Hitachi Construction Machinery Co., Ltd. v. Acme Business Holdco, LLC

Background

These two related actions concern Acme’s defaults on numerous loans. Hitachi had guaranteed those loans and paid approximately $384 million to four lenders. In the first action, Hitachi claimed that Woodrow D. Weld and Weld Holdco, LLC breached a 2022 Master Cross Guarantee by failing to pay their share of Hitachi’s guarantee payments. In the second action, Hitachi relied on equitable subrogation—the claimed right to pursue rights held by the lenders—and asserted claims against Acme and other defendants, including a fraudulent transfer claim against the Weld defendants.

Earlier agreements involving Acme included arbitration provisions. The later Cross Guarantee, which Hitachi signed with the Weld defendants, required legal actions concerning that guarantee to be brought in New York courts. The Cross Guarantee also stated that the Weld defendants unconditionally and irrevocably guaranteed payment and waived defenses, counterclaims, and offsets of any kind relating to the validity or enforcement of the relevant obligations.

Motions and arbitration analysis

The Weld defendants moved in both actions to compel arbitration and stay the litigation. They also moved to dismiss the fraudulent transfer claim for lack of personal jurisdiction. Hitachi moved in the Guarantee Action under Federal Rule of Civil Procedure 12(f) to strike the Weld defendants’ eleven affirmative defenses and under Rule 12(b)(6) to dismiss their six counterclaims.

The court decided that it, rather than the arbitrator, should determine whether Hitachi was required to arbitrate. Hitachi was not a signatory to the earlier Equity Purchase Agreement or LLC Agreement, so references in those agreements to JAMS arbitration rules did not clearly show that Hitachi agreed to let an arbitrator decide arbitrability.

The court denied arbitration for Hitachi’s breach-of-contract claim under the Cross Guarantee. The court reasoned that Hitachi had signed the Cross Guarantee, which required covered legal actions to be brought in New York courts, and that Hitachi’s claim was based solely on that agreement. The court also stated that the Cross Guarantee’s later, mandatory, all-inclusive forum-selection clause would supersede an earlier arbitration agreement even if one otherwise applied.

The court reached the opposite conclusion concerning Hitachi’s fraudulent transfer claim. Hitachi’s complaint relied on the LLC Agreement’s incorporation of Delaware law governing distributions that could make Acme insolvent. Because Hitachi asserted a claim dependent on that agreement, the court held that Hitachi had received a direct benefit from the agreement and could not avoid its arbitration provision, even though Hitachi did not sign the agreement. The fraudulent transfer claim was therefore required to proceed in arbitration. The other claims in the Subrogation Action remained before the court because the defendants on those claims had not moved to compel arbitration.

Stay and personal jurisdiction

The court denied the Weld defendants’ request to stay the litigation while the arbitration proceeded. It found that the Weld defendants had delayed before raising arbitration, had not shown that a stay was necessary, and had not demonstrated that a stay would avoid prejudice to Hitachi. The court also rejected reliance on factual similarities between the Weld defendants’ arbitration claims and their own counterclaims, describing that overlap as created by the defendants during the litigation.

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. The court denied the Weld defendants’ motion to dismiss that claim for lack of personal jurisdiction as moot.

Affirmative defenses and counterclaims

The court held that the Cross Guarantee’s broad and unconditional language waived the Weld defendants’ affirmative defenses and counterclaims. It rejected the argument that the waiver did not cover the defenses and counterclaims asserted here, including allegations concerning fraud or Hitachi’s conduct. The court also concluded that the Cross Guarantee expressly permitted Hitachi to change or modify the loan obligations, so the Weld defendants could not avoid the waiver by characterizing Hitachi’s alleged conduct as wrongful post-agreement conduct.

Disposition

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