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Sharp Corp. v. Hisense USA Corp.

United States District Court, District of Columbia

November 13, 2017




         Should a federal court stand idly by when a foreign arbitral commission issues an order restricting the speech of a private party? Actually, yes. Here, two Asian television manufacturers, Sharp and Hisense, entered into a 2015 licensing agreement under which Hisense would make and market televisions bearing Sharp's name. In 2017, alleging that Hisense had violated various regulatory standards and failed to maintain the quality of its television sets, Sharp terminated the agreement. A week later, under a provision of the licensing agreement providing that all disputes would be arbitrated by the Singapore International Arbitration Center, Hisense filed an arbitration action there. Among other relief, Hisense sought an emergency order requiring that Sharp abide by the agreement while the full arbitration was pending and enjoining it from making disruptive or disparaging statements about Hisense or the licensing dispute. In May 2017, an emergency arbitrator in Singapore issued an interim award granting that injunctive request.

         Sharp thereafter filed suit here and now seeks a preliminary injunction declaring that the interim award is not enforceable in the United States because it contradicts U.S. public policy. Specifically, Sharp argues that the emergency award - which it deems a “gag order” - would prevent it from communicating with both consumers and the Federal Communications Commission, and is thus against the policies enshrined in the First Amendment of the U.S. Constitution. Hisense opposes the Motion for a Preliminary Injunction and has moved to dismiss the case, asserting that this Court lacks both subject-matter and personal jurisdiction, and that the award does not violate our public policy. Although subject-matter jurisdiction exists here, personal jurisdiction does not; in any event, the interim award does not contradict any fundamental public policy that would allow Sharp to prevail. The Court will therefore dismiss the Complaint in its entirety.

         I. Background

         Given the Court's ruling here, it must consider the facts as set forth in the Complaint. The relationship between Sharp and Hisense started on amicable terms. In July 2015, Sharp, a Japanese electronics company, entered into a limited trademark-licensing agreement (TLA) with Hisense, a Chinese manufacturer. See ECF 1 (Complaint), ¶ 24. The TLA allows Hisense to “manufacture, assemble, promote, market, distribute, [and] sell” Sharp-branded televisions. See ECF No. 28-2 (Licensing Agreement), ¶ 2.1. It also provides that “[a]ny disputes arising out of or in connection with this Agreement, including any question regarding its validity or termination, shall be referred to and finally resolved in Singapore by Singapore International Arbitration Centre in accordance with the Arbitration Rules of [the Centre, ] . . . which rules are deemed to be incorporated by reference.” TLA, ¶ 28.1.

         According to Sharp, “immediately” after entering into the TLA, Hisense began to fall short of its contractual obligations. See Mot. for PI at 2. It allegedly “fail[ed] to comply with regulations and maintain the required standards and quality of its television sets.” Id. Based on these violations, Sharp terminated the TLA on April 17, 2017. Id. at 3. On April 24, Hisense filed for arbitration in Singapore with the SIAC, seeking emergency relief to reinstate the TLA. Id. On May 9, an arbitrator appointed to consider the emergency motion issued a 33-page “emergency” interim award. See ECF No. 8-3 (Emergency Award). The interim award prohibited Sharp from terminating the TLA, required it to continue to perform under the agreement while the arbitration was pending, and imposed an order stating:

[Sharp] shall refrain from, directly or indirectly through its affiliates, disparaging [Hisense] and/or disrupting its business, including by making public statements or press releases about this arbitration and/or the dispute between [Hisense] and [Sharp], or approaching [Hisense's] business associates and/or other third parties (including, but not limited to, [Hisense's] customers, suppliers, content and service providers, and/or regulatory authorities, except as required by law), in respect of any matters that are to be addressed in arbitration under the [License Agreement].

         Emergency Award, ¶ 135 (iii). It is this portion of the award, which Sharp characterizes as a “one-sided Gag Order, ” Mot. for PI at 3, that Plaintiffs now contest.

         On August 15, 2017, Plaintiffs Sharp Corporation and Sharp Electronics Corporation filed a Complaint in this Court, alleging that the emergency order “is contrary to the public policy of the United States embodied in the First Amendment of the Constitution, including (1) the public policy that prohibits a prior restraint on speech absent extraordinary circumstances, and (2) the public policy that favors the right to petition the Government.” Compl., ¶ 5. Sharp requested declaratory and injunctive relief pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02, seeking an “order declaring that the Gag Order against Sharp is not recognizable or enforceable in the United States” and “enjoin[ing] Hisense from taking any action to enforce the Gag Order in the United States.” Id., ¶¶ 2, 5. The same day they submitted their Complaint, Plaintiffs also filed a Motion for Preliminary Injunction, asking the Court to enjoin the enforcement of the “gag order” and declare that it is “contrary to the public policy of the United States and is thus unenforceable.” Mot. for PI at 2.

