Rocky Mountain Biologicals, Inc. v. Microbix Biosystems, Inc.

• Decision Date: 30 October 2013
• Docket Number: No. CV 13–73–M–DLC.,CV 13–73–M–DLC.
• Citation: 986 F.Supp.2d 1187
• Parties: ROCKY MOUNTAIN BIOLOGICALS, INC., and Skyway Purified Solutions, Inc., Plaintiffs, v. MICROBIX BIOSYSTEMS, INC., and Irvine Scientific Sales Company, Inc., Defendants.
• Court: U.S. District Court — District of Montana

986 F.Supp.2d 1187

ROCKY MOUNTAIN BIOLOGICALS, INC., and Skyway Purified Solutions, Inc., Plaintiffs,

v.MICROBIX BIOSYSTEMS, INC., and Irvine Scientific Sales Company, Inc., Defendants.

No. CV 13–73–M–DLC.

United States District Court,

D. Montana,

Missoula Division.

Oct. 30, 2013.

Nathan G. Wagner, William K. Vancanagan, Datsopoulos MacDonald & Lind, Missoula, MT, for Plaintiffs.

Stephen D. Bell, Dorsey & Whitney LLP, Denver, CO, Ben D. Kappelman, Dorsey & Whitney LLP, Minneapolis, MN, for Defendants.

ORDER

DANA L. CHRISTENSEN, Chief Judge.

Plaintiffs Rocky Mountain Biologicals, Inc. (“Rocky Mountain”) and Skyway Purified Solutions, Inc. (“Skyway”) brought this action against Defendants Microbix Biosystems, Inc. (“Microbix”) and Irvine Scientific Sales Company, Inc. (“Irvine”) after Microbix rescinded its contract to sell equipment to Rocky Mountain. Irvine objected to the equipment sale on the grounds that it would violate a pre-existing contract between Irvine and Microbix. The Court dismissed Microbix from the action for lack of personal jurisdiction. Rocky Mountain's claims were thus reduced to one count of tortious interference against Irvine. The Court has jurisdiction pursuant to 28 U.S.C. § 1332. Pending before the Court are Irvine's motion for summary judgment (Doc. 24) and motion to supplement the summary judgment record (Doc. 32), and Rocky Mountain's Rule 56(d) motion (Doc. 28), motion for leave to amend its complaint (Doc. 35), motion to stay arbitration and vacate emergency arbitration order (Doc. 39), and motion to supplement the record (Doc. 47). With the exception of Rocky Mountain's motion to supplement the record, all motions were fully briefed by October 7, 2013. The Court held a hearing on all fully briefed motions on October 11, 2013. For the reasons explained below, the Court grants Irvine's motions and denies Rocky Mountain's motions.

Factual and Procedural Background

This case arises out of a dispute between three ¹ companies involved in the business of manufacturing water products for use in pharmaceutical and medical industries. Irvine is a California company, Microbix is a Canadian Corporation, and Rocky Mountain is a Montana company.

On October 1, 2012, Irvine and Microbix entered into a binding letter of intent to begin exclusive negotiations concerning Irvine's purchase of all of the commercial assets of Microbix relating to its water for injection and purified water business. The letter of intent provided that “[d]uring the period from the date hereof and December 31, 2012, [Microbix] shall not discuss, negotiate or accept any agreement with any third party for the sale of all or any part of the commercial assets to be acquired.” (Doc. 32–2 at 5.)

This provision notwithstanding, on October 12, 2012, Microbix entered into a second, binding letter of intent with Rocky Mountain which provided that Rocky Mountain would be allowed to evaluate certain equipment used for the manufacture of water products (“Equipment”) located at a manufacturing facility leased by Microbix in Toronto, Ontario (“Facility”). Under this second Letter of Intent, Rocky Mountain was allowed 60 days to evaluate the Equipment and Microbix was obligated to support Rocky Mountain with its evaluation. At the end of the evaluation period, Rocky Mountain had the option to (1) sign an agreement with Microbix to operate the Equipment at the Facility and pay Microbix a rental cost, (2) negotiate with the Facility landlord to remove the Equipment and pay restoration costs, or (3) negotiate a new lease with the Facility landlord relieving Microbix of its lease obligations.

On December 31, 2012, Irvine and Microbix entered into a Commercial Asset Purchase Agreement (“Irvine–Microbix Agreement”) whereby Irvine purchased substantially all of Microbix's water products business assets, including all contracts, customer information, and goodwill. Microbix further agreed to maintain the confidentiality of all proprietary information and agreed not to compete with Irvine, either directly or indirectly. Competition under the agreement includes acting as a consultant, adviser, or otherwise acting to assist any entity or individual involved in the water production business. The Irvine–Microbix Agreement, however, did not include a sale of the Equipment.

