JDS UNIPHASE CORPORATION v. FINISAR CORPORATION

Filing 80

ORDER granting 40 Motion to Dismiss due to lack of subject matter jurisdiction and denying 4 MOTION to Vacate Arbitration Award and Injunctive Relief. Signed by Judge Donetta W. Ambrose on 3/5/12. (slh)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
JDS UNIPHASE CORPORATION,
Plaintiff/Petitioner,
vs.
FINISAR CORPORATION,
Defendant/Respondent.

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Civil Action No. 11-1213

AMBROSE, Senior District Judge
OPINION
and
ORDER OF COURT
Plaintiff, JDS Uniphase Corporation (“JDSU”), has filed a Motion for Vacatur of
Arbitration Award and Injunctive Relief. (ECF No. 4). Defendant, Finisar Corporation, has filed
a Motion to Dismiss Complaint Petitioning Vacatur of Arbitration Award pursuant to Rule
12(b)(1) and 12(b)(6), or in the alternative for abstention. (ECF No. 40). Both Motions are fully
briefed and ripe for review. After careful consideration of the same and based on the reasoning
set forth below, I find that I lack subject matter jurisdiction. Therefore, Finisar’s Motion to
Dismiss (ECF No. 40) is granted and Plaintiff’s Motion for Vacatur and Injunctive Relief (ECF
No. 4) is denied.
I.

Background
The present case stems from patent infringement litigation that was initiated in this court

on March 14, 2007: Emcore Corporation and JDS Uniphase Corporation v. Optium, Civil Action
No. 7-326 (W.D. Pa. 2009)(Ambrose, J.) (“Federal Action in Pennsylvania”).
In July, 2008, Finisar sued JDSU in the Northern District of California to enforce the
terms of a Covenant Not to Sue (“CNS”). The action was dismissed for lack of jurisdiction.
Finisar then refilled the claims in state courts of California (“state court action in California”).

In August 2008, Optium became a wholly-owned subsidiary of Finisar.
On July 15, 2009, Finisar completed a sale of its Network Tools business to JDSU which
included the execution of a CNS. A dispute ensued over whether the parties stipulated to
dismiss the ongoing Federal Action in Pennsylvania. As a result, Optium filed a motion for leave
to file an amended answer to add release as an affirmative defense in the Federal Action in
Pennsylvania. Optium also sought to file a second summary judgment motion based on the
same defense. On August 19, 2009, this court denied Optium’s motions and the Federal Action
in Pennsylvania proceeded to trial.
It simply defies belief that the parties represented by counsel intended to settle a
patent infringement lawsuit, with trial imminent, without mentioning it in the
course of settlement negotiation or in the settlement document itself. Thus, I find
that it would be futile to allow amendment of the Answer because the Settlement
Agreement does not release Optium from the instant matter.
(Civil Action 7-326, ECF No. 135).
On November 13, 2009, a verdict was returned in favor of Emcore in the amount of
$2,774,364 and in favor of JDSU in the amount of $622,440 in the Federal Action in
Pennsylvania. On February 12, 2010, Optium filed a Notice of Appeal. During the appeal,
Optium argued that this court applied the wrong standard and abused its discretion in denying
Optium’s motions described above. The Federal Circuit Court of Appeals affirmed this court’s
judgment on January 26, 2011.
Back in the state court action in California, JDSU challenged the jurisdiction of the
arbitrator based on the Federal Action in Pennsylvania. The Arbitrator dismissed the challenge
and rendered a decision in the action finding that based on the CNS, JDSU had released
Optium in the Federal Action in Pennsylvania and that continued prosecution of the same
constituted a breach of the CNS. On August 31, 2011, the Arbitrator awarded $6,756,427.05 to
Finisar, plus $3,215,944.38 in attorneys’ fees and expenses incurred by Finisar in defending the
Federal Action in Pennsylvania (from July 15, 2009, on) and $517,275.86 in prejudgment
interest.
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On September 14, 2011, Finisar petitioned the Superior Court for the City and County of
San Francisco to confirm the arbitration award. On October 20, 2011, the Superior Court for the
City and County of San Francisco confirmed the award.
On September, 20, 2011, JDSU filed a Complaint in this court seeking to vacate the
Arbitrator’s award. (ECF No. 1).
II.

Legal Discussion
A.

