Medivas, LLC et al v. Marubeni Corporation et al

Filing 23

ORDER granting in part and denying in part 5 Defendant's Motion to Compel Arbitration; Denying 7 Plaintiffs' Motion to Remand to State Court; and Granting 19 Ex Parte Application to Supplement the Record. Signed by Judge Thomas J. Whelan on 2/28/2011. (amh)

-BLM Medivas, LLC et al v. Marubeni Corporation et al

Doc. 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 MARUBENI CORP., and DOES 1 through 100, Defendants. v. MEDIVAS, LLC, a California limited liability company, et. al. Plaintiffs, CASE NO. 10-CV-1001 W (BLM) ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO COMPEL ARBITRATION [DOC. 5], (2) DENYING PLAINTIFFS' MOTION TO REMAND [DOC. 7], AND (3) GRANTING EX PARTE APPLICATION TO SUPPLEMENT THE RECORD [DOC. 19] UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

Pending before this Court is Defendant Marubeni Corporation's motion to

21 compel arbitration [Doc. 5], Plaintiffs' motion to remand [Doc. 7], and Plaintiffs' ex 22 parte application to supplement the record [Doc. 19]. The motions are opposed. 23 The Court decides the matters on the papers submitted and without oral 24 argument pursuant to Civil Local Rule 7.1(d.1). The Court GRANTS the ex parte 25 application to supplement the record [Doc. 19]. Additionally, for the reasons stated 26 below, GRANTS IN PART and DENIES IN PART the motion to compel arbitration 27 [Doc. 5], and DENIES the motion to remand [Doc. 7]. 28
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Dockets.Justia.com

1 I. 2

BACKGROUND Marubeni is a Japanese multinational corporation. Plaintiff MediVas is a

3 biomedical company. Plaintiffs Kenneth W. Carpenter, Joseph D. Dowling, William G. 4 Turnell , Sachio Okamura, T. Knox Bell, Dari Darabbeigi, Lindy Hartig, William 5 Summer, and Paul Teirstein (collectively, the "Individual Plaintiffs") are managers, 6 employees, and investors of MediVas. 7 On April 13, 2004, MediVas and Marubeni entered into an unsecured 8 Convertible Note Purchase Agreement (the "Note Purchase Agreement"). (See Pls.' 9 Notice of Lodging in Support of Remand Mot. ("Pls.' NOL") Ex. 1 [Doc. 7-4].) The 10 agreement obligated Marubeni to make advances to MediVas in an aggregate principal 11 amount not to exceed $5 million. In exchange, MediVas was obligated to make 12 quarterly interest payments, and to pay the principal on the note's maturity date. The 13 Note Purchase Agreement also included an arbitration provision providing that "[a]ll 14 disputes and differences which may arise out of or in connection with this Agreement, 15 or the breach thereof . . . shall be submitted to arbitration under the commercial 16 arbitration rules of the International Chamber of Commerce (the "ICC") for final and 17 binding arbitration." (Id., ¶ 10.14.) 18 In addition to the Note Purchase Agreement, the parties entered into an Agency 19 Agreement, whereby MediVas appointed Marubeni as its exclusive agent in Japan. (See 20 Pls.' NOL, Ex. 2.) The Agency Agreement also contains an arbitration provision. (Id., 21 ¶ 9.2.) 22 By June 2004, MediVas borrowed the entire $5 million from Marubeni. From 23 April 2004 to June 2007, MediVas made all quarterly interest payments. However, at 24 some point in 2007, MediVas began experiencing cash flow shortages and liquidity 25 problems. By July 2007, when the principal obligation on the Note Purchase Agreement 26 became due, MediVas' could not afford to pay its daily operating expenses and 27 obligations under the note. MediVas informed Marubeni of its inability to retire the 28 debt.
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Meanwhile, as a way to deal with its financial hardship, MediVas began merger

