SteppeChange LLC v. VEON Ltd., No. 18-cv-04842 (N.D. Cal. Dec. 5, 2018) [click for opinion]

Plaintiff SteppeChange, LLC (“SteppeChange”) a California-based tech company, was involved in two projects, under two separate oral agreements, with Dutch cellular phone and data service provider VEON Ltd. (“VEON”), and its Italian subsidiary, Wind Tre S.p.A. (“Wind” and collectively with VEON, “Defendants”). The first project involved developing a customer messaging platform (the “Button Project”), and the second involved developing a data-management platform (the “DMP Project”).

In Fall of 2016, SteppeChange allegedly stopped receiving payment for its work performed under these agreements. After suspending Defendants’ access to both projects, SteppeChange later restored access based on promises of payment by Defendants’ executives. Over the following months, Defendants reiterated their promises to resolve the payment issues, dealing first with the issues relating to the Button Project, followed by the DMP Project.

Thereafter, in June 2017, SteppeChange and VEON executed a series of settlement agreements, collectively referred to as the “Button Deed,” to resolve all outstanding claims related to the Button Project. The Button Deed acknowledged, but did not resolve the DMP Project dispute, and specifically carved out any application over the DMP Project.

VEON paid SteppeChange for the Button Project in accordance with the settlement, but the parties were unable to resolve the issues relating to the DMP Project. SteppeChange therefore sued Defendants in the District Court for the Northern District of California. In response, VEON moved to compel arbitration based on the Button Deed’s broad arbitration clause, in which the parties agreed to arbitrate any disputes, including any question regarding the existence or validity of the agreement between the parties. The clause also incorporated by reference the London Court of International Arbitration (“LCIA”) Rules.

In its opposition to VEON’s motion to compel, SteppeChange argued that the arbitration provision in the Button Deed does not apply to its claims because it only sought relief for claims associated with the DMP Project, which the Button Deed specifically carved out as “separate from and not included.” The court rejected this position, explaining that, to determine arbitrability under federal law, it must (1) examine whether the parties clearly and unmistakably submitted a particular dispute to arbitration, including a dispute over arbitrability; and (2) only deny the motion to compel if “the assertion of arbitrability is wholly groundless.”

The court first found that invocation of the arbitration rules of an arbitral institution, in this case the LCIA Rules, in the Button Deed constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. The court next found that VEON’s assertion of arbitrability was not “wholly groundless” because numerous courts in this circuit have found that, despite a carve-out, the question of arbitrability, even on the subject of what has been carved out, must be decided by the arbitrator.

Wind also moved to compel arbitration, arguing that the causes of action against it were “intimately founded in and intertwined with the underlying contract obligations.” In the alternative, Wind moved to stay litigation of claims against it pending the arbitration between SteppeChange and VEON. The court found that Wind, as a nonsignatory, did not have a right to compel arbitration, but stayed the matter pending the arbitrator’s determination of arbitrability so that only one forum would decide the entire case.

A version of this post originally appeared in the March 2019 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.