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

Background

On December 6, 2023, the court denied the Weld defendants’ motion to compel Hitachi to arbitrate, except as to a fraudulent-transfer claim in the Subrogation Action. The court also denied the Weld defendants’ request to stay the litigation while arbitration proceedings continued. The Weld defendants filed an interlocutory appeal on January 4, 2024.

Because federal law allows an interlocutory appeal from an order denying arbitration or a stay related to arbitration, and because such an appeal automatically stays the district-court proceedings, Hitachi proposed asking the court to certify that the appeal was frivolous. Hitachi also asked the court to retain jurisdiction under the “dual jurisdiction doctrine,” which can allow a district court to continue handling a case during an appeal certified as frivolous. The parties’ pre-motion letters were treated as the motions themselves.

Court’s Analysis

The court disagreed with the Weld defendants’ descriptions of the issues they intended to raise. First, the court said that the Second Circuit had already addressed whether an agreement’s incorporation of arbitral rules delegating questions about arbitrability to an arbitrator can bind nonparties. Applying that rule, the court had previously concluded that the EPA and LLC Agreement’s incorporation of JAMS rules could not bind Hitachi because Hitachi was not a party to either agreement.

Second, the court rejected the Weld defendants’ assertion that the earlier order failed to address whether Hitachi had to arbitrate both the claims in the arbitration demand and the Weld defendants’ counterclaims. The court clarified that, apart from the fraudulent-transfer claim in the Subrogation Action, Hitachi did not have to arbitrate any claim with the Weld defendants, regardless of whether the claim appeared in the arbitration demand or in counterclaims. The court also stated that it did not need to decide whether Hitachi was bound to arbitrate the counterclaims because the Weld defendants had broadly waived their right to bring counterclaims.

Despite describing the Weld defendants’ arguments as very weak and potentially meritless, the court emphasized that the standard for certifying an appeal as frivolous is especially strict. It also noted that Congress had expressly granted a right to take this type of interlocutory appeal.

Ruling

Judge Naomi Reice Buchwald denied Hitachi’s motion to certify that the Weld defendants’ appeal was frivolous. The automatic stay triggered by the interlocutory appeal therefore remained in effect until the appeal was resolved. The order did not change the court’s earlier arbitration ruling.