Hitachi Construction Machinery Co., Ltd. v. Weld Holdco, LLC

Background

The two actions arose from Acme’s default on numerous loans. Hitachi had guaranteed those loans and paid $384 million to four lenders. In the Guarantee Action, Hitachi alleged that Woodrow D. Weld and Weld Holdco, LLC violated a 2022 Master Cross Guarantee by failing to pay their pro-rata share of Hitachi’s guarantee payments. In the Subrogation Action, Hitachi claimed a right to stand in the lenders’ position and asserted claims against several defendants, including a fraudulent transfer claim against the Weld defendants.

Several agreements were relevant. The 2018 Equity Purchase Agreement and Acme’s operating agreement contained arbitration provisions. Hitachi was not a party to either of those agreements. The 2018 Guarantee Agreement, 2018 Guarantee Fee Agreement, and 2022 Cross Guarantee, which Hitachi did sign, contained mandatory provisions requiring legal actions related to those agreements to be brought in New York courts. The Cross Guarantee also required the Weld defendants to guarantee payment unconditionally, absolutely, and irrevocably, and stated that they waived defenses and counterclaims of any kind relating to the validity or enforceability of the relevant obligations.

The Weld defendants filed an arbitration demand against Hitachi and two Hitachi subsidiaries. They then moved in both lawsuits to compel arbitration and stay the litigation. They also moved to dismiss Hitachi’s fraudulent transfer claim for lack of personal jurisdiction. Hitachi moved in the Guarantee Action to strike the Weld defendants’ eleven affirmative defenses and dismiss their six counterclaims.

Arbitration of the Guarantee Action claim

The court held that Hitachi’s breach-of-contract claim based on the Cross Guarantee must remain in court. Hitachi had not signed the earlier agreements containing arbitration provisions, and the agreements it did sign required related legal actions to be brought in New York courts. The court also concluded that, even if an earlier arbitration agreement applied, the later Cross Guarantee’s broad and mandatory forum-selection clause superseded it because the clause required any legal action related to the Cross Guarantee to be brought in New York courts.

Accordingly, the Weld defendants’ motion to compel arbitration was denied as to Hitachi’s breach-of-contract claim in the Guarantee Action.

Arbitration of the fraudulent transfer claim

The court reached the opposite result for Hitachi’s fraudulent transfer claim in the Subrogation Action. Although Hitachi did not sign the operating agreement, a non-signing party may be required to arbitrate under ordinary contract principles, including estoppel. Estoppel can apply when the non-signing party knowingly receives a direct benefit from an agreement containing an arbitration provision.

The court found that Hitachi’s claim depended on the operating agreement because Hitachi alleged that the agreement prohibited distributions that would make Acme insolvent and incorporated a Delaware statute imposing that restriction. By asserting the fraudulent transfer claim under the operating agreement, Hitachi derived a direct benefit from it and could not avoid its arbitration provision. The court therefore held that Hitachi was required to arbitrate that claim.

The court emphasized that this ruling applied only to the fraudulent transfer claim against the Weld defendants. The other claims in the Subrogation Action remained before the court because the defendants named in those claims had not moved to compel arbitration or otherwise argued that those claims were arbitrable.

Personal jurisdiction and stay

Because the fraudulent transfer claim had to be arbitrated, the court did not decide whether it had personal jurisdiction over the Weld defendants for that claim. It denied the Weld defendants’ motion to dismiss that claim for lack of personal jurisdiction as moot.

The court also denied the Weld defendants’ request to stay the litigation pending arbitration. The Weld defendants had the burden to show that a stay was necessary. The court found that they had delayed raising arbitration, had not shown sufficient factual overlap between Hitachi’s arbitrable and non-arbitrable claims, and had not shown that a stay would avoid prejudice to Hitachi. The request for a stay was denied in full.

Affirmative defenses and counterclaims

The court granted in full Hitachi’s motion to strike the Weld defendants’ affirmative defenses and dismiss their counterclaims. Applying New York law, the court held that the Cross Guarantee’s broad, sweeping, and unequivocal language waived defenses and counterclaims relating to the validity or enforcement of the guaranteed obligations. The court rejected the Weld defendants’ arguments that the waiver did not cover their defenses and counterclaims or that their alleged wrongful-conduct defenses concerned later conduct outside the waiver.

The court found that Hitachi’s alleged decision not to renew guarantees was expressly permitted by the Cross Guarantee and therefore did not qualify as wrongful conduct that could avoid the waiver. The court concluded that all eleven affirmative defenses and six counterclaims were waived as a matter of law.

Disposition

The court’s conclusion states that the Weld defendants’ motion to compel arbitration was denied in part and granted in part: it was denied as to the Guarantee Action’s breach-of-contract claim and granted as to the Subrogation Action’s fraudulent transfer claim. The motion to dismiss the fraudulent transfer claim for lack of personal jurisdiction was denied as moot. The request to stay the litigation was denied in full. Hitachi’s motion to strike the affirmative defenses and dismiss the counterclaims was granted in full. Judge Naomi Reice Buchwald entered the order on December 6, 2023.