Fleischli v. North Pole US, LLC et al
Filing
40
MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that plaintiff Fleischli's motion to remand [# 17 ] is denied. IT IS FURTHER ORDERED that: Warburg's motion to dismiss for lack of personal jurisdiction or, alternatively, for forum non conveni ens [# 27 ] is denied. Warburg's motion to compel arbitration and stay proceedings [# 29 ] is granted. North Pole Limited's and North Pole US, LLC's joint motion to dismiss [# 31 ] is denied. Its alternative motion to compel arbitrat ion [# 31 ] is granted. IT IS FINALLY ORDERED that the parties shall file a joint status report on the arbitration no later than August 8, 2013, and shall file additional status reports every 90 days thereafter, unless otherwise ordered. (Status Report due by 8/8/2013.) Signed by District Judge Catherine D. Perry on May 10, 2013. (BRP)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
STEVEN D. FLEISCHLI,
Plaintiff,
vs.
NORTH POLE US, LLC, a Missouri
limited liability company, NORTH
POLE LIMITED, a Hong Kong
corporation, WARBURG PINCUS,
LLC, a New York limited liability
company,
Defendants.
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Case No. 4:12CV1618 CDP
MEMORANDUM AND ORDER
Steven Fleischli is the former CEO of outdoor equipment manufacturer North
Pole Limited. He brings this suit for breach of contract and six related claims against
his former employer and two other entities. Fleischli filed suit in Missouri state court
on June 5, 2012. North Pole Limited removed to this court three months later, with
the consent of its co-defendants, North Pole US, LLC, and Warburg Pincus, LLC.
Now pending before me are Fleischli’s motion to remand and the defendants’
motions to dismiss or, alternatively, to compel arbitration. Because I agree with the
defendants that I have subject matter jurisdiction over this case under the Convention
for the Recognition and Enforcement of Foreign Arbitral Awards, implemented by 9
U.S.C. §§ 201 et seq., I will deny Fleischli’s motion to remand. However, I agree
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with Fleischli that this court has personal jurisdiction over each of the defendants, so
I will deny the defendants’ motions to dismiss for lack thereof. Finally, for the
reasons set forth below, I will compel arbitration and stay the proceedings.
I.
Citizenship of the Parties
Plaintiff Fleischli is a resident of Missouri. Defendant North Pole Limited is a
Hong Kong corporation with its principal place of business in Kowloon, Hong Kong.
Defendant North Pole US, LLC is a Delaware limited liability company with its
principal place of business in Missouri. Defendant Warburg Pincus is a New York
limited liability company with its principal place of business in New York. Fleischli
alleges that Warburg controls both North Pole entities through its ownership of a
majority of shares, voting stock, corporate officers’ positions, and directors’ seats.
II.
Background
At the time the events in this case took place, North Pole Limited was a
corporation that manufactured tents and other outdoor equipment. On March 1, 2010,
Fleischli entered into an employment agreement with North Pole Limited and thereby
became the company’s CEO. Fleischli also alleges that, at some point, he became a
minority shareholder in North Pole Limited.
The employment agreement stated:
[Fleischli’s] primary base of operations and office will be located at
[North Pole Limited’s] Washington, Missouri office.
(Agreement, ¶ 7.)
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In addition to describing the parties’ duties, the agreement gave Fleischli
certain rights if he was terminated without cause. Namely, it entitled him to 90 days’
notice of the termination, as well as nine months’ severance pay and various benefits.
(Id. ¶ 12.)
The employment agreement also contained a mandatory arbitration clause that
provided, in relevant part:
Any and all disputes arising out of or relating to the interpretation or
application of this Agreement or concerning [Fleischli]’s employment
with [North Pole Limited] or termination thereof, except as set out in
Section 26(e),1 shall be subject to arbitration in accordance with the then
existing rules of the American Arbitration Association (―AAA‖). Such
arbitration may be initiated by either [Fleischli] or [North Pole Limited]
by a written notice to the other party demanding arbitration and
specifying the controversy, dispute, or claim to be arbitrated. . . .
(a) Within ten (10) business days after a demand has been made to
arbitrate . . . , [North Pole Limited] and [Fleischli] shall select an
arbitrator from the panel list provided by AAA. . . .
(b) Any arbitration hereunder shall be held in Hong Kong or
another location mutually agreed to by the parties. . . . The Arbitrator
shall apply the laws of Hong Kong, without regard to the conflicts of law
principles of Hong Kong.
(c) The Arbitrator’s decision shall be binding and conclusive on
the parties. The submission of a dispute to the Arbitrator and the
rendering of a decision by the Arbitrator shall be a condition precedent
to any right of legal action on the dispute. Judgment upon an arbitrator
award may be entered in any court having competent jurisdiction
thereof, and shall be binding, final, and non-appealable.
(Id. ¶ 26.)
1
Section 26(e) does not apply to any of the claims at issue in this action.
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The agreement further provides that a demand to arbitrate made by
Fleischli ―shall be deemed to have been duly given if . . . mailed within the
continental United States by first class, registered mail . . . and addressed‖ to
Chang Q. Sun on behalf of North Pole Limited. (Id. ¶ 20.) Sun is the
individual who signed the employment agreement as representative of North
Pole Limited in his capacity as ―Chairman.‖ (Id., p. 11.)
For two years, Fleischli traveled to and worked in China, Bangladesh, and
Canada as North Pole Limited’s CEO. He alleges that sometime during that period,
the defendants designated him to the Chinese government as the party responsible for
North Pole Limited’s financial obligations.2 He contends that this was done without
his knowledge or consent.
