Bu8 Sdn. Bhd. v. Creagri, Inc., C-14-4503-EMC

• Decision Date: 06 March 2015
• Docket Number: No. C-14-4503-EMC,C-14-4503-EMC
• Court: U.S. District Court — Northern District of California
• Parties: BU8 SDN. BHD., Petitioner, v. CREAGRI, INC., Respondent.

BU8 SDN. BHD., Petitioner, v. CREAGRI, INC., Respondent.

No. C-14-4503-EMC

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

March 6, 2015

ORDER (1) GRANTING BU8'S MOTION TO CONFIRM ARBITRATION AWARD; (2) GRANTING BU8'S MOTION TO DISMISS CREAGRI'S COUNTERCLAIMS; AND (3) DENYING BU8'S MOTION FOR AN AWARD OF FEES AND COSTS

(Docket No. 15)

I. INTRODUCTION

On October 8, 2014, BU8 Sdn. Bhd. filed a petition to confirm an arbitration award (the "Award") entered against Respondent CreAgri Inc. The Award was issued in Singapore by an arbitrator applying Singapore law, pursuant to an arbitration clause contained in the relevant contract between BU8 and CreAgri.

Courts asked to confirm foreign arbitration awards "shall confirm the award" unless the party opposing confirmation can establish one of seven specific defenses. 9 U.S.C. § 207. As explained below, CreAgri cannot show that any of these limited defenses are applicable here, and thus the Court will confirm the Award.

Additionally, CreAgri cannot maintain any of its counterclaims in this action. According to the relevant contract, CreAgri agreed to arbitrate "any dispute or claim related to or arising out of" the contract. Because CreAgri's counterclaims are all "related to or arising out of" the relevantcontract, CreAgri was obligated to arbitrate these counterclaims, and may not maintain them in this forum.

Finally, BU8's request for attorneys' fees and costs associated with prosecuting this confirmation action is denied. Courts should only award attorneys' fees and costs when a party acts in bad faith in defending an action to confirm a foreign arbitral award. While CreAgri's arguments in opposition to confirmation of the award are without merit, the Court concludes it has not acted in bad faith sufficient to merit an award of attorneys' fees.

II. BACKGROUND

A. Factual Background

Petitioner BU8 is a Malaysian corporation whose business focuses on marketing and distributing health and wellness products. Docket No. 27 (CreAgri's Opposition to Motion to Confirm Arbitration Award) at 2. Respondent CreAgri is a California corporation that owns eight U.S. patents and eighteen international patents relating to HIDROX®, a health supplement derived from the pulp of olives that's typically used in food, dietary supplements, and skincare products. Id. at 3.

On October 6, 2010, CreAgri and BU8 entered into a joint venture agreement (the "JVA" or "Agreement") for the purpose of developing "a coordinated brand and marketing platform to commercialize human dietary supplements containing HIDROX to be sold specifically under the Olivenol Trademarks." Docket No. 1, Exhibit B (JVA) at Recitals.

As part of the JVA, the Parties established a new entity (the "JV Company"). CreAgri was assigned a 40% equity interest in the JV Company, and BU8 was assigned a 60% equity interest. Id. at ¶ 1.2. The Agreement included an exclusive license agreement:

CreAgri will grant an exclusive license to the JV Company of CreAgri IP for the JV Application, under commercially reasonable terms, including the right to sublicense, for (a) use [of] Hidrox for incorporation into the Olivenol Products, [and] (b) use of the Olivenol Trademarks, to promote, market, sell and/or distribute the Olivenol Products.

Id. at ¶ 2.3(ii). The JVA defines "CreAgri IP" as CreAgri's "proprietary rights in hydroxytyrosol-rich formulations derived from the pulp of olives (HIDROX), as well as proprietary technology andknow-how to produce HIDROX (such intellectual property in existence as of the effective date of this Agreement)." Id. at Recitals.

The JVA contains an arbitration clause that provides that "any dispute or claim related to or arising out of this Agreement, or the interpretation, making, performance, breach or termination thereof" shall be resolved in Singapore according to Singapore law "by arbitration in accordance with the then Arbitration Rules of the Singapore International Arbitration Centre ('SIAC Rules')." Id. at ¶ 9.3. It further states that "any final decision issued in arbitration shall be binding and conclusive upon the parties to this Agreement and may be entered as a final judgment by any court of competent jurisdiction." Id.

