Opinion
Civil No. 04-1355 ADM/AJB
April 12, 2004
Roman M. Silberfeld, Esq., Bernice Conn, Esq., Robins, Kaplan, Miller Ciresi, L.L.P., Los Angeles, CA, for Plaintiffs
David T. Miyamoto, Esq., Franklin D. Kang, Esq., Sidley Austin Brown Wood, L.L.P., Los Angeles, CA, for Defendants
William L. Roberts, Faegre Benson, L.L.P., Minneapolis, MN, for Defendants
ORDER
I. INTRODUCTION
On April 5, 2004, counsel presented oral argument before the undersigned United States District Judge on the Motion for Temporary Restraining Order ("TRO") and for Preliminary Injunction ("PI") of Plaintiff's Medtronic, Inc., Medtronic International, Ltd., and Medtronic Sofamor Danek, Inc. (collectively, "Medtronic") [Docket No. 4]. Medtronic seeks to enjoin an arbitration between the parties pending resolution of whether the Court or the arbitrator should hear the dispute. It further moves for a PI on the ground that certain claims Defendants ETEX Corporation, Dr. Duke Lee, as a Shareholder Representative of ETEX Corporation, Wayne Matthew III, as a Shareholder Representative of ETEX Corporation, and Wooyoung Choi, as a Shareholder Representative of ETEX Corporation (collectively, "ETEX") have submitted to arbitration are not within the scope of the parties' agreement to arbitrate. For the reasons stated herein, the TRO is granted while the Court determines the issue of arbitrabiliry of the underlying allegations.
For purposes of the instant Motion, an extensive recitation of factual background is unnecessary. In March 2002, the parties entered into a comprehensive "Purchase and Option Agreement," ("POA") incorporating all prior agreements between the two and setting up a staged acquisition of ETEX by Medtronic. Pls.' App. Ex. A pp. 42-206. The POA contains the following provision:
12.17 Arbitration Any dispute arising out of or relating to this Agreement, including the formation, interpretation or alleged breach hereof, shall be settled in accordance with Exhibit P attached hereto [providing process and procedures for negotiation and arbitration]. The results of such arbitration proceedings shall be binding upon the parties hereto, and judgment may [be] entered upon the arbitration award in any court having jurisdiction thereof. Notwithstanding the foregoing, either party may seek injunctive relief from any court of competent jurisdiction.Id. p. 106. On October 8, 2003, ETEX filed a demand for arbitration, pursuant to Exhibit P referenced above, asserting claims of breach of covenant, breach of contract, fraud, violation of Massachusetts and Minnesota state statutes, and anti-trust and commercial disparagement under the Clayton and Sherman Acts, and the Lanham Act, respectively.Id. pp. 22-34. Medtronic responded by alleging various counterclaims. It also filed the present Motion for injunctive relief on the basis that ETEX's federal claims are outside the scope of the arbitration clause. Medtronic requests that the Court (1) grant a TRO to stay all arbitration proceedings pending its determination of the arbitrabiliry of ETEX's federal claims, and (2) declare that the federal claims are not covered by the arbitration agreement and must be litigated in court, and issue a PI enjoining arbitration of such claims. ETEX counters that even the issue of arbitrability must be presented to the arbitrator and that injunctive relief is therefore not warranted.
II. DISCUSSION
In determining a litigant's right to preliminary injunctive relief the Court considers four factors: (1) the threat of irreparable injury to the plaintiff; (2) the balance of harm to the plaintiff if relief is not granted and harm to the defendant if an injunction is issued; (3) the Plaintiff's likelihood of success on the merits; and (4) the public interest. Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). This standard also applies to issuance of a TRO. S. B. McLaughlin Co. v. Tudor Oaks Condominium Project. ABIO, 877 F.2d 707, 708 (8th Cir. 1989).
The Eighth Circuit has held that in circumstances like the present, the district court's order of an injunction "briefly freezing the parties' dispute resolution activities until it determines arbitrability, is surely appropriate." McLaughlin Gormley King Co. v. Terminix Int'l Co., 105 F.3d 1192, 1194 (8th Cir. 1997). This follows from the proposition, expressed in multiple decisions, that the injury to a party who is forced to submit to arbitration when it did not agree to do so constitutes per se irreparable harm. Id; Maryland Cas. Co. v. Realty Advisory Bd. on Labor Relations, 107 F.3d 979, 985 (2d Cir. 1997); Paine Webber v. Hartmann, 921 F.2d 507, 514-15 (3d Cir. 1990). Additionally, as discussed below, Medtronic is correct on the merits of the threshold issue of which forum decides the arbitrability of the underlying claims.
"Courts should not assume the parties agreed to arbitrate arbitrability unless there is `clear and unmistakable evidence' that they did so." First Options of Chicago. Inc. v. Kaplan, 514 U.S. 938, 945 (1995); see also McLaughlin, 105 F.3d at 1194. The Supreme Court has thus instructed that, absent an explicit intent otherwise, it is the court, rather than the arbitrator who determines whether or not a dispute is within the scope of the parties' arbitration agreement. First Options, 514 U.S. at 945; ATT Techs., Inc. v. Comms. Workers of Am., 475 U.S. 643, 649 (1986).
The Court has since clarified that this rule does not extend to gateway matters of procedure, which the parties would expect the arbitrator to decide. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83-84 (2002).
While the POA contains a broadly-worded arbitration clause, requiring arbitration of "any dispute arising out of or relating to this Agreement," this provision does not reveal "clear and unmistakable" proof that ETEX and Medtronic agreed to submit the question of who determines arbitrability to arbitration. Pls.' App. Ex. A p. 106;see McLaughlin, 105 F.3d at 1194 (finding district court properly issued an injunction pending its determination of arbitrability in case involving virtually identical arbitration language). ETEX points to no provision expressly addressing this "gateway" question. In the face of silence on this issue, it is a matter for the court. First Options, 514 U.S. at 944-45 (stating presumption in favor of court determination on distinct issue of arbitrability).
ETEX argues the parties adopted the rules of the CPR Institute for Dispute Resolution, which include a rule that the arbitral tribunal "shall have the power to determine the existence, validity or scope of the contract of which an arbitration clause forms a part." Defs.' Mem. at 12 (quoting CPR Rule 8.2). However, the references in the POA cited by ETEX do not state the parties adopted or incorporated the entire set of rules. Rather, they instruct that the CPR Institute may appoint an arbitrator if the parties fail to agree, and that in addition to the procedures specified in the POA, the arbitrator shall establish other procedural rules "in accordance with the then in effect CPR Institute for Dispute Resolution Rules." Pls.' App. Ex. A pp. 204-05, ¶¶ (a), (f)(v). As such these references do not constitute clear evidence of an intent to submit the issue of arbitrabiliry to the arbitral forum.
The threat of irreparable injury, the balance of the harms, and the strength of the argument on the merits of this preliminary issue all weigh in favor of Medtronic. Accordingly, the Motion for a TRO is granted and the arbitration proceeding will be stayed pending the Court's determination of whether ETEX's federal claims may properly be brought to arbitration. See McLaughlin, 105 F.3d at 1194.
III. ORDER
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that the portion of Plaintiffs' Motion seeking a Temporary Restraining Order [Docket No. 4] is GRANTED and the Motion for Preliminary Injunction [Docket No. 4] is TAKEN UNDER ADVISEMENT. The Court will issue an Order on the Preliminary Injunction without further argument or briefing.