Fleischli alleges that, on May 12, 2012, while he was in China, Warburg
falsely accused Fleischli of gross misconduct and terminated his employment with
North Pole Limited. Nonetheless, according to Fleischli, neither Warburg nor the
other defendants have informed the Chinese government that Fleischli is no longer
financially responsible for North Pole Limited, and the defendants have not replaced
him with a new designee.
2
According to the defendants, Fleischli was in fact the legal representative in China for a North
Pole Limited operating subsidiary called North Pole (China) Limited, rather than the Hong Kong
corporation, and defendant, North Pole Limited. At this stage, I will treat Fleischli’s version of the
facts as true. Additionally, this question is not material to any determination made herein.
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In the meantime, the defendants allegedly defaulted on various financial
obligations in China. Fleischli alleges that as a result, the Chinese government
currently is holding his passport because he is still designated as the party responsible
for North Pole Limited’s financial affairs. The Chinese government has issued a
Departure Prohibition Order against Fleischli and will not permit him to leave the
country.
On May 29, 2012, counsel for Fleischli sent, by registered mail and e-mail, an
arbitration demand to Chang Sun. Sun apparently works for Warburg and, at the time
of the demand, also served as chairman of the board for North Pole Limited. The
demand stated that it was ―made to arbitrate the termination of Mr. Fleischli’s
employment for cause.‖ (Pl.’s Ex. 1 to Resp. to Mot. to Dismiss, p. 3.)
The following day, May 30, 2012, counsel for Warburg responded to the
demand, stating that Warburg was not party to the employment agreement and that he
had forwarded the demand to North Pole Limited’s counsel.
Less than a week later, Fleischli filed the instant action in state court, before
hearing further response from any of the defendants. He served the defendants on
June 26, 2012. He claims that North Pole Limited did not timely respond to his
arbitration demand so that an arbitrator could be selected within the ten-day period
called for by the agreement. He also claims that North Pole Limited has still not
responded to his demand to arbitrate.
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III.
Claims
Fleischli has brought seven claims arising out of the events described above, all
under Missouri common law. Four of the counts seek damages against all three
defendants: breach of contract, outrageous conduct, intentional infliction of emotional
distress, and civil conspiracy (Counts 1, 5, 6, and 7). Underlying these claims are
Fleischli’s allegations that the defendants falsely accused him of misconduct so as to
avoid paying his severance pay and benefits; breached the employment agreement by
not actually providing severance pay and benefits; and have since failed to inform the
Chinese government that he no longer represents North Pole Limited.
In Count 2, brought solely against Warburg, Fleischli alleges that Warburg’s
―complete dominion and control‖ over the North Pole entities makes Warburg liable
for the North Pole entities’ liabilities and warrants piercing the corporate veil.
In Count 3, Fleischli alleges Warburg has breached its duty to him as a
minority shareholder of North Pole Limited.
In Count 4, tortious interference with contract, Fleischli alleges that Warburg
and North Pole US, LLC, intentionally interfered with his contractual relationship
with North Pole Limited and caused it to terminate his employment agreement
without just cause or excuse.
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IV.
Discussion
As Fleischli’s motion to remand implicates a question of subject matter
jurisdiction, I will address it first. See Larsen v. Pioneer Hi-Bred Int’l, Inc.,
4:06CV77, 2007 WL 3341698, at *1 (S.D. Iowa Nov. 9, 2007). I will then turn to the
defendants’ motions to dismiss for lack of personal jurisdiction. Finally, I will
discuss the motions to compel arbitration. Because I conclude that the issue of
arbitration is dispositive, I will deny as moot defendants’ motions for dismissal for
forum non conveniens and – for certain claims – under Rule 12(b)(6).
A. Motion to Remand
Federal courts are courts of limited jurisdiction. Myers v. Richland Cnty., 429
F.3d 740, 745 (8th Cir. 2005). As such, federal courts are authorized to hear cases
only as provided by the Constitution and by statute. A defendant may remove an
action from state court to federal district court if the action is within the federal
court's original jurisdiction. 28 U.S.C. § 1441(a). The removing party has the burden
of establishing federal subject matter jurisdiction. See Bell v. Hershey Co., 557 F.3d
953, 956 (8th Cir. 2009). Any doubt about the existence of federal jurisdiction must
be resolved in favor of remand. In re Bus. Men’s Assur. Co. of Am., 992 F.2d 181,
183 (8th Cir. 1993).
In 1970, Congress ratified the Convention on the Recognition and Enforcement
of Foreign Arbitral Awards (Convention) to ensure that United States citizens would
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have predictable enforcement of their arbitration agreements and awards in the courts
of the United States and other signatory nations. Convention, June 10, 1958, 21
U.S.T. 2517, 330 U.N.T.S. 38. Congress has implemented the Convention by federal
statute, incorporating it into the Federal Arbitration Act. See 9 U.S.C. §§ 201 et seq.
(―Convention Act‖). Among other things, the Convention Act bestows upon the
federal courts subject matter jurisdiction over actions ―falling under the Convention.‖
9 U.S.C. § 203.
An action falls under the Convention if it ―relates to‖ a commercial arbitration
agreement ―not entirely domestic in scope.‖ See id. §§ 202, 205; Ministry of Def. of
Islamic Republic of Iran v. Gould Inc., 887 F.2d 1357, 1362 (9th Cir. 1989). The
Convention Act permits such actions to be removed to the federal courts ―at any time
before the trial.‖ 9 U.S.C. § 205.
This removal right is ―substantially broader than that in the general removal
statute.‖ Reid v. Doe Run Res. Corp., 701 F.3d 840, 843 (8th Cir. 2012). Under the
law of this circuit, a case may be removed under Section 205 if the arbitration at issue
―could conceivably affect the outcome of the case.‖ Id. at 844.