         In response, Defendants Hisense USA Corporation and Hisense International filed an Opposition to Plaintiffs' Motion for Preliminary Injunction, see ECF No. 22, as well as a Motion to Dismiss, or, alternatively, stay the action. See ECF No. 21. On October 27, this Court heard oral argument on the Motions and now issues this expedited Opinion.

         II. Legal Standard

         Because the Court grants Hisense's Motion to Dismiss, it need not address the standards governing a preliminary injunction and will instead consider this case under Rules 12(b)(6), 12(b)(1), and 12(b)(2).

         In evaluating Defendants' Motion to Dismiss for failure to state a claim pursuant to Rule 12(b)(6), the Court must “treat the complaint's factual allegations as true . . . and must grant plaintiff ‘the benefit of all inferences that can be derived from the facts alleged.'” Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979)) (internal citation omitted). The Court need not accept as true, however, “a legal conclusion couched as a factual allegation, ” nor an inference unsupported by the facts set forth in the Complaint. Trudeau v. Fed. Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986) (internal quotation marks omitted)).

         To survive a motion to dismiss under Rule 12(b)(1), conversely, Plaintiffs bear the burden of proving that the Court has subject-matter jurisdiction to hear their claims. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992); U.S. Ecology, Inc. v. U.S. Dep't of Interior, 231 F.3d 20, 24 (D.C. Cir. 2000). A court has an “affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority.” Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9, 13 (D.D.C. 2001). For this reason, ‘“the [p]laintiff's factual allegations in the complaint . . . will bear closer scrutiny in resolving a 12(b)(1) motion' than in resolving a 12(b)(6) motion for failure to state a claim.” Id. at 13-14 (quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1350 (2d ed. 1987) (alteration in original)). Additionally, unlike with a motion to dismiss under Rule 12(b)(6), the Court “may consider materials outside the pleadings in deciding whether to grant a motion to dismiss for lack of jurisdiction.” Jerome Stevens Pharm., Inc. v. Food & Drug Admin., 402 F.3d 1249, 1253 (D.C. Cir. 2005).

         Finally, under Rule 12(b)(2) a defendant may move to dismiss a suit if the court lacks personal jurisdiction over him. Personal jurisdiction determines the court's “authority over the parties . . ., so that the court's decision will bind them.” Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 577 (1999). The plaintiff bears the burden of establishing that such jurisdiction exists. See FC Inv. Grp. LC v. IFX Markets, Ltd., 529 F.3d 1087, 1091 (D.C. Cir. 2008). In deciding whether the plaintiff has shown a factual basis for personal jurisdiction over a defendant, the court resolves factual discrepancies in favor of the plaintiff. See Crane v. N.Y. Zoological Soc'y, 894 F.2d 454, 456 (D.C. Cir. 1990). When personal jurisdiction is challenged, “the district judge has considerable procedural leeway in choosing a methodology for deciding the motion.” 5B Charles A. Wright & Arthur R. Miller et al., Federal Practice and Procedure § 1351 (3d ed. 2004). The Court may rest on the allegations in the pleadings, collect affidavits and other evidence, or even hold a hearing. Id.

         III. Analysis

         As it must address jurisdictional concerns first, the Court begins with Defendants' assertion that the Court does not have subject-matter jurisdiction over this case. It moves next to Hisense's arguments on personal jurisdiction and concludes with an analysis of the merits of Plaintiffs' suit.

         A. Subject-Matter Jurisdiction

         Hisense first argues that the New York Convention, which governs the enforcement of international arbitration awards, does not give the Court jurisdiction to grant the remedy Sharp seeks. Plaintiffs, of course, see things differently. They assert that the strictures of the Convention do not preclude the Court from providing the requested declaratory relief. In analyzing the issue, the Court starts with the Convention and then considers the Declaratory Judgment Act.

         1. New York Convention

         The enforcement of foreign arbitral awards falls under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the “New York Convention, ” 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 38. The Convention controls “the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.” Chevron Corp. v. Republic of Ecuador, 949 F.Supp.2d 57, 62 (D.D.C. 2013), aff'd sub nom. Chevron Corp. v. Ecuador, 795 F.3d 200 (D.C. Cir. 2015). In the United States, the New York Convention has been codified in Chapter 2 of the Federal Arbitration Act. See 9 U.S.C. §§ 201-08. Together, the Convention and its implementing legislation “encourage the recognition and enforcement of commercial arbitration agreements in international contracts.” TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 933 (D.C. Cir. 2007) (citation omitted).

