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Medivas, LLC, A California Limited Liability Company, Et. Al. v. Marubeni Corp.

February 28, 2011

MEDIVAS, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY, ET. AL. PLAINTIFFS,
v.
MARUBENI CORP., AND DOES 1 THROUGH 100, DEFENDANTS.



The opinion of the court was delivered by: Hon. Thomas J. Whelan United States District Judge

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]

Pending before this Court is Defendant Marubeni Corporation's motion to compel arbitration [Doc. 5], Plaintiffs' motion to remand [Doc. 7], and Plaintiffs' ex parte application to supplement the record [Doc. 19]. The motions are opposed.

The Court decides the matters on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d.1). The Court GRANTS the ex parte application to supplement the record [Doc. 19]. Additionally, for the reasons stated below, GRANTS IN PART and DENIES IN PART the motion to compel arbitration [Doc. 5], and DENIES the motion to remand [Doc. 7].

I. BACKGROUND

Marubeni is a Japanese multinational corporation. Plaintiff MediVas is a biomedical company. Plaintiffs Kenneth W. Carpenter, Joseph D. Dowling, William G. Turnell , Sachio Okamura, T. Knox Bell, Dari Darabbeigi, Lindy Hartig, William Summer, and Paul Teirstein (collectively, the "Individual Plaintiffs") are managers, employees, and investors of MediVas.

On April 13, 2004, MediVas and Marubeni entered into an unsecured Convertible Note Purchase Agreement (the "Note Purchase Agreement"). (See Pls.' Notice of Lodging in Support of Remand Mot. ("Pls.' NOL") Ex. 1[Doc. 7-4].) The agreement obligated Marubeni to make advances to MediVas in an aggregate principal amount not to exceed $5 million. In exchange, MediVas was obligated to make quarterly interest payments, and to pay the principal on the note's maturity date. The Note Purchase Agreement also included an arbitration provision providing that "[a]ll disputes and differences which may arise out of or in connection with this Agreement, or the breach thereof . . . shall be submitted to arbitration under the commercial arbitration rules of the International Chamber of Commerce (the "ICC") for final and binding arbitration." (Id., ¶ 10.14.)

In addition to the Note Purchase Agreement, the parties entered into an Agency Agreement, whereby MediVas appointed Marubeni as its exclusive agent in Japan. (See Pls.' NOL, Ex. 2.) The Agency Agreement also contains an arbitration provision. (Id., ¶ 9.2.)

By June 2004, MediVas borrowed the entire $5 million from Marubeni. From April 2004 to June 2007, MediVas made all quarterly interest payments. However, at some point in 2007, MediVas began experiencing cash flow shortages and liquidity problems. By July 2007, when the principal obligation on the Note Purchase Agreement became due, MediVas' could not afford to pay its daily operating expenses and obligations under the note. MediVas informed Marubeni of its inability to retire the debt.

Meanwhile, as a way to deal with its financial hardship, MediVas began merger discussions with Nastech Pharmaceutical Company, Inc. By September 2007, MediVas and Nastech drafted an Agreement and Plan of Merger. In order to complete the merger, Nastech requested that MediVas' lenders consent to the merger. Marubeni refused and threatened to pursue legal action under the Note Purchase Agreement. Eventually, in order to obtain Marubeni's consent, MediVas agreed to enter into three additional contracts: a Forbearance Agreement, Security Agreement, and Intellectual Property Security Agreement ("IP Security Agreement").

On October 10, 2007, MediVas and Marubeni signed the Forbearance Agreement, whereby Marubeni agreed not to exercise any remedies available under the Note Purchase Agreement and promissory note.*fn1 (See Pls.' NOL, Ex. 3 at ¶ 2.) In exchange, MediVas' agreed to limit its ability to issue equity (id. at ¶ 7), and "to grant [Marubeni] a first priority security interest in all of [MediVas'] assets" (id. at ¶ 4).

The Security Agreement granted Marubeni "a continuing security interest in and to all right, title, and interest" in MediVas' collateral.*fn2 (Pls.' NOL, Ex. 4 at ¶ 2.1.) Unlike the 2004 agreements, the Security Agreement does not contain an arbitration provision, and instead includes a venue clause providing that state and federal courts in San Diego "will have exclusive jurisdiction to hear and determine any dispute, claim or controversy between or among them concerning the interpretation or enforcement of this Agreement." (Id. at ¶ 6.14.)

The IP Security Agreement granted Marubeni a security interest in all of its "intellectual property, copyrights, patents, patent applications, trademark, know-how, trade secrets, and related goodwill." (Pl.'s NOL, Ex. 5 at p. 1.) This agreement does not contain an arbitration or venue clause.

Despite executing these contracts, the Nastech merger failed. MediVas alleges the failure was caused by Marubeni's refusal to timely consent to the merger.

In March 2008, MediVas entered into discussions with DSM Biomedical Materials B.V. ("DSM"). By September 2008, DSM had engaged MediVas in discussions for the acquisition of MediVas for a purchase price of between $100-$130 million. MediVas alleges that the Forbearance Agreement, Security Agreement and IP Security Agreement caused the negotiations to degrade into discussions about a license agreement. DSM determined that "MediVas had no options and reduced the license agreement from $16 million to $8 million." (Compl., ¶ 72.) Of the $8 million MediVas was going to receive, MediVas agreed to pay $1 million to Marubeni. Nevertheless, Marubeni refused to consent to the agreement and insisted that DSM pay sufficient funds from the license to Marubeni to completely repay their loan and accrued interest. DSM refused.

On February 11, 2009, MediVas and DSM executed a technology license agreement. Instead of paying MediVas $8 million, DSM ...


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