Here, with the consent of its co-defendants, North Pole Limited removed this
action from Missouri state court on September 10, 2012. The defendants argue that
this action ―relates to‖ the arbitration provision in Fleischli’s employment agreement.
That employment agreement, defendants contend, is commercial and signed by a
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foreign corporation. Therefore, this action falls under the Convention, and the
defendants had the right to remove until trial.
To this point, Fleischli essentially agrees. However, he argues that the
defendants have waived their right to enforce the arbitration provision. See Lewallen
v. Green Tree Servicing, 487 F.3d 1085, 1090 (8th Cir. 2007) (recognizing waiver).
Fleischli contends that a waived arbitration is no arbitration at all, so there is no
arbitration that could fall under the Convention – and therefore nothing to convey
subject matter jurisdiction upon this court.
The defendants contend that they have not waived their right to arbitrate. But
they also take issue with Fleischli’s premise that their right to remove depends on
their right to arbitrate. They argue that – even if they had explicitly waived the right
to arbitrate – they would retain their right to remove this action under 9 U.S.C. § 205
unless they waived that right separately and explicitly. See Ario v. Underwriting
Members, 618 F.3d 277, 289 (3d Cir. 2010) (waiver of the right to remove under
Section 205 must be in ―clear and unambiguous language‖).
I need not decide whether Section 205 would permit a party to remove a case
whose only connection to the Convention is a waived arbitration. In this case, the
defendants have not waived their right to arbitrate for the reasons I state infra.
Therefore, there remains an active arbitration agreement at issue.
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Whether this case ―relates to‖ that arbitration is a straightforward inquiry.
Arbitration will necessarily involve interpreting the terms of the employment
agreement – the same terms at the heart of Fleischli’s breach of contract and other
claims. For example, one of the many questions that the arbitration could answer is
whether Fleischli was fired ―without cause.‖ This question falls squarely within the
purview of the arbitrator, see PRM Energy Sys., Inc. v. Primenergy, LLC, 592 F.3d
830, 836–37 (8th Cir. 2010), and could dispose of Fleischli’s claim to severance pay
and benefits, one way or the other. Even if this were the only overlapping issue, this
question alone would be quite enough for this action to surpass the low ―relates to‖
threshold required to fall under the Convention.
In sum, because there exists a commercial arbitration agreement that could
conceivably affect the outcome of this case, the defendants have met their burden of
showing that federal subject matter jurisdiction exists. See Bell, 557 F.3d at 956.
They therefore had the right to remove this case. Reid, 701 F.3d at 844.
Accordingly, I will deny Fleischli’s motion to remand.
B. Personal Jurisdiction
Two conditions must be satisfied before a federal court may exercise personal
jurisdiction over a nonresident defendant. Johnson v. Arden, 614 F.3d 785, 794 (8th
Cir. 2010). First, the forum state's long-arm statute must be satisfied. Viasystems,
Inc. v. EBM–Papst St. Georgen GmbH & Co., KG, 646 F.3d 589, 593 (8th Cir. 2011).
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Second, the court must determine whether the defendant has sufficient contacts with
the forum state to comport with due process. Johnson, 614 F.3d at 794. The Eighth
Circuit has suggested the long-arm statute and due process inquiries should be
analyzed separately. Viasystems, 646 F.3d at 593 n.2 (citing Bryant v. Smith Interior.
Design Grp., 310 S.W.3d 227, 231 (Mo. banc 2010)).
The reach of Missouri's long-arm statute is a question of Missouri law. See
Scullin Steel Co. v. Nat. Ry. Utilization Corp., 676 F.2d 309, 311 (8th Cir. 1982).
Accordingly, I must apply the interpretation given the statute by Missouri’s highest
court. See id. Among other things, Missouri's long-arm statute provides for personal
jurisdiction over any person or firm who – either in person or through an agent –
transacts business, makes a contract, or commits a tort within Missouri. Mo. Rev.
Stat. § 506.500.1(1)-(3). The Supreme Court of Missouri has interpreted this statute
broadly, reading it to confer jurisdiction to the ―full extent‖ allowed by the Due
Process Clause. State ex rel. Metal Serv. Cntr. of Ga., Inc. v. Gaertner, 677 S.W.2d
325, 327 (Mo. banc 1984).
The second condition – that the defendant have ―minimum contacts‖ with the
forum state – is based on the general notion that ―those who live or operate primarily
outside a State have a due process right not to be subjected to judgment in its courts.‖
J. McIntyre Mach. Ltd. v. Nicastro, 131 S. Ct. 2780, 2787 (2011). A nonresident
defendant must therefore have enough contacts with the forum state for it to
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―reasonably anticipate being haled into court there.‖ World–Wide Volkswagen v.
Woodson, 444 U.S. 286, 297 (1980).
Though sufficient minimum contacts can take many forms, they must include
―some act by which the defendant purposely avails itself of the privilege of
conducting activities within the forum State, thus invoking the benefits and
protections of its laws.‖ Nicastro, 131 S. Ct. at 2787 (internal quotation marks
omitted). These contacts must be such that maintenance of the lawsuit ―does not
offend traditional notions of fair play and substantial justice.‖ World–Wide
Volkswagen, 444 U.S. at 292 (1980) (quoting Int'l Shoe Co. v. Washington, 326 U.S.
310, 316 (1945)).
Based on the due process standard espoused by World–Wide Volkswagen and
International Shoe and their progeny, the Eighth Circuit has established a five-factor
test to determine the sufficiency of a nonresident defendant's contacts with the forum
state. The five factors are: (1) the nature and quality of contacts with the forum state;
(2) the quantity of the contacts; (3) the relation of the cause of action to the contacts;
(4) the interest of the forum state in providing a forum for its residents; and (5)
convenience of the parties. Romak USA, Inc. v. Rich, 384 F.3d 979, 984 (8th Cir.
