Summary
finding that a party who actively has participated in litigation has waived its right to arbitration
Summary of this case from 3M Co. v. Neology, Inc.Opinion
C.A. No. 1970-N.
Date Submitted: April 4, 2006.
Date Decided: May 24, 2006.
Jon E. Abramczyk, Esquire, Rodger D. Smith II, Esquire, and Lisa K. Whittaker, Esquire of Morris, Nichols, Arsht Tunnell, Wilmington, Delaware; E. Clifton Hodge, Jr., Esquire, Jerome C. Hafter, Esquire, Christopher R. Maddux, Esquire, and John H. Geary, Jr., Esquire of Phelps Dunbar, LLP, Jackson, Mississippi; E. Anthony Figg, Esquire of Rothwell, Figg, Ernst Manbeck, P.C., Washington, D.C.; Don M. Downing, Esquire and Erica L. Airsman, Esquire of Gray Ritter Graham, PC, St. Louis, Missouri, Attorneys for Plaintiffs Delta and Pine Land Company, DPL International Technology Corp., and DM International, LLC.
Richard L. Horwitz, Esquire, Peter J. Walsh, Jr., Esquire, and Melony R. Anderson, Esquire of Potter Anderson Corroon, LLP, Wilmington, Delaware; Joseph P. Conran, Esquire and Shirley A. Padmore, Esquire of Husch Eppenberger, LLC, St. Louis, Missouri, Attorneys for Defendant Monsanto Company.
MEMORANDUM OPINION
I.
Defendant Monsanto Company ("Monsanto") owns or controls patents for the production of genetically-modified cotton plants that are resistant to certain insects (the "Technology"). Through the Option Agreement, Monsanto granted Plaintiff Delta and Pine Land Company ("DPL") the option to acquire an exclusive license for its Technology in certain countries outside the United States, including Brazil. By the License Agreement, Monsanto granted an exclusive license to DPL for use of the Technology in Brazil.
Option Agreement effective as of the 2nd day of February, 1996, between Monsanto Company and Delta and Pine Land Company. Compl. Ex. A. References to DPL include its related entities, Plaintiffs DPL International Technology Corp. and DM International, LLC. For present purposes, there is no reason to distinguish among the DPL entities.
Bollgard ® Gene License Agreement, dated as of June 7, 2002. Compl. Ex. B.
The Brazilian government did not approve use of cottonseed produced with the Technology until March 2005. Before then, however, cottonseed produced with the Technology had been brought into Brazil without authorization. Because one seed can yield 100 seeds and those seeds produce plants with the beneficial characteristics conferred by the Technology, Monsanto's intellectual property rights in the Technology are threatened by the "bootleg" seed.
In an effort to protect those rights, Monsanto developed its indemnity collection system ("ICS"), which involves the testing of harvested cotton at cotton gins and the collection of a penalty from growers who lack evidence of an appropriate license for the Technology.
DPL objects to implementation of the ICS out of a fear that the ICS would become an alternative for growers who would then not acquire the seed (or the necessary license) from DPL. In essence, according to DPL, the ICS will deny it the benefits of its exclusive license agreement in Brazil because it will not share in the funds collected under the ICS. Before the Court is the question of whether the parties have agreed to resolve their dispute over implementation of the ICS through binding arbitration. DPL maintains that it is entitled to arbitrate its dispute; Monsanto asserts that it is under no duty to arbitrate the dispute and, instead, is entitled to have it resolved in the courts.
II.
The License Agreement, at § 14.11, provides in part:
14.11 DISPUTE RESOLUTION:
(a) Any claim, dispute, difference or controversy between the parties arising out of, or relating to, this Agreement which cannot be settled by mutual understanding between the parties (a "DISPUTE") shall be submitted within thirty (30) days of such DISPUTE to a panel consisting of a senior executive nominated by each party (the "PANEL"). Such PANEL shall meet and use reasonable efforts to resolve said Dispute.
(b) If the DISPUTE cannot be resolved within thirty (30) days of submission to the PANEL, then the DISPUTE shall be finally settled by binding arbitration in accordance with the provisions of Section 10.11 of the OPTION AGREEMENT.
The Option Agreement, at § 10.11, provides in part:
10.11 DISPUTE RESOLUTION:
(a) Any claim, dispute, difference or controversy between the parties not relating to issues involving patent rights arising out of, or relating to, this Agreement which cannot be settled by mutual understanding between the parties (a "Dispute") shall be submitted within thirty (30) days of such Dispute to a panel consisting of a senior executive nominated by each party (the "Panel"). Such Panel shall meet and use reasonable efforts to resolve said Dispute.
