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Chinmax Medical Systems Inc., A Chinese Corporation v. Alere San Diego

May 27, 2011

CHINMAX MEDICAL SYSTEMS INC., A CHINESE CORPORATION,
PLAINTIFF,
v.
ALERE SAN DIEGO, INC. (FORMERLY KNOWN AS BIOSITE INCORPORATED), A DELAWARE CORPROATION, DEFENDANT.



The opinion of the court was delivered by: Hayes, Judge:

ORDER

The matters before the Court are the Petition (ECF No. 1) and the Motion to Vacate Arbitration Award filed by Petitioner Chinmax Medical Systems Inc. (ECF No. 10).

BACKGROUND

On December 1, 2010, Chinmax Medical Systems Inc., a Chinese Corporation, ("Chinmax") initiated this action by filing a Verified Petition to Vacate Arbitration Award. (ECF No. 1). On that same day, Chinmax filed an Ex Parte Motion for Stay of an Interim Final Award issued in Arbitration which was denied by this Court. (ECF Nos. 3, 12). On December 6, 2010, Chinmax filed a Motion to Vacate Arbitration Award. (ECF No. 10). On December 27, 2010, Alere San Diego, Inc, a Delaware Corporation, ("Alere") filed an Opposition. (ECF No. 14). On January 3, 2011, Chinmax filed a Reply. (ECF No. 16).

ALLEGATIONS OF PETITION

The principal place of business for Chinmax is Shanghai, China. Chinmax has been the exclusive distributor of certain medical devices manufactured by Alere and its predecessors since 2001. Chinmax and Alere operated under a distribution agreement for five years.

On April 1, 2007, Chinmax and Alere entered into a second distribution agreement which is the subject of the current Petition. The second distribution agreement set an initial one-year term which ran until March 31, 2008. The agreement allowed for an optional two-year renewal which would run until March 31, 2010, and an automatic renewal which would run until March 31, 2012, unless a party gave ninety-days notice of non-renewal prior to expiration of the previous term. Alere renewed the distribution agreement through March 31, 2010.

The second distribution agreement provided Chinmax the right to register new products in China, but in 2008, Alere "dictated" that it would register new products. (ECF No. 1 at 8). "Chinmax demanded value in return for giving up its contractual right over registration renewals[,]" and "required" that Chinmax continue to be named as the service agent. Id.

Chinmax and Alere established sales targets each year. Alere increased the sales targets in 2008 and 2009. Alere's representatives stated that Alere would renew the distribution agreement for the final two-year term if Chinmax met at least ninety-percent of the 2009 sales target. Chinmax exceeded the 2009 sales target despite Alere making over $9 million in "illegal sales" during the same time period. Id. at 9.

On January 5, 2010, Alere informed Chinmax that Alere would not renew the second distribution agreement. Alere claimed that Chinmax was in material breach of the second distribution agreement for failing to make payments on delivered products totaling $2,685,658.50. Chinmax retained the $2,685,658.50 as a set-off for its damages suffered as a result of Alere's "illegal sales" during 2009 which Chinmax estimates as totaling more than $3,240,000.00. Id. at 10.

On September 10, 2010, Chinmax provided Alere notice that it intended to arbitrate the dispute pursuant to the arbitration agreement stated in the second distribution agreement. The parties arbitration agreement states as follows:

Any dispute, controversy or claim initiated by either party arising out of or relating to [the Distribution Agreement], its negotiations, execution, or interpretation, or in the performance by either party of obligations under [the Distribution Agreement] ... shall be finally resolved by binding arbitration in the event that the parties are unable to resolve it.... Any such arbitration shall be conducted in the English language under the International Dispute Resolution Procedures and Arbitration Rules of the American Arbitration Association (the "Rules") by a panel of three (3) arbitrators appointed in accordance with such Rules .... Notwithstanding the foregoing, either party shall have the right, without waiving any right or remedy available to such party under this Agreement or otherwise, to seek and obtain from any court of competent jurisdiction any interim or provisional relief that is necessary or desirable to protect the rights or property of such party, pending the selection of the arbitrators hereunder or pending the arbitrator's determination of any dispute, controversy or claim hereunder. (ECF No. 10-3 at 12).

On October 13, 2010, Chinmax filed a demand for arbitration with the International Centre for Dispute Resolution division of the American Arbitration Association ("AAA"). On October 15, 2010, Alere filed a request for an emergency interim award pursuant to Article 37 of the American Arbitration Association International Dispute Resolution Procedures. On October 20, 2010, Chinmax filed a Motion to Strike, or Alternatively, to Consolidate the Merits Hearing with the Interim Proceedings. On November 23, 2010, an emergency ...


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