2004). The first three factors are most important. Id.
Two of the defendants, North Pole Limited and Warburg, have moved to
dismiss the claims against them for lack of personal jurisdiction. See Rule 12(b)(2),
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Fed. R. Civ. P. Both nonresidents of Missouri, they argue that neither Missouri’s
long-arm statute nor due process is satisfied by their being subject to personal
jurisdiction in this court.
Personal Jursdiction Over North Pole Limited
North Pole Limited’s motion can be summarily disposed of. North Pole
Limited entered into an employment agreement with Fleischli, a Missouri resident,
and that agreement specifies that Fleischli’s ―primary base of operations and office
will be located at [North Pole Limited’s] Washington, Missouri office.‖ (Agreement,
¶ 7; see also id., ¶ 3 (agreement ―shall continue in full force and effect‖ for two years
unless sooner terminated)).
By virtue of maintaining a Washington, Missouri office, North Pole Limited
transacted business in Missouri. See, e.g., Watlow Elec. Mfg. Co. v. Sam Dick Indus.,
Inc., 734 S.W.2d 295, 298 (Mo. Ct. App. 1987) (defendant’s single visit to Missouri
to finalize a contract constituted the transaction of business). Therefore, Missouri’s
long-arm statute is satisfied.
In addition, not only did North Pole Limited maintain this office, but it also
acknowledged in the employment agreement that the Washington, Missouri office
was Fleischli’s ―primary base of operations.‖ As such, it constitutes a long-running
and continuous contact closely linked to Fleischli’s termination-related causes of
actions, and North Pole Limited should have anticipated being haled into court in this
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state. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 (1985) (due process allows
parties who ―reach out beyond one state and create continuing relationships and
obligations with citizens of another state‖ to be subject to personal jurisdiction in that
other state); see also Precision Const. Co. v. J.A. Slattery Co., Inc., 765 F.2d 114, 118
(8th Cir. 1985) (where defendant had two employees stationed in Missouri, it was
subject to personal jurisdiction there).
Despite the unambiguous language in the employment agreement, North Pole
Limited contends that it does not have any offices in Missouri. North Pole Limited
argues that the language constitutes merely a ―casual but incorrect reference.‖ To
support this contention, it has filed two affidavits. In the first, Darach Haughey, a
liquidator for North Pole Limited since July 2012, attests that – to his knowledge –
North Pole Limited has never had any offices in Missouri. In the second, John
Kalinowski states that he served as interim CEO of North Pole US, LLC for several
months in 2012. He avers that the Washington, Missouri office at issue was actually
an office for defendant North Pole US, LLC, a subsidiary of North Pole Limited (and
not North Pole Limited itself). In support of this attestation, the defendants also offer
a lease on the property, showing that North Pole US, LLC was the lessee.
To the extent that these documents support North Pole Limited’s position,3 I
find them less persuasive that the employment agreement itself. The language from
3
It is not clear that affidavits from two individuals affiliated with North Pole Limited only since
after the employment agreement was terminated are particularly useful here. In addition, there is no
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the agreement alone – showing not only that North Pole Limited maintained an office
in Missouri but also that it stationed its CEO there – meets Fleischli’s burden to make
a prima facie showing of personal jurisdiction. See Miller v. Nippon Carbon Co.,
Ltd., 528 F.3d 1087, 1090 (8th Cir. 2008) (plaintiff’s prima facie showing is tested
―by the affidavits and exhibits presented with the motions and opposition thereto‖);
Digi-Tel Holdings, Inc. v. Proteq Telecomms. (PTE), Ltd., 89 F.3d 519, 522 (8th Cir.
1996) (court must ―resolve all factual conflicts in the plaintiff’s favor‖ at this stage).
Thus, this court’s personal jurisdiction over defendant North Pole Limited comports
with both Missouri’s long-arm statute and the requirements of due process.
North Pole Limited Was Served with Process
If a defendant is not properly served, a federal court lacks jurisdiction over that
defendant. Adams v. AlliedSignal Gen. Aviation Avionics, 74 F.3d. 882, 885 (8th Cir.
1996). As process was allegedly served before this case was removed to federal
court, Missouri law governs the sufficiency of service. Norsyn, Inc. v. Desai, 351
F.3d 825, 829 (8th Cir. 2003). Under Missouri law, a corporation may be served by
―leaving . . . copies [of the summons and petition] at any business office of the
defendant with the person having charge thereof.‖ Mo. Sup. Ct. R. 54.13(b)(3); see
also Mo. Rev. Stat. § 506.150(3); Fed. R. Civ. P. 4(e)(1).
reason that North Pole Limited could not maintain an office in a space leased by North Pole US,
LLC. See Fleischli Aff., ¶ 8.
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Fleischli contends – and the defendants do not contest – that he served the
summons and complaint upon the person in charge of the Washington, Missouri
office at issue here. North Pole Limited reasserts, however, that the Washington,
Missouri office belongs to its subsidiary North Pole US, LLC, and service upon
North Pole US, LLC cannot operate as service upon North Pole Limited.4 For the
reasons stated above, in addition to the process server’s valid return, I find that
Fleischli has demonstrated that he served sufficient process on North Pole Limited in
accordance with Missouri law. 5 See Mo. Sup. Ct. R. 54.22(a) (return of service is
prima facie evidence of the facts recited therein); Ward v. Cook United, Inc., 521
S.W.2d 461, 464 (Mo. Ct. App. 1975) (―It is not a prerequisite for valid service upon
a foreign corporation that it be licensed to do business in Missouri, but it is sufficient
if it is in fact doing business in this state and is subject to a type of service on
corporations as provided by Missouri statutes.‖).