(b) If the Dispute cannot be resolved within thirty (30) days of submission to the Panel, then any party may invoke the following arbitration rights:
(1) The Dispute shall be referred to arbitration under the rules of the American Arbitration Association (AAA) to the extent that such rules are not inconsistent with the provisions of this Subsection 10.11. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or application may be made to such court for a judicial confirmation of the award and an order of enforcement, as the case may be. . . .
(2) The independent arbitration panel shall consist of three (3) independent arbitrators, one (1) of whom shall be appointed by each party involved in the Dispute. In the event that one (1) party does not designate an arbitrator, the other party(ies) may request the Executive Secretary of the AAA to designate an arbitrator for such party. The two (2) arbitrators thus appointed shall choose an additional arbitrator so that the arbitration panel shall consist of three (3) arbitrators; provided, however, that, if the arbitrators selected are unable to agree on the appointment of such additional arbitrator, any of the selected arbitrators may petition the Executive Secretary of the AAA to make the appointment of the additional arbitrator; and
(3) The place of arbitration shall be Memphis, Tennessee.
(c) Pending resolution of any Dispute, each party involved in the dispute shall make every reasonable effort to minimize adverse economic consequences to the parties under this Agreement and the other RELATED AGREEMENTS which would result from any delays caused by attempts to resolve the Dispute. Such reasonable effort shall include, without limitation, continued performance of relevant obligations under a reservation of rights in lieu of termination and nonperformance, and nothing contained in this Subsection 10.11 shall serve to preclude any party from its right to seek any other remedy at law.
Both the License Agreement (at ¶ 14.9) and the Option Agreement (at ¶ 10.9) provide for interpretation under Delaware law.
III.
On February 17, 2006, DPL demanded that Monsanto "cease and desist" from implementing the ICS. Monsanto, in turn, filed suit on February 22, 2006, in the Circuit Court for St. Louis County, Missouri, seeking, inter alia, declaratory relief confirming that it is entitled to implement the ICS and that the ICS would not violate the License Agreement. On March 1, 2006, DPL filed its action in this Court. It sought an order compelling the parties to arbitrate their dispute and an injunction against implementation of the ICS until the dispute could be resolved in the arbitration forum. On March 17, 2006, this Court stayed, under the McWane doctrine, that portion of this action by which DPL sought injunctive relief against implementation of the ICS, but it allowed the effort to secure an order compelling arbitration to proceed because of its prediction that Missouri courts would decline to exercise subject matter jurisdiction over that claim. Thereafter, DPL gave notice to Monsanto of its intent to seek a preliminary injunction against the ICS in the Missouri litigation, but it has not pursued that effort. On March 27, 2006, DPL filed its demand for arbitration of the dispute with the American Arbitration Association.IV.
DPL has moved for summary judgment; the granting of that motion would require the parties to arbitrate their dispute. By Court of Chancery Rule 56(c), summary judgment may be granted if the moving party meets its burden of establishing "that there are no genuine issues of material fact and . . . [it] is entitled to judgment as a matter of law."V.
Although public policy favors resolution of disputes through arbitration, "[a]rbitration is a matter of contract, and a party cannot be required to submit to arbitration any dispute which [it has] agreed not to submit." The question of whether parties have agreed to submit their dispute to arbitration is governed by "basic principles of contract interpretation." "The primary goal of contract interpretation is to `attempt to fulfill, to the extent possible, the reasonable shared expectations of the parties at the time they contracted.'" The Court's first task is to determine, after a review of the entire agreement, whether the intent of the parties can be ascertained from the expressed words they chose or, in the alternative, whether the agreement is ambiguous. If the terms of the agreement are "clear on their face," the Court will give them the meaning that would be ascribed by a reasonable third party. If the language is ambiguous, then the Court may consider extrinsic evidence. Language is ambiguous if it is "fairly susceptible of different interpretations. . . ."VI.
The License Agreement, under which the differences between the parties over the ICS have arisen, plainly evidences the parties' intent that their disputes would be resolved in the arbitration forum. It provides that any Dispute "shall be finally settled by binding arbitration. . . ." To this point, the language is unequivocal. The parties, however, did not stop there. Instead, they also agreed that the dispute "shall be finally settled by binding arbitration in accordance with the provisions of § 10.11 of the Option Agreement." Thus, it is necessary to look beyond the License Agreement, to the Option Agreement, which provides the grounds for Monsanto's arguments that it is not obligated to submit to arbitration any dispute that it may have with DPL regarding implementation of the ICS.VII.