Finisar’s Motion to Dismiss – Lack of Jurisdiction Rule 12(b)(1)1

Through its complaint, JDSU seeks to vacate and enjoin Finisar from enforcing the
August 31, 2011, Arbitration Award in California which was confirmed on October 20, 2011.
Finisar first argues that the Complaint petitioning for vacatur of an arbitration award in California
and injunctive relief should be dismissed for lack of subject matter jurisdiction. (ECF No. 41, pp.
7-12). Specifically, Finisar argues that neither the Federal Arbitration Act (“FAA”), 9 U.S.C. §§116, nor the All-Writs Act, 28 U.S.C. §1651, is a basis for federal jurisdiction. Id. In response,
JDSU states that it “has never asserted that subject matter jurisdiction exists under the FAA or
the All Writs Act.” (ECF No. 48, p. 12). Rather, JDSU submits that this court “has subject
matter jurisdiction because JDSU seeks vacatur based on the Arbitrator’s manifest disregard of
federal law – specifically, the well-established principle of federal law that prior judgments of the
federal courts could be afforded res judicata and collateral estoppel effect.” Id.
There is no doubt that JDSU seeks federal jurisdiction based on federal question
jurisdiction, not diversity. (ECF No. 1-1). Federal question jurisdiction exists “’only when the
plaintiff’s statement of his own cause of action shows that it is based upon [federal law].’”
Vaden v. Discover Bank, 556 U.S. 49, 60 (2009), quoting Louisville & Nashville R. Co. v.
Mottley, 211 U.S 149, 152 (1908). Plaintiff’s Complaint seeks to vacate an arbitration award.
(ECF No. 1). The Federal Arbitration Act (“FAA”), 9 U.S.C. §10, provides the exclusive means
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Since the Motion to Dismiss raises threshold jurisdictional issues, I will address the Motion to
Dismiss first.
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for vacating an arbitration award. Hall Street Assoc., L.L.C. v. Mattel, Inc., 552 U.S. 576, 584
(2008). The FAA, unlike most federal laws, does not bestow federal subject matter jurisdiction.
Id. at 581-82. Rather, it requires independent jurisdiction. Id. at 582; Vaden, 556 U.S. at 1271.
The Arbitration Act is something of an anomaly in the field of federal-court
jurisdiction. It creates a body of federal substantive law establishing and
regulating the duty to honor an agreement to arbitrate, yet it does not create any
independent federal-question jurisdiction under 28 U.S.C. § 1331 (1976 ed.,
Supp. IV) or otherwise. Section 4 provides for an order compelling arbitration
only when the federal district court would have jurisdiction over a suit on the
underlying dispute; hence, there must be diversity of citizenship or some other
independent basis for federal jurisdiction before the order can issue. E.g.,
Commercial Metals Co. v. Balfour, Guthrie, & Co., 577 F.2d 264, 268-269 (CA5
1978), and cases cited.
Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 26 (1983).
JDSU argues that jurisdiction is conferred based on “the Arbitrator’s manifest disregard
of federal law….” (ECF No. 48, p. 12). To that end, JDSU asserts that “manifest disregard”
remains a valid ground for vacating an arbitration award. Id. at p. 13-14. By this statement, it is
clear to me that JDSU is confusing two different theories of law: jurisdiction and the grounds for
vacating an arbitrator’s award.2 The basis for vacatur and the basis for jurisdiction are two
separate and distinct propositions.
Finisar argues that “manifest disregard” does not provide a basis for jurisdiction
exclusive of the FAA. (ECF No. 41, pp. 8-11). As set forth above, the Supreme Court could not
be more clear on this issue. Hall, 552 U.S. at 582; Vaden, 556 U.S. at 1271. As a result, I
agree with Finisar.

2

In Hall, the Supreme Court stated that §10 of the FAA was the exclusive grounds for vacating
an arbitration award thereby implying that “manifest disregard for the law” is not an additional
ground for vacating an arbitration award. Hall, 552 U.S. at 581-82. The use of the term
“manifest disregard” was a “shorthand” reference or collective characterization of the exclusive
grounds in §10. The Supreme Court later clarified, however, that it was not deciding whether
“manifest disregard” is an independent ground for vacatur under §10. Stolt-Neilsen S.A. v.
AnimalFeeds Int’s Corp., 130 S.Ct. 1758, 1768, n.3 (2010). While the circuit courts are split on
this issue, the Third Circuit has yet to rule. Paul Green School of Rock Music Franchising, LLC.
v. Smith, 389 F. App’x 172, 176-77 (3d Cir. 2010).
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JDSU has failed to provide any basis for jurisdiction other than its “manifest disregard”
argument. Thus, given the statement in Hall that an independent ground for jurisdiction is
required, I am persuaded that “manifest disregard” does not provide the independent basis
necessary to confer jurisdiction on this court.
jurisdiction over this case.

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Therefore, I find that I lack subject matter

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
JDS UNIPHASE CORPORATION,

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Plaintiff/Petitioner,
vs.
FINISAR CORPORATION,
Defendant/Respondent.

Civil Action No. 11-1213

AMBROSE, Senior District Judge
ORDER OF COURT
And now, this 5th day of March, 2012, upon consideration of Defendant’s Motion to
Dismiss (ECF No. 40) and Plaintiff’s Motion for Vacatur (ECF No. 4), it is ordered as follows:
1.

Defendant’s Motion to Dismiss (ECF No. [40]) is granted due to lack of subject
matter jurisdiction.

2.

Plaintiff’s Motion for Vacatur and Injunctive Relief (ECF No. [4]) is denied.

The case shall be closed forthwith.
BY THE COURT:
s/ Donetta W. Ambrose
Donetta W. Ambrose
United States Senior District Judge

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