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UPM-Kymmene Corp. v. Renmatix, Inc.

Court of Chancery of Delaware

October 6, 2017

UPM-KYMMENE CORPORATION, Plaintiff,
v.
RENMATIX, INC. Defendants.

          Date Submitted: July 26, 2017

          Thomas C. Grimm, John P. DiTomo, and Stephen J. Kraftschik, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Abigail T. Reardon, NIXON PEABODY LLP, New York, New York; Daniel J. Burnham and Laura B. Bacon, NIXON PEABODY LLP, Chicago, Illinois, Attorneys for Plaintiff.

          David J. Margules, Justin M. Miller, Evan W. Krick, and William J. Burton, BALLARD SPAHR LLP, Wilmington, Delaware; Richard W. Miller, BALLARD SPAHR LLP, Atlanta, Georgia, Attorneys for Defendants.

          MEMORANDUM OPINION

          BOUCHARD, C.

         In 2013, UPM-Kymmene Corporation and Renmatix, Inc. entered into two agreements to explore potential collaborations involving certain technology Renmatix had developed. The first agreement calls for all of their disputes to be arbitrated before the International Chamber of Commerce ("ICC"). The second agreement, which was entered into six months later and includes an additional signatory, calls for disputes arising pursuant to that agreement to be arbitrated before the American Arbitration Association ("AAA").

         In April 2017, Renmatix filed an arbitration demand against UPM before the AAA. The prayer for relief in the demand generally references the parties' "multiple agreements" but the body of the demand more specifically asserts claims under the second agreement. In May 2017, UPM filed this action seeking declaratory and injunctive relief to prevent Renmatix from arbitrating its claims before the AAA or any forum other than the ICC. The parties have filed cross-motions, with Renmatix seeking to dismiss the complaint for lack of subject matter jurisdiction due to the availability of an adequate remedy at law in the form of arbitration before the AAA, and UPM seeking entry of summary judgment in its favor.

         For the reasons explained below, I conclude based on the application of ordinary principles of contract law that the claims Renmatix purports to assert before the AAA properly belong there. Accordingly, Renmatix's motion to dismiss will be granted and UPM's motion for summary judgment will be denied.

         I. BACKGROUND

         Unless noted otherwise, the facts recited in this opinion are based on the allegations of the Verified Complaint and the documents attached thereto.

         A. The Parties

         Plaintiff UPM-Kymmene Corporation ("UPM") is a Finnish company involved in the development and commercialization of renewable resources. Defendant Renmatix, Inc. is a biotechnology startup incorporated in Delaware and headquartered in Pennsylvania. It developed a process to produce sugars for the global renewable chemical and fuel markets, which it calls the Plantrose process.

         B. The Bi-Lateral Agreement

         On March 16, 2012, Renmatix and UPM entered into a Confidentiality Agreement to allow them to "engage in discussions with respect to a potential cooperation regarding . . . [Renmatix's] proprietary technology."[1] On April 26, 2012, they entered into a Material Transfer Agreement providing for an exchange of sample material. On May 16, 2013, Renmatix and UPM entered into a Joint Development Agreement ("Bi-Lateral Agreement"), which references and attaches the Confidentiality and Material Transfer Agreements they previously entered.

         Under the Bi-Lateral Agreement, Renmatix and UPM agreed to develop a plan for the broader commercialization of Renmatix's Plantrose process. The Bi-Lateral Agreement contains an arbitration clause requiring arbitration of "all disputes, controversies or claims" between the parties before the International Chamber of Commerce following a period of good faith negotiations:

This Agreement, including the [Confidentiality Agreement] and the [Material Transfer Agreement], shall be governed by and construed in accordance with the laws of England. The Parties agree to negotiate all disputes, controversies or claims (including breach, termination or validity of this Agreement) between them in good faith for a period of 30 days following written notice of such dispute. If the Parties fail to resolve such dispute during this negotiation period, then such dispute shall be finally settled by binding arbitration in accordance with the Rules of Arbitration of the International Chamber of Commerce. The language of the arbitration proceedings shall be English and the venue of the proceedings shall be in Toronto, Canada.[2]

