Review of Court Decisions

Article excerpt

INTERNATIONAL

Removal Authority

In a case of first impression in the 9th Circuit, the appeals court ruled that a district court has re - moval jurisdiction under 9 U.S.C. § 205 where the defendant argued collateral estoppel as an affirmative defense based on an arbitration award falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The 9th Circuit reasoned that removal jurisdiction existed because the arbitration agreement "related to" the subject matter of the action and could conceivably affect the outcome of the plaintiff's suit.

This case arose from a dispute over medical licensing rights between Appellant Infuturia Global Ltd., of the British Virgin Islands, and Yissum Research and Development Co., of Israel.

In 1998, Infuturia sued Sequus Pharmaceuticals of California, Hebrew University of Jerusalem, and Pro - fessor Yechezkel Barenholz in a California state court alleging tortious interference with that license. The state court stayed the suit pending arbitration. An arbitration took place in Israel. The arbitrator determined that (1) Infuturia's license was valid, (2) Yissum had not breached the license, and (3) Infuturia did not have rights to any patents and products relating to a Sequus license. After the arbitration, the California state court lifted the stay. Infuturia filed an amended complaint similar to the original complaint. The University and Barenholz subsequently filed a notice of removal (in which Sequus joined), under 9 U.S.C. § 205. Infuturia argued that re moval was improper because the defendants were not parties to the arbitration agreement between Infuturia and Yissum. The court denied the motion to remand. However, the district court found that removal was proper because the litigation "relates to" the arbitration provision and that provision falls under the New York Convention. The district court also ordered Infuturia to file a second amended complaint identifying the Sequus products, compounds, or inventions that allegedly infringed Infuturia's license with Yissum. Infuturia filed a second amended complaint on March 2009 asserting only tortious interference and conversion claims and only named Sequus as a defendant. In its answer, Sequus raised collateral estoppel as a defense, arguing that these issues had already been resolved against it the Israeli arbitration. Sequus also moved to dismiss under the Federal Rules of Civil Procedure for failure to state a claim and failure to join a necessary party. The district court granted both motions on June 1, 2009. Infuturia appealed, asserting that removal was improper. The 9th Circuit affirmed.

Title 9 U.S.C. § 205 provides that federal courts have removal jurisdiction:

[w]here the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Con vention.... The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal.

The court agreed with the interpretation of the phrase "relates to" in § 205 by the 5th Circuit, the only federal appeals court to rule on that point. That interpretation holds that "whenever an arbitration agreement falling under the Convention could conceivably affect the outcome of the plaintiff's case, the agreement 'relates to' the plaintiff's suit."

The 9th Circuit also found that nothing in § 205 urged a narrower construction of the remand statute. Accordingly, because Sequus raised an affirmative defense "relat[ing] to" the Infuturia-Yissum arbitral award, the 9th Circuit found that the district court had removal jurisdiction under § 205.

Infuturia Global Ltd. v. Sequus Pharmaceuticals, Inc. 631 F.3d 1133 (9th Cir. Feb. 7, 2011).

CALI FORNIA REFERENCE AGREEMENT

Court's Discretion to Refuse Enforcement

The Supreme Court of California held that, under Code of Civil Procedure § 638, a trial court has discretion to refuse to enforce a predispute agreement providing that a referee may hear and decide certain contested issues. …