Personal Jursdiction Over Warburg
Warburg also contends that this court’s assertion of personal jurisdiction over it
would fail to comport with Missouri’s long-arm statute and the requirements of due
process. As the Eighth Circuit has recommended, I will address each prerequisite
separately. Viasystems, 646 F.3d at 593 n.2.
4
Though defendants style their motion otherwise, it is actually a Rule 12(b)(5) motion. See 5B C.
WRIGHT & A. MILLER, FEDERAL PRACTICE & PROCEDURE. § 1353 (3d ed.).
5
Because this conclusion is dispositive, I do not address Fleischli’s argument that North Pole
Limited has waived its arguments about the sufficiency of service or North Pole Limited’s argument
that service upon its subsidiary would not effect service upon it.
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As stated above, Missouri's long-arm statute provides for personal jurisdiction
over any firm that transacts business, makes a contract, or commits a tort within the
state. Mo. Rev. Stat. § 506.500. To rely upon the commission-of-tort provision of
the Missouri long-arm statute, a plaintiff must make a prima facie showing that a tort
was committed. Capitol Indem. Corp. v. Citizens Nat. Bank of Fort Scott, N.A., 8
S.W.3d 893, 899 (Mo. Ct. App. 2000) (citing State ex rel. William Ranni Assoc., Inc.
v. Hartenbach, 742 S.W.2d 134, 139 (Mo. banc 1987)). In other words, the plaintiff
―must state sufficient facts in the complaint to support a reasonable inference‖ of that
tort. Institutional Food Marketing Assocs., Ltd. v. Golden State Strawberries, 747
F.2d 448, 453 (8th Cir. 1984).
Here, Fleischli has alleged that, inter alia, Warburg tortiously interfered with
the employment agreement he signed with North Pole Limited, causing it to breach
the agreement. Under Missouri law, tortious interference with contract consists of the
following elements: (1) a contract; (2) defendant's knowledge of that contract; (3)
intentional interference by the defendant inducing or causing a breach of the contract;
(4) the absence of justification for that interference; and (5) damages resulting from
the defendant's conduct. Id.
In Golden State Strawberries, the Eighth Circuit held that the two plaintiffs,
both Missouri fruit companies, had not made a prima facie showing that a California
strawberry packer tortiously interfered with their contract with each other. The
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plaintiffs’ only evidence of the ―absence of justification‖ element was that the
defendant had acted in economic self-interest when it interfered with the Missouri
companies’ contract. The Eighth Circuit held that this was not enough; the plaintiffs
would have had to plead facts allowing for an inference that the packer used
―improper means‖ to induce breach. Id. at 454.
Under Golden State Strawberries, it is clear that for this court to assert personal
jurisdiction over Warburg under the commission-of-tort provision of the Missouri
long-arm statute, Fleischli must allege enough facts for a reasonable inference of the
tort to be made. Fleischli has met that burden. Like the plaintiffs in Golden State
Strawberries, Fleischli has alleged that it was in Warburg’s economic interest to
induce North Pole Limited to breach its employment agreement with him so as to
avoid paying severance. But, he has also alleged facts showing Warburg controlled
North Pole Limited’s assets and undercapitalized both North Pole entities. The
factual allegations showing control and undercapitalization, when considered in
conjunction with the other allegations, are sufficient to permit a reasonable inference
that Warburg acted unjustifiably – that is, with ―improper means‖ – in inducing North
Pole Limited to breach the employment agreement.
Fleischli has also pled that the breach damaged him because, among other
things, he was not paid severance and benefits in accordance with his alleged rights
under the contract. Together with the allegations not controverted (for example, that
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Fleischli and North Pole Limited had a contract and Warburg knew of that contract),
this is sufficient to support a prima facie case of tortious interference with a contract.
See Adams v. USAA Cas. Ins. Co., 317 S.W.3d 66, 76 (Mo. Ct. App. 2010) (plaintiff
adequately pled ―improper means‖ by alleging third party acted ―in concert‖ with
party breaching contract).
Whether that tortious interference comports with the commission-of-tort
provision of the Missouri long-arm statute is a separate inquiry. The long-arm
statute, which is interpreted broadly, covers ―extraterritorial acts that yield
consequences in Missouri.‖ Furminator v. Wahba, No. 4:10CV1941 AGF, 2011 WL
3847390, at *2 (E.D. Mo. Aug. 29, 2011) (quoting Bryant, 310 S.W.3d at 232). Here,
Fleischli has alleged facts showing Warburg’s actions led to consequences within the
state, including his loss of severance. Therefore, the Missouri long-arm statute is
satisfied. See Metal Serv. Cntr., 677 S.W.2d at 327.
In addition to comporting with the state long-arm statute, however, personal
jurisdiction must satisfy due process. Viasystems, 646 F.3d at 594; Bryant, 310
S.W.3d at 232. In certain circumstances, due process permits a forum state to assert
personal jurisdiction over a nonresident based on an extraterritorial tort that caused
effects in the forum state. Calder v. Jones, 465 U.S. 783, 791 (1984); Johnson, 614
F.3d at 796 (this is known as the ―Calder effects test‖).
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The Calder effects test supplements, but does not replace, the five ―minimum
contacts‖ factors. Dakota Indus., Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384,
1391 (8th Cir. 1991). Therefore, to conform to due process, a state may only claim
personal jurisdiction based on an extraterritorial tort if the tortious act was (1)
―intentional‖; (2) ―uniquely or expressly aimed at the forum state‖; and which (3)
―caused harm, the brunt of which was suffered—and which the defendant knew was
likely to be suffered—in the forum state.‖ Viasystems, 646 F.3d at 594 (internal
quotation marks and brackets omitted).
