Control Screening, L.L.C. v. Technological Application and Production Company, No. 11-2896; Third Circuit; opinion by Sloviter, U.S.C.J.; filed July 26, 2012. Before Judges Sloviter, Roth and Pollak, District Judge, sitting by designation. On appeal from the District of New Jersey. [Sat below: Judge Hochberg.] DDS No. 11-8-7269 [12 pp.]

This dispute involves New Jersey-based Control Screening, L.L.C., and Vietnam-based Technological Application and Production Company, HCMC-Vietnam (Tecapro). Control Screening and Tecapro disagree about the proper interpretation of an arbitration forum-selection clause in their contract. The district court granted Control Screening’s motion and petition to compel arbitration in New Jersey, and Tecapro appealed.

Control Screening manufactures and sells X-ray and metal-detection devices for use in public facilities around the world. Tecapro is a private, state-owned company that was formed by the Vietnamese government for the purpose of introducing advanced technologies into the Vietnamese market.

In April 2010, Tecapro entered into a contract with Control Screening for the purchase of 28 customized AutoClear X-ray machines. Each party now alleges that the other party has breached its obligations under the contract. The contract provides that disputes shall be settled at International Arbitration Center of European Countries, which does not exist.

Tecapro initiated arbitration proceedings in Belgium under the Belgian Judicial Code. Control Screening filed a petition to compel arbitration in the U.S. District Court for the District of New Jersey. The petition requested that the district court compel arbitration of all disputed issues in New Jersey, appoint an arbitrator named by Control Screening, designate arbitration rules chosen by Control Screening, enjoin Tecapro from proceeding with arbitration in Belgium, and award attorney fees and costs. Tecapro opposed the petition, arguing the contract provided for arbitration in Europe and that, in any event, the district court lacked personal jurisdiction over it.

The district court determined that it had subject-matter jurisdiction under the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), and that it had personal jurisdiction over Tecapro because the company had sufficient contacts with New Jersey that relate to and arise out of the parties’ contract. The court granted Control Screening’s request to compel arbitration. Tecapro appeals.

Held: Because the forum-selection provision in the parties’ contract is “null and void,” the otherwise valid arbitration agreement is treated as if it does not select a forum. The district court appropriately compelled arbitration within its own district. Arbitration will proceed in New Jersey.

The relationship between Tecapro and Control Screening began in 2006, when Tecapro submitted a purchase order to Control Screening. The relationship flourished until Tecapro became the exclusive distributor of Control Screening products in Vietnam in 2009. Tecapro’s contacts with New Jersey were not limited to communications such as “emails, fax and skype,” but included the manufacture and assembly of major scanner components as well as the design of scanner software, all in New Jersey. Additionally, the April 2010 contract marked the continuation of an uninterrupted four-year business relationship between Tecapro and Control Screening. These factors — prior negotiations and contemplated future consequences, along with the terms of the contract and the parties’ actual course of dealing — support the conclusion that Tecapro purposefully established minimum contacts within the forum. Tecapro purposefully directed its activities at New Jersey, and those activities arose from or related to the contract between the parties. Moreover, the exercise of personal jurisdiction over Tecapro is neither unfair nor unjust. Thus, the district court correctly determined that Tecapro’s activities in New Jersey adequately supported a finding of specific jurisdiction.

The parties agree that their contract dispute should be arbitrated but do not agree on where arbitration should take place. The arbitration clause provides in relevant part that “disputes shall be settled at International Arbitration Center of European countries for claim in the suing party’s country under the rule of the Center.” The “International Arbitration Center of European countries” does not exist. The central question, therefore, is how to interpret this clause in order to determine the appropriate arbitration forum.

In 1958, the U.N. Economic and Social Council adopted the New York Convention. In 1970, the United States acceded to the treaty, and Congress passed Chapter 2 of the FAA, implementing the convention. The convention requires contracting states to recognize written arbitration agreements concerning subject matter capable of arbitration. The United States, where Control Screening is a citizen, is a signatory to the convention, as is Vietnam, where Tecapro is a citizen.

Article II(3) of the New York Convention contains the “null and void” defense that is available in actions to “refer the parties to arbitration.” An agreement to arbitrate is null and void only (1) when it is subject to an internationally recognized defense such as duress, mistake, fraud or waiver, or (2) when it contravenes fundamental policies of the forum state. In this case, since the parties mistakenly designated an arbitration forum that does not exist, the forum-selection provision of the arbitration agreement is “null and void” under Article II(3). Nonetheless, there is sufficient indication elsewhere in the contract of the parties’ intent to arbitrate, meaning that the parties’ agreement to arbitrate remains in force. Thus, the circuit panel finds that the invalid forum-selection provision is severable from the rest of the arbitration agreement.

Because the forum-selection provision is “null and void,” the otherwise valid arbitration agreement is treated as if it does not select a forum. When an arbitration agreement lacks a term specifying location, a district court may compel arbitration only within its district. Because the district court here compelled arbitration within its own district (even though it based its decision on other grounds), the circuit panel will affirm the judgment of the district court compelling arbitration to proceed in New Jersey.

For appellant — Lauren E. Komsa and Anthony J. Pruzinsky (Hill Rivkins). For appellee — Donald P. Jacobs (Budd Larner).