Sankyo Corp v. Nakamura Trading , 139 F. App'x 648 ( 2005 )

File Name: 05a0190n.06
Filed: March 15, 2005
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
No. 04-1337
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
SANKYO CORPORATION, et al. )
)
Plaintiffs-Appellants, )
) ON APPEAL FROM THE UNITED
-vs- ) STATES DISTRICT COURT FOR THE
) EASTERN DISTRICT OF MICHIGAN
NAKAMURA TRADING )
CORPORATION, )
)
Defendant-Appellee.
Before: NELSON and SUTTON, Circuit Judges; WELLS, District Judge*
WELLS, District Judge. Appellants Sankyo Corporation, Sankyo North America
Corporation, and Satoru Kagitani appeal the district court’s dismissal of their complaint
for lack of subject matter jurisdiction. Appellants’ complaint sought a determination on
whether certain claims, if filed by the appellee, would be subject to arbitration. Because
we conclude that such a question presents an ephemeral dispute which fails the case or
controversy requirement of Article III of the United States Constitution, we affirm the
judgment of the district court.
*
The Honorable Lesley Wells, United States District Judge for the Northern District of Ohio, sitting
by designation.
I.
In 1997, Masahiro Nakamura and Satoru Kagitani, Chairman and CEO of Sankyo
Corporation, a Japanese manufacturer, entered into discussions about the creation of a
joint enterprise which would market and sell Sankyo Corporation products in the United
States. These discussions culminated in the formation of appellee Nakamura Trading
Corporation (“NTC”), an Illinois corporation jointly owned by Mr. Nakamura and Sankyo
Corporation.1
After carrying on their business relationship for several years without a signed
contract, NTC and Sankyo Corporation entered into a written Basic Distributorship
Agreement (“Agreement”) on April 1, 2002. The Agreement provided that NTC would
market and sell Sankyo Corporation’s products in overseas markets while functioning as
its commission agent. In addition to outlining the rights and responsibilities of both
parties, the Agreement, in Article 17, provides that when international disputes arise:
[A]rbitration proceedings shall take place in the State of Illinois if [Sankyo
Corporation] sues [NTC], and arbitration proceedings shall take place in
Hyogo Prefecture if [NTC] sues [Sankyo].2
(JA 93). The Agreement specified that it was effective until April 1, 2004 and “shall be
extended for another year if neither [party] objects.” (JA 93). If either party wished to
terminate the Agreement, it was required to provide three months advance notice in
writing.
1
NTC was 60% owned by Mr. Nakamura and 40% owned by Sankyo Corporation.
2
For the purpose of analysis, we assume, without deciding, that this provision constitutes a valid,
mandatory arbitration provision.
2
For several reasons, including NTC’s lack of profitability, Sankyo Corporation
sent a letter purporting to terminate the Agreement with NTC, effective May 18, 2003.
During a July 12, 2003 meeting, in which the wind-up of their business relationship was
discussed, Mr. Nakamura told Mr. Kagitani that Sankyo Corporation still owed NTC
$3,000,000. When Sankyo denied any such obligation, Mr. Nakamura sent several
letters reiterating his $3 million demand and advising Mr. Kagitani that NTC was
prepared to litigate this case in a United States District Court. Included with his August
10, 2003 letter, Mr. Nakamura sent Mr. Kagitani a draft complaint raising several
common law claims and a statutory claim based on Illinois law. In his correspondence,
Mr. Nakamura imposed several deadlines – September 10, 2003, September 28, 2003,
and the end of October – by which litigation would be initiated if no response or
counterproposal was forthcoming. Despite Sankyo’s refusal to agree to Mr. Nakamura’s
demands, the first two deadlines passed without incident.
On October 28, 2003, plaintiffs Sankyo Corporation, Sankyo North American
Corporation, and Mr. Kagitani (collectively referred to as “Sankyo”) elected to file their
own lawsuit in United States District Court for the Eastern District of Michigan against
NTC, seeking declaratory and injunctive relief. Specifically, Sankyo sought a
declaratory judgment that any claims brought by NTC against Sankyo relating to the
Agreement, including those set forth in the draft complaint, were subject to mandatory
arbitration in Hyogo Prefecture, Japan, and an injunction preventing NTC from bringing
such claims in any tribunal other than an arbitration tribunal in Hyogo Prefecture,
3
Japan.3 Although Sankyo’s complaint sought to determine the proper jurisdiction of
NTC’s possible claims, Sankyo contended that it had no intention of seeking any
affirmative recovery against NTC because it had concluded that NTC was uncollectable.
