Eastman Medical Products v. E.R. Squibb & Sons
| Decision Date | 15 April 2002 |
| Docket Number | No. Civil Action No. 3:02-MC-0009-M.,Civil Action No. 3:02-MC-0009-M. |
| Citation | 199 F.Supp.2d 590 |
| Parties | EASTMAN MEDICAL PRODUCTS, INC., Movant, v. E.R. SQUIBB & SONS, INC., Respondent. |
| Court | U.S. District Court — Northern District of Texas |
Steven D. Roland, Sigrid Owczarek, Sedgwick Deter Moran & Arnold, San Francisco, CA, Diana R. Warnecke, Sedgwick Deter Moran & Arnold, Dallas, TX, for E.R. Squibb & Sons Inc.
James A. Fisher, Fitzpatrick Hagood Fisher & Holmes, Dallas, TX, for Eastman Med. Products Inc.
Before the Court is "Plaintiff's Motion to Transfer, or, In the Alternative, to Stay Action," filed February 11, 2002. For the reasons stated herein, the Court DENIES Respondent's Motion to Transfer this matter to the United States District Court for the District of New Jersey, Trenton Division, and DENIES its Motion to stay this matter pending a determination of a parallel matter pending before the district court in New Jersey. This disposition renders moot Respondent's Alternative Motion to Stay the Court's determination of Movant's Motion for Judgment Confirming Arbitration Award and its Petition for Order Vacating in Part, Modifying and Correcting Arbitration Award.
This case involves a series of alleged breaches by respondent E.R. Squibb & Sons, Inc. ("Squibb") of both express and implied obligations under a contract dated January 31, 1996 and styled "License, Distribution and Manufacturing Agreement" (the "License") between ConvaTec, a division of Squibb, and movant Eastman Medical Products Inc. ("Eastman"). Article 24 of the License provides for arbitration of the claims asserted by Eastman against Squibb.
Before entering into the License with Squibb, Eastman developed a line of products designed to control infection in catheterized inpatients, ostomates, paraplegics, and chronic incontinents, and to improve the safety of health care workers who treat such patients. Eastman's products incorporated a new technology using an acrylic, biodegradable, cross-link polymer able to encapsulate bacteria, viruses, and fungi present in the excretory fluid. This product in the Eastman line was the Patho-Sorb Urinary Drainage System ("Patho-Sorb"). Another similar line, the Ile-Sorb product line, was also the subject of the arbitration.
Under the License, Squibb obtained exclusive rights to distribute, market and sell the Patho-Sorb and Ile-Sorb worldwide for a term of seventeen years, beginning with the first commercial sale by Squibb of either of the products. In return for the extensive rights, Squibb was contractually obligated to "use reasonable efforts" to market and distribute Eastman's products, and to meet several payment obligations.1
Article 24 of the License, entitled "Arbitration," provides that "[a]ny disputed controversy, or difference which may arise between the parties out of or in connection with this AGREEMENT, or for the breach thereof, shall be finally settled by arbitration pursuant to the rules then prevailing of the American Arbitration Association [("AAA")]," and that "[s]uch arbitration shall be held in (a) Somerset County, New Jersey, if the demand for arbitration is initiated by EASTMAN." License at 45. Article 25, Section C, entitled "Governing Law," provides that the License "shall be construed in accordance with the laws of the United States, State of New Jersey."
On June 8, 2000, Eastman made a written demand for arbitration of its claims that Squibb had breached several obligations under the License. In accordance with the procedure specified in the License, an arbitration panel (the "Panel") was selected, consisting of Lewis R. Sifford, Esq., Honorable Richard S. Cohen (Ret.), and Honorable Dean M. Trafelet (Ret.). A six-week arbitration hearing was held between October 1, 2001 and November 11, 2001, in Somerset County, New Jersey, the venue mandated in the License. The submission of evidence of attorneys' fees and arbitration expenses was reserved by agreement of the parties. On January 4, 2002, the Panel issued a unanimous Arbitration Panel Ruling (the "Initial Ruling") finding that Squibb breached five separate obligations under the License, causing Eastman to sustain damages totaling $3,553,333, including prejudgment interest.2 The Panel found Squibb was entitled to credits totaling $300,000. The Initial Ruling did not address Eastman's claim for post-award interest. The Initial Ruling directed Eastman to submit evidence of its attorneys' fees and arbitration expenses, stating that:
The Panel hereby invites Eastman, by and through its counsel, to submit to the panel all time and billing records and its costs of this arbitration for further consideration by this panel. This does not constitute a determination that fees, expenses and costs of this arbitration, in any amount, will be awarded.
