In Alghanim v Alghanim, (S.D.N.Y. Nov. 29, 2011), two Kuwaiti bothers, Kutayba and Bassam, inherited their father's business and entered into an agreement to divide their commonly-owned property (Agreement) after a dispute over the future of the business. The Agreement included a dispute resolution clause requiring submission of any dispute related to the subject matter of the Agreement to the Kuwaiti Prime Minister.

After entering into the Agreement, a dispute arose over the division of property and Bassam eventually filed a complaint in court. The complaint alleged that Kutayba, Kutayba's son, Omar, and Kutayba's counsel, Waleed Moubarak, engaged in an e-mail hacking scheme that violated the Stored Communications Act, Computer Fraud and Abuse Act and Wiretap Act, and made several other statutory and common law claims.

Relying on the dispute resolution clause, the defendants sought a stay of the suit pending arbitration in Kuwait, pursuant to section 3 of the Federal Arbitration Act (FAA), which provides that, if a party requests, a court must stay an action that is "referable to arbitration" until the arbitration is completed.

The court addressed four questions in deciding whether to stay the action:

Because the clause had no choice of law provision, the court applied both US and Kuwaiti law and determined that under either law the action would be stayed.

The court first found that the dispute resolution clause was an agreement to arbitrate under both US and Kuwaiti law. It further found that the dispute at issue fell within the broad scope of the arbitration agreement because the underlying claims touched matters covered by the Agreement. In fact, the alleged industrial espionage was to gain information for an unfair advantage in negotiations under the Agreement.

The court then determined that the asserted claims were arbitrable under US and Kuwaiti law. It found no reason to question vindication of the claims in the arbitral forum, and concerns over alleged inability of foreign arbitrators to apply US law-based claims did not provide grounds for avoiding arbitration. The court noted that substantive US law would apply to arbitration of the email-hacking claims because Kuwaiti law requires that claims arising from unlawful business shall be governed by the laws of the country in which the act giving rise to the claims took place. Finally, the court rejected Bassam's argument that the statutory claims would be non-arbitrable pursuant to Kuwaiti public policy because the claims were not criminal or penal in nature.

There was, however, significant disagreement between the parties over whether Omar and Waleed could compel arbitration because Kutayba was the only defendant to sign the Agreement. Under Kuwaiti law, non-signatories cannot compel arbitration. Under US law, however, non-signatories can require a plaintiff to arbitrate claims against them when the dispute is "intertwined" with the scope of the arbitral agreement and there is a relationship among the parties that implies extended coverage of the clause. In this case, the court found that the claims against Waleed and Omar were sufficiently "intertwined" with the scope of the Agreement because the allegations involved the negotiations implementing the Agreement. Moreover, the court found that Omar's relationship with Kutayba, as his heir, and Waleed's relationship with Kutayba, as his employee, allowed extension of the arbitration clause to them.

Ultimately, the court found that under US and Kuwaiti law, the claims against Kutayba were arbitrable and must be stayed under the FAA. The claims against Omar and Waleed, however, were outside the arbitration agreements because Omar and Waleed were non-signatories. Therefore, the court relied on its inherent power to manage its docket and stayed the action pending arbitration. The court emphasised judicial economy considerations given the connection between the asserted claims and the arbitrable claims, and relied on the efficiencies that would result from allowing resolution of the arbitrable claims before continuing the court action. The court noted, however, that Bassam could move to vacate the stay if the defendants delayed the arbitration.

This case demonstrates the strong federal policy favouring arbitration as a means of dispute resolution, as well as the judicial economy rationale underlying the policy.