The Ninth Circuit reversed a district court ruling that had compelled arbitration, holding that a party may not enforce an arbitration agreement where the clause is contained in a nonbinding contract. The parties had entered into two contracts in Italy. The first contract was a commercial franchise agreement containing an arbitration clause. The second contract disclaimed any liability on the parties resulting from the first contract until a new franchise agreement was signed in the United States. The party seeking to avoid arbitration argued that the first contract was signed to allow them to obtain proper visas into the United States and not actually confer any contractual rights. The district court ruled that “the issue of whether the broad arbitration clause contained in the first contract survives after the second contract should be submitted to the arbitrator.” The Ninth Circuit, however, disagreed. Turning to traditional principles of contract interpretation, the appellate court held that the parties did not manifest express or implied consent to be bound to the original contract, because the original contract was a sham. The court concluded: “Because we find that the document the parties described as the Commercial Contract was a sham, the arbitration clause is no more enforceable than any other provision in that document.” Casa Del Caffe Vergnano S.P.A. v. ItalFlavors, LLC, Case No. 13-56091 (9th Cir. Mar. 15, 2016).
