Dale Metals Corp. v. Kiwa Chem. Indus. Co.

In 1975 a sales agent for Toyo Menka Kaisha Ltd. (TMK) (defendant) and Kiwa Chemical Industry Co. (Kiwa) (defendant), both based in Japan, wrote to Dale Metals Corporation (Dale) (plaintiff), expressing an interest in working with Dale to create a market in the United States for Kiwalite, a reflective sheeting material used for the construction of highway signs. Dale’s president visited Japan and negotiated an agreement with Kiwa and TMK. Dale’s president alleged that during the negotiations, TMK and Kiwa assured Dale’s president that Dale would be the exclusive representative of the Kiwalite product in the United States, and that the promise of exclusivity induced Dale to enter into the distribution agreement. Dale subsequently set up marketing facilities for the distribution of Kiwalite throughout the United States. Dale subsequently discovered that another company, Sakai Trading New York, Inc. (Sakai) (defendant), was also marketing Kiwalite in the United States and was approaching prospective purchasers who had originally been contacted by Dale. Dale and its principal shareholder, Overseas Development Corporation (ODC) (plaintiff), filed suit in New York state court, alleging breach of the distribution agreement. Dale and ODC claimed that TMK, Kiwa, and Sakai had conspired to take advantage of the distribution channels established by Dale to act as distributors of Kiwalite in the United States. Three months later, TMK commenced an arbitration proceeding in Japan against ODC based on an arbitration clause in the confirmation-of-sale documents, under which the goods had been shipped to the United States. Dale and ODC obtained an order from the state court staying the arbitration proceeding, and on the next day, TMK, Kiwa, and Sakai removed the case to federal court. Once in federal court, TMK moved to dismiss the case or, alternatively, for a stay of the lawsuit pending arbitration in Japan because the issues in the arbitral proceedings and the lawsuit were identical. Dale and ODC opposed the motion to stay the suit because only ODC and TMK were parties to the arbitration; Dale, Kiwa, and Sakai were not participating in the arbitral proceedings.