First, the Option Agreement limits its definition of "dispute" to any controversy "not relating to issues involving patent rights." Monsanto argues that the ICS will protect its patent rights and, thus, the dispute necessarily addresses "issue[s] involving patent rights." In a sense, every disagreement among the parties under the License Agreement or the Option Agreement involves patent rights because, but for those patent rights, there would be no agreements. The relationship of the parties was established for the purpose of marketing seeds created with the use of the Technology. Accordingly, a broad reading of the patent rights exclusion would subsume the parties' intent to arbitrate any issue. DPL does not contest the validity of any of Monsanto's patent rights. Instead, DPL seeks protection of its commercial rights under the License Agreement. As such, the exclusion of disputes relating to issues involving patent rights from the scope of the arbitration obligation does not restrict DPL's right to seek arbitration of the dispute involving implementation of the ICS.Second, Monsanto directs the Court to § 10.11(c) of the Option Agreement which provides that "nothing contained in this Subsection 10.11 shall serve to preclude any party from its right to seek any other remedy at law," and argues that this provision eviscerates DPL's right to mandatory arbitration otherwise apparently established in the License Agreement. Initially, the License Agreement refers to the Option Agreement in order that the "binding arbitration" may be "in accordance with the provisions of § 10.11 of the Option Agreement." The duty to arbitrate is established through the License Agreement. It is not necessarily any provision of the Option Agreement that would require arbitration here. Thus, the limiting language in § 10.11(c), while it might limit other requirements of the Option Agreement, does not necessarily limit the scope of the arbitration provision in the License Agreement. Moreover, to read the exclusionary language as Monsanto does would deprive the arbitration provision of the License Agreement of any substance. It is, of course, a familiar principle that contracts must be interpreted in a manner that does not render any provision "illusory or meaningless." The exclusion allows a party "to seek any other remedy at law." There are remedies to which a party may be entitled and which cannot be provided — either substantively or in timely fashion — by the arbitration process. Attachment and comparable procedural devices, such as lis pendens (a device not likely to benefit the parties here), may be within the scope of the exclusionary language. In short, it is possible to have a mandatory arbitration provision and, at the same time, give some meaning to the exclusionary language. The obverse, however, is not true. If the exclusionary language is to be read as suggested by Monsanto, the mandatory arbitration provision of the License Agreement would be of no moment. To read the License Agreement, which clearly anticipates mandatory arbitration, as incorporating a dangling exclusionary clause from the Option Agreement and, thus, depriving all parties of any right to mandatory arbitration would not, and could not, be consistent with the parties' shared expectations when they entered into the License Agreement several years after entry into the Option Agreement. Thus, the exclusionary language of § 10.11(c) of the Option Agreement does not preclude DPL from insisting upon mandatory arbitration of its dispute with Monsanto over implementation of the ICS.
O'Brien v. Progressive N. Ins. Co., 785 A.2d 281, 287 (Del. 2001). This also captures the notion that courts must consider the contract "in its entirety" and seek to reconcile all of the provisions of the agreement. In re Cencom Cable Income Partners, L.P. Litig., 2000 WL 640676, at *5 (Del.Ch. May 5, 2000).
Cf. Dunn Indus. Group, Inc. v. City of Sugar Creek, 112 S.W.3d 421, 429 (Mo. 2003). Monsanto contends that its application for declaratory relief in the Missouri action seeks a comparable, specific remedy. The determination which Monsanto hopes to obtain in those proceedings, however, could be accomplished through the arbitration process. Moreover, almost any dispute can be characterized in a fashion that would allow for declaratory relief, a proposition that would vitiate any provision calling for mandatory arbitration.
This analysis may be more complicated than necessary. The exclusionary language only limits the range of § 10.11 of the Option Agreement; the duty to arbitrate at issue here emanates from the License Agreement.
This conclusion is supported by two well-established principles, neither of which conflicts with the Court's function to apply basic contract principles in determining whether or not the parties agreed to arbitrate their dispute: (1) "the policy in favor of arbitration requires that doubts regarding whether a claim should be arbitrated, rather than litigated, be resolved in favor of arbitration," Willie Gary LLC, 2006 WL 75309, at *5, and (2) "[i]n the absence of any express provision excluding a particular grievance from arbitration . . . only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail, particularly where, as here, the exclusion clause is vague and the arbitration clause quite broad." United Steelworkers of Am. v. Warrior Gulf Navigation Co., 363 U.S. 574, 584-85 (1960); see also Worthy v. Payne, 1998 WL 82992, at *1 (Del.Ch. Feb. 12, 1998).
