Kim–c1 Llc v. Valent Biosciences Corp..

• Decision Date: 22 November 2010
• Docket Number: No. 1:10–cv–591 AWI MJS.,1:10–cv–591 AWI MJS.
• Court: U.S. District Court — Eastern District of California
• Parties: KIM–C1, LLC, Petitioner,v.VALENT BIOSCIENCES CORPORATION, Respondent.

756 F.Supp.2d 1258

KIM–C1, LLC, Petitioner,

v.VALENT BIOSCIENCES CORPORATION, Respondent.

No. 1:10–cv–591 AWI MJS.

United States District Court, E.D. California.

Nov. 22, 2010.

Kurt F. Vote, McCormick Barstow Sheppard Wayte and Carruth LLP, Fresno, CA, for Petitioner.Daniel E. Johnson, PHV, McKenna Long & Aldridge, LLP, Washington, DC, Deborah A. Coe, Baker Manock & Jensen, P.C., Fresno, CA, for Respondent.

ORDER ON PETITIONER'S MOTION TO CONFIRM ARBITRATION AWARD AND ORDER ON RESPONDENT'S MOTION TO VACATE ARBITRATION AWARD

(Doc. Nos. 1, 7, 30, 34)

ANTHONY W. ISHII, Chief Judge.

This case stems from a Licensing Agreement (“the Agreement”) between Petitioner Kim–C1, LLC (“Kim”) and Respondent Valent Biosciences Corp. (“Valent”).¹ In 2010, the parties attended an arbitration. Kim seeks to have the arbitration award confirmed under 9 U.S.C. § 9, that is, the Federal Arbitration Act (“FAA”). Valent seeks to vacate the arbitration award. For the reasons that follow, the Court will deny Valent's motion and confirm the arbitration award.

GENERAL BACKGROUND

From the submissions of the parties, in July 1999, Kim and Valent entered into the Agreement in order for Kim to provide Valent a license to market, sell, and promote for use on specified crops an agriculture chemical known as CPPU. See Respondent's Exs. 1.4, 1.7. As one of the Agreement's recitals states:

WHEREAS, the Parties wish to enter into a licensing, development and supply arrangement, upon terms and conditions to be defined below, respecting the [Kim] technology and Products, whereby [Valent] shall have the exclusive right to use, market, promote, and sell certain products containing the [Kim] technology for use on Grapes, as defined below, in the Territory, defined below, and upon the terms contained therein.

Id. at 1.4. The Agreement identifies the territory to which the license applies as the United States. See id. at 1.6, 1.7. As indicated in the quoted recital, the crop for which Valent is to sell CPPU is identified as grapes (kiwis appear to have been added through a later addendum). See id. at 1.4, 1.5, 1.7, 1.42. Section 2.2 of the Agreement, which is entitled “[Valent] Exclusivity,” establishes five conditions that Valent must meet in order “to maintain its exclusive right and license” to sell CPPU. See id. at 1.7, 1.8. Section 2.2(c) sets one of the requirements as the purchase of a specified minimum quantity of CPPU. See id. Of particular note, the end of § 2.2 provides: “If [Valent] fails to meet the above conditions in the Territory, [Valent's] exclusive right to sell Products in the Territory shall be deemed non-exclusive ....” Id. at 1.8.

In 2008, the parties had an arbitration with arbitrator Michael Roberts. The arbitrator found for Kim on 6 of 9 issues and declared Kim to be the prevailing party. See Respondent's Ex. 6.11.

In 2010, the parties had a second arbitration, again with arbitrator Michael Roberts. On March 30, 2010, the arbitrator issued a final award. The arbitrator found in favor of Kim on 5 of 6 issues and declared Kim to be the prevailing party. See Respondent's Ex. A at pp. 6–8.

On March 31, 2010, Kim filed a petition to confirm the 2010 arbitration award. On June 28, 2010, Valent filed a motion to vacate the 2010 award.

I MOTION TO VACATEA. Review Under Federal Law or Illinois LawPetitioner's Position

In the Petition to Confirm Arbitration, Kim requests that the Court confirm the arbitration award pursuant to 9 U.S.C. § 9. See Court's Docket Doc. No. 30. In the opposition to Valent's motion to vacate, Kim argues that the award should not be vacated under either the FAA or Illinois law. See Court's Docket Doc. No. 40 at pp. 6, 10–13. In the sur-reply, Kim argues that Illinois law applies due to the Agreement's choice of law provision. See Court's Docket Doc. No. 46 at pp. 2 (citing § 21.3 of the Agreement), 11–12.

Respondent's Position

Valent argues that there is no material distinction in the standard of review between the Illinois arbitration act and the FAA, and relies on both federal and Illinois case law to argue for vacatur. Valent also argues that the parties agreed that Illinois law applied to the Agreement and that Illinois state courts would have exclusive jurisdiction. Because the parties chose Illinois law to govern the contract, the Illinois arbitration act applies. Also, Kim sought, and continues to seek here, statutory interest as provided by Illinois law.

