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Clientron Corp. v. Devon It, Inc.

United States District Court, E.D. Pennsylvania

March 10, 2014

DEVON IT, INC., Defendant


MICHAEL M. BAYLSON, District Judge.

Plaintiff, Clientron Corp., a Taiwanese corporation, filed this action to enforce a foreign arbitration award against Defendant Devon IT, Inc., a Pennsylvania corporation, under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly called the "NY Convention"), codified in 9 U.S.C. §§ 201-208, and Pennsylvania's Uniform Foreign Money Judgment Recognition Act ("PUFMJRA"), 42 P.S. §§ 22001-22009. ECF 1. Pursuant to Federal Rule of Civil Procedure 12(b)(6), Defendant has filed a Motion to Dismiss the enforcement complaint, arguing that it fails to state a claim on various grounds, including that the arbitration panel did not have authority to issue a final award. ECF 9. In the alternative, Defendant has requested that the Court stay the case while Defendant seeks to set aside the arbitration award in a parallel proceeding currently underway in Taiwan. ECF 9 ¶ 13. For the following reasons, Defendant's Motion to Stay is denied. The Court reserves ruling on the remainder of Defendant's Rule 12(b)(6) Motion pending the submission of evidence of relevant Taiwanese law, pursuant to Rule 44.1.

I. Facts and Procedural History[1]

Clientron is a Taiwan-based manufacturer and distributor of computer components. Devon is an information technology company that sells computer hardware and software. In 2008, the parties entered into a Supply and Purchase Agreement ("Agreement") in which Clientron agreed to manufacture and sell certain products to Devon. ECF 1 ¶ 7. Section 13.3 of the Agreement contains a dispute resolution provision, which states that disputes between the parties will be brought before the Taiwan Trade Arbitration Council in the event that informal dispute resolution attempts fail.[2] The agreement also has a governing law provision, which states that the Agreement will be construed under Taiwanese law. ECF 1 at 21.

On September 13, 2012, Clientron submitted a request for arbitration to the Chinese Arbitration Association, alleging Devon breached its obligations under the Agreement. ECF 1 ¶ 8. An arbitration panel was convened on November 29, 2012, and the parties then engaged in arbitration proceedings. ECF 1 ¶ 8. On August 5, 2013, the panel issued a "final award" in favor of Clientron for US$ 6, 574, 456.17, as well as 5% per annum interest and arbitration costs. ECF 1 ¶ 9.

On September 25, 2013, Clientron initiated this action to enforce the Taiwanese arbitration award against Devon. ECF 1. After the parties filed their Motion to Dismiss briefing, ECF 9, 11, 12, 17, the Court held a hearing on January 28, 2014 to entertain arguments about whether to grant Defendant's Motion to Stay. ECF 25 (transcript of hearing).

At the hearing, the Court posed four questions to the parties:

Question 1: is the arbitration decision issued pursuant to § 13.3 of the Agreement binding on the parties and what is required to make that determination;

Question 2: what is the nature of the proceeding in Taiwan initiated by Devon and how long will it take;

Question 3: should the Court proceed under Rule 44.1 in making a review of Taiwanese law or should it stay the proceeding pending the results from the Taiwan court; and

Question 4: if the Court were to issue a stay, should it require Devon to post a supersedeas bond.

ECF 25 at 4-5.

As to question 1, Clientron argued that the award is binding on Devon and that this Court was collaterally estopped from hearing some of Devon's arguments because they had already been made before the arbitration tribunal. ECF 25 at 6. Devon argued that the award was not binding because the arbitration panel's decision is not final under § 13.3. Devon also acknowledged that in order to prevail on its Motion to Dismiss it would have to present evidence that Taiwanese law supported its interpretation of § 13.3. ECF 25 at 17-18. Clientron had already implicitly recognized the need to provide evidence of relevant Taiwanese law and included an affidavit from a Taiwanese legal expert in its Response in opposition to the Motion to Dismiss. ECF 11-2.

As to question 2, the parties described the nature of the proceeding in Taiwan. They represented that Taiwanese law does not permit an appeal of an arbitration award-only that a party may initiate what United States jurisprudence might regard as a collateral attack to set aside the award-and that such a proceeding had been initiated by Devon. ECF 25 at 7, 20. Clientron further represented that the Taiwan proceeding could take as long as three years. ECF 25 at 10.

As to question 3, both parties agreed that the Court had the authority to stay the case under the NY Convention, but Clientron suggested that the Court did not have power to stay the proceeding under § 7 of PUFMJRA.[3] ECF 25 at 11. The parties indicated that the relevant standard to determine whether a stay should be granted under the NY Convention comes from the six-factor test in Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310 (2d Cir. 1998), and Jorf Lasfar Energy Co., S.C.A. v. AMCI Exp. Corp., Case No. 05-cv-0423, 2005 WL 3533128 (W.D. Pa. Dec. 22, 2005). ECF 25 at 12, 22.

Clientron argued against a stay, noting that (1) the objective of arbitration is to avoid lengthy litigation; (2) federal courts should proceed with the recognition of foreign awards in the interests of international comity; and (3) any additional delay would prejudice Clientron. Specifically, Clientron asserted that Devon had already sold the products made up of Clientron components that Devon claims were defective to a downstream vendor and is thus litigating with the money it owes Clientron. In Clientron's view, any continued delay in this posture unfairly prejudices it. ECF at 13-16. Devon, on the other hand, argued that a stay was appropriate to preserve judicial resources because (1) a Taiwanese court is in the process of reviewing the exact same issues raised before this Court; (2) Taiwanese courts have greater expertise in applying Taiwanese law; and (3) continuation of the present proceedings runs the risk of inconsistent judgments. ECF 25 at 21-23.

As to question 4, Clientron argued that a stay must be accompanied by Devon posting a supersedeas bond of approximately $8, 000, 000. ECF 25 at 13-16. Devon argued that it may have to post a surety in the Taiwanese court and that posting double surety would be unfair. Devon, however, was unsure what amount, if any, it would have to post. ECF 25 at 24-25.

At the end of the hearing, the Court posed two questions of law to the parties and requested that they file their answers in writing:

Question 1: If Devon loses its action to set aside the arbitration award in Taiwan, would the District Court have a duty to make some inquiry or take evidence as to the enforceability of the arbitration award, or ...

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