Eastman submitted evidence of the arbitration expenses and attorneys' fees it had incurred. In the meantime, a dispute arose over an alleged miscalculation of $119,553.10 in the Initial Ruling. The total amount of damages found by the Panel was greater than the sum of various components of damages described in the explanatory paragraphs in the Initial Ruling. On January 9, 2002, by letter, Squibb requested that the Panel correct the error. In this letter, Squibb also stated that the Panel did not have authority to award fees and costs. On January 10, 2002, Eastman responded, pointing out that the difference between the total amount of damages and the sum of the components mentioned in the explanatory paragraphs may have been caused by the Panel's inadvertent omission of its explanation of how pre-award interest on a component of damages had been calculated. On January 31, 2002, the Panel issued its final award ("Final Award"), reiterating its unanimous findings that Squibb had breached the License in five distinct respects, but slightly reducing the damages total from the Initial Ruling to $3,524,377.90. The Panel still found that Squibb should receive the undisputed $300,000 credit.
In addition, with one member dissenting, the Panel awarded Eastman $500,242.67 for arbitration expenses, based, in part, on the specific finding that Squibb had intentionally misrepresented facts to Eastman.3 Including these expenses the total Final Award amount was $3,724,620.50. The Panel also awarded post-award interest at the rate of six percent per annum.
On February 1, 2002, Eastman commenced this proceeding by filing a Motion for Judgment Confirming Arbitration Award. On February 7, 2002, Squibb commenced a civil action against Eastman in the United States District Court for the District of New Jersey, Trenton Division, by filing a Petition for Order Vacating in Part, Modifying and Correcting Arbitration Award, and for Stay. The case was docketed Civil Action No. 02-CV-573. On February 11, 2002, Squibb filed, in this Court, its Petition for Order Vacating in Part, Modifying and Correcting Arbitration Award, and for Stay, essentially raising the same points presented in its New Jersey Petition.
On February 11, 2002, Squibb moved to transfer this action to the United States District Court for the District of New Jersey, Trenton Division pursuant to 28 U.S.C. § 1404(a). In the alternative, it seeks a stay of this matter pending resolution of parallel proceedings now pending in the District of New Jersey. In the further alternative, it seeks a stay of proceedings pursuant to 9 U.S.C. § 12, with respect to Eastman's Motion for Judgment Confirming Arbitration Award pending briefing, hearing, and determination of Squibb's Petition for Order Vacating in Part, Modifying and Correcting Arbitration Award, and for Stay.4 Eastman contends that Squibb is upsetting the benefits gained from the parties' agreement to arbitrate by relitigating issues decided by a fair and impartial Panel selected pursuant to the License. This Memorandum Order and Opinion addresses whether a transfer or stay is appropriate under the circumstances.
Eastman argues that Squibb waived any right to contest the validity of the arbitration award, in the absence of fraud, corruption, or bad faith. In doing so, it rests on the terms of the License, which provide that "[t]he decision by the arbitrators shall be binding and conclusive on the parties, their successors and assigns, and they shall comply with such decision in good faith. . . ."5 It further maintains that, under the venue terms of the Federal Arbitration Act ("FAA") and the License, it could bring a motion to confirm the arbitration award in any court having jurisdiction.6 Squibb contends that the arbitrators ignored New Jersey law ("acted in manifest disregard of law and reason" to the law) which allegedly does not allow for the costs award made by the Panel, and that the District of New Jersey, Trenton Division, is a more appropriate venue for the issues raised in this matter.
Eastman is a California corporation having its principal place of business in California. Eastman has no office or agent in New Jersey. Squibb is a Delaware corporation having its principal place of business in New Jersey. It maintains active agents in Texas and has admitted continuous and systematic contacts here.
The License mandated that the arbitration hearing be held in New Jersey. However, it did not require that any action for entry of judgment on the award be held in New Jersey. The venue portion of the License states:
[T]he judgment upon the award rendered in such arbitration may be entered in any Court having jurisdiction thereof, and be enforceable, final and binding against the parties. . . . [E]ach party hereby submits itself to the jurisdiction of the Courts of the place where the arbitration is held, but only for the entry of judgment with respect to the decision of the arbitrators hereunder. Judgment upon the award may also be entered in any other court having jurisdiction.7
This action was thus not prohibited under...
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