## Facts

- Mediterranean Enterprises, Inc. (MEI), a California engineering firm, and Ssangyong, a Korean construction company, discussed cooperating on Saudi Arabian construction opportunities.
- On September 9, 1978, MEI and Ssangyong signed a “Preliminary Agreement for Formation of a Joint Venture” containing an arbitration clause requiring “any disputes arising hereunder or following the formation of joint venture” to be arbitrated in Seoul under the Korean–U.S. Arbitration Agreement.
- On October 21, 1978, MEI and Ssangyong entered an agency agreement with Trac Enterprises for work in Saudi Arabia.
- The contemplated joint venture was never formed; MEI alleged Ssangyong used the preliminary agreement to access the Saudi projects and then proceeded without MEI, allegedly in association with Trac.
- Ssangyong asserted it did not breach and cited inability to obtain required Korean government approvals under the agreement.
- MEI sued in federal district court asserting claims characterized as: (1) breach of contract and (2) breach of fiduciary duty claims tied to the joint venture agreement, and additional claims for inducing/conspiracy to induce breach of a separate agreement, quantum meruit, and conversion.
- Ssangyong initiated arbitration in Korea; MEI argued the arbitration clause had been altered without its consent by insertion of the words “arising hereunder or.”
- The district court referred only the contract/fiduciary-duty claims to arbitration, retained the remaining claims, and stayed the action pending arbitration; Ssangyong appealed seeking arbitration of all claims.

## Issues

1. Whether an arbitration clause covering disputes “arising hereunder” is broad enough to require arbitration of tort and quasi-contract claims connected to the parties’ broader business dispute.
2. Whether the district court properly compelled arbitration of only the contract-based and fiduciary-duty claims while retaining jurisdiction over the remaining claims.

## Decision

- The Ninth Circuit affirmed the interlocutory order.
- The court construed “arising hereunder” as a narrow clause limited to disputes concerning interpretation and performance of the agreement containing the clause.
- Claims for breach of contract and breach of fiduciary duty tied to the preliminary joint venture agreement were arbitrable and properly referred to arbitration in Seoul.
- Claims for inducing/conspiracy to induce breach of contract (involving a separate agency agreement), quantum meruit, and conversion were outside the clause and could proceed in court (subject to the stay).
- The court accepted the existence of an arbitration agreement for purposes of appeal and focused on the clause’s scope.

## Legal Principles

- Arbitration is a matter of contract; federal policy favoring arbitration does not permit courts to compel arbitration beyond the parties’ agreement.
- A clause limited to disputes “arising under” or “arising hereunder” is comparatively narrow and generally reaches only disputes about contract interpretation and performance.
- Broader formulations (e.g., disputes “arising out of,” “in connection with,” or “relating to” an agreement) are more likely to encompass related tort, statutory, or quasi-contract claims.
- When a claim depends on a separate contract not containing the arbitration clause, it may fall outside a narrow “arising hereunder” clause even if factually related.

## Conclusion

The Ninth Circuit held that the arbitration clause’s “arising hereunder” language required arbitration only of disputes tied to interpreting and performing the joint venture agreement, allowing related tort and quasi-contract claims—especially those centered on a separate agreement—to remain in federal court while the action was stayed pending arbitration.


Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458 (9th Cir. 1983)