Rex Med. L.P. v. Angiotech Pharmaceuticals (us) Inc.
| Decision Date | 01 December 2010 |
| Docket Number | No. 10 Civ. 8746(CM).,10 Civ. 8746(CM). |
| Citation | 754 F.Supp.2d 616 |
| Parties | REX MEDICAL L.P., Petitioner,v.ANGIOTECH PHARMACEUTICALS (US), INC., Respondent. |
| Court | U.S. District Court — Southern District of New York |
OPINION TEXT STARTS HERE
Joshua H. Epstein, Alan Stuart Gruber, Michael B. Roth, Sorinroyercooper LLC, New York, NY, for Petitioner.
DECISION AND ORDER GRANTING PETITIONER'S MOTION FOR A PRELIMINARY INJUNCTION
Presently before this Court is Rex Medical, L.P.'s motion for a preliminary injunction, seeking to enjoin Angiotech Pharmaceuticals (US), Inc. from terminating or otherwise cancelling an agreement between the parties that requires Angiotech Pharmaceuticals to market and distribute for a specified term a medical device invented by Rex Medical. For the reasons that follow, Rex Medical's request for a preliminary injunction in aid of arbitration is granted.
I. BACKGROUND
Rex Medical (“Rex”) is a privately held medical-device company that specializes in the design and development of innovative, minimally invasive medical devices. (Pet. For Inj. Relief Pending Arbitration ¶ 3.) Founded in 1999, Rex has 17 employees and approximately $7 to $8 million in total annual revenues. ( Id.)
Angiotech Pharmaceuticals (“Angiotech”) is a global pharmaceutical and medical-device company that markets and sells various medical products. ( Id. ¶ 16.)
At issue in this case is a medical device named “The Rex Medical Option Retrievable Vena Cava Filter” or “Option” for short. Option is a medical device that is implanted into the body's inferior vena cava (the large vein that carries de-oxygenated blood from the lower half of the body into the large atrium of the heart) to prevent life-threatening blood clots (known as pulmonary embolisms). ( Id. ¶ 4.) It was invented and designed by Rex; accounts for 90 percent of Rex's current annual revenues; and is marketed and sold worldwide by Angiotech. ( Id. ¶¶ 4–5.)
On March 13, 2008, Rex entered into a License, Supply, Marketing, and Distribution Agreement (the “Agreement”) with Angiotech. ( Id. ¶ 5.) The Agreement was effective on September 1, 2009, and runs until March 1, 2015. ( Id. ¶ 7.)
Under section 2 of the Agreement, Rex granted Angiotech an exclusive license to market and distribute Option worldwide. ( Id. ¶ 7.) Under section 3 of the Agreement, Angiotech is solely responsible for all sales and marketing of Option, and is required to maintain a 48–person sales force in the United States to support Option sales. ( Id.) In exchange for the right to be the exclusive distributor of Option, Angiotech pays Rex certain license fees and “milestone” payments—all of which are outlined in section 6 of the Agreement. ( Id. ¶ 8.) For instance, if during the first 18 months of the Agreement sales of Option exceed $15 million, Rex is owed a “milestone” payment of $1.5 million. ( Id.) The parties expect that this “milestone” will be reached in mid-December 2010 and will be payable by Angiotech in January 2011.
Under section 8 of the Agreement, Angiotech has the unilateral right to terminate the Agreement—on 90 days' written notice—if Rex materially breaches the Agreement, Option loses its patent protection, or Rex becomes bankrupt or insolvent. ( Id. ¶ 9.)
None of these conditions has occurred.
Section 10 of the Agreement contains a broad arbitration clause, which requires the parties to submit all disputes arising out of or relating to interpretation of the Agreement to arbitration.
On November 11, 2010, Dr. William Hunter, Angiotech's President and Chief Executive Officer, sent an e-mail message to Rex, informing the company that:
It is with considerable regret that I attach to this e-mail a letter terminating our agreement covering the Option Filter.... [U]nder the terms of the current distribution agreement, I can see no pathway for Angiotech to derive any meaningful economic return on Option over the limited time period for which we have rights to the product.... We will be disbanding a significant part of the Option sales force in the coming weeks and would like to do that in a respectful and orderly manner.
( The letter attached to Dr. Hunter's e-mail message states that “while Angiotech and our new financial backers see tremendous potential for Option, the product is not financially viable for Angiotech under the current contractual relationship” and, as a result, “as of November 30, 2010, Angiotech will cease sales of Option products and reallocate the substantial resources currently dedicated to Option to our other products.” ( Id. ¶ 14.)
