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Cesca Therapeutics, Inc. v. Syngen, Inc.

United States District Court, E.D. California

March 28, 2017

CESCA THERAPEUTICS INC., Plaintiff,
v.
SYNGEN INC., Defendants.

          ORDER DENYING DEFENDANTS' MOTION TO STAY PROCEEDINGS PENDING APPEAL

          Troy L. Nunley United States District Judge.

         This matter is before the Court pursuant to Defendants SynGen Inc., Philip Coelho and PHC Medical Inc. (collectively “Defendants”) Motion to Stay Proceedings Pending Appeal. (ECF No. 74.) Plaintiff Cesca Therapeutics Inc. (“Cesca” or “Plaintiff”) opposes Defendants' motion. (ECF No. 75.) Defendants filed a reply. (ECF No. 78.) The Court has carefully considered the arguments raised by both parties. For the reasons set forth below, Defendants' Motion to Stay Pending Appeal (ECF No. 74) is hereby DENIED.

         I. Background and Procedural History

         This action arises from Defendants' alleged misappropriation of Cesca trade secrets. Cesca is a company that designs, develops, and commercializes medical products. (Compl., ECF No. 2 ¶ 15.) Cesca is the surviving entity of a 2014 merger between ThermoGenesis Corp. (“ThermoGenesis”) and TotiPotentRX Corporation. (ECF No. 2 ¶ 3.) Defendant Philip Coelho (“Coelho”) is a founder and former Chief Executive Officer of Cesca. (ECF No. 2 ¶ 18.) As a former employee, Mr. Coelho designed and invented new products and technology for Cesca. (ECF No. 2 ¶ 18.)

         In 2007, Mr. Coelho and ThermoGenesis entered into an Executive Employment Agreement which contained an arbitration provision. (ECF No. 2 ¶ 20; Ex. 1, ECF No. 11 § 11.) In 2008, Thermogenesis and Mr. Coelho terminated his employment, and the parties entered into an Employment Severance Agreement which contained an arbitration provision. (ECF No. 2 ¶ 21; Ex. 2, ECF No. 11 § 14.5.) That year, ThermoGenesis and Defendant PHC Medical (“PHC”), an entity of which Mr. Coelho was President, entered into a Consulting Agreement. (ECF No. 2 ¶ 22.) The Consulting Agreement included an arbitration provision and a Proprietary Information and Confidentiality Agreement. (Ex. 3, ECF No. 11 § 13, 19.) The Proprietary Information and Confidentiality Agreement contained a “Governing Law” section, which states in pertinent part: “Any legal action or proceeding relating to this Agreement shall be instituted in a state or federal court in Sacramento County, California.” (Ex. A in Ex. 3, ECF No. 11 § 5.1.)

         In 2009, ThermoGenesis, Mr. Coelho, and PHC Medical entered into a Mutual Termination Agreement (“MTA”) which terminated the Executive Employment Agreement, Employment Severance Agreement, and Consulting Agreement, but not the Proprietary Information and Confidentiality Agreement. (ECF No. 2 ¶ 23.) The Mutual Termination Agreement's Governing Law section states: “Any legal action or proceeding relating to this Agreement shall be instituted in a state or federal court in Sacramento County, California.” (Ex. 4, ECF No. 11 § 9.) After his employment with Cesca, Mr. Coelho formed SynGen Inc. (ECF No. 2 ¶ 43.)

         Cesca filed their complaint alleging inter alia that Mr. Coelho and PHC breached their obligations to Cesca by using trade secrets to develop SynGen products. (ECF No. 2 ¶ 43-50.) Defendants moved to compel arbitration (ECF No. 41), and Judge Garland E. Burrell, Jr.[1] denied Defendants' motion. (ECF No. 46.) Pursuant to 9 U.S.C. § 16(a)(1), Defendants timely filed an interlocutory appeal to the Ninth Circuit, which is still pending. (Not. of Appeal, ECF No. 48.) Defendants now move to stay all proceedings pending the Ninth Circuit appeal.

