidered. The Court agrees that reconsideration is warranted.
There is a strong federal policy in favor of arbitration. “The Arbitration
Act establishes that, as a matter of federal law, any doubts concerning the scope
of arbitrable issues should be resolved in favor of arbitration . . . .” Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)
(quotations and citation omitted). Further, “[t]he goal of the Convention, and
the principal purpose underlying American adoption and implementation of it,
was to encourage the recognition and enforcement of commercial arbitration
agreements in international contracts and to unify the standards by which
6
In response to Defendants’ motion to compel arbitration, Plaintiffs
incorporate the arguments and authority cited in their motion to remand. ([5], [6].)
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agreements to arbitrate are observed and arbitral awards are enforced in the
signatory countries.” Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15
(1974).
A district court must order arbitration under the Convention, “unless: (1)
the four jurisdictional prerequisites are not met, or (2) one of the Convention’s
affirmative defenses applies.” Bautista v. Star Cruises, 396 F.3d 1289, 1294-95
(11th Cir. 2005). The former requirement is at issue here. The four
jurisdictional prerequisites are: (1) an agreement in writing within the meaning
of the Convention, (2) which provides for arbitration in a signatory territory, (3)
arises out of a legal commercial relationship and (4) has at least one signatory
who is not an American citizen. Id. at 1295 n. 7. There is no dispute that India
is a signatory country, that the Investment Agreement and arbitration clause
arose out of a commercial relationship, and that Reliant is not an American
citizen.
Thus, the remaining issue is whether there is an agreement that falls
under the Convention. The Parties’ arguments on this question mirror those put
forth regarding the Court’s subject matter jurisdiction. (See Part I.B., supra.)
Based on the reasons stated above, the Court finds there is an agreement within
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the meaning of the Convention. Defendants are permitted to enforce the
arbitration clause under the doctrine of equitable estoppel and the clause
encompasses Plaintiffs’ tort claims. Consequently, the Convention’s
jurisdictional prerequisites are satisfied. The superior court’s order denying
Defendants’ motion to compel arbitration is DISSOLVED and the motion is
now GRANTED.
Conclusion
Based on the foregoing, Defendants’ Motion to Compel Arbitration [4] is
GRANTED and Plaintiffs’ Motion to Remand [5] is DENIED. These
proceedings are STAYED until the arbitrator resolves the underlying
arbitration.
SO ORDERED, this 20th day of May, 2014.
_______________________________
RICHARD W. STORY
UNITED STATES DISTRICT JUDGE
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