2 discussions with Nastech Pharmaceutical Company, Inc. By September 2007, MediVas 3 and Nastech drafted an Agreement and Plan of Merger. In order to complete the 4 merger, Nastech requested that MediVas' lenders consent to the merger. Marubeni 5 refused and threatened to pursue legal action under the Note Purchase Agreement. 6 Eventually, in order to obtain Marubeni's consent, MediVas agreed to enter into three 7 additional contracts: a Forbearance Agreement, Security Agreement, and Intellectual 8 Property Security Agreement ("IP Security Agreement"). 9 On October 10, 2007, MediVas and Marubeni signed the Forbearance 10 Agreement, whereby Marubeni agreed not to exercise any remedies available under the 11 Note Purchase Agreement and promissory note.1 (See Pls.' NOL, Ex. 3 at ¶ 2.) In 12 exchange, MediVas' agreed to limit its ability to issue equity (id. at ¶ 7), and "to grant 13 [Marubeni] a first priority security interest in all of [MediVas'] assets" (id. at ¶ 4). 14 The Security Agreement granted Marubeni "a continuing security interest in and 15 to all right, title, and interest" in MediVas' collateral.2 (Pls.' NOL, Ex. 4 at ¶ 2.1.) 16 Unlike the 2004 agreements, the Security Agreement does not contain an arbitration 17 provision, and instead includes a venue clause providing that state and federal courts 18 in San Diego "will have exclusive jurisdiction to hear and determine any dispute, claim 19 or controversy between or among them concerning the interpretation or enforcement 20 of this Agreement." (Id. at ¶ 6.14.) 21 22 23 24 25 26 27 28
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MediVas provided Marubeni a promissory note reflecting the $5 million in advances.

MediVas utilizes the functional equivalent of a stock program to attract and retain key personnel. Individual Plaintiffs executed a series of promissory notes ("Incentive Notes") for the purchase of "stock" units. According to MediVas and Individual Plaintiffs, the Incentive Notes were not to be enforced absent a liquidity event. MediVas allegedly defaulted on the Forbearance Agreement. As a result, Marubeni exercised its right to foreclose on the Incentive Notes. MediVas alleges that Marubeni conducted a sale of the Incentive Notes, and acquired title to them at .001 of the face amount. The parties dispute whether the Incentive Notes are considered "collateral" under the Security Agreement.
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The IP Security Agreement granted Marubeni a security interest in all of its

2 "intellectual property, copyrights, patents, patent applications, trademark, know-how, 3 trade secrets, and related goodwill." (Pl.'s NOL, Ex. 5 at p. 1.) This agreement does not 4 contain an arbitration or venue clause. 5 7 Despite executing these contracts, the Nastech merger failed. MediVas alleges In March 2008, MediVas entered into discussions with DSM Biomedical By September 2008, DSM had engaged MediVas in 6 the failure was caused by Marubeni's refusal to timely consent to the merger. 8 Materials B.V. ("DSM").

9 discussions for the acquisition of MediVas for a purchase price of between $100-$130 10 million. MediVas alleges that the Forbearance Agreement, Security Agreement and IP 11 Security Agreement caused the negotiations to degrade into discussions about a license 12 agreement. DSM determined that "MediVas had no options and reduced the license 13 agreement from $16 million to $8 million." (Compl., ¶ 72.) Of the $8 million MediVas 14 was going to receive, MediVas agreed to pay $1 million to Marubeni. Nevertheless, 15 Marubeni refused to consent to the agreement and insisted that DSM pay sufficient 16 funds from the license to Marubeni to completely repay their loan and accrued interest. 17 DSM refused. 18 20 On February 11, 2009, MediVas and DSM executed a technology license On April 28, 2010, MediVas filed this action in the San Diego County Superior 19 agreement. Instead of paying MediVas $8 million, DSM reduced the price to $7 million. 21 Court. On May 10, 2010, Marubeni removed the lawsuit to this Court. MediVas now 22 seeks to remand the case to state court. Marubeni seeks to compel arbitration and stay 23 the litigation. 24 // 25 // 26 // 27 28 II. MOTION TO REMAND
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A.

Standard

In a removal action, the district court must remand a case to state court if, at any

3 time before final judgment, the court determines that it lacks subject matter jurisdiction 4 or when the notice of removal contains plain jurisdictional defects. See 28 U.S.C. § 5 1447 et seq. The party seeking to invoke removal jurisdiction bears the burden of 6 supporting its jurisdictional allegations with competent proof. Gaus v. Miles, Inc., 980 7 F.2d 564, 566 (9th Cir. 1992) (per curiam); Emrich v. Touche Ross & Co., 846 F.2d 8 1190, 1195 (9th Cir. 1988). "The propriety of removal thus depends on whether the 9 case originally could have been filed in federal court." Chicago v. International College 10 of Surgeons, 522 U.S. 156, 163 (1997). 11 The Court's removal jurisdiction must be analyzed on the basis of the pleadings 12 at the time of removal. See Sparta Surgical Corp. v. Nat'l Ass'n of Sec. Dealers, 159 13 F.3d 1209, 1213 (9th Cir. 1998). "As a general rule, absent diversity jurisdiction, a case 14 will not be removable if the complaint does not affirmatively allege a federal claim." 15 Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 123 S. Ct. 2058, 2062 (2003). District 16 courts must construe the removal statutes strictly against removal and resolve any 17 uncertainty as to removability in favor of remanding the case to state court. Gaus, 982 18 F.2d at 566. 19 20 21 B. Discussion Relying on the arbitration provision in the 2004 Note Purchase Agreement,

