We’re the Drug and Device Law Blog here, but when we look at court opinions, sometimes we can’t tell if they’re in our bailiwick or not, until we read them. So it was with Infuturia Global Ltd. v. Sequus Pharmaceuticals, Inc., ___ F.3d ___, 2011 WL 353214 (9th Cir. Feb. 7, 2011). The defendant had the word “pharmaceuticals” in its name, and that was enough to get us to take a peek.
Sadly, Infuturia was a patent case.
Happily, it wasn’t about patents, but rather about procedure. As lawyers, we’re always interested in the latest procedural twist.
Even better, Infuturia was about removal to federal court – a perennial favorite of ours. And it’s not just any kind of removal, either, but removal that doesn’t require diversity of citizenship (that is, that the defendants and plaintiffs don’t have to be from different states, or countries).
With all the hellhole jurisdictions out there, we’re all ears when something – anything – suggests a way that out clients can get out of dodge regardless of the other side’s attempts to join marginal in-state defendants, or otherwise manipulate the prerequisites to diversity jurisdiction.
Infuturia has the potential to help defendants located in other countries, when (as is usual) they’re included in a scattershot complaint with various U.S. distributors, subsidiaries, etc.
Infuturia dealt with a rather obscure aspect (at least it was to us) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. What’s that, you ask? Well, a lot of companies outside the U.S. would rather arbitrate disputes than litigate them. In Infuturia, the dispute was about the licensing of what sounds like a form of nanotechnology (liposomes – little hollow balls of fat – used to deliver drugs into the body) amongst mostly non-U.S. companies.
For our purposes, the most important player is a third party – an Israeli corporation – that had previously been sued by the plaintiff plaintiff (Infutura, a B.V.I. company) and lost in international arbitration. That’s probably why the plaintiff didn’t sue it again.
But the plaintiff sued others who had worked with this non-party arbitration winner.
Plaintiff sued them in California state court. The case was could not be removed on diversity grounds because one of the defendants was a California resident sued in its home state’s (and a hellhole) court.
That changed after the arbitration. Two of the defendants sought to remove the case under 9 U.S.C. §205, the statute that implements the Convention we mentioned previously. Critically, that statute provides rather broad grounds for removal:
Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States….
“Relates to” is pretty sweeping language, right? All there has to be is an “agreement” to arbitrate – not an “award.” And there’s no time limit, except “before trial.”
What’s not to like? Well, the plaintiffs claimed that because the removing defendants were not parties to the arbitration agreement, §205 did not apply.
Plaintiff lost on the remand motion, and then lost on the merits. The trial court found both collateral estoppel (from the arbitration that plaintiff lost against the non-party) and failure to join an indispensable party (the non-party who wasn’t sued). 2011 WL 353214, at *2.
Plaintiff appealed and challenged the removal to federal court.
The court found the removal was proper, and the grounds for removal are as friendly as we’ve ever seen.
First, Convention removal has nothing to do with diversity, therefore the “forum defendant” rule (where a defendant is sued in its own state court) doesn’t apply to prevent removal. Id. (“[b]ecause removal in this case was effectuated under 9 U.S.C. §205, the traditional diversity removal provisions . . . do not apply”). Thus, there’s no requirement of diversity at any time.
Second, the “relates to” language means that the right to remove is not limited to parties to the arbitration agreement. “Relates to” is instead “remarkably broad removal authority,” Infutura, 2011 WL 353214, at *4 n.5:
The critical language here is the phrase “relates to….” [T]his language  mean[s] 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 phrase “relates to” is plainly broad, and has been interpreted to convey sweeping removal jurisdiction in analogous statutes…. Nothing in §205 urges a narrower construction. Indeed, the statute invites removal of cases whose relation to an agreement or award under the Convention is based on an affirmative defense….
2011 WL 353214 at *4-5 (various things omitted) (emphasis added) (following Beiser v. Weyler, 284 F.3d 665, 669 (5th Cir. 2002)).
The Ninth Circuit went on to “decline[d] to add any prerequisites to removal jurisdiction not expressed in the language of the statute” and thus refused to require the removing party also to be a party to the arbitration agreement. 2011 WL 353214 at *5. It also refused to construe “trial” in the statute as meaning the arbitration. Id.
Moral of the story: Everybody representing foreign defendants who finds him or herself in a hellhole jurisdiction should check for arbitration agreements. If the plaintiff is sloppy enough to sue – say – a foreign parent and a U.S. distributor/subsidiary, a foreign arbitration agreement might well be your ticket out of dodge.
Even better, think ahead. If there isn’t a foreign arbitration agreement between a foreign entity and the U.S. entities with which it does business, maybe there should be. It doesn’t matter that the plaintiff isn’t a party to the agreement, nor is it necessary for the arbitration to have actually happened as an “agreement” is enough under §205. Consider what provisions of an agreement concerning the scope of the arbitration could be counted on to get your client over the low “any conceivable effect” standard. Collateral estoppel as between the arbitrating parties worked in Infutura – but creative lawyering can undoubtedly create other means of “affecting” subsequent litigation, at least “conceivably.”