## Facts

- Standard Fruit Company (SFC) had long produced and exported bananas from Nicaragua under contracts with Nicaraguan entities.
- After Nicaragua’s 1979 regime change, Nicaragua issued Decree No. 608 declaring the banana industry a state monopoly and nullifying existing plantation leases and related contracts.
- SFC ceased Nicaraguan operations; the new government requested negotiations.
- On January 8, 1981, Nicaragua and Standard’s corporate parents executed a “Memorandum of Intent” (MOI) to govern renewed banana operations and to replace prior arrangements with later definitive agreements.
- The MOI included an arbitration clause stating that “all disputes” would be referred to international arbitration under international tribunal rules (with an illustrative reference to “London Arbitration Association” rules).
- SFC did not sign the MOI in its own name, but it resumed and continued operations in Nicaragua for nearly two years under the MOI’s terms.
- In October 1982, SFC again ceased operations and left Nicaragua.
- Nicaragua sued to compel international arbitration under the MOI and separately alleged breach of contract; the district court denied arbitration and granted summary judgment for Standard.

## Issues

1. Whether the district court, in deciding arbitrability, improperly resolved disputes about the validity and binding nature of the MOI as a whole rather than focusing on the arbitration clause.
2. Whether the record presented genuine disputes of material fact about whether the MOI was a binding contract or merely an agreement to negotiate future contracts.
3. Whether genuine disputes of material fact existed as to whether the MOI was executed on behalf of SFC, precluding summary judgment for SFC.

## Decision

- The Ninth Circuit reversed the denial of Nicaragua’s motion to compel arbitration and reversed the grant of summary judgment for Standard.
- The court held that the district court erred by assessing the validity of the contract as a whole when it should have examined the validity and scope of the arbitration clause itself.
- The court concluded the arbitration clause was sufficiently valid and broad to require arbitration of the dispute, especially given the strong federal policy favoring arbitration in international commercial matters.
- The court held summary judgment was improper because the record contained genuine disputes of material fact regarding party intent and the MOI’s status and scope, including whether SFC was bound.
- The case was remanded for further proceedings consistent with compelling arbitration and vacating summary judgment.

## Legal Principles

- In deciding arbitrability, courts must determine whether a valid agreement to arbitrate exists and its scope, while challenges directed at the contract as a whole are generally for arbitrators under the severability doctrine.
- Under *Prima Paint*, an arbitration clause is treated as separable from the remainder of the agreement; claims that the overall contract is invalid or incomplete ordinarily do not defeat arbitration absent a specific challenge to the arbitration clause.
- Doubts about the scope of an arbitration clause are resolved in favor of arbitration, with heightened force in international commercial disputes.
- Course of performance may be probative of intent to be bound and can support enforcing an arbitration clause even where the parties contemplated later definitive agreements.

## Conclusion

The Ninth Circuit required arbitration because the district court improperly treated disputes about the MOI’s overall contractual status as defeating arbitrability, and it reversed summary judgment because factual disputes about intent, scope, and whether SFC was bound could not be resolved on the record and were largely for arbitrators once a valid arbitration clause was shown.


Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir. 1991)