Mediterranean Enterprises, Inc. v. Ssangyong Construction Co. concerns the interpretation of the words “arising hereunder” in an arbitration agreement.
By way of background, the parties to the proceeding signed a “Preliminary agreement on Formation of a Joint Venture” in 1978.
The agreement contained an Arbitration Clause, stating that “any disputes arising hereunder or following the formation of joint venture shall be settled through binding Arbitration pursuant to the Korean US Arbitration Agreement, with Arbitration to take place in Seoul, Korea.”
In 1980, Mediterranean filed a lawsuit in District Court against Ssangyong, alleging breach of contract and breach of fiduciary duty, inducing and conspiracy to induce breach of contract, quantum meruit and conversion. The District Court rejected Mediterranean’s contention that Ssangyong had fraudulently inserted the words “arising hereunder or” in the Arbitration clause. Mediterranean argued that arbitration proceedings should be stayed, as it had not consented to arbitration. Ssangyong, on the other hand, claimed that the federal policy favoring arbitration especially in international agreements should govern. The Court held that claims 1, 2 and 4 were under the scope of the arbitration agreement, whereas claims 7 and 8 should be decided by the court. Nevertheless it provided a stay of the action pending arbitration.
Regarding the interpretation of the Arbitration Clause, the 9th Circuit Court of Appeals went on to interpret “arising hereunder” as being synonymous with “arising under the Agreement.”
It is a narrow clause, it found, as opposed to all claims “arising out or in connection with – relating to this agreement”.
Therefore, the Court held that the Arbitration was restricted to disputes and controversies relating to the interpretation of the contract and matters of performance.
Regarding the scope of interpretation, the Court of Appeals held that “breach of contract and breach of fiduciary duty” clearly fall within the scope of the Arbitration Clause, thus were subject to Arbitration. However, “inducing and conspiracy, quantum meruit and conversion” were issues that are wholly outside the scope of Arbitration Clause.