PHILADELPHIA (Legal Newsline) - A couple who were hired by GSK’s China unit to investigate an executive who disclosed a corporate bribery scheme in that country can proceed with their lawsuit in Pennsylvania state court accusing the drug company of misleading them into an assignment that landed them in jail.
GSK sought to compel arbitration of the dispute with Peter Humphrey and Yu Yingzeng, co-founders of ChinaWhys, a consulting firm that provided management advice on detecting and preventing corporate fraud in China. But the Pennsylvania Superior Court, in a Sept. 3 decision, upheld a trial court ruling rejecting arbitration because neither GSK nor Humphrey and Yu were actual signatories to the arbitration agreement.
Citing Pennsylvania precedent and basic contract principles, the appellate court said the agreement was binding only upon ChinaWhys and GSK China, not GSK China’s U.S. parent and ChinaWhy’s owners.
GSK China hired ChinaWhys in April 2013 to conduct a background investigation of Vivian Shi, GSK China’s head of government relations. Humphrey signed the contract, which included an agreement to arbitrate any disputes, although he technically served as an agent for the firm he owned. Yu wasn’t a named party to the agreement.
In subsequent litigation, Humphrey and Yu accused the company of telling them Shi was trying to extort the company with false allegations when she had actually turned over information about an illegal bribery scheme to China authorities. In July 2013, police raided ChinaWhy’s Shanghai office and Humphrey and Yu’s Beijing home, arrested the couple and ultimately sentenced them to jail, where they complained of “a wide range of maltreatment” including “aggressive cruelty at the hands of prison guards.”
The litigation started in federal court, but GSK successfully challenged jurisdiction and after the Third Circuit affirmed, the case wound up in Pennsylvania court. Once there, GSK argued Humphrey and Yu were bound by the arbitration agreement between their firm and GSK China.
The trial court disagreed, and the appeals court upheld the decision. GSK argued the dispute wouldn’t exist without the contract between ChinaWhys and GSK China, and cited Pennsylvania cases upholding arbitration when there is an “obvious and close nexus” between the signatories to an arbitration agreement and the parties seeking to enforce it.
The important difference between those decisions and this case was prior Pennsylvania cases involved a non-signatory trying to enforce an arbitration agreement the other party had signed, the appeals court said.
“We have never held that the mere relationship of principal and agent, standing alone, may be used to compel the non-signatory agent of a disclosed principal to arbitrate his or her claims,” the court ruled.