Epicenter Loss Recovery LLC sued two foreign entities, Burford Capital Limited and its wholly owned subsidiary Ganymede Investments Limited, asserting various tort and contract claims. The dispute arose from a contract that Epicenter signed, which stated it was 'subject to' a concurrently executed agreement containing a broad arbitration clause. Although Burford was not a direct signatory to the initial contract, Epicenter's claims were closely related to the contractual obligations involving Ganymede. The district court granted Burford's motion to compel arbitration and dismissed Epicenter's suit for lack of subject-matter jurisdiction after the arbitration proceedings concluded. Epicenter appealed, challenging both the compulsion of arbitration and the jurisdictional basis of the dismissal.
The Ninth Circuit applied de novo review to the district court's order. First, the court addressed whether a valid arbitration agreement existed. Under the Federal Arbitration Act, courts must compel arbitration if a valid agreement exists. The court applied Arizona law to interpret the contract, noting that the phrase 'subject to' is sufficient to incorporate an arbitration clause from a separate document by reference. By executing the contract, Epicenter agreed to arbitrate and to delegate questions of arbitrability to the arbitrator. Second, the court addressed whether Burford, a non-signatory, could enforce the agreement. The court applied federal common law because the agreement falls under the New York Convention. Under federal estoppel principles, a non-signatory may enforce an agreement if there is a close relationship between the entities and the claims are intertwined with the underlying contract. The court found these standards met because Ganymede was a wholly owned subsidiary created solely for this purpose, and all claims were intertwined with the contract. Finally, the court addressed the dismissal. While agreeing that Epicenter could not obtain relief in court because the claims were sent to arbitration, the court held that the dismissal should have been on the merits. The court explained that legal limitations on a court's remedial powers do not affect its jurisdiction, citing Steel Co. v. Citizens for a Better Env't.
The decision reinforces the enforceability of arbitration clauses incorporated by reference using broad language like 'subject to' under Arizona law. It clarifies that parent companies can be bound by arbitration agreements signed by their subsidiaries when the business relationship is close and claims are intertwined. Practically, litigants facing similar arbitration disputes will likely be compelled to arbitrate, and courts should dismiss such cases on the merits rather than for lack of jurisdiction. The ruling resolves the specific dispute in favor of the defendants, leaving Epicenter to pursue its claims in arbitration.
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