Here, Fleischli alleges that Warburg intentionally interfered with his contract
with North Pole Limited. Fleischli has pled facts permitting a reasonable inference
that Warburg directly caused North Pole Limited to breach: for example, according to
Fleischli, Warburg controlled a majority of the seats on North Pole Limited’s board
of directors throughout Fleischli’s employment; it owned at least 63 percent of North
Pole Limited; and it divested North Pole Limited of substantial assets, limiting its
ability to fulfill its obligations.6 Though North Pole Limited was a Hong Kong
corporation, it maintained an office in Missouri at which it stationed its CEO. A
Warburg employee signed the employment agreement. When Warburg induced
North Pole Limited to breach its contract with Fleischli – an allegation I must take as
true at this stage – Warburg knew the brunt of the harm from its alleged tortious
6
Though Warburg submitted affidavits describing the relationship between Warburg and North Pole Limited, none
directly contradicts Fleischli’s allegations that Warburg controlled North Pole Limited and divested it of its assets.
– 20 –
interference was likely to occur in Missouri. Because Fleischli, a Missouri resident,
did not receive in this state the severance pay and benefits he was allegedly owed, the
brunt of the harm did in fact occur here.
Warburg argues that because Fleischli worked in China and remains there now,
any harm it caused could not be directed ―expressly or uniquely‖ at Missouri.
According to Fleischli, however, the only reason he remains in China is that the
Chinese government will not permit him to leave. He alleges that his inability to
return home is a byproduct of the tortious acts Warburg committed. Therefore,
accepting Warburg’s argument would force me to conclude that a nonresident
defendant could avoid being haled into court in Missouri by causing additional harms
elsewhere. This is not a tenable argument.
Warburg’s stake in North Pole Limited and its alleged responsibility for North
Pole Limited’s actions are important considerations in this jurisdictional
determination. I agree with Warburg’s implicit position that the alleged tortious
interference alone – even though its effects were directed at Missouri – might not be
sufficient to support personal jurisdiction. But Fleischli has also alleged that
Warburg controlled not only North Pole Limited, but also Missouri resident North
Pole US, LLC. Their operations were sufficiently entangled that the management of
the Washington, Missouri office apparently remains a disputed issue of fact. The
nature and quality of these contacts, as well as their direct relationship to this action,
– 21 –
demonstrate an intimate ―relationship among the defendant, the forum, and the
litigation.‖ Shaffer v. Heitner, 433 U.S. 186, 204 (1977).
In sum, Warburg’s alleged control of the North Pole entities, when considered
in conjunction with the effects of its alleged interference with the employment
agreement, are sufficient contacts with Missouri to meet the demands of the Due
Process Clause of the Fourteenth Amendment.
C. Motion to Compel Arbitration
Each party has moved, in the alternative, to arbitrate the claims underlying this
action.7 Because I conclude that there is a valid arbitration agreement covering the
entirety of this dispute, and that the defendants have not waived their right to
arbitrate, I will compel arbitration and stay this action.
Validity and Scope of the Arbitration Agreement
The Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., ―establishes a liberal federal
policy favoring arbitration agreements.‖ M.A. Mortensen Co. v. Saunders Concrete
Co., Inc., 676 F.3d 1153, 1156 (8th Cir. 2012). A court must grant a party’s motion
to compel arbitration if (1) a valid arbitration agreement exists, and (2) the dispute
between the parties ―falls within the scope of that agreement.‖ Newspaper Guild of
St. Louis, Local 36047 v. St. Louis Post Dispatch, LLC, 641 F.3d 263, 266 (8th Cir.
2011). Any doubts concerning the scope of arbitrable issues should be resolved in
7
Fleischli moves to arbitrate solely with North Pole Limited.
– 22 –
favor of arbitration. Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 24–25 (1983).
International commercial arbitration agreements that meet certain basic
requirements fall under the Convention on the Recognition and Enforcement of
Foreign Arbitral Awards, discussed in more detail above. The Supreme Court has
suggested that, under some circumstances, a Convention-covered arbitration clause
may be enforceable even where a domestic agreement would not be. See Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985) (because
of, among other things, the heightened need for predictability, federal policy in favor
of arbitration ―applies with special force in the field of international commerce‖); see
also Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 538–39
(1995); Scherk v. Alberto-Culver Co., 417 U.S. 506, 519–20 (1974). In recognition
of the special importance of enforcing Convention-covered agreements according to
their terms, several circuits have set a lower threshold for determining whether to
compel arbitration under such agreements.8 See, e.g., Smith/Enron Cogeneration Ltd.
P’ship, Inc. v. Smith Cogeneration Int’l, Inc., 198 F.3d 88, 92 (2d Cir. 1999) (court
need only ensure that the agreement actually falls under the Convention); accord
8
One of the requirements adopted by these circuits is that the arbitration agreement must ―provide
for arbitration in the territory of a signatory of the Convention.‖ See Smith/Enron, 198 F.3d at 92.
The agreement at issue in this case calls for arbitration in Hong Kong. (See Agreement, ¶ 26.)
China, which signed the Convention in 1987, extended the territorial application of the Convention
to Hong Kong in 1997, upon its resumption of sovereignty over Hong Kong. See U. N. COMM’N ON
INT’L TRADE LAW, Status of the 1958 Convention,
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html.
– 23 –
Ledee v. Ceramiche Ragno, 684 F.2d 184, 186–87 (1st Cir. 1982) (court’s inquiry is
―very limited‖); Sedco v. Petroleos Mexicanos Mexican Nat’l Oil (Pemex), 767 F.2d
1140, 1144 (5th Cir. 1985) (same). The Eighth Circuit has not explicitly adopted this
narrower inquiry, and I need not do so now because the arbitration agreement at issue
here meets the more stringent general test.
