## Facts

- DeKalb Agricultural Association, Inc. and two Italian citizens formed DeKalb Italiana S.p.A. in 1963 as a 50/50 joint venture.
- A shareholders’ agreement restricted stock transfers by requiring (i) consent of the other shareholders and (ii) a right of first refusal.
- The agreement was amended to require arbitration in Rome, Italy for “shareholder disputes.”
- In 1982, DeKalb sold its shares in DeKalb Italiana to DeKalb-Pfizer Genetics, allegedly without the Marchettos’ knowledge or consent and without offering them the shares first.
- DeKalb later reorganized into successor entities, including DeKalb Energy Company and DeKalb Genetics Corporation.
- The Marchettos sued DeKalb Genetics, DeKalb Energy, DeKalb-Pfizer Genetics, and Pfizer Genetics for breach of the shareholders’ agreement and tortious interference with that agreement.
- Defendants moved to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1), arguing the New York Convention required referral to arbitration in Rome.

## Issues

1. Whether Article II(3) of the New York Convention required referral to Rome arbitration, or whether the arbitration clause was “null and void, inoperative or incapable of being performed.”
2. Whether the Rome arbitration clause could be enforced against non-signatory purchasers or successor entities that did not sign the shareholders’ agreement.
3. Whether the clause covering “shareholder disputes” encompassed plaintiffs’ tortious-interference claims, particularly against non-signatories.

## Decision

- The court denied defendants’ Rule 12(b)(1) motion to dismiss.
- The court declined to compel arbitration because, as presented, the arbitration clause was incapable of being performed under Article II(3) as to significant parties and/or claims.
- Diversity jurisdiction remained intact; the Convention did not require dismissal in these circumstances.

## Legal Principles

- Under the New York Convention, courts must refer parties to arbitration unless the arbitration agreement is “null and void, inoperative or incapable of being performed.”
- An arbitration clause may be treated as “incapable of being performed” when the designated foreign arbitration cannot, under applicable law, obtain jurisdiction over essential non-signatory parties.
- Uncertainty that a key claim (such as tortious interference) falls within the clause’s scope may support a finding that referral would not effectively resolve the dispute and is not required under Article II(3).
- The Convention does not divest a federal court of subject-matter jurisdiction where the foreign arbitration agreement cannot be enforced in the manner sought.

## Conclusion

The court retained the case and refused to dismiss or compel Rome arbitration because the arbitration clause could not be shown to bind non-signatory defendants or clearly cover the tortious-interference claim, making referral inappropriate under Article II(3) of the New York Convention.


Marchetto v. DeKalb Genetics Corp., 711 F. Supp. 936 (N.D. Ill. 1989)