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describing an arbitration clause containing similar language as being "the paradigm of a broad clause"
Summary of this case from KENNEDY v. ITV DIRECT, INC.Opinion
Civil No. 04-1355 ADM/AJB
April 28, 2004
Roman M. Silberfeld, Esq., and Bernice Conn, Esq., Robins, Kaplan, Miller Ciresi, L.L.P., Los Angeles, CA, appeared for and on behalf of Plaintiffs
David T. Miyamoto, Esq., and Franklin D. Kang, Esq., Sidley Austin Brown Wood, L.L.P., Los Angeles, CA, appeared for and on behalf of Defendants
William L. Roberts, Faegre Benson, L.L.P., Minneapolis, MN, appeared for and on behalf of Defendants
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On April 5, 2004, counsel presented oral argument before the undersigned United States District Judge on the Motion for Temporary Restraining Order ("TRO") and for Preliminary Injunction ("PI") of Plaintiffs Medtronic, Inc., Medtronic International, Ltd., and Medtronic Sofamor Danek, Inc. (collectively, "Medtronic") [Docket No. 4]. In an Order dated April 12, 2004, the TRO Motion was granted, the arbitration proceedings were accordingly stayed, and the PI Motion was taken under advisement pending resolution of the issue of arbitrability of Defendants' claims. See Order of 4/12/04 [Docket No. 18]. For the reasons set forth below, the PI portion of Plaintiffs' Motion is denied.
II. BACKGROUND
This dispute involves an ongoing commercial relationship that culminated in a "Purchase and Option Agreement" ("POA") between the parties. Signed March 27, 2002, the POA superseded and incorporated all prior agreements between the two and set up a staged acquisition of all outstanding shares of ETEX by Medtronic for $184 million. Pls.' App. Ex. A at 4, 42-206. The agreement made this acquisition contingent upon ETEX's development of a bone growth product that met the agreed-upon Technical Specifications. The POA also granted Medtronic exclusive license rights to certain ETEX technology, and favorable terms for supply of materials. ETEX contends that it performed pursuant to the terms of the POA, while Medtronic asserts that ETEX has not fully complied with the agreement and therefore that Medtronic's contractual obligations have expired. On October 8, 2003, ETEX filed a Demand for Arbitration (the "Demand") alleging that despite its timely development of the specified bone substitute material, Medtronic rejected and sought to frustrate ETEX's performance of the contract. Id. at 1-41. The Demand asserts claims of breach of covenant, breach of contract, fraud, violation of Massachusetts and Minnesota state statutes, anti-trust violations and commercial disparagement. Demand ¶¶ 67-139. ETEX avers that Medtronic used the POA and the representations therein to lure ETEX away from other potential business opportunities and to bury and "lock up" ETEX technology to prevent competition with Medtronic's own "INFUSE' product, a bone-graft device approved by the FDA in July 2002. Id. ¶ 47. Medtronic brought the instant Motion to enjoin the arbitration proceedings and for a declaration that the Lanham Act commercial disparagement claim and the anti-trust claims under the Clayton and Sherman Acts are outside the scope of the POA's arbitration provision and therefore must be litigated before the Court.
The precise anti-trust claims are: Violation of Section 7 of the Clayton Act ( 15 U.S.C. § 18); Unlawful Restraint of Trade, Section 1 of the Sherman Act ( 15 U.S.C. § 1); Unlawful Monopolization, Section 2 of the Sherman Act ( 15 U.S.C. § 2); Attempted Monopolization, Section 2 of the Sherman Act ( 15 U.S.C. § 2). Demand ¶¶ 104-139 (App. Ex. A at 31-38).
The POA contains the following clause:
12.17 Arbitration. Any dispute arising out of or relating to this Agreement, including the formation, interpretation or alleged breach hereof, shall be settled in accordance with Exhibit P attached hereto. The results of such arbitration proceedings shall be binding upon the parties hereto, and judgment may [be] entered upon the arbitration award in any court having jurisdiction thereof. Notwithstanding the foregoing, either party may seek injunctive relief from any court of competent jurisdiction.Id. at 106. Exhibit P to the POA, entitled "Alternative Dispute Resolution," prescribes the process and procedure for negotiation and arbitration of disputes. It states in pertinent part:
(2) Arbitration. All claims, disputes, controversies, and other matters in question arising out of or relating to the Agreements, including claims for indemnifiable losses and disputes regarding the making of the Agreements, including claims of fraud in the inducement, or to the alleged breach hereof, shall be settled by negotiation between the parties as described in Section 1 above, or if negotiation is unsuccessful, by binding arbitration in accordance with the procedures set forth in Sections 3 and 4 below.Id. at 203.