The Court need not resolve the question of whether the initial clause of § 10.11(c) of the Option Agreement — "[p]ending resolution of any Dispute" — modifies the exclusionary language of the final clause of the last sentence of that subsection. The Court notes, however, that a reasonable interpretation of the language and structure of subsection (c) would suggest that the subsection was intended only to set forth the rights of parties while resolution of a dispute is pending — i.e., during arbitration.
Finally, Monsanto notes differences in the words chosen by the drafters of the arbitration provisions of the two agreements. Both agreements require (by using the word "shall") that disputes initially be submitted for senior executive review. If that fails, the next step, arbitration, is implemented under different language. Under the License Agreement, the "dispute shall be finally settled by binding arbitration," but, under the Option Agreement, "any party may invoke the . . . arbitration rights." This distinction, Monsanto argues, gave it the choice of whether to arbitrate or not. In essence, Monsanto contends, that as the first to file for either arbitration or judicial relief, it had the choice of forum for dispute resolution. If the parties had addressed arbitration only through the Option Agreement, Monsanto's argument might have had some heft. The Option Agreement, however, should not be read in isolation. As with application of § 10.11(c) of the Option Agreement, the use of "may" in § 10.11(b) of the Option Agreement cannot be read to defeat the clear intent of the parties to submit disputes under the License Agreement to binding arbitration. Moreover, by § 10.11(b) of the Option Agreement, "any party" is entitled to arbitration. Monsanto's reading of § 10.11(b) denies this choice to DPL. Furthermore, that "any party" may invoke arbitration refutes Monsanto's contention that it is entitled to litigate the dispute because it filed first.
Monsanto does not explain why it could file the Missouri action in compliance with § 10.11 of the Option Agreement without first having gone through the process of senior executive review envisioned by § 10.11(a) of that agreement.
By § 10.11(b)(1) of the Option Agreement, once a party exercises its right to "invoke" arbitration, "[t]he dispute shall be referred to arbitration. . . ."
In summary, the License Agreement and the Option Agreement express the parties' shared intention that disputes under the License Agreement, such as their dispute involving the ICS, be submitted to binding arbitration.
Monsanto contends that any such conclusion would be in conflict with this Court's decision in Willie Gary LLC. See 2006 WL 75309. There, unlike here, the Court was confronted with claims that fell within the scope of the carve-out from the arbitration obligation that affirmatively allowed and authorized parties to seek injunction, specific performance, and dissolution in the courts.
VIII.
A party who has "actively participated in a lawsuit or taken other action inconsistent with the right to arbitration" will be deemed to have waived its right to insist upon binding arbitration. The "public policy favoring arbitration," however, results in a "strong presumption against waiver." Monsanto argues that DPL waived its right to arbitration through its conduct both in this Court and in the Missouri action. In this action, it sought a preliminary injunction against implementation of the ICS pending arbitration. Although expedited proceedings are available in the arbitration forum, the seeking of interim injunctive relief from a court may be necessary in order to allow for a viable arbitration remedy. Indeed, DPL's intentions were clearly set forth in the "Wherefore" clause of its complaint: "to preserve its rights pending arbitration . . . until such time as the Dispute is resolved by the alternative dispute resolution proceedings provided in the Agreements." This express purpose is inconsistent with the notion of waiver of a right to arbitrate and, in effect, disclaims litigation as the final pathway. In the Missouri action, DPL gave notice of its intent to seek interim injunctive relief and went as far as scheduling an opportunity to be heard. Such preliminary efforts, however, simply do not constitute the "active participation" or "inconsistent action" required to demonstrate a waiver of the right to arbitrate. Therefore, DPL has not waived its right to arbitrate its dispute with Monsanto.IX.
Accordingly, for the foregoing reasons, DPL is entitled to summary judgment on its claim that Monsanto is bound to arbitrate the dispute involving implementation of the ICS. Counsel for the parties are requested to confer and to submit an order to implement this memorandum opinion.
Because there is no reason to believe that Monsanto will not comply with the terms of this Court's order, there is no current need to enjoin it from proceeding with the Missouri action.