Sankyo asserted that the district court had jurisdiction over its complaint pursuant to 9
U.S.C. § 203.4
On October 30, 2003, the district court judge ordered Sankyo to show cause why
its lawsuit should not be dismissed because of the absence of an actual case or
controversy. After briefing by both parties, the district court dismissed the action,
concluding that Sankyo’s complaint sought a “hypothetical ruling” which did not involve
an actual case or controversy.
II.
The central issue on appeal is whether the district court had jurisdiction over the
claims asserted by Sankyo in its complaint.5 Federal jurisdiction is limited to actual
3
Sankyo’s complaint could be interpreted as seeking an order to force NTC to litigate any claims
it has, including those set forth in the draft complaint, in an arbitration proceeding. However, during oral
arguments, Sankyo conceded that a court could not force NTC to litigate claims it elects not to pursue.
4
Section 203 provides:
An action or proceeding falling under the Convention [on the Recognition and
Enforcement of Foreign Arbitral Awards] shall be deemed to arise under the laws and
treaties of the United States. The district courts of the United States (including the courts
enumerated in section 460 of title 28) shall have original jurisdiction over such an action or
proceeding, regardless of the amount in controversy.
The Convention allows federal courts, under some circumstances, to compel arbitration either in this
country or abroad in international commercial disputes. 9 U.S.C. §§ 202 and 206.
5
In addition to challenging the district court’s conclusion, Sankyo takes issue with the district
court’s refusal to hold an evidentiary hearing and its factual finding that there was no lawsuit “looming on
the horizon.” Since no case or controversy is presented by Sankyo’s complaint regardless of the
likelihood of a NTC lawsuit, factual findings about the likelihood of such a lawsuit were unnecessary.
Accordingly, Sankyo’s objections, to the district court’s factual finding or the procedures used to reach it,
lack merit.
4
cases or controversies. See North Am. Natural Resources, Inc. v. Strand, 252 F.3d
808, 812 (6th Cir. 2001) (explaining that “[o]ne of the fundamental axioms of American
jurisprudence is that a federal court may consider only actual cases or controversies.”)
This jurisdictional prerequisite is firmly rooted in the United States Constitution which
provides, in pertinent part, that “[t]he judicial power shall extend to all Cases, in Law and
Equity, arising under this Constitution, the Laws of the United States, and Treaties . . .
[and] to Controversies . . . .” U.S. Const., Art. III, sec. 2, cl. 1. This case or controversy
requirement prevents federal courts from rendering advisory opinions or considering
hypothetical or abstract questions. Hall v. Beals, 396 U.S. 45, 48 (1969); see also U.S.
Nat. Bank of Oregon v. Independent Ins. Agents of America, Inc., 508 U.S. 439, 446
(1993); McCurry ex rel. Turner v. Adventist Health System/Sunbelt, Inc., 298 F.3d 586,
597 (6th Cir. 2002); Strand, 252 F.3d at 812-13.
While the difference between an abstract question and a case or controversy is
one of degree, not discernible by any precise test, the basic inquiry is whether:
the conflicting contentions of the parties . . . present a real, substantial
controversy between the parties having adverse legal interests, a dispute
definite and concrete, not hypothetical or abstract.
Babbitt v. Farm Worker’s Nat’l Union, 442 U.S. 289, 297-98 (1979); see also Golden v.
Zwickler, 394 U.S. 103, 108 (1969) (applying the same test in the declaratory judgment
context).6 This threshold issue is one that the Court of Appeals reviews de novo.
6
Although Sankyo did not specifically invoke the Declaratory Judgment Act, 28 U.S.C § 2201, in
its complaint, it clearly seeks declaratory relief governed by that statute. The Declaratory Judgment Act
provides that in "a case of actual controversy within its jurisdiction" a federal court "may" give a declaratory
judgment, a power permissive, not mandatory. Grand Trunk Western R. Co. v. Consolidated Rail Corp.,
746 F.2d 323, 325 (6th Cir. 1984). When defendant seeks injunctive relief in addition to declaratory relief,
the requirement of an “actual controversy” in the Declaratory Judgment Act is identical to the “case or
controversy” requirement of Article III. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-40 (1937).
Accordingly, the requisite “case or controversy” analysis is the same with respect to Sankyo’s separate
requests for injunctive and declaratory relief.
5
Strand, 252 F.3d at 812. To the extent that the district court’s jurisdictional ruling rests
on factual findings, the Court of Appeals must accept those findings unless they are
clearly erroneous. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1135
(6th Cir. 1996).
Declaratory judgment actions, like the present one, often require courts to face
the difficult task of distinguishing "between actual controversies and attempts to obtain
advisory opinions on the basis of hypothetical controversies." Kardules v. City of
Columbus, 95 F.3d 1335, 1343-44 (6th Cir. 1996). To satisfy the case or controversy
requirement, the dispute "must be definite and concrete" and must allow for "specific
relief through a decree of a conclusive character, as distinguished from an opinion
advising what the law would be upon a hypothetical set of facts." Haworth, 300 U.S. at
240-41.
