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Denver Global Products, Inc. v. Leon

United States District Court, W.D. North Carolina, Statesville Division

June 11, 2018

DENVER GLOBAL PRODUCTS, INC., Plaintiff,
v.
ROGER LEON, JEANNE HENDRIX AND KEITH PIERCY, Defendants and Counterclaim/Third Party Plaintiffs
v.
CHONGQING RATO POWER CO., LTD., et. al., Third Party Defendants.

          MEMORANDUM AND RECOMMENDATIONAND ORDER

          David S. Cayer United States Magistrate Judge

         THIS MATTER is before the Court on the following Motions:

1. “Certain Third-Party Defendants' Motion to Dismiss Defendants Roger Leon and Keith Piercy's Third-Party Claims for Lack of Personal Jurisdiction” (document #20),
2. “Certain Third-Party Defendants' Motion to Dismiss or, Alternatively, Stay and Compel Arbitration of Defendants Roger Leon And Keith Piercy's Third-Party Claims” (document #21),
3. “Plaintiff and Certain Third-Party Defendants' Motion to Dismiss Defendants Roger Leon and Keith Piercy's Counterclaims and Third-Party Claims” (document #22),
4. “Third-Party Defendant Chongqing Rato Power Co., Ltd.'s Motion To Confirm Arbitration Award And Enter Final Judgment” (document #23), and
5. “Third-Party Defendant Michael Parkins' Motion To Dismiss” (document #24), as well as the parties' briefs and exhibits.

         This matter has been referred to the undersigned Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1) and these Motions are now ripe for the Court's consideration.

         Having fully considered the arguments, the record, and the applicable authority, the undersigned respectfully recommends that “Third-Party Defendant Chongqing Rato Power Co., Ltd.'s Motion To Confirm Arbitration Award And Enter Final Judgment” (document #23) and “Certain Third-Party Defendants' Motion to Dismiss or, Alternatively, Stay and Compel Arbitration of Defendants Roger Leon And Keith Piercy's Third-Party Claims” (document #21) be granted; that “Certain Third-Party Defendants' Motion to Dismiss Defendants Roger Leon and Keith Piercy's Third-Party Claims for Lack of Personal Jurisdiction” (document #20) and “Plaintiff and Certain Third-Party Defendants' Motion to Dismiss Defendants Roger Leon and Keith Piercy's Counterclaims and Third-Party Claims” (document #22) be denied as moot; and that the Court take no action on “Third-Party Defendant Michael Parkins' Motion To Dismiss” (document #24), and decline supplemental jurisdiction of the remaining state law claims as discussed below.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         Third-Party Defendant Chongqing Rato Power Co., Ltd. (“Rato”) is a Chinese company with its headquarters and base of operations in Chongqing, China. Rato and its subsidiaries develop, manufacture and sell general-purpose engines, motorcycles and related products.

         In August 2010, Defendant Roger Leon approached Rato with a plan for a new company that would distribute its outdoor power products in the United States. Leon formed Plaintiff Denver Global Products, Inc. (“DGP”), a North Carolina corporation, to operate the new business. Initially, Leon and Third Party Defendant Larry Wang each owned fifty percent of DGP. Through a series of transactions, Rato acquired ownership of DGP from Leon and Wang. Leon served as President of DGP.

         These transactions involved an Initial Agreement, followed by a series of contracts referred to by Rato as the Substitute Agreements, including the Joint Venture Agreement and the Equity Agreement. With the assistance of an interpreter and represented by Chinese counsel, Leon negotiated and executed these agreements with Rato in China. Each Substitute Agreement contains an arbitration clause requiring that all disputes related to the Substitute Agreements be arbitrated in China.

         On December 30, 2015, DGP filed this lawsuit in the North Carolina Business Court alleging that Defendants embezzled its funds and made unauthorized payments to key employees to induce them to resign. DGP and Defendants Leon and Piercy are North Carolina residents.

         Defendants responded with twelve counterclaims as well as third party claims against Rato, Wang and some of Rato's Chinese-based affiliates, officers and directors (collectively referred to as Rato Third Party Defendants). Defendants also pled third party claims against Michael Parkins, DGP's former Chief Financial Officer. All of the parties' claims arise under state law.

         While the lawsuit was pending in the Business Court, the Rato Third Party Defendants filed a Motion to Compel Arbitration seeking to arbitrate all but two of Defendants' counterclaims and third party claims against them. Rato Third Party Defendants do not seek arbitration of Defendant Piercy's claims for tortious interference with a release agreement and negligent infliction of emotional distress.

         Defendants opposed the Motion to Compel Arbitration, asserting that the Substitute Agreements' arbitration provisions are invalid.

         Rato responded by commencing two arbitration proceedings before the Chongqing Arbitration Commission, seeking declaratory judgments that the Substitute Agreements' arbitration provisions are valid as to Leon. Defendants received a copy of Rato's arbitration ...


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