         Pursuant to the FAA, United States district courts have original jurisdiction over an “action or proceeding falling under the Convention.” 9 U.S.C. § 203. The scope of that jurisdiction, however, is governed by the terms of the Convention, which distinguishes between “primary” and “secondary” courts. TermRio, 487 F.3d at 935 (citation omitted). The former are those courts of the country in which, or under the law of which, an award is rendered. The latter are those courts of all other signatory countries. The distinction between these two categories determines the jurisdictional and remedial authority of a given court. Under the Convention, primary-jurisdiction courts have the exclusive authority to affirmatively set aside or annul an arbitration award, while secondary-jurisdiction courts have a more limited authority to review and decide whether to enforce such an award. Id., 487 F.3d at 935; Gulf Petro Trading Co., Inc. v. Nigerian Nat'l Petroleum Corp., 512 F.3d 742, 747 (5th Cir. 2008) (holding that “a United States court sitting in secondary jurisdiction lacks subject matter jurisdiction over claims seeking to vacate, set aside, or modify a foreign arbitral award” and “may only refuse or stay enforcement of an award”); Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274, 287 (5th Cir. 2004) (noting that in courts of secondary jurisdictions “parties can only contest whether that state should enforce the arbitral award”); M & C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 848 (6th Cir. 1996) (holding that plaintiff “may not seek to vacate the arbitral award in the district court” of a secondary jurisdiction).

         In this case, both parties agree that this Court, unlike Singapore, is a secondary jurisdiction. Defendants, consequently, maintain that Plaintiffs' suit falls outside of the authority of secondary-jurisdiction courts because it ultimately seeks to “void, annul, or modify” the arbitral award. See Hisense Reply at 3. Yet Sharp seeks no such broad relief. Rather, it has requested only that this Court declare the gag order unenforceable in the United States, a permissible goal in a secondary jurisdiction. See Compl., ¶ 6

         This limited remedial request distinguishes this case from those relied upon by Hisense, in which plaintiffs sought, at least in part, to vacate the underlying award in toto. In Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, 863 F.Supp.2d 351 (S.D.N.Y. 2012), for example, the plaintiff sought a declaration that the arbitration decision was “void and unenforceable, ” a remedy that the court held would “essentially accomplish” the goal of vacating the award. Id. at 356. Similarly, in Stedman v. Great Am. Ins, Co., 2007 U.S. Dist. LEXIS 25973 (D.N.D. Apr. 3, 2007), the court faced a motion asking for the functional equivalent of vacatur. Plaintiffs there initially brought a motion to vacate, amend, or correct the arbitration award, which they later recharacterized as a motion to “confirm [the award] to the extent confirmable.” Id. at *11. The court concluded that it lacked subject-matter jurisdiction over this motion, as Plaintiffs still sought to “vacate” the portions of the award that were “indefinite or ambiguous” or “beyond the arbitrator's authority.” Id. at *11-12. Finally, Defendants' citation to Gemini Consulting Group v. Horan Keogan Ryan, 2007 U.S. Dist. LEXIS 39509 (N.D. Ill. May 30, 2007), is unavailing, as the plaintiff there sought “a declaration that the Awards issued by the arbitrator are invalid and not enforceable against Gemini.” Id. at *12 (emphasis added). The court in that case noted that entering such an order “would be akin to setting aside or vacating the awards, ” and it therefore found that it lacked the requisite jurisdiction. Id.

         Once again, Sharp does not seek such a drastic remedy here. Granting the motion for a declaratory judgment would not “set aside” or “vacate” the underlying award. Instead, it would determine only whether the emergency order is enforceable in the United States, see Compl. at 2, not whether it is valid worldwide. Such a determination clearly falls within the purview of secondary-jurisdiction courts.

         The Court's conclusion that Plaintiffs are not seeking to vacate the arbitration award also resolves Defendants' alternative contention that Sharp's suit is untimely. Although the New York Convention does not contain a statute of limitations for petitions to vacate arbitration awards, the FAA, which supplements the Convention, requires that such actions be filed within three months after the award is filed or delivered. See 9 U.S.C. § 12. Hisense asserts that Sharp is, in fact, suing to vacate the emergency award, and that Plaintiffs' action is untimely because it was filed one week after the three-month period expired. See Hisense Reply at 12-13. As the Court concludes that Sharp is seeking only to have the emergency order declared unenforceable in the United States - and the FAA contains a three-year statute of limitations for such enforcement actions - its suit is therefore timely. See 9 U.S.C. § 207.

         2. Declarator ...

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