Huzhou Chuangtai Rongyuan Investment Management Partnership v. Qin

Background

Three investment partnerships invested a total of RMB 1.5 billion in Chengdu Run Yun Culture Communication Co., Ltd., a Chinese limited liability company that operates movie theaters. Each petitioner entered a capital increase agreement with Chengdu Run Yun, Shenzhen SMI Shengdian Cultural and Media Group Co., Ltd., and SMI International Cinemas Limited. The petitioners also signed a supplemental agreement with Hui Qin and SMI Shengdian. That agreement required the original shareholders of Chengdu Run Yun to buy back the petitioners’ equity if specified events occurred, including failure to meet performance targets or failure to complete a public offering within the agreed period.

The agreements required disputes to be submitted to the China International Economic and Trade Arbitration Commission in Beijing. In March 2020, the petitioners began arbitration against Qin, SMI Shengdian, SMI International, and Chengdu Run Yun. The arbitration panel found that the agreements were valid and binding, determined that Qin qualified as an original shareholder for purposes of the buyback provision, and ruled for the petitioners on all or part of their seven claims. The award required the respondents to make equity-related payments, transfer equity, pay additional damages and expenses, and bear most of the arbitration fee.

The petitioners then sought confirmation of the foreign arbitration award in the Southern District of New York. The court treated the request as a motion for summary judgment, which is granted when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law.

Qin’s Objections to Confirmation

Qin relied on four defenses under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly called the New York Convention. He argued that the supplemental agreement was invalid, that he did not receive proper notice or a meaningful opportunity to present his case, that the arbitration procedure and panel composition did not follow the parties’ agreement, and that enforcement would violate U.S. public policy.

The court rejected the validity defense. Qin argued that the supplemental agreement lacked signatures from all parties to the capital increase agreements and imposed obligations he could not perform. But he provided no Chinese legal authority or other proof supporting those theories. The court also held that Qin’s argument that he was not an original shareholder was an attempt to relitigate the arbitration panel’s contract interpretation, rather than a valid challenge to the agreement. Because the panel had considered the issue and reached a supportable conclusion, the court would not reconsider that merits determination.

The court also rejected Qin’s notice and fair-hearing defense. CIETAC’s first two mailed service attempts were unsuccessful, but a later mailing went to the North Alley Address attributed to Qin in the supplemental agreement, and CIETAC determined that service there succeeded. Qin later requested additional copies of the arbitration documents, and he and the other parties were represented by counsel at the hearing and had opportunities to submit evidence and arguments. The court concluded that these procedures gave Qin reasonable notice and a meaningful opportunity to participate. His disagreement with the panel’s treatment of his fraud argument did not establish that he was unable to present his case. The court also explained that arbitration does not necessarily provide all courtroom procedures, including the ability to present witnesses.

The court found no defect in the panel’s formation. The agreements and CIETAC’s rules gave the arbitral respondents fifteen days to select an arbitrator and allowed CIETAC to appoint one if they did not do so. Because the respondents did not timely submit a selection, CIETAC appointed all three panel members. The court concluded that Qin forfeited his appointment right by failing to nominate an arbitrator on time. Qin’s separate argument that the petitioners had not negotiated before starting arbitration was rejected because he had not raised it before the arbitration panel and therefore had waived it in the confirmation proceeding.

Finally, the court rejected Qin’s public-policy arguments. Qin asserted that enforcement would help a fraudulent scheme involving Chengdu Run Yun’s assets, but he identified no clearly established U.S. public policy supporting that theory. He also alleged that an arbitrator was biased because of a law-firm affiliation. The court noted that the arbitrator resigned about one month after appointment and did not participate in the hearing or decision. Qin’s assertion that the arbitrator might nevertheless have influenced the other arbitrators was conclusory and unsupported by specific facts.

Ruling

Judge Katherine Polk Failla granted the petitioners’ motion for summary judgment and confirmed the CIETAC award. The court directed the petitioners to submit a proposed judgment consistent with the award within fourteen days, with the amounts calculated in U.S. dollars after conversion from Renminbi. The opinion does not state that the proposed judgment had already been entered.