The parties all acknowledge the existence and validity of the arbitration
agreement.9 It is a broadly worded provision embracing any dispute ―relating to‖ the
employment agreement or ―concerning‖ either Fleischli’s employment or
termination. (See Agreement, ¶ 26.)
Fleischli argues, however, that it does not cover certain of his claims. For
example, he points out that (1) he has sued Warburg for breaching its fiduciary duty
to him as a minority shareholder, which he alleges is unrelated to his employment as
CEO of North Pole Limited; and (2) certain of his claims pertain ―at least in part‖ to
actions taken by the defendants after his employment with North Pole Limited had
ended. (Pl.’s Mem. in Opp., p. 6.)
These claims likely still fall within the reach of the arbitration agreement. For
instance, the contours of Warburg’s duty to Fleischli as shareholder may depend in
part on its relationship with Fleischli’s employer, North Pole Limited. This
9
Two of the defendants, Warburg and North Pole US, LLC, are nonsignatories to the arbitration
agreement. Nonetheless, they have moved to compel arbitration. They also join North Pole
Limited in arguing that the agreement covers their disputes with Fleischli and that they have not
collectively waived their right to arbitrate. Therefore, for the purpose of discussing the scope of the
agreement and its potential waiver, I will treat their arguments together.
– 24 –
possibility is particularly acute because Fleischli has alleged that Warburg is North
Pole Limited’s alter ego. In addition, the employment agreement language may
provide guidance about the defendants’ legal obligations to Fleischli after his
termination. Because I cannot state ―with positive assurance‖ that these claims do not
concern Fleischli’s employment or relate to the interpretation of the employment
agreement, I cannot deny the defendants’ motion to compel arbitration on this basis.
Lyster v. Ryan’s Family Steak Houses, Inc., 239 F.3d 943, 945 (8th Cir. 2001)
(quoting AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 650 (1986)).
Waiver of the Right to Arbitrate
Even if a valid arbitration agreement exists, a party can waive its right to
arbitrate by: (1) knowing of that right; (2) acting inconsistently with that right; and
(3) prejudicing the other party through its inconsistent actions. Hooper v. Advance
Am., Cash Advance Ctrs. of Mo., Inc., 589 F.3d 917, 920 (8th Cir. 2009). One way a
party may act inconsistently with its arbitration right is by ―substantially invok[ing]
the litigation machinery,‖ by, for example, initiating litigation and participating in
discovery. Stifel, Nicolaus & Co. Inc. v. Freeman, 924 F.2d 157, 158 (8th Cir. 1991).
A court considers the totality of the circumstances in determining whether a party had
waived its right to arbitrate. Hooper, 589 F.3d at 922. Like doubts about the scope
of an arbitration agreement, uncertainty about whether a party has waived arbitration
– 25 –
must be resolved in favor of arbitration. Ritzel Commc’ns, Inc. v. Mid-Am. Cell.
Telephone Co., 989 F.2d 966, 968–69 (8th Cir. 1993).
Fleischli argues that the arbitration agreement is no longer enforceable because
the defendants have waived their right to arbitrate. Specifically, Fleischli contends
that the defendants acted inconsistently with their arbitration right by: (1) failing to
respond to his arbitration demand; (2) twice seeking more time in state court to
respond to his petition before removing this case to federal court; (3) opposing his
remand motion ―in its entirety,‖ including his alternative request for arbitration; and
(4) failing to ―move to compel arbitration and stay litigation in a timely manner.‖
Lewallen, 487 F.3d at 1090.
Assuming that the same tripartite test applies to waiver of a Conventioncovered arbitration agreement, none of these acts rises to the level of active or
dilatory conduct required to support a finding of waiver. Though a party’s failure to
respond to an arbitration demand may support a finding of waiver in some
circumstances, it cannot do so here. Defendant North Pole Limited argues that the
arbitration demand Fleischli sent to its agent was instead supposed to be filed with the
American Arbitration Association. Because it explicitly incorporates the AAA rules,
the language of the agreement on this point is ambiguous. North Pole Limited’s
failure to respond to what it reasonably believed was an improper demand was not
inconsistent enough with its right to arbitrate as to support a finding of waiver.
– 26 –
The extensions of time sought by the defendants added, in sum, less than three
months to the total time this action has been litigated. The Eighth Circuit has held
that a similar delay did not constitute waiver, even where the party seeking to compel
arbitration was the same party that filed suit. Stifel, 924 F.2d at 158–59 (where there
was no evidence of prejudice, plaintiff did not waive right to arbitrate even though it
waited three months until after defendants filed amended counterclaim before moving
to compel arbitration); see also Dumont v. Saskatchewan Gov’t Ins., 258 F.3d 880,
886–87 (8th Cir. 2001) (defendant’s motion to dismiss on jurisdictional and quasijurisdictional grounds, ―coupled with its concomitant express warning that it would
seek to compel arbitration,‖ were not acts inconsistent with its right to arbitrate).
Further, the defendants have not filed responsive pleadings, participated in
discovery, or – like in the case cited by Fleischli – either challenged the validity of
the arbitration clause or brought their own judicial action in a different forum. See
Apple & Eve, LLC v. Yantai North Andre Juice Co., Ltd., 610 F. Supp. 2d 226, 232
(E.D. N.Y. 2009). Removing a case to federal court under the Convention does not,
on its own, constitute waiver. See Lieving v. Cutter Assoc., No. 09-2938, 2010 WL
428800, at *5 (D. Minn. Feb. 1, 2010) (defendant employer did not waive right to
arbitrate arising from employment agreement where, among other things, it removed
plaintiff’s judicial action to federal court and filed motion to dismiss or transfer case).