One month later, on February 1, 2013, Microbix entered into a Purchase and Sale and Service Agreement (“Equipment Agreement”) with Rocky Mountain. Under the Equipment Agreement, Rocky Mountain assigned to Plaintiff Skyway Purified Solutions, Inc. (“Skyway”) its option to carry on operations at the Facility using Microbix's Equipment to manufacture water products. Under the Equipment Agreement, Rocky Mountain agreed to pay Microbix rental payments for use of the Equipment at the Facility until expiration of Microbix's lease on July 31, 2013. Rocky Mountain planned to then negotiate a new lease with the Facility landlord, and so agreed to relieve Microbix of its obligation to restore the Facility to its original state.

While Rocky Mountain has maintained throughout these proceedings that it had sole rights to own, possess, and use the Equipment previous to entering into the Equipment Agreement, the Equipment Agreement provides that “ Microbix will grant title to SPS for the Water Equipment with completion of the purchase.” (Doc. 7–1, at 2, emphasis added.) The ownership of the Equipment is made more ambiguous by other provisions in the Equipment Agreement. For instance, in the paragraph purporting to clarity ownership, the Equipment Agreement apparently contains a critical typo: “Microbix has previously sold the Water Equipment (listed in SCHEDULE A) to [sic] for an amount of $1. RMB has subsequently transferred the rights and use of the equipment to SPS and Microbix has approved the assignment.” (Doc. 7–1 at 3.) Thus, the entity to whom Microbix “previously sold the Equipment” is omitted. Assuming Rocky Mountain purchased the Equipment, it appears that perhaps Rocky Mountain purchased (for $1) only the right to use the Equipment, rather than title to the Equipment and the sole right of possession, ownership, and control.²

Irvine soon learned of the Equipment Agreement, and on March 4, 2013, sent Mircobix a letter alleging that the Equipment Agreement constituted a breach of the non-competition provisions of the Irvine–Microbix Agreement. Irvine demanded that Microbix immediately take remedial measures. On March 18, 2013, Irvine sent a letter to Rocky Mountain notifying Rocky Mountain of the letter sent to Microbix and demanding that Rocky Mountain cease using the Equipment.

On March 21, 2013, Microbix sent Rocky Mountain a letter purporting to terminate the Equipment Agreement, alleging material breaches of the Equipment Agreement, and asserting that the Equipment Agreement was signed by a person lacking the authority to execute it. Despite Rocky Mountain's demands to the contrary, Microbix has steadfastly maintained that the Equipment Agreement is terminated, and has refused to allow Rocky Mountain access to the Facility for purposes of operating the Equipment.

Rocky Mountain filed suit against Microbix and Irvine on April 4, 2013. The complaint advanced several claims against Microbix and one count of tortious interference against Irvine. On May 8, 2013, the Court held a hearing on Microbix's motion to dismiss for lack of personal jurisdiction. Following the hearing, Microbixwas dismissed from the case for lack of personal jurisdiction.

Irvine filed a motion for summary judgment on May 31, 2013. In late June, in response to Irvine's motion for summary judgment, Rocky Mountain filed a Rule 56(d) motion seeking to defer consideration of Irvine's summary judgment motion until it could conduct further discovery, which Irvine opposed. Irvine then filed a motion to supplement the summary judgment record with an Emergency Arbitration Order (“Arbitration Order”) which was issued following emergency arbitration proceedings between Microbix and Irvine on July 30, 2013 (“emergency arbitration”). The emergency arbitration stemmed from the ongoing potential of Rocky Mountain restarting Equipment operations at the Facility, which Irvine alleged violated the Irvine–Microbix Agreement. The arbitrator awarded injunctive relief to Irvine, finding that it was likely to succeed on its claims against Microbix. According to the relief granted in the Arbitration Order, Irvine was given access to the Facility for the purpose of partially dismantling the Equipment in a manner that temporarily prevented it from being used. Some Equipment components were then to be safely stored in a neutral storage facility pending resolution of the dispute between Irvine and Microbix.

Rocky Mountain then filed a motion seeking an order from this court that would stay the arbitration proceedings that were ongoing between Microbix and Irvine and vacate the Arbitration Order. Soon thereafter Rocky Mountain sought leave to amend its complaint. Rocky Mountain contended that new facts—failing to give Rocky Mountain notice of the emergency arbitration and the dismantling of the Equipment pursuant to the Arbitration Order—constituted a new basis for claims against Irvine. Rocky Mountain's proposed amended complaint alleges one count of tortious interference with contract or prospective business advantage and one count seeking declaratory judgment regarding the rights and legal relations of Rocky Mountain, Skyway, and Irvine vis-a-vis the Irvine–Microbix Agreement.

On October 11, 2013, the Court held a hearing on all motions. At the hearing, counsel for Rocky Mountain indicated that its claim for tortious interference, as stated in its proposed Verified First Amended Complaint, might be better stated as a claim for conversion. Accordingly, Rocky Mountain indicated it might seek leave to amend its complaint to add a claim for conversion.

The Court will address each motion, including the potential motion seeking a...