Al Rushaid v. Nat’l Oilwell Varco, Inc., No. 13-20159 (5th Cir. July 2, 2014) [click for opinion]

Plaintiff's suit in Texas state court against several companies arose out of several separate contracts between Plaintiffs and Defendants. The contracts were created when Plaintiff sent a purchase order to one of the defendants in response to that defendant's price quotation. Plaintiff served all defendants except NOV Norway. Defendants (but not NOV Norway) removed the case to federal court, relying on an arbitration clause contained in a price quotation issued by NOV LP. Not all contracts with Plaintiff contained arbitration clauses.

Nearly one year after removal of the case to federal court, and after a scheduling conference and nearly eight months of extensive discovery involving the served Defendants, Plaintiff served NOV Norway pursuant to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. NOV Norway moved to compel arbitration against all defendants, citing its price quotation, which provided that its "[t]erms and conditions are based on the general conditions stated in the enclosed ORGALIME S2000." The S2000 document provided for arbitration of "[a]ll disputes arising out of or in connection with the contract." The district court refused to compel arbitration, finding that the term "based on" was insufficient to incorporate the S2000's arbitration clause into the contract between Plaintiff and NOV Norway. The district court also determined that the conduct of NOV Norway's co-defendants in the litigation waived any right to arbitrate that NOV Norway might otherwise have.

The Fifth Circuit vacated and remanded the district court order. With respect to the existence of an agreement to arbitrate between Plaintiff and NOV Norway, the court held that the commonly understood meaning of the term "based on" in the context of the parties' contractual relationship was sufficient to convey a right to arbitrate on NOV Norway. The court emphasized that the S2000 was a comprehensive statement of terms and conditions that governed contracts globally, whereas NOV Norway's price quotation was a very brief, sale-specific document. The court thus concluded that the price quotations use of the term "based on" incorporated the S2000's arbitration agreement into the contract between Plaintiff and NOV Norway.

With respect to the waiver issue, the Fifth Circuit concluded that the district court erroneously attributed to NOV Norway the litigation conduct of the other defendants before NOV Norway was served and effectively penalized NOV Norway for invoking its right to formal service of process. Moreover, the court refused to bind NOV Norway by the conduct of its co-defendants because NOV Norway was not an alter ego of the other defendants and NOV Norway's receipt of some benefit from the co-defendants' conduct was not sufficient to justify disregarding corporate separateness.

Accordingly, the Fifth Circuit held that NOV Norway was entitled to arbitrate its dispute with Plaintiff. However, the court did not order Plaintiff to arbitrate its dispute with the other defendants and instead remanded the case for a determination of whether proceedings based upon separate contracts between Plaintiff and the other defendants should be stayed pending the arbitration with NOV Norway.