SSI Company LTD. v. Prosper Business Development Corporation

Background

SSI (Beijing) Company Ltd. entered into a contract with Prosper Business Development Corporation, one of SSI Beijing’s members. The contract required disputes to be resolved through binding arbitration in Delaware. It also provided that the contract’s validity, interpretation, and implementation would be governed by publicly available Chinese law.

Prosper alleged in June 2018 that SSI Beijing breached the contract and initiated arbitration proceedings. SSI Beijing initially agreed to arbitrate, participated in selecting the arbitration panel, and participated in scheduling a hearing. It later filed this case seeking a declaration that the arbitration agreement was invalid under Chinese law and an order stopping the arbitration. The parties later agreed to move the arbitration proceedings to New York.

SSI Beijing argued that the arbitration clause was invalid under Articles 16(2) and 18 of the Arbitration Law of the People’s Republic of China because it did not specify an arbitration institution. Instead, the contract provided for an ad hoc arbitration governed by rules addressing matters such as selecting the panel, scheduling and conducting the hearing, exchanging documents, and allocating costs.

Motions and Report and Recommendation

Prosper moved for judgment on the pleadings and to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Chapter Two of the Federal Arbitration Act. SSI Beijing cross-moved to stay the arbitration. Magistrate Judge Moses recommended granting Prosper’s motion to compel arbitration and denying SSI Beijing’s cross-motion. SSI Beijing objected, largely repeating arguments it had already made.

Because the objections were repetitive rather than specific, Judge Caproni reviewed the recommendation for clear error. She stated that her review found no clear error and adopted the recommendation in full.

Court’s Analysis

The court addressed which law governed the validity and enforceability of the arbitration clause. Although the contract selected Chinese law, the court concluded that federal law applied because SSI Beijing challenged a feature of the arbitration clause that was “peculiar to arbitration”—the alleged requirement that the clause identify an arbitration institution.

The court distinguished Motorola Credit Corp. v. Uzan, explaining that the earlier decision involved whether certain nonsignatories had agreed to arbitrate, rather than whether the content of an arbitration clause was valid under a rule specific to arbitration. Here, the parties’ agreement to arbitrate was undisputed; SSI Beijing challenged only the clause’s content.

The court held that the Federal Arbitration Act does not require an arbitration agreement to specify an arbitration institution. It therefore concluded that the arbitration clause was valid and enforceable under federal law. The court also reasoned that applying federal law honored the parties’ clear agreement to arbitrate and supported the federal policy favoring arbitration.

Disposition

The court granted Prosper’s motion to compel arbitration and denied SSI Beijing’s cross-motion to stay arbitration. The parties were directed to submit a joint letter by September 15, 2020, stating whether the case should be stayed while arbitration proceeded or closed. The Clerk of Court was directed to terminate the open motions at docket entries 19 and 23.