The First Circuit upholds Arbitration Award in International Distribution Contract Dispute
The First circuit upholds arbitration award in international contract dispute.
In Ribadeneira v New Balance Athletics, Inc. (U.S.C.A. No. 21-1831, April 6, 2023) the First Circuit Court of Appeals upheld an arbitration clause in an international breach of contract case. The pertinent facts as recited by the court are as follows:
“At the beginning of 2013, appellant New Balance Athletics, Inc. (“New Balance”) entered into a contract with Peruvian Sporting Goods S.A.C. (“PSG”) to distribute its products in Peru. In 2015 a new contract was in process of being negotiated between the parties but at that time PSG was already behind with respect to the distribution fees it owed new balance under the original agreement. In their negotiations, both parties understood that while the New Agreement initially would be executed between New Balance and PSG, a new entity — Superdeporte — would be incorporated and would, once operational, replace PSG as the distributor of New Balance products in Peru. Superdeporte and PSG thought they had an agreement and when Superdeporte asked New Balance to be substituted for PSG as distributor New Balance refused.
The instant litigation began when, Plaintiff Ribadeneira on behalf of PSG an Superdeporte sued New Balance in a Peruvian court alleging breach of the Distribution agreement. This Distribution Agreement contained an arbitration clause, which New Balance invoked in 2018 to initiate arbitration proceedings against PSG.
At the conclusion of arbitration, the arbitrator issued a partial final award finding that PSG had breached the agreement and two awards, which imposed liability on PSG and Superdeporte for breach of the Distribution Agreement, and on PSG, Superdeporte, and Ribadeneira for tortious interference. The arbitrator also rejected three counterclaims brought against New Balance.
In response Ribadeneira and Superdeporte filed a motion in the Massachusetts District Court to vacate the arbitration awards. They argued because they were non-signatories of the Distribution Agreement, they could not be bound by the arbitration clause. Agreeing that the arbitrator had improperly exercised jurisdiction over Ribadeneira and Superdeporte, the district court vacated the awards.”
This appeal followed New Balance raised several arguments on appeal however the First Circuit focused on the District Court’s jurisdictional analysis. The parties agreed that Massachusetts law governed the question. The District Court concluded that New Balance’s assumption and equitable estoppel arguments did not provide a basis for jurisdiction however the Court of Appeals reached the opposite decision.
The First Circuit concluded that the assumption of the contact by Superdeprte making it PSG’s successor in interest and making it bound by the arbitration clause. Citing Milliken & Co. v. Duro Textiles, LLC, 451 Mass. 547, 887 N.E.2d 244, 255 (Mass. 2008), the court held “successor liability may be imposed if “the entity remains essentially the same, despite a formalistic change of name or of corporate form,” such that the successor entity is a “mere continuation of its predecessor,” Kelley, 139 N.E.3d at 323. To determine whether an entity is such a “mere continuation,” Massachusetts courts examine “the continuity or discontinuity of the ownership, officers, directors, stockholders, management, personnel, assets, and operations of the two entities.” Id. They also look to whether, after the reorganization, only one entity continues to exist. See Milliken, 887 N.E.2d at 255. In this “mere continuation” analysis, “no single factor is dispositive”
In the present case, the record was clear, “Superdeporte was created to take over PSG’s role as New Balance’s distributor in Peru. The arbitrator found, and the arbitration record confirms, that New Balance dealt with Superdeporte as its Peruvian distributor from May 2016, when Superdeporte became ready to begin operations. [The] continuity of operations was matched by a substantial continuity of assets. The arbitration record discloses that PSG sold its entire inventory of New Balance products to Superdeporte, and that Superdeporte acquired PSG’s intercompany debt as well as the right to use office premises previously occupied by PSG.”
Because of these continuities the court ultimately found that Superdeporte was bound by the arbitration clause and that the arbiter property exercised jurisdiction. This is yet another in a long line of cases upholding arbitration clauses in contract cases.
