Kana Energy Services, Inc. v. Jiangsu Jinshi Machinery Group Co. Ltd., JMP Petroleum Technologies, Inc. and others

At a glance

Parties

Kana Energy Services, Inc. v. Jiangsu Jinshi Machinery Group Co. Ltd. (JMP), JMP Petroleum Technologies, Inc., Helios Oil & Gas Equipment LLC, Jiangsu Jinjia Drilling & Production Equipment Co. Ltd. (JHK) and other Chinese entities

Case no.

Civil Action No. H-19-0213 (S.D. Tex.)

Court

U.S. District Court, Southern District of Texas, Houston Division (Judge Sim Lake)

Forum and rules

Removal under the New York Convention implementing legislation, 9 U.S.C. §§ 203, 205

Underlying award(s)

None. The case concerns arbitration clauses providing for arbitration in Beijing, China.

Sector

Oilfield equipment distribution

Outcome

The court held it had subject matter jurisdiction under 9 U.S.C. § 203. Because the state court had already found the claims not arbitrable, it granted Kana's motion and remanded the case to the 190th District Court of Harris County, Texas (22 May 2019).

The dispute

Kana, a Texas distributor, said it had an oral joint venture with the Chinese JMP Group. Under that venture Kana was the exclusive North American distributor of JMP oilfield products, which had to meet American Petroleum Institute (API) standards, and the two sides split profits 50/50. Kana sued in Texas state court. It alleged that JMP and its affiliate JHK supplied equipment that did not meet API standards and secretly engaged Helios as JMP's U.S. distributor. Its claims included breach of contract, breach of warranty and misappropriation of trade secrets. JMP relied on arbitration clauses in written contracts between Kana and JHK, such as Contract No. KA15100002, which provided for arbitration in Beijing. The state court denied JMP's motion to compel arbitration, and JMP then removed the case to federal court under the Convention Act. Kana moved to remand. It argued that the court lacked jurisdiction and that its claims concerned "Warranty Equipment" bought under an oral contract, not the written contracts.

Key holdings

1. There is an arbitration agreement that falls under the Convention. Contract '002 is in writing, provides for arbitration in Beijing (China is a Convention signatory), arises from a commercial relationship, and JHK is a Chinese citizen. JMP does not need to show that it can itself enforce the agreement. pp. 8–10 and n. 27
2. The arbitration agreements "relate to" the suit under the low "conceivably affect" test of Beiser v. Weyler. The contracts were made in performance of the joint venture on which Kana's claims are based. The court therefore has jurisdiction under 9 U.S.C. § 203. pp. 10–12
3. Under the rule that a removed case is taken as though the state court's acts had been done in federal court, the state court's order denying JMP's motion to compel arbitration stands as the federal court's own order. Arbitrability has therefore already been decided, and no federal question remains. pp. 13–14
4. JMP's argument that it had no chance to move to compel under the Convention Act lacks merit. The FAA applies in Convention cases, and JMP could have invoked the Convention in state court. Its proper course was an interlocutory appeal in the Texas courts. nn. 36–37
5. The motion to remand is granted. The case is remanded to the 190th District Court of Harris County, Texas, for proceedings on the merits. p. 15

Procedural history

1. January 2014Kana and JHK executed Contract No. KA15100002, which contains a Beijing arbitration clause.
2. 13 November 2018The Harris County state court denied JMP's motion to compel arbitration, without explanation.
3. 18 January 2019JMP removed the action to the U.S. District Court for the Southern District of Texas under 9 U.S.C. § 205.
4. 15 February 2019Kana filed its motion to remand.
5. 22 May 2019Memorandum Opinion and Order: the court found jurisdiction but remanded the case to state court.

Tribunal, counsel and experts

Decided by

• Sim Lake Judge, U.S. District Court, Southern District of Texas

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Keywords

• New York Convention
• 9 U.S.C. § 205
• removal
• remand
• relates to
• conceivably affect
• Beiser v. Weyler
• motion to compel arbitration
• arbitrability
• Beijing arbitration
• China
• joint venture
• oral agreement
• API standards
• oilfield equipment
• subject matter jurisdiction
• non-signatory

Summary generated with AI from the published documents — refer to the award for the authoritative text.