Sankyo contends that the district court failed to apply the proper test for
determining the existence of an actual case or controversy, given the facts of this case.
It suggests that the appropriate test for determining the existence of a case or
controversy in the context of potential litigation is whether defendant’s actions have
created a reasonable apprehension on the plaintiff’s part that the defendant will initiate
litigation. Based on that “test” and Sankyo’s assertion that the evidence in the record
supported a conclusion that it faces a “reasonable apprehension” of litigation, Sankyo
argues that the district court incorrectly dismissed its case. We disagree with Sankyo’s
articulation of the “test” to be applied in the context of this case and with its resulting
conclusion.
6
Beginning with a faulty premise, Sankyo overstates the test for the existence of a
case or controversy in the context of threats of future litigation and the applicability of
this so-called rule to the present case. Although a few circuits have employed the
“reasonable apprehension” language in cases involving the possibility of future litigation,
Spokane Indian Tribe v. United States, 972 F.2d 1090, 1092 (9th Cir. 1992) (concluding
that a justiciable case or controversy exists if the “defendant's actions cause the plaintiff
to have a ‘real and reasonable apprehension that he will be subject to liability.’”); Collin
County, Texas v. Homeowners Association for Values Essential to Neighborhoods, 915
F.2d 167, 172 (5th 1990) (dismissing a declaratory judgment action because plaintiffs’
had “no apprehension” of a lawsuit); Atlas Air, Inc. v. Air Line Pilots Assoc., Intl., 232
F.3d 218, 227 (D.C. Cir. 2000) (concluding that union posturing in labor negotiations or
threats to respond to future changes to a collective bargaining agreement “is insufficient
to create the reasonable apprehension of litigation necessary for the claim to be
justiciable”), none of these cases stand for the categorical rule suggested by Sankyo.
To the contrary, to meet the jurisdictional requirements of Article III’s “case” or
“controversy” requirement, “a plaintiff must, generally speaking, demonstrate that he
has suffered ‘injury in fact,’ that is ‘fairly traceable’ to the actions of the defendant, and
that the injury will likely be redressed by a favorable decision.” Bennett v. Spear, 520
U.S. 154, 162 (1997). The Supreme Court has clearly identified what qualifies as injury
in fact: “[W]e have said may times before and reiterate today: Allegations of possible
future injury do not satisfy the requirements of Art. III. A threatened injury must be
‘certainly impending’ to constitute injury in fact.” Whitmore v. Arkansas, 495 U.S. 149,
158 (some quotations marks omitted); Deja Vu of Nashville, Inc. v. Metropolitan Gov’t of
7
Nashville and Davidson County, Tennessee, 274 F.3d 377, 399 (6th Cir. 2001)
(“Ripeness requires that the ‘injury in fact be certainly impending.’”).
In our view, the cases relied on by Sankyo are unhelpful because each involves
a very specific factual situation and none reach the particular fact pattern at issue in this
case. The critical facts of this case are:
• Sankyo has no plan to pursue any affirmative claims against NTC;
• NTC has threatened litigation against Sankyo; and,
• NTC’s claims are arguably subject to arbitration.
While the underlying facts are not uncommon, Sankyo’s response is somewhat atypical.
More commonly, NTC would decide whether or not to sue Sankyo, and, if it elected to
do so, Sankyo, at that time, would file a motion to compel arbitration. In this case,
Sankyo is attempting to take preemptive action by filing a lawsuit to settle the arbitration
question in advance. Such a novel approach is precluded by the Case and Controversy
requirement of the United States Constitution.
Absent one unreported case from the Northern District of Alabama which did not
explicitly address case or controversy issues,7 all of the cases cited by Sankyo are
inapposite. Sankyo’s case law essentially consists of actions filed by plaintiffs for one of
two purposes: 1) to compel arbitration of their affirmative claims when defendants have
resisted arbitration;8 or 2) to obtain a declaratory judgment to resolve the substantive
7
See ITT Consumer Financial Corp. v. McNaughton, 1991 WL 519584 (N.D. Ala., April 12,
1991).
8
See Prudential Lines, Inc. v. Exxon Corporation, 704 F.2d 59, 61 (2nd Cir. 1983);
Schieffsbetriebs GMBH & Co. KG v. Pan American Grain, 1994 WL 584657 (S.D. N.Y., October 24,
1994); Galveston Maritime Association, Inc. v. South Atlantic & Gulf Coast District, Int’s Longshoremen’s
Assoc., 234 F. Supp. 250, 251-52 (S.D. Tex. 1994); Greenwich Marine, Inc. v. S.S. Alexandra, 225 F.