III. DISCUSSION
On a motion for preliminary injunctive relief the Court considers four factors: (1) the threat of irreparable injury to the plaintiff; (2) the balance of harm to the plaintiff if relief is not granted and harm to the defendant if an injunction is issued; (3) the plaintiff's likelihood of success on the merits; and (4) the public interest. Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981).
In the context of arbitration disputes, courts have held that the injury to a party who is forced to arbitrate when it did not agree to do so constitutes irreparable harm per se. Maryland Cas. Co. v. Realty Advisory Bd. on Labor Relations, 107 F.3d 979, 985 (2d Cir. 1997); Paine Webber v. Hartmann, 921 F.2d 507, 514-15 (3d Cir. 1990). This proposition, however, is necessarily tied to the validity of Medtronic's, the movant's, position on the present issue of whether or not ETEX's federal claims are covered by the arbitration agreement. Naturally, if Medtronic contracted to arbitrate the underlying matter, this rule of irreparable harm is inapplicable. Accordingly, the focus of this Motion is whether Medtronic is likely to be successful on the merits.
This case involves two distinct disputes: the scope of the arbitration clause, and the merits of the substantive allegations to be arbitrated. At this juncture the parties have not briefed and the Court need not address the validity of the respective positions on the underlying claims.
When contracts include an arbitration provision "a presumption of arbitrability" arises, such that any doubt about the "scope of arbitrable issues" is to be resolved in favor of arbitration. ATT Techs., Inc. v. Comms. Workers of Am., 475 U.S. 643, 650 (1986); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985). Medtronic contends despite the legal presumption in favor of arbitration, the federal claims are non-arbitrable because (1) the language of the POA so indicates, (2) the claims implicate conduct outside of the POA, and (3) the anti-trust allegations would render the contract illegal and void.
The first argument requires little discussion. The above-cited language of the POA is inclusive, not exclusive, and the fact that "legality" of the contract is not explicitly mentioned does not remove such a claim from the scope of the arbitration clauses. See Pls.' App. Ex. A at 106, 203.
Medtronic's second argument, that the anti-trust allegations reference parties and conduct outside of the POA, is likewise unavailing. The language of the arbitration provision at issue "is the paradigm of abroad clause." Collins Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16, 20 (2d Cir. 1995) (interpreting agreement to arbitrate "any claim or controversy arising out of or relating to the agreement"); see also In re Currency Conversion Fee Anti-Trust Litig., 265 F. Supp.2d 385, 404, 406 (finding anti-trust claims to be within "broad language" of clause covering "[a]ny claim, dispute or controversy . . . arising out of or relating to this Agreement"). Furthermore, as Medtronic acknowledges, Supreme Court precedent has firmly established the arbitrability of anti-trust claims. See Mitsubishi, 473 U.S. at 632-40. Medtronic nonetheless argues the allegations in this case are not within the arbitration agreement because they implicate business activity and relationships unrelated to the POA. However, mere mention of parties or conduct beyond the express terms of the contract does not render these claims non-arbitrable. See Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 718, 721-22, 724 (9th Cir. 1999) (finding arbitration agreement covered allegations of anti-competitive behavior harming plaintiff and automobile drivers in general, and disparagement and misrepresentations to third-party). In Simula, a factually analogous case, the Ninth Circuit affirmed the arbitrability of the plaintiff's anti-trust and Lanham Act claims. Id. at 726. The court specifically noted the breadth of the parties' arbitration provision and the fact that resolution of the Sherman Act claims would "necessitate interpreting the 1995 Agreement to determine its meaning and whether the contracts . . ., actually do suppress competition as alleged." Id. at 722; see also Hunt v. Up North Plastics, Inc., 980 F. Supp. 1046, 1048, 1050 (D. Minn. 1997) (holding plaintiff's price-fixing allegations to fall within clause mandating arbitration of "any disagreement arising out of the" sales arrangement between the parties).
