Opinion
Civil Action No. 03-3773.
February 24, 2004
MEMORANDUM AND ORDER
Plaintiff Medical Creative Technologies, Inc. ("MCT") brings this action for trademark infringement, unfair competition, and breach of contract against Defendant Dexterity Surgical, Inc. ("Dexterity") regarding two patented and trademarked medical devices: "Pneumo Sleeve" and "Protractor" (collectively "the Devices"). MCT owns the patent rights to Protractor and MCT and Dexterity jointly own the patent rights to Pneumo Sleeve. (Second Am. Compl., at ¶¶ 8-9). MCT owns the trademarks "Pneumo Sleeve" and "Protractor." (Second Am. Compl., at ¶ 10). Between 1994 and 2002, MCT and Dexterity entered into a series of agreements whereby MCT licensed to Dexterity or its predecessors-in-interest the right to manufacture, use and sell the Devices. (Second Am. Compl. at ¶ 11). After Dexterity allegedly defaulted on its obligations to MCT, MCT exercised its right to reclaim from Dexterity all rights it licensed in the Devices, pursuant to the terms of the parties' March 31, 2002 Agreement (the "Royalty Agreement").
Now before the Court are Defendant's Motion to Compel Arbitration and Renewed Motion to Compel Arbitration, based upon alternative dispute resolution provisions contained in the parties' June 30, 1998 Agreement (the "License Agreement"). Because this Court finds that the instant action falls squarely within an express exception to alternative dispute resolution, the Motion will be denied.
I. BACKGROUND
On June 30, 1998, MCT and Dexterity entered into the License Agreement, which confirmed Dexterity's license to use, manufacture and sell the Devices for the life of the patents. (License Agreement, at ¶¶ 2.1, 2.2(a)). The License Agreement further provided that MCT would manufacture the Devices for Dexterity. (License Agreement, at ¶ 5.1). Dexterity agreed to pay royalties to MCT in connection with the sale of the Devices. (License Agreement, at ¶ 7). The License Agreement provided for non-binding Alternative Dispute Resolution procedures in the event of a conflict, with an express exception for "any action seeking injunctive or other equitable relief." (License Agreement, at ¶ 13(c)).
The License Agreement modified a prior agreement between MCT and a predecessor of Dexterity, in which the parties' initial relationship was established.
Plaintiffs and Defendant subsequently entered into two agreements, on March 31, 2002 (the "Royalty Agreement") and May 1, 2002 (the "Manufacture and Supply Agreement"). The Royalty Agreement addressed a dispute between the parties relating to computation of royalties owed to MCT by Dexterity. The Royalty Agreement provided that, except as expressly modified therein, the terms and conditions of the License Agreement would continue in effect. (Royalty Agreement, at ¶ 8). The Manufacture and Supply Agreement set out the terms under which MCT would continue to manufacture, and Dexterity would purchase, the Devices. It provided that, along with the License Agreement and the provisions of other Agreements expressly incorporated into the License Agreement, it contained the entire agreement among the parties with respect to the subject matter contained therein. (Manufacture and Supply Agreement, at ¶ 24). Neither of the 2002 agreements included Alternative Dispute Resolution provisions.
II. LEGAL STANDARD
Where, as here, a contract pertaining to transactions involving interstate commerce contains an arbitration clause, the construction of that clause is governed by federal law under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1, et seq. See Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 404-405 (1967). Under the FAA, when one party refuses to arbitrate, the issue of whether the dispute is within the scope of the agreement to arbitrate is a question for the District Court. Medtronic Ave., Inc. v. Advanced Cardiovascular Systems, 247 F.3d 44, 54 (3d Cir. 2001). The Supreme Court has held that "questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitrations." Moses H. Cone Mem'l. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). However, "the FAA's proarbitration policy does not operate without regard to the wishes of the contracting parties."Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, 57 (1995). Accordingly, "[a]rbitration under the Act is a matter of consent, not coercion." Volt Info. Sciences, Inc. v. Board of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 479 (1989).
III. ANALYSIS
Paragraph 13 of the License Agreement provides, in relevant part:
13. Dispute Resolution.
Except as provided in paragraph (c) of this Section, no party to this Agreement will institute any action in any court to resolve any dispute arising under this Agreement between or among any such parties until the parties involved in such dispute shall have attempted in good faith to resolve such dispute through the process provided for in paragraphs (a) and (b) of this Section as may be applicable.
(a) At the request of any such parties, the parties involved in such dispute will apply to the American Arbitration Association for mediation of such dispute in accordance with the rules of such Association for such mediation then in effect. * * *
(b) If such parties are unable to resolve the dispute through such mediation process, at the request of any party the parties involved will apply to the American Arbitration Association for non-binding arbitration. * * *
(c) Nothing in this Section will prevent a party from instituting any action seeking injunctive or other equitable relief (including a writ or order for possession of property) without first pursuing the mediation or arbitration procedures provided for in this Section, and the judgment or order of a court in connection with any such action may include such award of money damages as the court may deem proper. * * *
The parties unambiguously excluded from mediation and arbitration actions seeking "injunctive or other equitable relief." In the instant action, Plaintiffs' Second Amended Complaint seeks preliminary and permanent injunctive relief. On October 21, 2003, Plaintiffs filed a Motion for Preliminary Injunction. A hearing on that Motion was scheduled for November 19, 2003. Prior to the scheduled preliminary injunction hearing, the parties spent two weeks engaging in discovery. However, on November 18, after a conference with the Court, Plaintiffs withdrew the Motion for Preliminary Injunction with the understanding that the Court would consolidate that hearing with a final expedited trial on the request for permanent injunctive relief.
Defendant acknowledges that this action seeks injunctive relief, but argues that because the request for preliminary injunctive relief was withdrawn, the matter need not be decided on an expedited basis and therefore that the dispute should be submitted to arbitration. Defendant further argues that because the imposition of injunctive relief necessarily depends on a determination of whether Defendant breached the parties' contracts, the "threshold issue" of breach should be arbitrated prior to an injunction hearing. (Def. Renewed Motion to Compel, at 5).
Defendant has produced no authority to support the contention that the alternative dispute resolution provisions were intended to apply only to preliminary as opposed to permanent injunctive relief. The plain text of the License Agreement provision for Dispute Resolution expressly excepts "actions seeking injunctive or other equitable relief," and makes no distinction between preliminary and permanent injunctions. (License Agreement, at ¶ 13(c)). Moreover, the parties clearly contemplated that an action for equitable relief might also involve a court decision on related legal claims, yet expressly agreed to exempt such actions from arbitration. Id. Thus, Defendant's argument that the "threshold issue" of breach should be submitted to alternative dispute resolution directly contravenes the plain language of the License Agreement. The parties expressly agreed to exclude this entire action from arbitration; accordingly, the Court cannot compel the parties to arbitrate any of the claims in this case.
III. CONCLUSION
For the reasons stated above, Defendant's Motion to Compel Arbitration and Renewed Motion to Compel Arbitration will be denied. An appropriate Order follows.
ORDER
AND NOW, this day of February, 2004, upon consideration of Defendant's Motion to Compel Arbitration (docket no. 3), Plaintiffs' opposition thereto (docket no. 6), Defendant's Sur-Reply (docket no. 7), and Plaintiffs' Supplemental Memorandum of Law in opposition (docket no. 8), as well as Defendant's Renewed Motion to Compel Arbitration (docket no. 29) and Plaintiffs' opposition thereto (docket no. 30), and after oral argument, it is ORDERED that both Motions to Compel Arbitration are DENIED for the reasons stated in the accompanying Memorandum.