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PROGRAPH INT'L INC. v. BARHYDT

May 31, 1996

PROGRAPH INTERNATIONAL INC., a Nova Scotia corporation; PROGRAPH, INC., a California corporation; PICTORIUS INCORPORATED, a Nova Scotia corporation; PHILIP COX; and PAUL DAVIES, Petitioners,
v.
RALPH BARHYDT, Respondent.



The opinion of the court was delivered by: ORRICK

 In this action, petitioners Prograph International Inc. ("PII"), Prograph, Inc., Pictorius Incorporated ("Pictorius"), Philip Cox, and Paul Davies move (1) to compel respondent Ralph Barhydt ("Barhydt") to arbitrate all disputes arising from the termination of Barhydt's employment by PII, (2) for a preliminary injunction enjoining Barhydt from litigating his claims against them pending arbitration and the Court's confirmation of any arbitration award, and (3) to exclude this case from the Court's normal case management procedures. For the reasons hereinafter set forth, the Court grants all of petitioners' motions.

  I.

 On or about January 6, 1994, Barhydt and PII entered into a written employment agreement containing arbitration and mediation clauses. The clauses read in relevant part:

 
16.01 Dispute Resolution
 
(a) Mediation
 
(i) Any dispute or difference between the parties in connection with this agreement shall be referred to non binding mediation . . . .
 
* * * *
 
(iii) If the mediator fails to resolve the dispute within one day, the matter will be referred to arbitration.

 (Cox Decl., Ex. A at 16.)

 On September 8, 1995, Barhydt filed a complaint in the Superior Court for the County of Marin, Case No. 163347 ("Marin Action"), against PII and the other petitioners in this action, as well as against other defendants. (Kim Decl., Exs. B and C.) Barhydt alleges causes of action for breach of a written contract, bad faith breach of an employment agreement, demand for an accounting, fraudulent conveyance, breach of a fiduciary duty, intentional infliction of emotional distress, fraud, and deceit. Barhydt alleges, inter alia, that PII terminated him without cause on March 12, 1994, and breached the employment contract by failing to pay him approximately $ 350,000 in severance pay, as required by paragraph 11.01(b)(i) of the employment agreement. Barhydt also separately alleges that defendants in the Marin Action breached their fiduciary duty to the shareholders of PII by failing to disclose their separate financial dealings through Pictorius, in which they allegedly engaged for personal profit at the expense of PII shareholders. Barhydt also alleges that assets were fraudulently conveyed from PII to Pictorius.

 Petitioners filed suit in this Court on February 20, 1996. They seek an order (1) compelling Barhydt to arbitrate all claims against them in the Marin Action; (2) enjoining Barhydt from litigating those claims in the Marin Action against petitioners pending arbitration and confirmation of any arbitration award by this Court; and (3) exempting this case from the usual case management and discovery procedures.

 The parties have stipulated to arbitration of Barhydt's claims against petitioners, with a one-day mediation preceding arbitration. (See Stipulated Order Compelling Arbitration ("Stipulated Order"), filed simultaneously with this Opinion.) The parties have also stipulated to certain discovery, which is to take place after the mediation and prior to the arbitration. (Id.). Barhydt, however, also argues that (1) all parties to the state court action should be included in the arbitration, and (2) that Barhydt should receive the benefits of the discovery provisions of this Court and, therefore, the case should not be exempted from case management procedures. In the interest of completeness, the Court issues this Opinion and Order addressing all issues brought before the Court by petitioners.

 II.

 A.

 Petitioners contend that the arbitration agreement is enforceable by this Court pursuant to article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("Convention"). The parties have stipulated that PII is a Canadian corporation and Barhydt is a citizen of the United States, residing in California. Article II provides:

 
1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.
 
2. The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.

 Convention, art. II, attached to 9 U.S.C. § 201 (West Supp. 1996). Canada and the United States are listed as signatories of the Convention. See Id. at 318-19.

 Section 202 provides that: "An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial . . . falls under the Convention." 9 U.S.C. § 202. Section 203 provides that the district courts shall have original jurisdiction of an action falling under the Convention, without regard to the amount in controversy. 9 U.S.C. § 203.

 Article II, § 3, of the Convention "imposes a mandatory duty on the courts of a Contracting State to recognize and enforce an agreement to arbitrate . . . ." Riley v. Kingsley Underwriting Agencies, Ltd., 969 F.2d 953, 959 (10th Cir. 1992). When asked to enforce an agreement under the Convention, the Court performs a "very limited inquiry" to ...


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