On October 12, 2012, the parties jointly nominated an arbitrator to address their disputes regarding the interpretation of the JVA and any alleged breaches of the Agreement. Docket No. 1, Exhibit A (Arbitration Award) ("Award") at 4, 46-49. Pursuant to the JVA, the arbitration was held in Singapore, administered by SIAC under its Arbitration rules, and was conducted according to Singapore law. Id. at 4. The arbitrator issued the Award on August 12, 2014. Id. at 103.

In general, the Award purports to enforce the exclusive license agreement of the JVA by prohibiting CreAgri from licensing or otherwise distributing human dietary supplements containing HIDROX with third parties. Id. at 101-102. Moreover, the Award provides that CreAgri shall remit an appropriate share of any proceeds it obtains from such third-party agreements, such as one between CreAgri and Cosway.¹ Id. at 101-102. Specifically, the Award requires CreAgri to notify BU8 of all profits it has received from the Cosway supply agreement and pay BU8 60% of those net profits. Id. at 102.

The Award also provided CreAgri additional time to exercise its right to subscribe to further shares in the JV Company.² Id. at 103. Lastly, the Award requires CreAgri to pay for legal costs incurred by BU8 in connection with the arbitration. Id.

B. Procedural Background

BU8 filed this action to confirm the Award on October 8, 2014. Docket No. 1. On December 9, 2014, CreAgri filed an amended answer opposing BU8's petition to confirm the Award. Docket No. 14. CreAgri's answer contains several putative defenses as well as counterclaims. Id. On January 15, 2014, BU8 filed an omnibus motion to confirm the arbitration award, to strike all of CreAgri's pleadings,³ to dismiss its counterclaims, and for an of award attorneys' fees and costs. Docket No. 15 (BU8's Omnibus Motion) ("Mot."). This Court heard oral argument on BU8's motion on February 12, 2015. Docket No. 37.

III. DISCUSSION

A. Legal Standard

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("Convention") governs the "recognition and enforcement" of all foreign arbitral awards in United States courts. 9 U.S.C. § 201 (stating that the Convention "shall be enforced in United States courts").

Under the Convention, a district court "shall" confirm a foreign arbitration award unless the party opposing confirmation can establish one of the defenses enumerated in Article V of the Convention. 9 U.S.C. § 207 ("The court shall confirm the award unless it finds one of the grounds for refusal of recognition or enforcement of the award specified in the said Convention"); see also Admart AG v. Stephen & Mary Birch Found., Inc., 457 F.3d 302, 307 (3d Cir. 2006) (stating that"[u]nder the Convention, a district court's role is limited - it must confirm the award unless one of the grounds for refusal specified in the Convention applies to the underlying award"). Specifically, the Court may only refuse to confirm an arbitration if the party resisting confirmation can prove:

(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or

(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made [or]

. . .

[(f)] The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

[(g)] The recognition or enforcement of the award would be contrary to the public policy of that country.

Id. at 307-308 (quoting Convention art. V).

Public policy strongly favors confirmation of international arbitration awards. Polimaster Ltd. v. RAE Sys., Inc., 623 F.3d 832, 836 (9th Cir. 2010). As the Second Circuit once observed, "[e]xtensive judicial review frustrates the basic purpose of arbitration, which is to dispose of disputes quickly and avoid the expense and delay of extended court proceedings." Parsons & Whittemore Overseas Co. v. Societe Generale De L'Industrie Du Papier (RAKTA), 508 F.2d 969, 977 (2d Cir. 1974) (internal citations omitted). Thus, confirmation proceedings are necessarily"summary" in nature and are "not intended to involve complex factual determinations, other than a determination of the limited statutory conditions for confirmation or grounds for refusal to confirm." Marker Volkl (Int'l) GmbH v. Epic Sports Int'l, Inc., 965 F. Supp. 2d 308, 311 (S.D.N.Y. 2013).

The party defending against enforcement of the award has the burden to prove one of the Convention's enumerated defenses. Empresa Constructora Contex Limitada v. Iseki, Inc., 106 F. Supp. 2d 1020, 1024 (S.D. Cal. 2000); see...