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CLOUSER v. ION BEAM APPLICATIONS

March 18, 2004.

JAMES CLOUSER, Plaintiff,
v.
ION BEAM APPLICATIONS, INC., Defendant



The opinion of the court was delivered by: MARILYN PATEL, Chief Judge, District

MEMORANDUM AND ORDER Motion for Preliminary Injunction
On December 9, 2003, plaintiff James Clouser ("Clouser") brought this civil action against defendant Ion Beam Applications, Inc. ("IBA"). Clouser seeks declaratory and injunctive relief against defendant for a breach of his employment agreement. Before this court is Clouser's motion for a preliminary injunction. Clouser has filed this motion pursuant to his employment agreement with IBA ("the Agreement"), claiming that the Agreement obligates IBA to pay Clouser's attorneys' fees and litigation expenses in excess of $15,000 immediately, and to pay future legal expenses as incurred. The court has considered the parties' arguments fully, and for the reasons set forth below, rules as follows.

BACKGROUND*fn1

  Until 1999, Clouser was Chief Executive Officer ("CEO") of SteriGenics. In 1999, during Clouser's tenure as CEO, IBA s.a, the Belgian parent of IBA, acquired SteriGenics. On March 26, 2002, IBA announced that Clouser would be joining IBA as President and Chief Operating Officer ("COO"). To this end, IBA, IBA s.a., and Clouser executed the Agreement on December 8, 2002, making its terms retroactive to April 1, 2002. Dec. of Stephen Adams ("Adams Dec."), Exh. B. Pursuant to the Agreement, Clouser was to receive compensation in the form of an annual salary, stock options, and substantial termination benefits. The Agreement provided that Clouser would receive termination benefits Page 2 only if both parties agreed to mutually release one another from all legal claims. Agmt. § 2.3(a). The Agreement also included a mandatory arbitration clause providing, in relevant part:
4.4 Arbitration. Employee agrees that any and all disputes that Employee has with Company or any of its employees, which arise out of the Employee's employment, the termination of employment, or under the terms of this Agreement shall be resolved through final and binding arbitration. This shall include, without limitation, disputes relating to this Agreement, any disputes regarding Employee's employment by Company or termination thereof, claims for breach of contract or breach of the covenant of good faith and fair dealing . . . or other claims under any federal, state or local law or regulation . . . concerning in any way the subject of Employee's employment with Company or its termination.
While section 4.4 of the Agreement generally requires disputes to be settled by arbitration, it also allows the parties to seek interim injunctive relief in court in certain circumstances. The Agreement reads:
Any party to a dispute that is subject to arbitration pursuant to this Section 4.4 shall retain the right to seek from any court having jurisdiction such interim injunctive relief as may be necessary to protect the rights or property of that party pending an arbitrator's final determination.
Agmt. § 4.4. Further, the Agreement discusses allocation of attorneys' fees in the case of an employment dispute between IBA and Clouser. Section 4.8 of the Agreement states in full:
4.8 Attorneys Fees. Company shall pay the law firm of Orrick, Herrington & Sutcliffe LLP with respect to the negotiation and preparation of this Agreement (not to exceed US$30,000). With respect to any and all disputes that Employee has with Company or any of its employees, which arise out of Employee's employment or service to the Company, the termination of Employee's employment or service to the Company, or nder the terms of this Agreement, Employee shall pay the initial US$15,000 of his legal expenses incurred in any such dispute and the company shall pay for any legal costs or fees incurred in excess of US$15,000. This Section 4.8 will be construed and interpreted in accordance with the laws of Connecticut, United States of America.
  Clouser worked for IBA until April 28, 2003, when IBA terminated his employment. Following Clouser's termination, the parties attempted to negotiate amounts and timing of final payments due under the contract. With respect to termination benefits, Clouser agreed only to execute a partial release of his claims against IBA, so no termination benefits were paid.

  Throughout the fall of 2003, the parties debated the attorneys' fees question in correspondence between the parties' counsel. Pursuant to section 4.8, Clouser demanded that IBA pay legal expenses incurred through September 2003 (less the agreed-upon $15,000) in the amount of $42, 586.41. Adams Dec., Exh. E. IBA eventually acknowledged that it had an obligation to pay attorneys' fees pursuant to Page 3 section 4.8 under some circumstances. Dec. of Erik Nelson ("Nelson Dec."), Exh. C. However, IBA claims that it has no obligation to pay the attorneys' fees as Clouser incurs them and, further, that it has a right to offset any attorneys' fees owed to Clouser with the fees Clouser owes to IBA.

