Humphrey v. GlaxoSmithKline PLC

263 A.3d 8

Peter HUMPHREY, Yu Yingzeng, and ChinaWhys Company Ltd

v.GLAXOSMITHKLINE PLC and Glaxosmithkline LLC, Appellant

No. 1145 EDA 2020

Superior Court of Pennsylvania.

Argued January 13, 2021

Filed September 3, 2021

Reargument Denied November 10, 2021

J. Gordon Cooney Jr., Philadelphia, for appellant.

John T. Zach, New York, New York, for appellees.

BEFORE: BENDER, P.J.E., OLSON, J., and STRASSBURGER, J.^*

OPINION BY OLSON, J.:

Appellants, GlaxoSmithKline PLC ("GSK PLC") and GlaxoSmithKline LLC ("GSK LLC"), appeal from the order entered on February 12, 2020, which overruled their preliminary objection to compel arbitration. We affirm.

Peter Humphrey, Yu Yingzeng, and ChinaWhys Co. Ltd. (collectively "Plaintiffs") filed this action against Appellants. Within their amended complaint, Plaintiffs alleged and averred the following.

Humphrey and Yu are a married couple and are co-founders of ChinaWhys Co. Ltd. ("ChinaWhys Co."). ChinaWhys Co. provides "risk management advice and consulting services [in China], primarily focused on the prevention and exposure of internal corruption and fraud within multinational companies." Plaintiffs’ Amended Complaint, 12/17/18, at ¶¶ 6-8. GSK PLC is a global pharmaceutical company. GSK LLC is a wholly owned subsidiary of GSK PLC and has its principal place of business in Philadelphia. Id. at ¶ 9. Non-party GlaxoSmithKline (China) Investment Co., Ltd ("GSK China") is a wholly owned subsidiary of GSK PLC and operates in China. See id. at ¶ 9. "At all relevant times, [GSK PLC] had the right to and did exercise control over the actions of its wholly-owned subsidiaries [GSK China] and GSK LLC." Id.

"[F]rom at least 2010, [Appellants participated] in widespread bribery in China," with the intention of increasing their pharmaceutical sales. Id. at ¶ 21. In December 2011, an anonymous whistleblower who worked for Appellants began sending information to Chinese regulators, "describing the widespread fraud and corruption within" Appellants’ organization. Id. at ¶ 25. Appellants came to believe that the whistleblower was an individual named Vivian Shi, who was the head of government affairs for GSK China. Id. at ¶ 49. As a result, Appellants fired Shi for a pretextual reason. Id. at ¶ 50.

In April 2013, Appellants approached Humphrey and asked that ChinaWhys Co. "conduct a background investigation on Shi." See id. at ¶¶ 9, 48, and 59. To convince Humphrey to investigate Shi, Appellants told Humphrey that Shi's whistleblower accusations were false. Id. at ¶ 50. According to Plaintiffs’ amended complaint, however, Appellants knew that the whistleblower accusations were not false, as Appellants knew that they "orchestrated and condoned the illegal conduct that was the subject of the allegations." Id. at ¶ 122. Plaintiffs claimed that Appellants secretly wanted ChinaWhys Co. to conduct the background investigation on Shi "to bolster the false assertion that she was an extortionist making false claims[, so that Appellants could] hide the truth about the [whistleblower] allegations." Id. at ¶ 123. Appellants also failed to inform Plaintiffs that "Shi had powerful unidentified allies within the [Chinese] Communist Party elite in Shanghai and that it was therefore extremely dangerous to investigate her." Id. at ¶ 51.

Based upon Appellants’ alleged misrepresentations and omissions, Plaintiffs agreed to "conduct an information search on Shi and assess the risk she could pose to [Appellants] through her supposed smear campaign." Id. at ¶ 60. Plaintiffs investigated Shi's background and, on June 6, 2013, Plaintiffs submitted their investigative report to Appellants. Id. at ¶ 68.

On July 1, 2013, the Chief Executive Officer ("CEO") of GSK China informed Humphrey that Shi had "read your report and she will be coming after you." Id. at ¶ 85. On July 10, 2013, Shanghai police raided both ChinaWhys Co.’s office and the Beijing home shared by Humphrey and Yu. Id. at ¶ 89. The Shanghai police detained Humphrey and Yu and, following their formal arrests, Humphrey and Yu were tried in China and convicted of crimes related to their investigation into Shi. See id. at ¶ 95.

On August 8, 2014, Humphrey was sentenced to serve two-and-one-half years in prison; Yu was sentenced to serve two years in prison. Id. Humphrey and Yu were then transferred to separate prisons in Shanghai, where they "suffered from a wide range of maltreatment ranging from passive denial and ignorance of requests for basic needs, to active and aggressive cruelty at the hands of prison guards." Id. at ¶ 96. Further, while Humphrey and Yu were in prison, Appellants made misleading statements that "prolonged Humphrey and Yu's incarceration." Id. at ¶ 112.

