Safran Elec. & Defense SAS v. iXblue SAS, No. 1:18-cv-07220 (S.D.N.Y. Feb. 6, 2019) [click for opinion]

In 1993, the predecessor of iXblue SAS (“iXblue), a navigation imaging company organized in France, licensed certain fiber-optic gyroscope (“FOG”) “know how” to the predecessor of Safran Electronics & Defense SAS (“SED”), a French avionics and electronics supplier. The license agreement contained an arbitration clause covering any disputes arising between the parties related to the agreement. That clause required the parties to attempt to resolve disputes in good faith before initiating arbitration in Paris under French law, except for disputes resulting from product sales to a third-party end user outside the European Union, which were to be arbitrated in New York under the Rules of the International Chamber of Commerce.

In 2011, the predecessors of SED, its German subsidiary Safran Electronics & Defense Germany (“SED Germany”), iXblue and other parties settled claims brought by iXblue related to the use of iXblue’s intellectual property. Despite settling the 2011 claims, disputes continued to surface between the parties regarding the intellectual property. In 2014, iXblue attempted to initiate an expert assessment proceeding under French civil procedure rules to determine whether SED had breached the 1993 license agreement and/or the 2011 settlement agreement. The French Commercial Court of Nanterre denied iXblue’s application, and the Versailles Court of Appeal affirmed that decision in February 2016.

In March 2016, iXblue invoked the pre-arbitration clause of the licensing agreement. Good-faith attempts to negotiate the issues raised by iXblue failed. In June 2018, SED filed a request for arbitration against iXblue in Paris. In response, iXblue filed a request for arbitration against SED and SED Germany in New York, citing a supply-chain chart evidencing that SED Germany’s suppliers sold products to multiple third-party end users worldwide. SED and SED Germany petitioned the Southern District of New York to stay the New York arbitration and compel iXblue to participate in the Paris arbitration.

The court first addressed SED Germany’s claim that, because neither it nor its predecessors were signatories of the License Agreement, SED Germany never agreed to arbitrate claims in any forum. The court explained that non-signatories could still be bound by arbitration agreements entered into by others pursuant to five different theories: (1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; and (5) estoppel. Here, the court found that SED Germany had avoided the expert assessment proceeding in France by arguing that the arbitration provision governed the dispute. SED Germany was thus obligated to arbitrate those claims now.

The court next considered whether arbitration in New York should continue. SED and SED Germany contended that iXblue had submitted no evidence suggesting that products were sold to end users outside the European Union, and that New York arbitration was therefore inappropriate. However, SED and SED Germany had also conceded that the question of arbitrability had been delegated to the arbitrators. As such, they argued solely for a stay while the Paris tribunal decided its own jurisdiction, citing the “first-filed” rule, which states that where there are two competing lawsuits, the first should have priority.

Reasoning that the license agreement permitted arbitration proceedings in both Paris and New York under discrete circumstances, the district court refused to stay the New York arbitration proceedings. While “twin” proceedings are typically governed by the first-filed rule, the court held that the “first-filed” rule was inapplicable where parties expressly contemplated arbitrating different types of disputes in different tribunals. It would be inappropriate in such circumstances to stay the New York arbitration and thereby strip the New York arbitrators of their authority to determine the scope of their jurisdiction.

 

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

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