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CPL, Inc. v. Fragchem Corp.

January 9, 2008


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 06-C-1352-Charles R. Norgle, Sr., Judge.

The opinion of the court was delivered by: Flaum, Circuit Judge.


Before FLAUM, EVANS, WILLIAMS, Circuit Judges.

CPL and Fragchem do business in the chemicals industry, but their commercial chemistry is now questionable. The two companies began their relationship under an exclusive Supply Agreement, terminated this agreement years later, and then resumed conducting transactions soon thereafter. In April of 2004, Fragchem received a shipment of chemicals from CPL but refused to submit payment. CPL filed a complaint with the district court, and Fragchem responded by filing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(7) for failure to join a necessary party. Instead of deciding this motion on the merits, the district court dismissed the lawsuit sua sponte on the basis of improper venue on the grounds that the Supply Agreement between the two parties contained an agreement to arbitrate. For the reasons set forth in this opinion, we reverse the ruling of the district court.

I. Background

CPL is a corporation engaged in the sale of chemicals used in the manufacture of generic pharmaceutical products. It is organized under the laws of Missouri, with its principal place of business in Gaithersburg, Maryland. Its parent company, Cadila, is registered under the Indian Companies Act, conducting business under the laws of India with its Registered Office located in Ahmedabad, Gujarat, India. This case arises out of a dispute between Cadila/CPL and Fragchem, a corporation that is engaged in the import and export of chemicals. Fragchem is organized under the laws of Illinois with its principal place of business in Niles, Illinois.

On May 9, 1997, Cadila and Fragchem entered into an exclusive Supply Agreement. Under the terms of this agreement, Cadila was required to manufacture and supply certain chemicals exclusively to Fragchem, in exchange for which Fragchem was to transfer details of the processes and technical data to enable Cadila to develop and manufacture those chemicals. In particular, Fragchem provided technical specifications, the general process for manufacturing Chlorhexidine Base, Chlorhexidine HCL, and Chlorhexidine Gluconate 20% solution (the "C Products"), information regarding raw materials, and processing details. Cadila's end of the deal was that it agreed to manufacture and supply C Products exclusively for Fragchem using the information and technology it supplied. The Supply Agreement also stipulated that Fragchem was to purchase C Products exclusively from Cadila.

Several months after the agreement was signed, Cadila began shipping C Products to Fragchem. Fragchem initially made its payments directly to Cadila, but in 2000, Cadila informed Fragchem that it should start submitting purchase orders and payments for C Products to its subsidiary, CPL, which it indicated was also bound by the terms of the Supply Agreement. Fragchem ultimately agreed to submit its subsequent payments to CPL.

The Supply Agreement, which is at the heart of this case, contained an agreement to arbitrate that read:

Any controversy arising under this Agreement, or any breach thereof, shall be referred to and finally settled pursuant to Arbitration in accordance with the provisions of Arbitration and Conciliation Proceedings prevalent in India, and judgment upon this award may be entered in any court having jurisdiction. However, such Arbitration proceedings shall take place in Ahmedabad (Gujarat) in India and the language of such arbitration shall be English.

In addition, with respect to amendment and assignment, the Supply Agreement provided as follows:

The agreement may not be amended, waived, discharged, or terminated orally, but only by an instrument in writing signed by the party against which enforcement . . . is sought. This agreement shall be binding upon the respective parent, subsidiaries, affiliates, successors, and assigns of CPL and Fragchem. This agreement may not be assigned by any party without the written consent of the other parties.

The Supply Agreement itself had an initial term of five years, and could be terminated upon written notice given at least 180 days before expiration of the initial five-year term. In accordance with this provision, Cadila gave Fragchem written notice on November 7, 2001 that it was terminating the supply agreement effective May 8, 2002. Fragchem acknowledged this termination by letter dated May 6, 2002:

By your notice of termination dated November 7, 2001, you have expressed your will to terminate the above referred supply agreement at the end of the first contract period ending by May 8, 2002 . . . . Now that through your notice referred above, our ...

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