Legal Standard

“When an agreement falls within the purview of the FAA, there is a strong default presumption ... that the FAA, not state law, supplies the rules for arbitration.” Johnson v. Gruma Corp., 614 F.3d 1062, 1066 (9th Cir.2010); Fidelity Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 1311 (9th Cir.2004); Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1269 (9th Cir.2002). “To overcome that presumption, parties to an arbitration agreement must evidence a ‘clear intent’ to incorporate state law rules for arbitration.” Johnson, 614 F.3d at 1066; Fidelity, 386 F.3d at 1311; Sovak, 280 F.3d at 1269. “A general choice-of-law clause within an arbitration provision does not trump the presumption that the FAA supplies the rules for arbitration.” Johnson, 614 F.3d at 1066; Sovak, 280 F.3d at 1270. A general choice of law clause will be interpreted as electing state substantive law and FAA procedural law. See Fidelity, 386 F.3d at 1312; Sovak, 280 F.3d at 1270. “[W]here the FAA's rules control arbitration proceedings, a reviewing court must also apply the FAA standard for vacatur.” Johnson, 614 F.3d at 1067; see Fidelity, 386 F.3d at 1312. Where “state arbitration rules control arbitration proceedings, [courts] must apply the state vacatur standard.” Johnson, 614 F.3d at 1067.

Contractual Clauses At Issue

There are two provisions of the Agreement at issue, § 21.3 and § 21.4. Section 21.3 reads:

Governing Law. This Agreement shall be construed, interpreted and governed in accordance with the laws of the United States of America and the State of Illinois, except for choice of law rules. Subject to the terms of section 21.4, the Parties consent to the jurisdiction of the competent courts of the State of Illinois which shall have exclusive jurisdiction over all disputes that may arise under or in connection with this Agreement.

Section 21.4b ² reads:

Dispute Resolution. Any dispute or claim arising out of or in connection with this Agreement shall be resolved as follows: (i) for a period of thirty (30) days after a dispute arises the respective appropriate officer of the Parties shall negotiate in good faith in an effort to resolve the dispute, and (ii) if the dispute has not been resolved at the close of such thirty (30) days period the matter shall be submitted by the Parties to arbitration before a single arbitrator in accordance with the rules of the CPR Institute for Dispute Resolution as identified in Exhibit 5.0.Respondent's Ex. 1.23.

Discussion

There is no dispute that the Agreement falls within the general purview of the FAA. See 9 U.S.C. § 2 (contracts “involving commerce” are under the FAA); Johnson, 614 F.3d at 1066. As such, there is a strong default presumption that the FAA provides the governing procedural rules, including review of the arbitration award for purposes of confirmation and vacatur. The clause cited by the parties is a choice of law provision that adopts not only the laws of Illinois, but also the “laws of the United States of America.” See Respondent's Ex. 1.23. As a federal law, the FAA is a law of the United States. As a law of the United States, it would appear that the FAA is incorporated into the Agreement through the choice of law clause. There is nothing in § 21.3 that indicates that the FAA does not apply. Indeed there is nothing in § 21.3 that even purports to specifically address arbitration. The rule is that a general choice of law clause will not defeat the strong presumption in favor of the FAA's applicability. Johnson, 614 F.3d at 1066; Chiron Corp. v. Ortho Diagnostic Sys., 207 F.3d 1126, 1131 (9th Cir.2000). The general selection of both Illinois law and “the laws of the United States” does not show a clear intent that only Illinois law governs the procedures of arbitration. Cf. id. at 1066–67; Fidelity, 386 F.3d at 1312; Sovak, 280 F.3d at 1269–70; Chiron, 207 F.3d at 1131.

A portion of § 21.4b states that arbitration will be conducted in conformance with the rules of the CPR Institute for Dispute Resolution. See Respondent Ex. 1.23. In cases where contracts select the law of a particular state and then indicate that the rules of a particular arbitrator apply, the Ninth Circuit interprets such contracts as mandating the application of state substantive law regarding the contract and the application of federal procedural law regarding arbitration. See Fidelity, 386 F.3d at 1312; Sovak, 280 F.3d at 1269–70. Vacatur is considered to be a procedural issue. See Johnson, 614 F.3d at 1066–67; Fidelity, 386 F.3d at 1312. Sections 21.3 and 21.4b therefore indicate that federal procedural law, i.e. the FAA, govern the arbitration motion to vacate at issue. See Johnson, 614 F.3d at 1066–67; Fidelity, 386 F.3d at 1312; Sovak, 280 F.3d at 1269–70.

Valent argues that the language of § 21.3 that vests Illinois courts with “exclusive jurisdiction” shows that Illinois law regarding vacatur applies. The Court cannot agree. First, there are no cases cited that interpret this language in connection with arbitration. Second, the particular language is in the nature of a venue selection clause, it does not deal with arbitration. If a general choice of law clause will not overcome the presumption that the FAA applies, the Court fails to see how language that merely sets the location where lawsuits are to be filed would overcome the strong presumption. Since Abbott (as well as Valent) is an Illinois corporation, the clause suggests that it has more to do with Abbott's convenience than with the law governing arbitration.³...