– 27 –
Finally, I conclude that the defendants’ opposition to Fleischli’s alternative
relief cannot support a finding of waiver. The defendants moved to arbitrate just five
weeks after removal. Under the circumstances of this case, that five-week delay was
not a failure to ―move to compel arbitration and stay litigation in a timely manner.‖
Cf. Lewallen, 487 F.3d at 1092 (eleven-month delay in seeking to arbitrate was
inconsistent with right to arbitrate).
Because the defendants have not acted inconsistently with their right to
arbitrate, I need not address the other prongs of the waiver test. The defendants have
not waived their right to arbitrate.
Nonsignatory Defendants’ Arbitration Rights
Though the parties have each moved (alternatively) to compel arbitration, their
requests are not identical. The defendants argue that they are all entitled to arbitrate
the disputes underlying this action, even though two of them – Warburg and North
Pole US, LLC – are not signatories to the arbitration agreement. Fleischli, on the
other hand, seeks only to arbitrate with signatory North Pole Limited. Though the
parties expend considerable space on issues relating to Warburg and North Pole US,
LLC’s arbitration rights, there is no actual justiciable controversy for me to decide.
First, the parties argue whether a nonsignatory (like Warburg or North Pole
US, LLC) can compel a signatory (like Fleischli or North Pole Limited) to arbitrate.
This question does not present a ―case or controversy‖ because both signatories have
– 28 –
agreed to arbitrate. See U.S. CONST., Art. III, § 2; Kennedy v. Ferguson, 679 F.3d
998, 1001 (8th Cir. 2012).
Second, the parties dispute whether Fleischli could block Warburg and North
Pole US, LLC from participating in arbitration. I find this doubtful. See Dominium
Austin Partners, LLC v. Emerson, 248 F.3d 720, 728 (8th Cir. 2001) (defendant could
not avoid arbitration by arguing plaintiff’s partnerships were not party to the
agreement and ―at the same time‖ claim the partnerships were liable for breach of that
same agreement; such a result would be ―inequitable‖); PRM Energy, 592 F.3d at 835
(―it would be unfair to allow the signatory to rely on the agreement in formulating its
claims but to disavow availability of the arbitration clause of that same agreement‖).
At its root, however, this disagreement simply rehashes Fleischli’s argument that his
claims against Warburg and North Pole US, LLC are not arbitrable. To the extent
that this is an appropriate question for this court, I have already addressed it supra.
See Reid, 701 F.3d at 848; Lyster, 239 F.3d at 945.
Finally, Fleischli wonders whether an arbitrator would have the authority to
issue an award for or against Warburg and North Pole US, LLC. It is wellestablished that arbitrators have authority to bind nonsignatories in certain
circumstances. See, e.g., Carpenters 46 N. Calif. Counties Conference Bd. v. Zcon
Builders, 96 F.3d 410, 417 (9th Cir. 1996) (arbitration award may be binding on
nonparty to arbitration agreement where nonsignatory adopts the clause; nonsignatory
– 29 –
is alter ego or successor of signing party; or where nonsignatory consents for
arbitrator to resolve dispute). However, Warburg and North Pole US, LLC, have
themselves requested arbitration. It remains only a speculative possibility, dependent
on a long series of ifs, that they may later seek to avoid the consequences of doing so.
See Cass Cnty. v. United States, 570 F.2d 737, 741 (8th Cir. 1978) (―Courts should be
reluctant to decide cases that require them to speculate on the basis of hypothetical
facts.‖). If they do, Fleischli has a judicial avenue at the ready to enforce that award.
See 9 U.S.C. § 207; Yusuf Ahmed Alghanim & Sons, 126 F.3d at 20. In sum,
Warburg’s and North Pole US, LLC’s status as nonsignatories presents no barrier to
enforcement of the arbitration agreement.
D. Stay
Under the FAA, when a court finds the claims raised in an action are properly
referable to arbitration, it should generally stay the action until arbitration
proceedings are concluded. 9 U.S.C. § 3; see also Alghanim v. Alghanim, 828
F.Supp.2d 636, 643 (S.D. N.Y. 2011) (noting that, under 9 U.S.C. § 208, the stay
provision of the FAA applies to actions falling under the Convention). Accordingly,
I will stay this action pending arbitration.
V.
Conclusion
I conclude that the Convention, as implemented by federal statute, conveys
subject matter jurisdiction over this action. I also conclude that Fleischli has
– 30 –
established a prima facie case that this court has personal jurisdiction over each of the
defendants. Finally, there is a valid, enforceable arbitration agreement; the
defendants have not waived their right to arbitrate; and there is no justiciable
controversy preventing arbitration by the nonsignatory defendants. I will therefore
compel arbitration and stay this action until arbitration has concluded.
Accordingly,
IT IS HEREBY ORDERED that plaintiff Fleischli’s motion to remand [#17]
is denied.
IT IS FURTHER ORDERED that:
Warburg’s motion to dismiss for lack of personal jurisdiction or, alternatively,
for forum non conveniens [#27] is denied.
Warburg’s motion to compel arbitration and stay proceedings [#29] is granted.
North Pole Limited’s and North Pole US, LLC’s joint motion to dismiss [#31]
is denied. Its alternative motion to compel arbitration [#31] is granted.
IT IS FINALLY ORDERED that the parties shall file a joint status report on
the arbitration no later than August 8, 2013, and shall file additional status reports
every 90 days thereafter, unless otherwise ordered.
CATHERINE D. PERRY
UNITED STATES DISTRICT JUDGE
Dated this 10th of May, 2013.
– 31 –
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