Plaintiffs pleaded four causes of action in their amended complaint: fraud, intentional infliction of emotional distress, negligent infliction of emotional distress, and civil conspiracy. Plaintiffs sought damages related to the arrest and imprisonment of Humphrey and Yu and the destruction of their ChinaWhys Co. business. See id. at ¶¶ 120-143.

On September 10, 2019, Appellants filed preliminary objections in the nature of a petition to compel arbitration. Within their preliminary objections, Appellants claimed that Plaintiffs contractually agreed to arbitrate all of their claims against Appellants. In support of their preliminary objections, Appellants averred that, in April 2013, GSK China officials requested that non-party ChinaWhys (Shanghai) Consulting Co. Ltd. (hereinafter "ChinaWhys Consulting Co.") conduct a background investigation on Shi. See Appellants’ Preliminary Objections, 9/10/19, at ¶ 3. According to Appellants, Plaintiffs "agreed to be retained by GSK China, and Humphrey signed a formal retention agreement, titled a Consultancy Agreement, on behalf of" ChinaWhys Consulting Co. Id. at ¶ 6. The Consultancy Agreement between GSK China and ChinaWhys Consulting Co. contains an arbitration clause, which provides:

This Agreement shall be governed in all respects by the laws of the People's Republic of China. All disputes arising out of or in connection with this Agreement shall be settled through friendly consultation between both parties. In case no settlement can be reached, either Party may submit the dispute to the China International Economic and Trade Arbitration Commission ("CIETAC") in Beijing for arbitration in accordance with the CIETAC rules of arbitration then in effect. The arbitration award shall be final and binding on the Parties.

Consultancy Agreement, dated 4/26/13, at ¶ 11.

Appellants claimed that, even though Plaintiffs strategically chose not to name GSK China as a defendant or ChinaWhys Consulting Co. as a plaintiff, the arbitration clause in the Consultancy Agreement was still enforceable against Plaintiffs, as Plaintiffs’ claims constituted a "dispute[ ] arising out of or in connection with" the Consultancy Agreement. See Appellants’ Memorandum of Law in Support of Preliminary Objections, 9/10/19, at 3.

Plaintiffs responded to the preliminary objections and claimed that they were not bound by the arbitration agreement because neither Plaintiffs nor Appellants were signatories to the agreement. See Plaintiffs’ Memorandum in Opposition to Preliminary Objections, 10/25/19, at 12. Further, Plaintiffs argued that the trial court should overrule the preliminary objections, as their claims did not fall within the scope of the arbitration clause. See id. at 21.

On February 12, 2020, the trial court overruled Appellants’ preliminary objection seeking to compel arbitration. Trial Court Order, 2/12/20, at 1. As the trial court explained, it overruled the preliminary objection because "[n]one of the parties to this suit are signatories to the agreement under which [Appellants] seek to compel arbitration" and because the dispute is not within the scope of the arbitration agreement. Trial Court Opinion, 2/12/20, at 5 and 12 n.7.

Appellants filed a timely notice of appeal.¹ They raise two claims to this Court:

1. May [Appellants], affiliates of one contracting party, compel arbitration against Plaintiffs, an affiliate and two agents of the other contracting party, where Plaintiffs’ claims arise from, and would not exist but for, the contract containing the arbitration agreement?

2. Does an agreement to arbitrate "all disputes arising out of or in connection with" a contract cover Plaintiffs’ claims based on alleged misrepresentations that induced them to agree to the contract and other alleged misrepresentations about the work they performed because of the contract, and where the parties would not have had the relationship described in the complaint but for the contract?

Appellants’ Brief at 2-3.

We have explained:

Our review of a claim that the trial court improperly [overruled] the appellant's preliminary objections in the nature of a petition to compel arbitration is limited to determining whether the trial court's findings are supported by substantial evidence and whether the trial court abused its discretion in [overruling the preliminary objections]. In doing so, we employ a two-part test to determine whether the trial court should have compelled arbitration. First, we examine whether a valid agreement to arbitrate exists. Second, we must determine whether the dispute is within the scope of the agreement. ... If the two-part test results in affirmative answers, then the controversy must be submitted to arbitration. ...

Whether a claim is within the scope of an arbitration provision is a matter of contract, and as with all questions of law, our [standard of review is de novo and our scope of review is plenary]. In making these determinations, courts must bear in mind: (1) arbitration agreements are to be strictly construed and not extended by implication; and (2) when parties have agreed to arbitrate in a clear and unmistakable manner, every reasonable effort should be made to favor the agreement unless it may be said with positive assurance that the arbitration clause involved is not

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