         II. Legal Standard

         The Federal Arbitration Act grants a party the right to file an interlocutory appeal from the denial of a motion to compel arbitration. 9 U.S.C. § 16(a); Ontiveros v. Zamora, No. 2:08-CV-0567-LKK, 2013 WL 1785891, at *1 (E.D. Cal. Apr. 25, 2013). A stay is “not a matter of right” but “an exercise of judicial discretion and the propriety of its issue is dependent on the circumstances of the particular case.” Nken v. Holder, 556 U.S. 418, 433 (2009) (internal quotation marks and citations omitted). District courts have discretion to stay a case pending an appeal of a denial to compel arbitration. Britton v. Co-op Banking Grp., 916 F.2d 1405, 1412 (9th Cir. 1990). An appeal from a district court's order denying a motion to compel arbitration does not trigger an automatic stay pending determination of the appeal. Id. at 1411-12. The Ninth Circuit has reasoned that automatic stays in this context “would allow a defendant to stall a trial simply by bringing a frivolous motion to compel arbitration.” Id. at 1412.

         The moving party has the burden of persuading the court that the circumstances of the case justify a stay. DKS, Inc. v. Corp. Bus. Sols., Inc., No. 2-15-CV-0132-MCE-DAD, 2015 WL 6951281, at *1 (E.D. Cal. Nov. 10, 2015). Courts consider four factors when determining whether to grant a stay pending appeal of a civil order: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. Hilton v. Braunskill, 481 U.S. 770, 776 (1987). The first two factors are the most critical. Nken, 556 U.S. at 434. In light of Nken, the Ninth Circuit clarified its treatment of the first two factors, holding that the movant's “burden with regard to irreparable harm is higher than it is on the likelihood of success prong, as she must show that an irreparable injury is the more probable or likely outcome.” Leiva-Perez v. Holder, 640 F.3d 962, 968 (9th Cir. 2011).

         In weighing these factors, courts apply a “sliding scale” approach whereby the factors are balanced “so that a stronger showing of one ... may offset a weaker showing of another.” Id. at 964; see also Morse v Servicemaster Global Holdings, Inc., No. 10-CV-0628-SI, 2013 WL 123610, at *1-2 (N.D. Cal. Jan. 8, 2013). Under this sliding scale approach, a moving party who cannot show a strong likelihood of success on the merits may nonetheless be entitled to a stay where she shows that her appeal is a substantial case which “raises serious legal questions, or has a reasonable probability or fair prospect of success.” Leiva-Perez, 640 F.3d at 971; see also Britton, 916 F.2d at 1412 (noting that a stay pending an appeal from an order declining to compel arbitration may be appropriate where “the court finds that the motion presents a substantial question”). A party satisfying this lower threshold under the first Nken factor “is not required to show that it is more likely than not to win on the merits, but must then demonstrate that the balance of hardships under the second and third factors tilts sharply in its favor.” Morse, 2013 WL 123610, at *2 (internal citations and modifications omitted); see also Ward v. Estate of Goossen, No. 14-CV-03510-TEH, 2014 WL 7273911, at *3 (N.D. Cal. Dec. 22, 2014).

         III. Analysis

         A. Strong Showing of Likelihood to Succeed on the Merits

         Defendants argue they have satisfied the first prong by attempting to lessen the first stay factor's standard with one of their own: that “a movant need only demonstrate a ‘minimum quantum of likely success' - i.e., that its appeal has a ‘reasonable probability or fair prospect' of success.” (ECF No. 74 at 12) (citing Leiva-Perez, 640 F.3d at 967-68). Defendants claim “the standard is satisfied even if the movant has less than a 50% chance of winning its appeal. (ECF No. 74 at 12) (citing Leiva-Perez, 640 F.3d at 967). Defendants go so far as to claim the question “is merely whether there is some possibility that the Ninth Circuit could reach a conclusion different than the one that this Court reached.” (ECF No. 74 at 13) (citing Leiva-Perez, 640 F.3d at 967-68; Ontiveros, 2013 WL 1785891, at *3-4). Plaintiff points out that Defendants “merely recycle the already-rejected arguments” advanced in their unsuccessful motion to compel arbitration. (ECF No. 75 at 11.) ...


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