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Medivas, LLC v. Marubeni Corp.

United States District Court, S.D. California

June 4, 2014

MEDIVAS, LLC, a California limited liability company, et. al. Plaintiffs,
MARUBENI CORP., and DOES 1 through 100, Defendants. Consolidated w/ Case No. 11CV2852.


THOMAS J. WHELAN, District Judge.

Pending before the Court is Defendant Marubeni Corporation's petition to confirm the arbitration awards, and Plaintiff MediVas, LLC's cross-petition to vacate the awards. The Court decides the matters on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d.1). For the reasons stated below, the Court GRANTS Marubeni's petition to confirm and DENIES MediVas' cross-petition to vacate.[1]


A. Factual history.

The following factual history is taken from the February 28, 2011 order granting in part and denying in part Defendant Marubeni's motion to compel arbitration, and denying Plaintiffs' motion to remand (the "Arbitration Order" [Doc. 23]).

Defendant 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.[2]

On April 13, 2004, MediVas and Marubeni entered into an unsecured Convertible Note Purchase Agreement (the "Note Purchase Agreement"), whereby Marubeni agreed to make advances to MediVas of up to $5 million. In exchange, MediVas agreed to make quarterly interest payments, and to pay the principal on the note's maturity date. The agreement contains an arbitration provision providing:

All 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.

( Note Purchase Agreement [Doc. 67-2], ¶ 10.14.[3]) In addition to the Note Purchase Agreement, the parties entered into an Agency Agreement, whereby MediVas appointed Marubeni as its exclusive agent in Japan. The Agency Agreement also contains an arbitration provision. ( See Agency Agreement [Doc. 67-3], ¶ 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 became due, MediVas could no longer pay its daily operating expenses.

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, but Nastech requested the consent of MediVas' lenders. Marubeni refused and threatened to pursue legal action. In order to obtain Marubeni's consent, on October 10, 2007, MediVas and Marubeni entered into three additional contracts: a Forbearance Agreement, a Security Agreement, and an Intellectual Property Security Agreement ("IP Security Agreement").[4]

Under the Forbearance Agreement, Marubeni agreed not to exercise any remedies available under the Note Purchase Agreement and promissory note as a result of MediVas' failure to pay the outstanding principal. ( Forbearance Agree., ¶ 1.) However, the agreement specified that "[s]uch forbearance does not apply to any other Event of Default... or other failure by Borrower to perform in accordance with the Loan Documents and the Security Documents...." ( Id., ¶ 2.[5])

In exchange for Marubeni's agreement to forbear from exercising its remedies, MediVas agreed to limit its ability to issue equity, and granted Marubeni "a first priority security interest in all of [MediVas'] assets." ( Forbearance Agree., ¶ 4.) The Security Agreement, therefore, grants Marubeni "a continuing security interest in and to all right, title, and interest" in MediVas' collateral. ( Security Agree., ¶ 2.1.) The IP Security Agreement grants Marubeni a security interest in all of its "intellectual property, copyrights, patents, patent applications, trademark, know-how, trade secrets, and related goodwill." ( IP Security Agree., p.1)

Unlike the 2004 agreements, none of the 2007 agreements include an arbitration provision. However, the Security Agreement contains a "Venue and Jurisdiction" clause (hereinafter, "venue provision") providing, in relevant part:

Venue and Jurisdiction. Grantor and Lender agree that the state and federal courts located in San Diego, California (the "San Diego Courts"), 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, or any other matter arising out of or relating to this Agreement.

( Security Agreement, ¶ 6.14.) The term "Agreement" is defined under section 1.3 as "this Security Agreement, as amended from time to time." ( Id., ¶ 1.3.)

Despite executing the 2007 agreements, 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") for the acquisition of MediVas for 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. MediVas also contends that Marubeni's refusal to consent to the license agreement, and its insistence on certain conditions, led DSM to reduce the license from $8 million to $7 million.

B. MediVas sues Marubeni.

On April 28, 2010, MediVas filed this action in the San Diego County Superior Court. The Complaint alleges eight state-based causes of action for: (1) Avoidance of Illegal Contracts; (2) Breach of Contract - Note Purchase Agreement; (3) Breach of Contract - Agency Agreement; (4) Fraudulent Conveyance/Avoidable Transfer; (5) Intentional Interference with Prospective Economic Advantage - Nastech Merger; (6) Intentional Interference with Prospective Economic Advantage - DSM Acquisition; (7) Declaratory Relief - Note Purchase, Agency, Forbearance, and Security Agreements; and (8) Declaratory Relief - Incentive Notes.

On May 10, 2010, Marubeni removed the lawsuit to the United States District Court for the Southern District of California. Marubeni then filed a motion to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), 9 U.S.C. §§ 203-205, and to stay the litigation. MediVas filed a motion to remand.

In opposing Marubeni's motion, MediVas argued that the 2007 Security Agreement's venue provision superseded the 2004 Note Purchase Agreement's arbitration provision. ( MediVas Opp. To Mt. To Compel Arb. [Doc. 10], 10:5-8.) And because MediVas was convinced that the arbitration provision was superseded, MediVas asserted that all of its causes of action had the same factual genesis, "whether arising under the 2004 Agency Agreements or the 2007 Forbearance Agreements, and whether sounding in contract or in tort...." ( Id., 12:3-6.)

On or about June 1, 2010, the case was reassigned to this Court. ( See Low Number Rule Transfer Order [Doc. 8].) Then on February 28, 2011, this Court issued an order granting Marubeni's motion to compel arbitration, and denying the motion to remand as to MediVas. ( See Arbitration Order. ) In granting Marubeni's motion, the order rejected MediVas' argument that the venue provision superseded and replaced the arbitration provision. ( Id., 6:1-8:6, 10:14-23.) And because MediVas asserted that all of its causes of action were related and had the same factual genesis, the Court ordered all of MediVas' claims to arbitration. ( Id., 10:14-23.[6])

On March 22, 2011, Plaintiffs filed an ex parte application seeking leave to file a motion for reconsideration. The Court granted the application with respect to the Arbitration Order's finding that all of MediVas' claims were subject to arbitration because of the Ninth Circuit's decision in Polimaster LTD. v. RAE Systmes, Inc., 623 F.3d 832 (9th Cir. 2010), which was decided after the parties' motions were filed. This Court interpreted Polimaster as requiring an evaluation of whether each of MediVas' causes of action was subject to the arbitration provision. However, the order informed the parties that the Court was not reconsidering its finding that the arbitration provision was valid and binding on the parties. ( Order Granting Ex Parte [Doc. 32], 3:8-13.) On June 7, 2011, MediVas filed the motion for reconsideration.

On August 2, 2011, this Court issued an order compelling arbitration as to the majority of MediVas' claims, but denying ...

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