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Baja, Inc. v. Automotive Testing and Development Service, Inc.

United States District Court, D. South Carolina, Anderson/Greenwood Division

June 16, 2014

Baja, Inc., Plaintiff,
Automotive Testing and Development Service, Inc., Chongquin Huansong Industries (Group) Co., Ltd., Tomoto Industries, Inc., and Hisun Motors Corp. U.S.A., Defendants.


G. ROSS ANDERSON, Jr., District Judge.

This matter comes before the Court on Defendants Chongquin Huansong Industries (Group) Co., Ltd. and Hisun Motors Corp. U.S.A.'s Motion to Compel Arbitration and Stay Proceedings, filed on March 28, 2014. ECF No. 79. For the reasons set forth below, Defendants' Motion is DENIED.


Defendants Chongquin Huansong Industries (Group) Co., Ltd. ("Huansong") and Hisun Motors Corp. U.S.A. ("Hisun") move this Court "to enforce an arbitration clause that was specifically negotiated by the parties' authorized representatives." ECF No. 79-1. Defendants base their Motion on arbitration agreements set forth in pro forma invoices provided to Plaintiff Baja, Inc. ("Baja"). Id. These invoices were signed by Baja's representative when Baja and Huansong "entered into a series of written contracts for the purchase and sale of scooters manufactured in China" for importation into the United States. Id. Additionally, Defendants state that Huansong's Chairman of the Board, Song Li, and Baja's founder, President, and CEO met and agreed that the purchase of these scooters would be subject to arbitration in Beijing, even before the parties engaged in the transactions that are at the center of this dispute. Id. Based on these arbitration agreements, Defendants move this Court "for an order to compel Plaintiff's claims to arbitration pursuant to 9 U.S.C. § 206 and to stay proceedings pursuant to 9 U.S.C. § 3." ECF No. 79.

Baja responded in opposition to Defendants' Motion on April 14, 2014. ECF No. 81. Defendants Huansong and Hisun replied in support of their Motion on April 24, 2014. ECF No. 83. Baja filed a Supplemental Memorandum in Opposition on May 15, 2014. ECF No. 88. Defendants Huansong and Hisun filed a Response to Baja's Supplemental Memorandum on May 20, 2014. ECF No. 89. This matter is now ready for ruling.[1]

Standard of Review

The Federal Arbitration Act ("FAA"), codified at 9 U.S.C. § 1 et seq., establishes a "strong federal public policy in favor of enforcing arbitration agreements, " and is designed to "ensure judicial enforcement of privately made agreements to arbitrate." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217-19 (1985). The FAA was enacted by Congress in 1925 "to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts, and to place arbitration agreements on the same footing as other contracts." Snowden v. CheckPoint Check Cashing, 290 F.3d 631, 639 (4th Cir. 2002) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24 (1991)). "Underlying this policy is Congress' view that arbitration constitutes a more efficient dispute resolution process than litigation." Adkins v. Labor Ready, Inc., 303 F.3d 496, 500 (4th Cir. 2002) (internal citations omitted).

The FAA provides that arbitration clauses in contracts involving interstate commerce "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Under the FAA, a district court must compel arbitration and stay court proceedings if the parties have agreed to arbitrate their dispute. 9 U.S.C. §§ 2-3. But, if the validity of the arbitration agreement is in issue, a district court must first decide if the arbitration clause is enforceable against the parties. 9 U.S.C. § 4. "[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Drews Distrib., Inc. v. Silicon Gaming, Inc., 245 F.3d 347, 349 (4th Cir. 2001) (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)). "A court should not deny a request to arbitrate an issue unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." Id. at 349-350 (internal quotations omitted).

However, "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960); Adkins, 303 F.3d at 501 ("[E]ven though arbitration has a favored place, there still must be an underlying agreement between the parties to arbitrate." (internal quotations omitted)). "Whether a party agreed to arbitrate a particular dispute is a question of state law governing contract formation." Adkins, 303 F.3d at 501 (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). "[G]enerally applicable contract defenses, such as fraud, duress, or unconscionablity, may be applied to invalidate arbitration agreements without contravening § 2" of the FAA. Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996). "[T]he party resisting arbitration bears the burden of proving that the claims at issue are unsuitable for arbitration." Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91 (2000).


Defendants state that Baja and Huansong entered into a series of contracts, in the form of invoices, "which were signed by Jason Bodine, an authorized representative of Baja." ECF Nos. 79-1 & 79-2; see ECF No. 79-3. Each signed pro forma invoice contained the following arbitration provision:

All disputes arising from the execution or, of [sic] in connection with this contract, shall be settled amicably through friendly negotiation. In case no settlement can be reached through negotiation, the case shall then be submitted to The Foreign Trade Arbitration Commission of the China council For The Promotion of International Trade, Beijing, for arbitration [in] accordance with its provisional rules of procedure. The arbitral award is final and binding upon both parties. In case of any disput [sic] on the quality of the products, it will be justified by China Import and Export Commodity Inspection Bureau with their inspection result.

ECF No. 79-2. In addition, Defendants argue that "[p]rior to entering into the Contract, the CEO and President of Baja met with Song Li, Chairman of Huansong's Board, and they agreed that the parties would arbitrate any dispute arising from the sale of SC-50 scooters in Beijing, China." ECF Nos. 79-1 & 79-3.

Based on the arbitration language contained in the pro forma invoices, Defendants argue that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"), which Congress implemented by enacting Chapter 2 of Title 9 of the United States Code, is applicable and governs this Motion. ECF Nos. 79-1 & 83; see 9 U.S.C. § 201. Additionally, Defendants note that "Baja does not dispute that the Motion to Compel is governed by Chapter 2 of the Federal Arbitration Act." ECF No. 83. Defendants assert that this current lawsuit falls within the scope of the pro forma invoices' arbitration provision, which covers "[a]ll disputes arising from the execution or, of [sic] in connection with this contract." ECF Nos. 79-1 & 79-2. Defendants argue that Plaintiff's claims arise from, or in connection with, the underlying contract containing the Arbitration Clause and are therefore arbitrable, as Plaintiff's claims deal with "whether Huansong provided scooters to Baja which were EPA compliant, " and these scooters were purchased pursuant to contracts containing an arbitration provision. ECF No. 79-1. Additionally, Defendants assert that this Court has jurisdiction because the agreement to arbitrate is in writing; the agreement provides for arbitration in China, which is a signatory to the convention; the legal relationship between the parties is commercial because it "arises out of the purchase and sell ...

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