Supp. 671, 673 (S.D.N.Y. 1964); Atlanta Shipping Corp. v. Cheswick-Flanders & Co., 463 F. Supp. 614
(S.D. N.Y. 1978). In this case, on the other hand, plaintiffs do not seek to arbitrate their claims but rather
8
rights of the parties.9 The present case is of a wholly different nature because Sankyo
does not seek arbitration of its claims against NTC or a declaration regarding the
substantive rights of the parties. Rather, Sankyo’s declaratory judgment action is
merely directed at resolving the forum for NTC’s potential claims, which NTC may or
may not pursue. This would be a very different case if Sankyo brought an action
seeking a declaration about its legal rights and responsibilities–for example, seeking a
declaration that it did not breach the agreement. Such an action, unlike the present
one, might resolve an actual dispute.
Sankyo has misplaced its reliance on Robin Products Co. v. Tomecek, 465 F.2d
1193 (6th Cir. 1972). Robin Products set out the test for determining whether a
justiciable controversy exists in a declaratory judgment action involving patent
infringement. 465 F.2d at 1195-96. Although Sankyo attempts to analogize the facts of
this case to Robin Products and to patent infringement cases more generally, its
attempts fail. The issuance of declaratory judgments in patent infringement cases may
resolve uncertainty faced by the alleged infringer by conclusively resolving the
infringement question. In this case, on the other hand, Sankyo’s allegations of
uncertainty – possible claims that may or may not be brought by NTC – will not be
relieved by the declaration it seeks. Even if the district court could resolve the
seek to force arbitration of defendant’s potential claims.
9
See Spokane Indian Tribe, 972 F.2d at 1094-95 (9th Cir. 1992) (declaratory judgment
determining whether plaintiff’s lotto machines were exempt from state regulations); National Basketball
Association v. SDC Basketball Club, Inc., 815 F.2d 562, 566 (9th Cir. 1987) (declaratory judgment
determining plaintiff’s potential anti-trust liability); Morris v. Dearborne, 69 F. Supp. 2d 868, 880 (E.D. Tex.
1999) (declaratory judgment seeking determination of whether certain government actions against plaintiff
were permissible). Plaintiffs are not asking the district court to resolve any of the substantive rights of the
parties; rather, plaintiffs are seeking an order that no district court could resolve the parties’ underlying
substantive rights.
9
jurisdictional question presented by Sankyo’s complaint, uncertainty would remain in the
form of NTC’s potential claims.
Notwithstanding Sankyo’s extensive citations, there is a dearth of case law
supporting its contention that a federal court could provide the relief it seeks, consistent
with the case or controversy requirement of the United States Constitution. Under
traditional procedures for adjudicating questions of arbitrability, a plaintiff seeking
arbitration of its own claims may, if the defendant refuses to arbitrate, resort to the
courts to compel it; or, conversely, a defendant can move to compel arbitration of claims
which a plaintiff seeks to litigate in the courts. These two approaches to determining the
propriety of a particular forum for resolving disputes make good sense – once an actual
claim is asserted, courts decide whether the parties must arbitrate. Sankyo’s approach,
on the other hand, places a district court in the untenable position of deciding a question
not yet presented, on the basis of uncertain and potentially shifting facts. Under
Sankyo’s approach, a potential defendant could obtain a declaration of arbitration (or
even non-arbitration) of claims that it “reasonably apprehends” plaintiff asserting. Such
a “test” requires a district court to decide the difficult question of the proper forum for
resolving disputes before those disputes are clearly articulated and actually asserted.
Sankyo sought to terminate its relationship with NTC almost two years ago.
Since that time, NTC has made various demands and threats regarding litigation but
has filed no action against Sankyo. During oral argument, Sankyo took the position that
NTC was just “waiting for a decision from this Court” to file its complaint. Even if that
were true, Sankyo could seek to compel arbitration at that time, when NTC’s claims are
10
clearly evident. Under those circumstances, the court would be resolving an actual
case or controversy, not merely engaging in a hypothetical exercise.
Accordingly, we hold that Sankyo’s lawsuit seeking a determination whether or
not NTC’s potential, but as yet unfiled, claims are subject to mandatory arbitration does
not present an actual case or controversy as required for the constitutional exercise of a
district court’s jurisdiction. Sankyo’s “reasonable apprehension” test does not translate
to actions which merely seek to resolve the forum for possible or even likely disputes.
Regardless of the likelihood of possible litigation, Sankyo may not obtain the advisory
opinion it seeks – whether NTC claims, if filed, would be subject to arbitration. Such a
request does not amount to an actual case or controversy as it does not allow for “a
decree of conclusive character.”
III.
For the reasons set forth above, we AFFIRM the district court’s decision to
dismiss appellant’s lawsuit for lack of jurisdiction.
11