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Motion to compel the arbitrations proceeding under federal equitable estoppel law denied: United States Court of Appeals for the Ninth Circuit

In the recent case of Balkrishna Setty v. Shrinivas Sugandhalaya LLP, the court denied the motion to compel the arbitrations proceeding under federal equitable estoppel law. According to the facts, the brothers Balkrishna and Nagaraj Setty signed an agreement for partnership where they became the joint owner of the incense manufacturing company. Later, the brothers started their own competing manufacturing companies in separate Indian Cities i.e., Bangalore and Mumbai. The plaintiff, whose business is there in Bangalore, sued the other brother and its U.S. distributer for allegedly obtaining the SS-related trademarks in the US by falsely stating no other persons including appellant’s company were authorized to use the marks.

The defendant-appellant moved to compel the arbitration and stay the litigation since there was an arbitration clause contained withing the partnership deed. The Ninth Circuit panel reviewed SS Mumbai’s motion to compel arbitration twice. The defendant argued that the plaintiff should be equitably estopped from avoiding the arbitration clause in the partnership dee. However, the district court denied the motion stating that general Ninth Circuit estoppel doctrine.

The appellate court also held that the non-signatory defendant was barred from compelling arbitration under the convention on the Recognition and enforcement of foreign Arbitral Awards i.e., the New York Convention. It was interpreted such that the convention to require that the parties actually sign an agreement to arbitrate their disputed in order to compel arbitration. This happened in the first review. In the second review, the court explained that the Indian choice of law provision was in the Partnership Deed as a non-signatory was a threshold issue for which the court would not look to the agreement itself. In the present case, since the case involves the federal claims and turns to the court’s federal question jurisdiction. The court therefore, declined again to apply the Indian Law and instead applied federal substantive law and ordinary contract and agency principles.

Hence, the Ninth Circuit again upheld the district court decision to deny defendant’s motion to compel arbitration.

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