  On December 2, 2003, Clouser filed a claim against IBA with the American Arbitration Association ("AAA") pursuant to the mandatory arbitration clause in section 4.4 of the Agreement. Clouser's demand for arbitration set forth his claims as follows:
Claimant James F. Clouser seeks a declaration that he is entitled to certain payments and other benefits from respondent Ion Beam Applications, Inc., a declaration that certain stock options are vested and exercisable by him, damages for breach of contract and breach of the implied covenant of good faith and fair dealing, statutory penalties, costs, and attorney's fees.
Adams Dec., Exh. H. IBA filed an answer and a counterclaim, seeking a determination that it owes Clouser nothing and counterclaiming for recovery of overpayments made to Clouser. Adams Dec., Exh. G. The arbitration is currently pending.

  On December 9, 2003, Clouser filed a complaint in this court seeking declaratory and injunctive relief. Among other things, Clouser seeks an injunction compelling IBA to pay his legal fees and costs as they are incurred. Now before the court is plaintiff's motion for a preliminary injunction requiring IBA to reimburse Clouser for attorneys' fees, litigation expenses and interest related to the termination of his employment and to the enforcement of his rights under the Agreement expended to date; Clouser also seeks to compel IBA to pay future attorneys' fees and litigation expenses on a timely basis as they are incurred.

 LEGAL STANDARD

 I. Arbitration

  The Federal Arbitration Act ("FAA") requires federal courts to enforce arbitration agreements and to stay any litigation that contravenes such agreements. See 9 U.S.C. § 1-16. The FAA reflects a strong "federal policy favoring arbitration," Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), and requires that courts "rigorously enforce agreements to arbitrate." Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221 (1985). The FAA provides that a written provision in "a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of Page 4 such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2; see also Circuit City Stores. Inc. v. Adams, 532 U.S. 105, 119 (2001) (holding that section 2 covers employment agreements except those with workers engaged in interstate transportation).

  Where parties seek to compel arbitration, federal courts have two roles: 1) to determine whether a valid agreement to arbitrate exists; and, if a valid agreement exists, 2) to decide whether the agreement encompasses the dispute at issue. 9 U.S.C. § 4; Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719-20 (9th Cir. 1999). If a valid arbitration agreement does encompass the dispute at issue, then the FAA requires the court to enforce the arbitration agreement in accordance with its terms. See Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). When determining the validity of an agreement to arbitrate, federal courts "apply ordinary state-law principles that govern the formation of contracts." First Options of Chicago. Inc. v. Kaplan, 514 U.S. 938, 944 (1995).*fn2

 II. Preliminary Injunction

  A preliminary injunction is a provisional remedy aimed at preserving the status quo and preventing the occurrence of irreparable harm during the course of litigation. Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1422 (9th Cir. 1984). Preliminary injunctions may be issued where the moving party has established two prerequisites for equitable relief: 1) a threat of irreparable injury, and 2) the inadequacy of available legal remedies. See Fed.R.Civ.P. 65 (placing this type of injunctive relief within the bounds of the court's discretion and equitable power); Easyriders Freedom F.I.G.H.T. v. Hannigan, 92 F.3d 1486, 1495 (9th Cir. 1996). In general, a preliminary injunction is appropriate where a plaintiff can demonstrate "either: 1) a likelihood of success on the merits and the possibility of irreparable injury; or 2) that serious questions going to the merits were raised and the balance of hardships tips sharply in [plaintiff's] favor." Southwest Voter Registration Education Project v. Shelley, 344 F.3d 914, 917-18 (9th Cir. 2003) (en banc; per curiam) (citing Clear Channel Outdoor, Inc. v. City of Los Angeles, 340 F.3d 810, 813 (9th Cir. 2003), and Walczak v. EPL Prolong, Inc., 198 F.3d 725, 731 (9th Cir. 1999)); see also Sun Microsystems. Inc. v. Microsoft Corp., 188 F.3d 1115, 1119 (9th Cir. 1999). The two prongs of this test sit on a "continuum," Southwest Voter, 344 F.3d at 918; thus, "the less certain the Page 5 district court is of the likelihood of success on the merits, the more plaintiffs must convince the district court that the public interest and balance of hardships tip in their favor." Id. However, "[u]nder either formulation, the moving party must demonstrate a significant threat of irreparable injury, irrespective of the magnitude of the injury." Big Country Foods. Inc. v. Bd. of Educ. of Anchorage Sch. Dist., 868 F.2d 1085, 1088 (9th Cir. 1989). When the plaintiff seeks "mandatory" injunctive relief, the court reviews the motion for injunctive relief more rigorously. Stanley v. Univ. of So. Cal., 13 F.3d 1313, 1320 (9th Cir. 1994) (holding that the court should not grant mandatory injunctions "unless the law and facts clearly favor the moving party").

 DISCUSSION

  Before it may consider the substance of Clouser's claim for injunctive relief, the court must first decide whether it can grant injunctive relief in this context. IBA contends that injunctive relief would be improper in this case because the parties agreed to arbitrate the dispute and the dispute is presently before an arbitrator. The court will consider ...


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