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Medicis Pharmaceutical Corp. v. Anacor Pharmaceuticals, Inc.

Court of Chancery of Delaware

August 12, 2013

MEDICIS PHARMACEUTICAL CORPORATION, Plaintiff,
v.
ANACOR PHARMACEUTICALS, INC., Defendant.

Submitted: April 24, 2013

Kevin G. Abrams, Esquire, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Thomas C. Frongillo, Esquire, Matthew L. Knowles, Esquire, WEIL, GOTSHAL & MANGES LLP, Boston, Massachusetts; Kathleen O'Connor, Esquire, WEIL, GOTSHAL & MANGES LLP, New York, New York; Attorneys for Plaintiff Medicis Pharmaceutical Corporation.

Donald J. Wolfe, Jr., Esquire, Brian C. Ralston, Esquire, J. Matthew Belger, Esquire, POTTER ANDERSON & CORROOON LLP, Wilmington, Delaware; Gordon C. Atkinson, Esquire, Dylan R. Hale, Esquire, COOLEY LLP, San Francisco, California; Attorneys for Defendant Anacor Pharmaceuticals, Inc.

OPINION

PARSONS, Vice Chancellor.

In this matter, the defendant has moved to dismiss the plaintiff's claims in favor of arbitration. As part of a license agreement, the plaintiff and the defendant agreed to arbitrate certain disputes. They also agreed that each party had the right to institute judicial proceedings to enforce their rights through equitable relief. A dispute arose under the parties' agreement, and the defendant initiated arbitration regarding it. Approximately two weeks later, the plaintiff filed this action seeking specific performance and injunctive relief related to the same alleged breaches of the agreement. The issue before me is whether, under the terms of the parties' agreement, the claims in the plaintiff's complaint in this Court must be arbitrated.

For the reasons that follow, I conclude that the plaintiff's claims are not subject to mandatory arbitration under the parties' license agreement. Hence, I deny the defendant's motion to dismiss. In reaching this conclusion, I recognize that, in the abstract, this result may not be optimal. To conclude otherwise, however, would require the Court to ignore the plain and unambiguous language of the agreement negotiated by two sophisticated business entities. I decline to do that because arbitration is consensual and these parties failed to provide a clear expression of an intent to require that this dispute be arbitrated.

I. BACKGROUND

A. The Parties

Plaintiff, Medicis Pharmaceutical Corporation ("Medicis"), is a Delaware corporation that has for over twenty years developed and distributed dermatological pharmaceutical products including the leading oral antibiotic drug used to treat acne.

Defendant, Anacor Pharmaceuticals, Inc. ("Anacor"), is a biopharmaceutical company engaged in discovering and developing therapeutic antibiotics based on a boron chemistry platform.

B. Facts[1]

On February 9, 2011, Medicis and Anacor entered into a Research and Development Option and License Agreement (the "License Agreement" or "Agreement") for the development of boron "based small" molecule drug candidates for the treatment of acne. Under the terms of the Agreement, Anacor would use "Diligent Efforts" to discover and develop boron "based small" molecule compounds and Medicis would have an option to further develop and commercialize those compounds. The Agreement provides that, after Anacor achieves certain development and sales milestones, it would receive certain milestone payments from Medicis. The first milestone would be met when a Joint Research Committee (the "Committee") determined that "Candidate Selection Criteria"[2] had been met for the first time by an Anacor compound.

The Agreement indicates that once Anacor believes it has developed a compound that satisfies the Candidate Selection Criteria, as defined in the Agreement, it can nominate the compound for consideration by the Committee. If the Committee accepts the compound, Anacor would have reached the first milestone and it would be entitled to a milestone payment of $5 million.[3] Anacor nominated a compound, AN8903, for the Committee to consider at its April 20, 2012 meeting. The Committee, however, declined to approve AN8903 as a Candidate Selection Compound.[4] Medicis notified Anacor of this decision on May 18, 2012.

As a result, Anacor sent Medicis a letter on May 23, 2012 notifying Medicis that it was invoking the Agreement's dispute resolution process. Under Section 13.1 of the Agreement, in the event of a dispute arising under the Agreement, either party may refer the dispute to an "Executive Officer" who shall attempt in good faith to resolve the dispute. If, within sixty calendar days, the parties are unable to resolve a given dispute, "either Party may have the given dispute settled by binding arbitration pursuant to Section 13.2."[5]

Section 13.2, entitled "Arbitration Request, " sets forth the procedure for pursuing arbitration. It contains three subsections: 13.2.1, 13.2.2, and 13.2.3. The first two subsections provide the procedure for adding additional issues to an arbitration and state that disputes relating to Patents and Confidential Information shall be resolved through litigation. Subsection 13.2.3, entitled "Arbitration Procedure, " provides, among other things, that any arbitration shall be held in Wilmington, Delaware by JAMS before three arbitrators. It also contains the following disputed language:

The arbitrators also shall be authorized to grant any temporary, preliminary or permanent equitable remedy or relief the arbitrators deem just and equitable and within the scope of this Agreement, including an injunction or order for specific performance. The award of the arbitrators shall be the sole and exclusive remedy of the Parties (except for those remedies set forth in this Agreement). Judgment on the award rendered by the arbitrators may be enforced in any court having competent jurisdiction thereof, subject only to revocation on the grounds of fraud or clear bias on the part of the arbitrators. Notwithstanding anything contained in this Section 13.2 to the contrary, each Party shall have the right to institute judicial proceedings against the other Party or anyone acting by, through or under such other Party, in order to enforce the instituting Party's rights hereunder through specific performance, injunction, or similar equitable relief.[6]

C. Procedural History

On November 28, 2012, Anacor sent Medicis a demand for arbitration before JAMS. On December 11, Medicis filed its Complaint in this Court seeking to enjoin Anacor from proceeding with arbitration and seeking specific performance of the Agreement and a declaratory judgment. Anacor moved to dismiss the Complaint on January 16, 2013 for lack of subject matter jurisdiction under Court of Chancery Rule 12(b)(1). After the parties fully briefed that motion, I heard argument on April 24, 2013. This Opinion constitutes my ruling on Anacor's motion to dismiss.

D. Parties' Contentions

Anacor argues that this Court lacks subject matter jurisdiction because the parties agreed to resolve the claims at issue here in arbitration and Anacor properly invoked arbitration under the Agreement. Medicis does not dispute that the parties agreed to arbitrate certain claims, including claims for equitable relief. It contends, however, that the Agreement reserves for each party the right to pursue claims for equitable relief either in arbitration or in a court. Medicis's Complaint seeks equitable relief in the form of specific performance and an injunction regarding the same issues addressed by Anacor's demand for arbitration. Thus, according to Medicis, this Court has subject matter jurisdiction and Anacor's motion to dismiss should be denied.

II. ANALYSIS

A. Motion to Dismiss Under Rule 12(b)(1)

The Court of Chancery will dismiss an action under Rule 12(b)(1) "if it appears from the record that the Court does not have subject matter jurisdiction over the claim."[7]This Court can acquire subject matter jurisdiction over a case in three ways: (1) the invocation of an equitable right; (2) a request for an equitable remedy when there is no adequate remedy at law; or (3) a statutory delegation of subject matter ...


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