Wartsila N. America, Inc. v. Int’l Centre for Dispute Resolution, No. H-18-1531 (S.D. Tex. Aug. 15, 2018) [click for opinion]

Plaintiffs, Wärtsilä North America, Inc. (“Wartsila NA”) and Wärtsilä Finland Oy (“Wartsila Finland”) (collectively, “Wartsila”), filed suit in the U.S. District Court for the Southern District of Texas against Defendants, the International Centre for Dispute Resolution (“ICDR”), a division of the American Arbitration Association, Inc. (“AAA”), and Hartford Steam Boiler Inspection and Insurance Company (“Hartford”). Wartsila sought to enjoin a currently pending ICDR arbitration commenced by Hartford as well as a declaration that the parties did not have an agreement to arbitrate.

The dispute arose when Hartford, insurer for the city of Raton, New Mexico and its public electric company, initiated an ICDR arbitration in 2014 against Wartsila. Hartford sought damages in the arbitration relating to the catastrophic failure of an engine at a Raton power plant just after it was serviced by Wartsila NA. The Arkansas River Power Authority (“ARPA”), of which Raton was then a member, originally purchased the engine from Wartsila in 2002.

In addition to the purchase agreement, Wartsila and ARPA entered into a Maintenance Agreement in 2004 for Wartsila to service and provide spare parts for the Raton power plant. However, in 2009 Raton withdrew from ARPA membership and purchased the engine “as-is” from ARPA under an Asset Purchase Agreement. In 2012, Raton allegedly entered into an Inspection Contract with Wartsila NA for the performance of maintenance services on the engine. The Inspection Contract called for disputes to be resolved by arbitration before the International Chamber of Commerce (“ICC”) in Paris, France. Wartsila completed its work on the engine in September 2012 and the engine suffered damage in October 2012.

As support for the ICDR’s jurisdiction, Hartford cited an arbitration clause in the 2004 Maintenance Agreement between Wartsila and ARPA. Prior to the establishment of a tribunal, Wartsila sent a series of letters to the ICDR opposing jurisdiction, arguing inter alia that Hartford could not rely on the Maintenance Agreement arbitration clause because Raton (as well as Wartsila Finland) was not a named party to the Maintenance Agreement, which also contained a non-assignment clause. When the ICDR nonetheless sought to appoint a tribunal in reliance on the Maintenance Agreement clause, Wartsila filed suit against the ICDR and Hartford in the Texas district court to try to enjoin the arbitration. In an amended complaint, Wartsila later asserted tortious interference with contract claims against both defendants and breach of contract claims against Hartford.

The ICDR moved to dismiss based on the doctrine of arbitral immunity, arguing that the ICDR is not a proper party to any dispute between Wartsila and Hartford concerning the enforceability of the arbitration agreement. While Wartsila argued that immunity should not apply where there was a clear absence of jurisdiction, the ICDR contended that it would be inappropriate for its intake manager, rather than the tribunal, to decide on the enforceability of the arbitration agreement.

Following First Circuit authority, the court applied a judicial immunity standard to the administrative stages prior to the appointment of an arbitration tribunal. Under this standard, immunity applies unless the resolution of the arbitrability issue is “facially obvious”; that is, papers so deficient on their face as to signal a clear absence of jurisdiction. Here, the court noted that the parties had made significant arguments to the ICDR concerning multiple arbitration agreements and their assignability or lack thereof. Given the complexity of the arguments, the court found that there was no “clear absence” of jurisdiction that was so obvious that the ICDR should have resolved it before appointing the arbitral tribunal. The court therefore granted the ICDR’s motion to dismiss on the ground of arbitral immunity.

The court also dismissed the claims against Hartford on the grounds of personal jurisdiction. As to specific jurisdiction, the court found that the choice of Texas law in a contract calling for arbitration in Paris was insufficient to support personal jurisdiction with regard to the breach of contract claim, and that Wartsila’s use of Texas attorneys and the alleged financial harm Wartsila suffered in Texas were insufficient contacts to support personal jurisdiction with regard to the tortious interference with contract claim. The court also rejected Wartsila’s general jurisdiction arguments, finding that Hartford’s business license, regional headquarters, and conduct of a significant portion of its business in Texas did not amount to the type of exceptional case the Supreme Court envisioned in Daimler that might warrant general jurisdiction outside of the paradigm locations of place of incorporation or principal place of business.

A version of this post originally appeared in the September 2018 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.

 

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