22 Marubeni removed this case under the Convention on the Recognition and 23 Enforcement of Foreign Arbitral Awards (the "Convention"), 9 U.S.C. §§ 203­205. 24 MediVas argues that jurisdiction does not exists under the Convention because the 25 parties amended and rescinded the 2004 agreements when they entered into the 2007 26 agreements. Because the 2007 agreements did not supersede the Note Purchase 27 Agreement or arbitration provision, the Court finds the removal was proper. 28
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1.

The Security Agreement does not supersede or amend the Note Purchase Agreement's arbitration clause.

According to MediVas, there "is no longer any contractual basis for the

4 arbitration demand" because "[t]he 2007 Security Agreement amended and superseded 5 the 2004 Note Purchase Agreement . . . ." (Remand Mot., 15:2­4 [Doc. 7].) But 6 MediVas has failed to cite any provision or language in the Security Agreement (or any 7 other agreement) stating that the Note Purchase Agreement is superseded. Nor has 8 MediVas cited any provision or language superseding or amending the arbitration 9 clause. 10 MediVas nevertheless argues that the Security Agreement's venue provision 11 amended and superseded the arbitration clause. (Pls.' Remand Reply, 2:18­20 [Doc. 12 11].) This argument is not persuasive for at least two reasons. First, the Note Purchase 13 Agreement specifically provides that it "may be amended or supplemented only by a 14 writing that refers explicitly to this Agreement, . . . and expressly states that it is an 15 amendment to the terms hereof." (Pls.' NOL, Ex. 1, § 10.1.) The Security Agreement's 16 venue provision does not refer to or state that it is amending or supplementing either 17 the Note Purchase Agreement or the arbitration clause. 18 Second, the venue provision is expressly limited to "any dispute, claim or 19 controversy between or among [the parties] concerning the interpretation or 20 enforcement of this Agreement, or any other matter arising out of or relating to this 21 Agreement." (Plt's NOL, Ex. 4 at ¶ 6.14.) The Security Agreement defines the term 22 "Agreement" to mean "this Security Agreement, as amended from time to time." (Id., 23 ¶ 1.3) The venue provision, therefore, applies to disputes regarding the interpretation 24 or enforcement of the Security Agreement, while the arbitration provision applies to 25 disputes that may "arise out of or in connection with" the Note Purchase Agreement. 26 (See Id., Ex. 1 at ¶ 10.14.) Because the two provisions do not conflict, MediVas 27 suggestion that the venue provision impliedly supersedes the arbitration provision lacks 28 merit.
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2.

The Forbearance Agreement contradicts MediVas' argument that the arbitration clause is superseded.

The Forbearance Agreement also contradicts MediVas argument that the Note As described above, the parties entered the Forbearance Agreement because

4 Purchase Agreement and/or the arbitration clause have been superseded. 6 MediVas defaulted under the Note Purchase Agreement and promissory note (which 7 are referred to collectively as the "Loan Documents" in the Forbearance Agreement). 8 (Plt's NOL, Ex. 3 at ¶¶ A, C.) MediVas, therefore, requested "Marubeni to forbear from 9 exercising any remedies available under the Loan Documents" and Marubeni agreed, 10 subject to MediVas "performance . . . of all terms of" the Forbearance Agreement. (Id., 11 ¶¶ C & 1.) In agreeing to forbear, however, Marubeni did not waive any future defaults 12 by MediVas under the Loan Documents. (Id., ¶ 2.) MediVas' continued obligation to 13 comply with the Loan Documents means that the Forbearance Agreement could not 14 have superseded the Note Purchase Agreement. 15 Moreover, as stated above, the Note Purchase Agreement specifically provides 16 that it "may be amended or supplemented only by a writing that refers explicitly to this 17 Agreement, . . . and expressly states that it is an amendment to the terms hereof." (Plt's 18 NOL, Ex. 1 at ¶ 10.1.) Consistent with this provision, paragraph 7 of the Forbearance 19 Agreement--entitled "Amendment of Note Purchase Agreement"-- identifies only one 20 paragraph in the Note Purchase Agreement that the parties modified: "Paragraph 8.1(a) 21 of the Note Purchase Agreement is amended to read. . . ."3 (Pls.' NOL, Ex. 3 at ¶ 7.) 22 This provision confirms that the parties did not intend to amend the remaining 23 provisions of the Note Purchase Agreement. 24 26 27 28
3