Angiotech's brief in opposition to Rex's petition for a preliminary injunction explains in further detail the events that led to Dr. Hunter's e-mail. In 2008, Angiotech sought to expand its portfolio of vascular products while at the same time generating additional capital investment from outside sources in order to facilitate the company's goal of expanding its product offerings. In the hopes that it would receive the capital financing it required (but before any financing deal was secured), Angiotech entered into the March 13, 2008 Agreement with Rex.
Following the decline in the nationwide economy and the financial markets in fall 2008, Angiotech was unable to secure the additional financing it required (and had hoped to receive) when it first entered into the Agreement with Rex. Angiotech claims that the additional financing was a “necessary ingredient” to make the Agreement to distribute Option financially viable for Angiotech. (Angiotech's Br. at 6.)
In 2010, Angiotech's financial condition worsened, to the point where Angiotech announced, in September, that it would not make its October 1, 2010 interest payment of $9.7 million to the holders of its 7.75% Senior Subordinated Notes (the “Note Holders”). Failure to make the interest payment would have resulted in an event of default, but Angiotech's Note Holders agreed to exchange $250 million in face amount of notes for equity in Angiotech. Nonetheless, Angiotech continues to suffer financially.
On November 19, 2010, Rex moved by order to show cause for a temporary restraining order and a preliminary injunction enjoining Angiotech from terminating the Agreement pending the conclusion of arbitration proceedings commenced by Rex. The Court issued a temporary restraining order on November 19, and scheduled a hearing on Rex's preliminary injunction motion for November 29, 2010. For the reasons discussed below, Rex's motion for a preliminary injunction in aid of arbitration is granted.
II. DISCUSSIONA. Rex's Request For A Preliminary Injunction Is Granted.
In Salinger v. Colting, 607 F.3d 68, 74–75 (2d Cir.2010), the Second Circuit concluded that its “longstanding standard for preliminary injunctions ... is inconsistent with the ‘test historically employed by courts of equity’ and has, therefore, been abrogated by eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006).” In Salinger, the court held that a preliminary injunction should issue upon a showing of a plaintiff's likelihood of success on the merits only where the plaintiff has also shown that: (1) “he is likely to suffer irreparable injury in the absence of an injunction”; (2) “remedies at law, such as monetary damages, are inadequate to compensate for that injury”; (3) the balance of hardships tips in his favor; and (4) “the ‘public interest would not be disserved’ by the issuance of a preliminary injunction.” Id. at 80 (quoting eBay, 547 U.S. at 391, 126 S.Ct. 1837). Although the Salinger court indicated that its holding was “limited to preliminary injunctions in the context of copyright cases,” the court also stated that it saw “no reason that eBay would not apply with equal force to an injunction in any type of case.” Salinger, 607 F.3d at 78 n. 7 (emphasis in original). As this Court explained in New York City Triathlon, LLC v. NYC Triathlon Club, Inc., 704 F.Supp.2d 305, 328 (S.D.N.Y.2010), I believe that eBay requires the use of the Supreme Court's four-factor test in every case. Accordingly, this Court analyzes Rex's request for a preliminary injunction by applying the four-factor test of eBay and Salinger.
There is a further complication in this case. The parties underlying dispute over Angiotech's right to terminate the Agreement must go to arbitration. No one disputes this. The Court is being asked only to issue an injunction so that the arbitration can go forward before there is a change in the status quo.
The Federal Arbitration Act (the “FAA”), 9 U.S.C. §§ 1 et seq., requires that courts “enforce privately negotiated agreements to arbitrate ... in accordance with their terms.” Volt Info. Scis., Inc. v. Leland Stanford, Jr. Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). The Second Circuit has recognized that a courts' power to compel arbitration is meaningless without the power to also issue injunctive relief when necessary to maintain the status quo during arbitration. See, e.g., Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, 910 F.2d 1049, 1053 (2d Cir.1990). As the Circuit explained in Blumenthal, “Arbitration can become a ‘hollow formality’ if parties are able to alter irreversibly the status quo before the arbitrators are able to render a decision in the dispute.” Id. As noted by one court in this district, “temporary restraining orders and preliminary injunctions may be, and frequently are, granted in aid of arbitration claims where necessary to avoid irreparable injury.” Banus v. Citigroup Global Mkts. Inc., 2010 WL 1643780, at *8 (S.D.N.Y. Apr. 23, 2010). Thus, this Court has the power to grant, if appropriate, the relief Rex seeks: a preliminary injunction enjoining Angiotech from terminating the Agreement (and maintaining the status quo) pending resolution of the arbitration. See, e.g., Credit Suisse Secs. (USA) LLC v. Ebling, 2006 WL 3457693, at *3 (S.D.N.Y. Nov. 27, 2006).
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