Marchetto v. DeKalb Genetics Corp.

In 1963 DeKalb Genetics Corp. (DeKalb) (defendant) and two Italian citizens (Marchetto Group) (plaintiff) entered into a joint venture, in which DeKalb and Marchetto Group each owned 50 percent of the shares of a new entity. The shareholder agreement required that any shareholder wishing to transfer shares had to obtain the consent of the remaining shareholders and also permit the other shareholders the opportunity to purchase the shares first. The agreement was later amended to require that any disputes between the shareholders would be subject to arbitration in Rome, Italy. DeKalb sold its shares to several parties without the consent of Marchetto Group and without offering Marchetto Group the opportunity to purchase the shares. Marchetto Group filed suit against DeKalb and several purchasers of DeKalb’s shares (defendants) in federal district court, alleging breach of the shareholder agreement and tortious interference with that agreement. DeKalb moved to dismiss the action based on the arbitration clause, arguing that the parties were required to submit the dispute to arbitration in Italy. Marchetto Group argued that the court should not enforce the arbitration clause, because it was incapable of being performed and, therefore, unenforceable under Article II(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the convention). Specifically, Marchetto Group argued that Italian law would not enforce an arbitration clause against the purchasers of DeKalb’s shares, who were not parties to the shareholder agreement, and that the tortious-interference claim was beyond the scope of the arbitration clause.