Sharp Corp. v. Hisense USA Corp., No. 17-1648 (D.D.C. Nov. 13, 2017) [click for opinion]
Plaintiff Sharp Corporation ("Sharp") and Defendant Hisense USA Corporation ("Hisense") entered into a licensing agreement in 2015 under which Hisense would produce and market televisions under Sharp's name. Citing regulatory violations and failure to maintain quality, Sharp terminated the agreement in 2017. Shortly thereafter, Hisense commenced an arbitration pursuant to a provision in the licensing agreement. Hisense sought and obtained an emergency award granting interim specific performance and an injunction preventing Sharp from making disparaging statements about Hisense.
Sharp then commenced an action in U.S. district court seeking to enjoin the enforcement of the emergency award and a declaratory judgment that the award was unenforceable. Sharp asserted, inter alia, that the emergency award amounted to a "gag order" that prevented Sharp from communicating with consumers and the Federal Communications Commission ("FCC") and thus violated the free speech rights enshrined in the First Amendment. Hisense moved to dismiss for lack of personal and subject matter jurisdiction and on the ground that the absence of state action precluded Sharp's constitutional assertions.
Hisense's primary argument was that subject matter jurisdiction was lacking under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, codified in the Federal Arbitration Act, 9 U.S.C. §§ 201-08 (the "New York Convention"). Under the Convention, primary-jurisdiction courts—the courts of the country in which, or under the law of which, an award is rendered—have the exclusive authority to affirmatively set aside or annul an arbitration award, while secondary-jurisdiction courts—the courts of all other signatory countries—have a more limited authority to review and decide whether to enforce such an award.
Here, Singapore was the primary jurisdiction and the U.S. was a secondary jurisdiction. Hisense argued that the suit fell outside of the authority of a secondary-jurisdiction court because it ultimately sought to "void, annul, or modify" the arbitral award. The court disagreed, holding that Sharp requested only that the court declare the gag order unenforceable in the United States, a permissible goal in a secondary jurisdiction.
Although the court rejected Hisense's arguments as to subject matter jurisdiction, it agreed with Hisense on the issue of personal jurisdiction. Describing its decision as a "close call," the court held that there was an insufficient nexus between Hisense's sale of Sharp-licensed televisions in the U.S. and the present suit, which, in the court's opinion, concerned only the emergency order itself. The court also rejected Sharp's alternative bases for personal jurisdiction. First, Sharp could not invoke the government-contracts doctrine, because Hisense's filings with the FCC were insufficient to establish personal jurisdiction. Second, Hisense was not acting under the plenary control of the Chinese government and, therefore, the state-owned entities rule did not apply.
Because, in the court's words, the personal jurisdiction issue was a "close question," the court went on to consider the merits. Sharp's First Amendment arguments were predicated on the public-policy defense available under Article V of the New York Convention. Specifically, Sharp asserted that the arbitration "gag" order violated U.S. public policy, specifically, the First Amendment to the U.S. Constitution.
The court explained that it is "axiomatic" that a First Amendment violation occurs only with governmental action. As the court noted, "[a]t bottom, the First Amendment is a restraint on government action, not that of private persons." Sharp argued that the judicial enforcement of the emergency award itself satisfied the state-action requirement. The court quickly rejected this contention, noting that a contrary conclusion would render the distinction between private and governmental action meaningless. Sharp also argued that the New York Convention's public-policy defense expands the scope of the First Amendment to include a general policy in favor of free speech, even when no state action occurred. On this issue of first impression, the court concluded that a holding in Sharp's favor would improperly permit parties to circumvent the state-action requirement.
Given the absence of both personal jurisdiction and a public policy violation, the court granted Hisense's motion to dismiss.