In InfoSpan, Inc. et al. v. Emirates NBD Bank PJSC, the Ninth Circuit recently provided a reminder that a US court may compel arbitration only if it has personal jurisdiction over the relevant parties.
Emirates NBD Bank PJSC (the “Bank”) entered into a contract with a Dubai affiliate of the Cayman Islands-incorporated InfoSpan, Inc., a California-based fintech company. The agreement, which included an arbitration provision, involved integrating InfoSpan technology into pre-paid stored value cards that would allow users in the United Arab Emirates (“UAE”) to transmit money via cell phones. This represents another example in the trend toward “inclusive” banking technologies designed to provide banking services to typically “unbanked” populations—in this case, low-income immigrant workers in the UAE.
The Bank terminated the agreement in 2009, alleging that InfoSpan accepted fraudulent payments. A range of litigation resulted, starting with the Bank initiating arbitration in Dubai. In 2011, InfoSpan initiated litigation in California district court claiming breach of contract and trade secret misappropriation. In that 2011 case, the Bank litigated its personal jurisdiction argument to an adverse ruling. The litigation at issue here, filed by InfoSpan in 2014 in California district court, focused on whether the Bank had to arbitrate its contract-related counterclaims in California or Dubai. US District Judge James Selna ordered arbitration in California, rejecting the Bank’s position that the California court lacked personal jurisdiction. The judge based that finding on the theory that the Bank waived its personal jurisdiction defense when, in InfoSpan’s 2011 lawsuit, the Bank raised merit-based defenses, including counterclaims, and engaged in “other strategic efforts to get the case sent to arbitration in the UAE.” (Id. at 7.)
Ninth Circuit’s Reversal
On September 7, 2018, the Ninth Circuit reversed the district court’s order, holding that the Dubai-based Bank timely (and repeatedly) asserted its personal jurisdiction defense and that it did not waive that defense when it participated in the 2011 litigation. Instead, the Ninth Circuit held that California courts lacked personal jurisdiction under Federal Rule of Civil Procedure 4(k)(2) and an International Shoe analysis. In finding that the Bank lacked sufficient contacts with the United States, the Ninth Circuit noted that there was no evidence that the Bank conducted any “unilateral activities in California (or elsewhere in the United States, with the exception of a single inspection facility in Miami).” (Id. at 12.) The appellate court stated that “[o]ur cases are clear that once the issue of personal jurisdiction has been adjudicated on the merits against a party, that party may fully participate and defend the litigation up to and including filing its own counterclaims.” (Id. at 8.)
Takeaway for Clients
Parties entering into arbitration agreements should be mindful that agreeing to arbitrate in a particular state gives the district courts of the agreed-upon state personal jurisdiction over the parties for the purpose of compelling arbitration. (See PaineWebber, Inc. v. The Chase Manhattan Private Bank, 260 F.3d 453, 461 (5th Cir. 2001).) Absent agreement, personal jurisdiction issues may arise where a party seeks to compel arbitration in a US state against a foreign party.