TORTIOUS INTERFERENCE/ARBITRATION/ DISCOVERY: No authority to vacate emergency arbitration order or stay arbitration proceedings at bidding of non-party to contract, injunction allowing Defendant to dismantle equipment to prevent use by Plaintiff granted under arbitration rules, not NY civil procedure… tortious interference claim rejected on LR 56.1(d) deemed admission of undisputed facts that letters based on good faith belief of breach of agreement… 56(d) not satisfied but additional discovery would not add essential facts, pursuit of settlement not valid excuse for not diligently pursuing discovery… amendment to add factual allegations and conversion claim denied… summary judgment for Defendant granted… Christensen.
Irvine Scientific Sales of California, Microbix Biosystems of Canada, and Rocky Mountain Biologicals of Montana manufacture water products for pharmaceutical and medical industries. Irvine and Microbix entered into a binding letter of intent in 10/12 to begin exclusive negotiations as to Irvine’s purchase of Microbix’s water assets. It provided that “during the period from the date hereof and December 31, 2012, [Microbix] shall not discuss, negotiate, or accept any agreement with any third party for the sale of all or any part of the commercial assets to be acquired.” Nevertheless, on 10/12/12 Microbix entered into a binding letter of intent which provided that Rocky Mountain would be allowed to evaluate certain equipment for manufacture of water products at the facility leased by Microbix in Toronto. Rocky Mountain was allowed 60 days to evaluate the equipment, after which it had the option to sign an agreement to operate the equipment at the facility and pay Microbix rent, negotiate with the landlord to remove the equipment and pay restoration costs, or negotiate a new lease with the landlord relieving Microbix of its lease obligations. On 12/31/12, Irvine and Microbix entered into a Commercial Asset Purchase Agreement whereby Irvine purchased substantially all of Microbix’s water assets including contracts, customer information, and good will. Microbix agreed to maintain confidentiality of all proprietary information and not compete with Irvine directly or indirectly. The agreement did not include sale of the equipment. On 2/1/13 Microbix entered into a Purchase & Sale & Service Agreement with Rocky Mountain under which Rocky Mountain assigned to Skyway Purified Solutions its option to carry on operations at the facility using Microbix’s equipment. Rocky Mountain agreed to pay Microbix rent for the equipment until expiration of Microbix’s lease 7/31/13. Rocky Mountain planned to then negotiate a new lease with the landlord and so agreed to relieve Microbix of its obligation to restore the facility to its original state. While Rocky Mountain has maintained that it had sole rights to the equipment before entering into the equipment agreement, the agreement provides that “Microbix will grant title to SPS for the Water Equipment with completion of the purchase.” Ownership of the equipment is made more ambiguous by other provisions such as the paragraph purporting to clarify ownership which apparently contains a critical typo: “Microbix has previously sold the Water Equipment (listed in SCHEDULE ) to for an amount of $1. RMB has subsequently transferred the rights and use of the equipment to SPS and Microbix has approved the assignment.” The entity to whom Microbix “previously sold the Equipment” is omitted. Assuming that Rocky Mountain purchased it, it appears that perhaps it purchased (for only $1) only the right to use the equipment rather than title to it and sole right of possession, ownership, and control. Irvine soon learned of the equipment agreement and on 3/4/13 wrote Microbix alleging that it constituted a breach of the non-compete provisions of the Irvine-Microbix agreement and demanding remedial measures. On 3/18 Irvine notified Rocky Mountain of the letter to Microbix and demanded that it cease using the equipment. On 3/21 Microbix wrote Rocky Mountain purporting to terminate the equipment agreement, alleging material breaches and asserting that it was signed by one lacking authority. Microbix has steadfastly maintained that the agreement is terminated and has refused to allow Rocky Mountain access to the facility. Rocky Mountain sued Microbix and Irvine 4/4/13. Microbix was dismissed for lack of personal jurisdiction. Irvine moved for summary judgment 5/31/13. Rocky Mountain filed a Rule 56(d) motion to defer summary judgment pending further discovery on the basis that it has not had a reasonable opportunity to conduct discovery because it pursued settlement in lieu of discovery. Irvine opposed the motion. Irvine moved to supplement the record with an Emergency Arbitration Order awarding injunctive relief giving it access to the facility to partially dismantle the equipment to prevent its use by Rocky Mountain. Rocky Mountain sought an order from this Court that would stay the arbitration and vacate the arbitration order, contending that new facts — failing to give Rocky Mountain notice of the emergency arbitration and dismantling of the equipment — constituted a new basis for claims against Irvine of tortious interference with contract or prospective business advantage and for a declaration of rights and legal relations of Rocky Mountain, Skyway, and Irvine vis-à-vis the Irvine-Microbix agreement. At the hearing on all motions 10/11/13 Rocky Mountain’s counsel indicated that its tortious interference claim might be better stated as a claim for conversion.
