Ignoring Italian Arbitration Proves Costly To Innovative Designs

Posted on | June 2, 2008 | No Comments

2008-1387 R.M.F. Global v. Cattan
WD/PA 04-cv-0593

Declaratory judgment plaintiff Innovative Designs appeals from Judge Arthur Schwab’s order confirming the Italian Arbitration Association’s ("IAA" or, when in Italy, "AIA") award to Eliotex/Cattan of approximately $4.1 million plus over €200,000 in arbitration and attorney’s fees.

Plaintiffs were the exclusive agents for defendants with rights to defendants’ patent, 6,083,999, and trademark, ELIOTEX, for a lightweight, insulated material for performance athletic wear, etc.  A dispute arose, and plaintiffs filed an April 2004 action seeking a declaration that (i) they did not infringe the ’999 patent; (ii) the ’999 patent was invalid and unenforceable; and (iii) they did not infringe on the Eliotex trademark.  They also asked the court for damages and to enjoin Cattan from interfering with their business and contractual relations and from engaging in unfair competition.

Shortly thereafter, and on Cattan’s motion, the court stayed the case based on an arbitration clause in the "exclusive agency, distribution and marketing agreement" between the parties:

In the event of a dispute between the parties as to the terms and conditions of this Agreement, and in the event that such dispute does not prove susceptible to amicable resolution, the parties hereto agree to accept binding arbitration in accordance with the rules of the Italian Arbitration Association in order to promptly and efficiently effectuate a resolution of said dispute.

Although the court believed that the patent and trademark claims were likely not within the scope of the arbitration clause, the tortuous interference and unfair competitions claims were covered.  Because at least 1 claim was covered, the Federal Arbitration Act, 9 U.S.C. § 1-14 required the judicial action be stayed pending the arbitration.

The IAA proceedings then commenced, but–and for reasons not set forth in the record–R.M.F. and Innovative Designs decided not to participate.  The IAA ultimately awarded Cattan/Eliotex over $4.1 million plus fees.

Cattan returned to district court to confirm the award and enter judgment, but Innovative Designs opposed, arguing:

1. they were denied meaningful participation in the IAA proceedings because they received insufficient notice;
2. Cattan’s motion to "confirm" the arbitration clause was not procedurally correct;
3. there were irregularities in the IAA proceedings;
4. that agreement to arbitrate was invalid; and
5. enforcement of the award is contrary to U.S. public policy.

The court easily rejected all of these arguments, applying the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1959 (see 9 U.S.C. § 201-208).  First, Innovative Designs plainly knew about the appointment of the arbitrator in Italy and the proceedings–indeed, it referenced notices for such in 2004 court filings.  The court concluded:

it is simply incredible for plaintiffs to claim that they did not have notice of the [IAA] Proceedings, in the face of the overwhelming record evidence to the contrary.  [Emphasis in original]

The court also rejected the "confirm v. compel" argument.  While noting that such motions were normally labeled to "compel" arbitration, the motion was clearly a timely request to arbitrate the matter under the parties’ agreement.

The court also rejected challenges to the agreement, noting that the validity of an agreement containing an arbitration clause was a matter for the arbitrator to decide (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126 S.Ct. 1204 (2006)).  Lastly, the court held that the award did not violate public policy. 

The court concluded:

Plaintiffs were undoubtedly aware of the IAA Proceedings, and had every
opportunity to participate in those Proceedings. They chose not to participate, and now they must accept the consequences of that choice. This Court will not now disregard the Award entered in the IAA Proceedings or reward plaintiffs’ refusal to litigate in the forum in which they were contractually bound to litigate. For the foregoing reasons, the Court will grant defendants’ motion to confirm the arbitration award (Document No. 35).

Notes and Comments: The appeal on the order to confirm the IAA award was filed in 2006 with the Third Circuit (Case No. 2006-2203).  Although it took awhile, the Third Circuit ordered the appeal transferred to the Federal Circuit on 08 May 2008.

More reading:

Order Confirming IAA Award

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