Pak v. EoCell, Inc.

Background

The dispute involved EoCell Ltd., a Hong Kong corporation formed by Michael Pak and EoCell, Inc., which the opinion describes as EoCell Ltd.’s wholly owned subsidiary and the only defendant that had been served. After Pak was fired as EoCell Ltd.’s chief executive officer, Pak and his corporation, Sputnik, filed a California state-court action. They asserted claims for Pak and Sputnik individually and claims on behalf of EoCell Ltd.’s shareholders.

EoCell, Inc. removed the case to federal court and moved to stay the proceedings and compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The motion relied on an arbitration provision in EoCell Ltd.’s Shareholders Agreement. Pak then filed a first amended complaint that substantially changed his claims and moved to remand the case to state court. EoCell, Inc. moved to strike the amended complaint, arguing that it had been filed in bad faith.

Motion to Compel Arbitration

The court granted EoCell, Inc.’s motion to compel arbitration. The court explained that the parties may delegate the question of arbitrability—whether a dispute falls within the arbitration agreement—to the Hong Kong International Arbitration Centre if the agreement provides clear and unmistakable evidence of that delegation.

The Shareholders Agreement incorporated the Hong Kong International Arbitration Centre’s Administered Arbitration Rules. The court relied particularly on Rules 19.4 and 19.5. Those rules state that questions about the existence, validity, or scope of the arbitration agreement, and questions about the tribunal’s jurisdiction, are to be decided by the arbitral tribunal after it is constituted. The court held that these provisions clearly showed an intent to delegate arbitrability questions to the tribunal.

The court also held that the agreement could be enforced against Pak even though he did not sign it. It found that Sputnik had signed the agreement as Pak’s alter ego. The court further ruled that Pak’s removal of allegations concerning his and Sputnik’s alter-ego status from the amended complaint did not negate the earlier allegations in the original complaint.

Motion to Remand and Attorney’s Fees

The court denied Pak’s motion to remand and his motion for attorney’s fees. It gave two reasons for declining to send the case back to state court: remand would merely delay the inevitable, and the dispute was an international business dispute rather than a local matter for which a federal court might ordinarily defer to a state court.

Motion to Strike

The court denied EoCell, Inc.’s motion to strike Pak’s first amended complaint. The court found that Pak amended the complaint as a matter of right within the time allowed by the federal rules. It also noted that plaintiffs commonly amend complaints after removal in an effort to remove federal claims and obtain remand.

Disposition

Because the motion to compel arbitration was granted, the court dismissed the action without prejudice. The opinion separately states that the motion to remand and attorney’s-fees motion were denied, and that EoCell, Inc.’s motion to strike was denied.