Finally, the Forbearance Agreement also includes a provision entitled "Entire This Agreement, the Security Document and the Loan Documents contain

25 Agreement," which provides:

Paragraph 8.1(a) of the Note Purchase Agreement pertains to the issuance of equity.
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the entire agreement of the parties hereto and supersede any other oral or written agreements or understandings. 2 (Plt's NOL, Ex. 3 at ¶ 11.b (emphasis added).) This provision further clarifies that the 3 parties remain bound by the unamended provisions of the Note Purchase Agreement,

4 which includes the arbitration clause. Viewed another way, if the Note Purchase 5 Agreement was indeed superseded, it would no longer be part of "the entire agreement 6 of the parties. . . ." 7 For these reasons, this Court has jurisdiction under the Convention. 8 10 11 9 III. MOTION TO COMPEL ARBITRATION A. Standard The Convention is incorporated in chapter two of the Federal Arbitration Act

12 ("FAA"). 9 U.S.C. §§ 201-08. Under the Convention, federal district courts have 13 original jurisdiction over "action[s] or proceeding[s] falling under" the Convention 14 regardless of the amount in controversy. Id. at § 203. Section 202 provides that, "[a]n 15 arbitration agreement or arbitral award arising out of a legal relationship, whether 16 contractual or not, which is considered as commercial . . . falls under the Convention." 17 Id. at § 202. 18 The Ninth Circuit has determined that district courts must compel arbitration 19 pursuant to the Convention, generally speaking, if four jurisdictional prerequisites are 20 satisfied: 21 22 23 24 25 (1) there is an agreement in writing within the meaning of the Convention; (2) the agreement provides for arbitration in the territory of a signatory of the Convention; (3) the agreement arises out of a legal relationship, whether contractual or not, which is considered commercial; and (4) a party to the agreement is not an American citizen, or that the commercial relationship has some reasonable relation with one or more foreign states.

26 Balen v. Holland Am. Line Inc., 583 F.3d 647, 654 (9th Cir. 2009) (quoting Bautista 27 v. Star Cruises, 396 F.3d 1289, 1294 n.7 (11th Cir. 2005)); see also Rogers v. Royal 28 Caribbean Cruise Line, 547 F.3d 1148, 1157 (9th Cir. 2008) ("[T]he Convention
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1 compels federal courts to direct qualifying disputes to arbitration . . . .") (second emphasis 2 added). If certain claims fall within the scope of an arbitration agreement, then the 3 arbitration agreement must be enforced notwithstanding such a "piecemeal resolution" 4 of a particular dispute. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 5 U.S. 1, 20 (1983) ("[R]elevant federal law requires piecemeal resolution when necessary 6 to give effect to an arbitration agreement.") (emphasis in original). 7 The Convention includes a general provision incorporating the FAA. See 9 8 U.S.C. § 208 ("Chapter 1 [the FAA] applies to actions and proceedings brought under 9 this chapter to the extent that chapter is not in conflict with this chapter or the 10 Convention as ratified by the United States."). The FAA governs disputes involving 11 contracts which touch upon interstate commerce or maritime law. 9 U.S.C. §§ 1 et seq. 12 The FAA preempts state law where the validity of an arbitration clause is disputed. See 13 Moses H. Cone Mem'l Hosp., 460 U.S. at 24. The district court can only determine 14 whether an agreement to arbitrate exists, and if so, to enforce it in accordance with its 15 terms. Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 720 (9th Cir. 1999) (citing Howard 16 Elec. & Mech. v. Briscoe Co., 754 F.2d 847, 849 (9th Cir. 1985)). Additionally, once 17 an agreement to arbitrate is found to exist, "any doubts concerning the scope of 18 arbitrable issues should be resolved in favor of arbitration." Id. at 719 (citing Moses H. 19 Cone Mem'l Hosp., 460 U.S. at 24). 20 The Supreme Court held "[the FAA] establishes that, as a matter of federal law, 21 any doubts concerning the scope of arbitrable issues should be resolved in favor of 22 arbitration, whether the problem at hand is construction of the contract language itself 23 or an allegation of waiver, delay, or a like defense to arbitrability." Moses H. Cone 24 Mem'l Hosp. , 460 U.S. at 24-25; Quakenbush v. Allstate Ins. Co., 121 F.3d 1372, 1380 25 (9th Cir. 1997). Enforcement of an arbitration agreement "should not be denied unless 26 it can be said with positive assurance that the arbitration clause is not susceptible of an 27 interpretation that covers the asserted dispute." AT&T Technologies, Inc. v. 28 Communication Workers, 475 U.S. 643, 650 (1986); see also United Food and Comm.
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1 Workers Union v. Geldin Meat Co., 13 F.3d 1365, 1368 (9th Cir. 1993) ("Doubts 2 should be resolved in favor of coverage."). 3 4 5 B. Discussion Marubeni seeks to compel arbitration of MediVas' claims and the Individual