Rocky Mountain contends that the Court has authority to stay further Irvine-Microbix arbitration and that New York law mandates that the arbitration order be vacated. The Court agrees with Irvine that it cannot stay arbitration or vacate an arbitration order at the bidding of a stranger to the arbitration. A court may vacate an arbitration award “upon the application of any party to the arbitration.” 9 USC 10(a). Only a party to the arbitration may seek a court order vacating an arbitration award. ILWU (9th Cir. 1971). Rocky Mountain’s contention that the order must be vacated because it is void is based on its contention that, because the Irvine-Microbix agreement contains a provision for New York law to resolve contract disputes, New York civil procedure applied to the emergency arbitration and required Rocky Mountain to be joined as a necessary party. However, the agreement provided that arbitration would be conducted under arbitration rules. Pursuant to ICDR Art. 7, the emergency arbitrator rejected Microbix’s contention that Rocky Mountain should be joined, and proceeded to apply the arbitration rules agreed to by the parties in their contract. Rocky Mountain’s motion to vacate the arbitration order is denied.
9 USC 3 allows courts to stay litigation pending arbitration and §4 allows a court to compel arbitration, but absent from the Arbitration Act is any mechanism for a Court to stay arbitration pending resolution of related litigation. Wolsey (9th Cir. 1988). An order staying arbitration entered into pursuant to a valid arbitration clause would violate mandates of the USSC. More to the point, “under the Arbitration Act, an arbitration agreement must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement.” MHCMH (US 1983). Rocky Mountain’s motion to stay Irvine-Microbix arbitration proceedings is denied.
Likely sensing the hurdles in requesting a stay of arbitration and vacation of an arbitration award, Rocky Mountain reformulates its motion in its reply brief as a motion for injunctive relief requiring Irvine to return the control panel to the facility, which it asserts will restore the status quo. The Court need not address arguments raised the first time in a reply brief, but returning the control panel will not restore the status quo, but would amount to a mandatory injunction, the burden for which Rocky Mountain cannot meet, and would constitute direct interference with the arbitration order.
Irvine’s properly supported Statement of Undisputed Facts establishes that the letters were sent in a good faith effort to protect its legitimate business interests based on the Irvine-Microbix agreement. Rocky Mountain did not file a statement of undisputed facts, which is deemed an admission that no material facts are in dispute. LR 56.1(d). Rocky Mountain contends that application of the LR in the context of its 56(d) motion “is absurd,” but can point to no exception to the LR. Regardless, it has still not offered any statement of undisputed facts or any properly supported evidence to dispute Irvine’s, and thus the Court will treat the facts offered by Irvine as true and undisputed. It is undisputed that Irvine sent the letters to Microbix and Rocky Mountain based on a good faith belief that Microbix was in breach of the Irvine-Microbix agreement. Even if its actions resulted in severance of the equipment agreement, Irvine cannot be held liable for tortious interference when it acted in “honest furtherance of [its] own business enterprise.” Quinlivan (Mont. 1934). Even if Irvine was mistaken in its belief that Microbix was in breach of the agreement, it cannot be held liable when it acted in good faith. Grenfell (Mont. 2002). Irvine is entitled to summary judgment on tortious interference.
Rocky Mountain has failed to satisfy 56(d). The evidence provided by Irvine affirmatively negates the factual issues which Rocky Mountain contends remain controverted, and many of the sought-after-facts are not essential to opposing Irvine’s motion. Regardless, the Court will address each issue. For example, Rocky Mountain seeks discovery into “the timing of Irvine’s negotiations with Microbix.” The evidence establishes that the negotiations formally began 10/1/12 when the parties entered into a binding letter of intent and concluded 12/31/12 when they executed the Irvine-Microbix agreement. Further discovery will not establish anything different, nor does Rocky Mountain provide any information to suggest that any other facts exist relative to the timing of the negotiations. While timing may be relevant to Irvine’s intent, the evidence of record affirmatively establishes the timing. Irvine entered negotiations with Microbix before Rocky Mountain began negotiating with Microbix. Irvine closed its deal with Microbix before Rocky Mountain executed the equipment agreement. The timing thus evidences Irvine’s good faith and justification in sending the letters.
While the Court does not find that Rocky Mountain has been dilatory in seeking discovery, it cannot be said to have diligently pursued it as required for a 56(d) motion. Mackey (9th Cir. 1989). It filed its complaint 4/11/13. Irvine’s summary judgment motion has been pending nearly 5 months, yet Rocky Mountain has not conducted any discovery. Its decision to pursue settlement does not excuse it from diligently pursuing discovery. Cervantes (7th Cir. 1999).
Rocky Mountain’s motion to add factual allegations as to the arbitration and Irvine’s actions pursuant to the arbitration order must be denied because the proposed amendment is futile and Foman (US 1962) factors weigh against it. Its motion is brought while summary judgment is pending, all of its claims as amended are subject to immediate summary judgment, and amendment would unduly prejudice Irvine by forcing it to continue litigating meritless claims and needlessly delay resolution of the case.
Rocky Mountain’s motion to add a claim for conversion is also denied. A ruling that would deem this action tortious would subvert the arbitration process and impose contradictory rulings and thus be futile. The motion also presents a new theory without alleging new facts at a stage where summary judgment is pending, without adequate explanation except that the new theory occurred to it during the hearing and it believes it is more appropriate.
Judgment for Irvine; the case is closed.
Rocky Mountain Biologicals and Skyway Purified Solutions v. Irvine Scientific Sales, 41 MFR 110, 10/31/13.
William VanCanaghan & Nathan Wagner (Datsopoulos, MacDonald & Lind), Missoula, for Plaintiffs; Stephen Bell, Denver, and Ben Kappelman, Minneapolis (Dorsey & Whitney), for Irvine.
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