## Facts

- In July 1975, Hiroyuki Masuda, an employee of Toyo Menka Kaisha, Ltd. (TMK), a Japanese sales agent for Kiwa Chemical Industry Co., Ltd. (Kiwa), contacted Dale Metals Corp. (Dale) about creating a U.S. market for “Kiwalite,” a reflective sheeting material used for highway signs.
- Dale’s president traveled to Japan in October 1975, toured Kiwa’s facilities, and negotiated a distribution arrangement with TMK and Kiwa.
- Dale alleged that during negotiations TMK and Kiwa represented that Kiwalite had not been generally marketed in the United States and that Dale would be the exclusive U.S. representative; Dale claimed this promise induced it to enter the arrangement.
- After returning to the United States, Dale set up marketing and distribution operations for Kiwalite nationwide.
- Sales of Kiwalite into the United States were carried out through confirmation-of-sale documents; those confirmations contained a clause requiring arbitration in Japan.
- Dale later learned that Sakai Trading New York, Inc., and Sakai Trading Co., Ltd. (the Sakai defendants) were also marketing Kiwalite in the United States and approaching prospective purchasers first contacted by Dale.
- Dale and its principal shareholder, Overseas Development Corporation (ODC), sued TMK, Kiwa, and the Sakai defendants in New York state court, alleging breach of the distribution understanding and related fraud and conspiracy claims tied to an alleged plan to take over the U.S. distribution network built by plaintiffs.
- About three months after the state-court filing, TMK initiated an arbitration proceeding in Japan against ODC under the arbitration clause in the sales confirmations, seeking money allegedly due under the sales arrangement.
- Plaintiffs obtained an order from the state court staying the Japanese arbitration; the next day, defendants removed the case to the U.S. District Court for the Southern District of New York.
- In federal court, plaintiffs sought remand to state court. TMK moved to dismiss the entire action on forum non conveniens grounds, or alternatively to stay the lawsuit pending completion of the Japan arbitration, arguing the arbitration issues and the lawsuit issues were identical.
- Plaintiffs opposed a full stay because only TMK and ODC were parties to the arbitration clause and arbitration; Dale, Kiwa, and the Sakai defendants were not participants in that arbitration.

## Issues

1. Was removal proper such that plaintiffs’ motion to remand to state court should be denied?
2. Should the court dismiss the action on forum non conveniens grounds in favor of proceedings in Japan?
3. If dismissal was not warranted, should the federal action be stayed pending the Japan arbitration, and if so, to what extent given that only TMK and ODC were parties to the arbitration agreement?

## Decision

- The court denied plaintiffs’ motion to remand and retained federal jurisdiction.
- The court denied TMK’s request to dismiss the entire case on forum non conveniens grounds.
- The court granted TMK’s alternative request only in part, staying the federal action to the extent necessary to allow the Japan arbitration to proceed on matters subject to the arbitration clause between TMK and ODC.
- The court declined to stay the entire case because material parties and claims (including Dale’s claims and claims involving Kiwa and the Sakai defendants) were not subject to the arbitration agreement.

## Legal Principles

- Removal will be sustained when statutory removal requirements and federal subject-matter jurisdiction are satisfied; remand is denied absent a jurisdictional defect or procedural flaw requiring remand.
- Forum non conveniens dismissal requires a strong showing that an adequate alternative forum exists and that private- and public-interest factors strongly favor the foreign forum; a plaintiff’s forum choice is not set aside absent a clear balance favoring dismissal.
- An agreement to arbitrate, including an international arbitration clause, is generally enforced as to the parties who agreed to it; courts may stay court litigation on arbitrable disputes to avoid duplication and inconsistent outcomes.
- A stay based on arbitration is not automatic as to parties who did not agree to arbitrate; a court may allow nonarbitrable claims and non-signatory parties’ disputes to continue while arbitration proceeds between signatories.
- When arbitration and litigation overlap only in part, a tailored stay can respect the arbitration agreement without halting claims outside the clause’s reach.

## Conclusion

In *Dale Metals*, the Southern District of New York kept the case in federal court after removal, rejected a complete forum non conveniens dismissal in favor of Japan, and ordered only a limited stay so that the Japan arbitration between TMK and ODC could go forward on arbitrable matters while the remaining claims and parties not bound to arbitrate continued in the U.S. action.


Dale Metals Corp. v. Kiwa Chem. Indus. Co., 442 F. Supp. 78 (1977)