Similarly, the Simula court found that the misrepresentations and disparagement alleged under the Lanham Act related to the litigants' commercial relationship and their contractual performance, despite reference to third parties outside the contract. Id. at 718, 723-24.
Here, the actions said to violate federal law all stem from ETEX's relationship with Medtronic, as memorialized and detailed in the POA. As in Simula, ETEX has brought Sherman Act claims alleging use of the contract to facilitate monopolistic conduct. Id. at 721. Specifically, it contends that Medtronic "entered into the 2002 Agreement for the sole purpose of keeping the technology out of the marketplace" and used its exclusive license rights to bury ETEX's products and "prevent ETEX and other competitors of Medtronic from competing with Medtronic utilizing such proprietary technology." Demand ¶¶ 118-19, 125, 126. The related Clayton Act claim states that the "effects of Medtronic's acquisition of ETEX's technology (such as exclusive licenses) was [sic], and continues to be, to lessen competition and tend to create a monopoly." Id. ¶ 111. These allegations form the basis of ETEX's anti-trust claims and not only "have a significant relationship to the contract," but directly refer to and flow from the terms of the acquisition contemplated by the POA.Simula, 175 F.3d at 721. Interpretation and analysis of the precise provisions of the POA will be needed to ascertain whether this contract between ETEX and Medtronic "actually do[es] suppress competition as alleged." Id. at 722. As such, the anti-trust claims plainly "arise out of or relate to the" POA and are thus within the scope of the parties' agreement to arbitrate. Pls.' App. Ex. A. at 106; see Simula, 175 F.3d at 721-23.
This reasoning applies equally to ETEX's claim of commercial disparagement under the Lanham Act. Lanham Act claims are arbitrable.Simula, 175 F.3d at 724. The Demand alleges Medtronic made derogatory statements to discourage competitors from dealing with ETEX or gaining access to "ETEX's products and technology." Demand ¶ 93. Thus, it essentially argues Medtronic sought to maintain its exclusivity with ETEX, as set forth in the POA, by making defamatory statements to third parties in the industry. The factual background portion of the Demand further emphasizes the link to the POA, stating that "in the course of disparaging ETEX's products and technology, Medtronic revealed ETEX's confidential and proprietary information, in breach of the 2002 Agreement." Id. ¶ 50. These allegations necessarily arise out of the contractual business relations between the parties and are therefore arbitrable. See Simula, 175 F.3d at 723-24.
Finally, Medtronic's argument that the asserted anti-competitive effects of the POA would render the contract, and with it the arbitration clause, void, fares no better. If this were so, the above cited decisions articulating the general rule of arbitrability of anti-trust claims would be illogical. Furthermore, though Medtronic correctly asserts that certain allegations that would render an underlying contract void require the court to disregard the arbitration provision and consider the merits of the claim, such cases are notably distinguishable from the instant case. See e.g., Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 855 (11th Cir. 1992) (claim that party never signed any arbitration agreement and that "a contract never existed at all" called for departure from usual rule of severability of arbitration provision). The cases relied on by Medtronic involved questions regarding the authority of a signatory to the contract, or whether a meeting of the minds ever occurred, such that "the very existence of [the] agreement is disputed." Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 112 (3d Cir. 2000). By contrast, here there is no dispute as to mutual assent and that the parties willingly and knowingly executed the POA. "At bottom, [ETEX] challenges the content of the contract, not [its] existence." Bess v. Check Express, 294 F.3d 1298, 1305 (11th Cir. 2002) (emphasis in original) (holding claim of illegal bank transactions arbitrable; plaintiff averred the deferred payments were void "not because he failed to assent to the essential terms of the contracts, but because those terms allegedly render the contracts illegal"); see also Snowden v. Checkpoint Check Cashing, 290 F.3d 631, 636-38 (4th Cir. 2002) (rejecting plaintiff's argument that usury claim would void the entire contract, including the arbitration clause). ETEX's allegations do not challenge the existence of the POA or purport to invalidate the arbitration provision itself, and therefore remain arbitrable.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that:
1. Medtronic's Motion for Preliminary Injunction [Docket No. 4] is DENIED,
2. The Temporary Restraining Order of April 12, 2004, is DISSOLVED, and
3. The Complaint [Docket No. 1] is DISMISSED WITH PREJUDICE.