6 Plaintiffs' claims. For the reasons stated below, the Court finds only MediVas' claims 7 must be arbitrated. 8 9 10 1. MediVas must arbitrate its claims. Marubeni argues that all of Plaintiffs' claims, including the tort-based causes of

11 action, touch upon matters covered by the Note Purchase Agreement. Because the 12 agreement indisputably includes an arbitration provision, Marubeni argues the case must 13 be arbitrated. 14 MediVas does not dispute that all of the claims have the same factual genesis. 15 (Arb. Opp'n, 12:3­6 [Doc. 10].) Instead, Plaintiffs argue that arbitration provision was 16 replaced by the Security Agreement's venue provision. (Id. at 10:5­8.) 17 As stated above, the only provision in the Note Purchase Agreement that was 18 amended by the 2007 agreements was paragraph 8.1(a), dealing with the issuance of 19 equity. (See Pls.' NOL, Ex. 3 at ¶ 7.) There are no other provisions in the Forbearance 20 Agreement, the Security Agreement or the IP Security Agreement that amend or 21 supersede the Note Purchase Agreement or the arbitration clause. Because MediVas 22 concedes that all of its claims are related to the 2004 Note Purchase Agreement, 23 MediVas must arbitrate its claims. 24 25 26 28
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2.

The Individual Plaintiffs cannot be compelled to arbitrate.

The Individual Plaintiffs are not parties to the Note Purchase Agreement, and

27 Marubeni can point to no agreement with the Individual Plaintiffs that includes an

1 arbitration provision. Marubeni nevertheless argues that the Individual Plaintiffs should 2 be compelled to arbitrate their claims under the doctrine of equitable estoppel. 3 According to Marubeni, "a nonsignatory is estopped from refusing to comply with 4 an arbitration clause when it receives a direct benefit from a contract containing an 5 arbitration clause and/or it relies on the terms of the written agreement in asserting its 6 claims against the signatory." (Mt. Compel Arb., 13:7­10.) In support of this position, 7 Marubeni relies on the unpublished district court opinion in Omni Home Financing, 8 Inc. v. Hartford Life & Annuity Ins. Co., Benefit Systems, Inc., 2006 U.S. Dist. LEXIS 9 81767 (S.D. Cal 2006). 10 But as Plaintiffs point out, Omni Home is easily distinguishable from the present 11 case because in Omni Home, the purpose of the agreement containing the arbitration 12 clause was to provide services for the plaintiffs, and the lawsuit arose out of the 13 agreement. Id. at * 16. In contrast, here, the purpose of the Note Purchase Agreement 14 was for Marubeni to lend money to MediVas. The agreement was not entered in order 15 to provide services or any other direct benefit to the Individual Plaintiffs. Additionally, 16 the Individual Plaintiffs' claims arise from a dispute about the impact of the 2007 17 Security Agreement--not the Note Purchase Agreement--on the Individual Plaintiffs' 18 Incentive Notes. (See Compl., ¶ 59.) For these reasons, the Court finds the Individual 19 Plaintiffs are not subject to the arbitration agreement. 20 21 IV. 22 CONCLUSION & ORDER The Court GRANTS Plaintiffs' ex parte application to supplement the record.4

23 Additionally, for the reasons stated above, the Court DENIES Plaintiffs' motion to 24 remand the entire case, and GRANTS Defendant's motion to compel arbitration as to 25 MediVas, but DENIES the motion as to the Individual Plaintiffs. 26
Although the Court grants the ex parte application, the information provided therein was of little assistance in resolving the pending motions given that, as Plaintiffs concede, 28 resolution of the motions turned on whether the Note Purchase Agreement's arbitration clause was superseded by the 2007 agreements. (See Schreiner Dec., at f.n. 3 [Doc. 19-1].)

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Because neither party addressed how the Individual Plaintiffs' claims should

2 proceed in the event only MediVas was ordered to arbitration, the Court also ORDERS 3 as follows: 4 5 6 7 8 9 10 DATED: February 28, 2011 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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On or before March 14, 2011, the parties must submit a brief, not to exceed 10 pages, addressing whether the Individual Plaintiffs' claims should be stayed or remanded to state court.

IT IS SO ORDERED.

Hon. Thomas J. Whelan United States District Judge