         C. The Tri-Lateral Agreement

         In addition to UPM, Renmatix's technology attracted the interest of non-party BASF SE ("BASF"). On November 20, 2013, Renmatix, UPM, and BASF entered into a Joint Development Agreement ("Tri-Lateral Agreement"). The stated purpose of the Tri-Lateral Agreement was "to improve process steps of the Plantrose process."[3] The Tri-Lateral Agreement references and attaches as appendices (1) the Material Transfer Agreement between Renmatix and UPM, (2) a second Material Transfer Agreement dated August 15, 2011, as amended February 1, 2012, between BASF and Renmatix, and (3) a Confidentiality Agreement dated January 25, 2013, among UPM, BASF, and Renmatix.[4]

         The Tri-Lateral Agreement requires the parties to arbitrate "any dispute, claim or controversy arising pursuant to this Agreement" in an arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules following a period for settlement discussions:

The Parties agree that any dispute, claim or controversy arising pursuant to this Agreement, or the rights or obligations of the Parties hereunder shall be resolved solely by application of the procedures set forth in this Section 9.11. . . .
If such representatives are unable to resolve such dispute within fifteen (15) business days following the first settlement meeting or call between the executives, any Party may demand arbitration by sending written notice to the other Parties. Such arbitration shall be administered by the American Arbitration Association ("AAA") in accordance with its Commercial Arbitration Rules. The arbitration proceedings shall be conducted before one arbitrator in Wilmington, Delaware or any other place selected by mutual agreement of the Parties. The arbitrator shall apply the governing law [of the State of Delaware].[5]

         D. The Arbitration Demand

         On April 24, 2017, Renmatix served UPM with a Demand for Arbitration it filed with the AAA (the "Demand") pursuant to the arbitration provision in the Tri-Lateral Agreement, which is quoted in the Demand.[6] Although the Demand is not a model of clarity, it becomes clear when read carefully that the Demand purports to assert claims under the Tri-Lateral Agreement.

         Page 1 of the Demand refers to the "Joint Development Agreement" attached thereto as Exhibit A.[7] That term is defined to refer specifically to the Tri-Lateral Agreement.[8] Most significantly, the Demand cites to Sections 2.2(a) and 2.2(e) of the Tri-Lateral Agreement as the basis for Renmatix's claims.[9]

         Section 2.2(a) of the Tri-Lateral Agreement provides, in relevant part, that "Renmatix shall be the sole owner of any Invention generated from the efforts of the Parties in the course of performing activities under the Joint Project Plan that relates to, " among other things, the Plantrose process.[10] Section 2.2(e) provides, in relevant part, that "[e]ach Party shall promptly disclose to the other Parties all Inventions developed by it" and that "[t]he Party owning the Invention shall have the exclusive right to apply (or to choose not to apply) for or register any patents, and such other proprietary protections anywhere in the world, with respect to such Invention."[11]Renmatix alleges in the Demand that UPM violated these provisions by filing "at least five patent applications directed to Renmatix's technology that the parties agreed would be owned by Renmatix."[12] Four of these patents were filed after the Tri-Lateral Agreement was signed.[13]

         The Bi-Lateral Agreement between Renmatix and UPM as well as the Confidentiality and Material Transfer Agreements that are referenced in the BiLateral Agreement are discussed in the background section of the Demand.[14] No claims are asserted in the Demand, however, under any specific provision of the BiLateral Agreement.

         E. Procedural History

         On May 10, 2017, UPM filed this action seeking declaratory and injunctive relief to prevent Renmatix from arbitrating its claims before the AAA or any forum other than the ICC in Toronto, Canada under the Bi-Lateral Agreement.

         On June 1, 2017, Renmatix moved to dismiss the complaint under Court of Chancery Rule 12(b)(1) for lack of subject matter jurisdiction based on the existence of an adequate remedy at law in the form of arbitration, which Renmatix contends must proceed before the AAA under the Tri-Lateral Agreement. On June 28, 2017, UPM cross-moved for summary judgment on its claims under Court of Chancery Rule 56.

         The Court heard argument on both motions on July, 26, 2017. On October 3, 2017, the Court approved a stipulation between the parties setting forth certain interim arrangements between them until the Court decides the present motions.

         II. ANALYSIS

         "In considering a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction, the court must address the nature of the wrong alleged and the remedy sought to determine whether a legal, as opposed to an equitable, remedy is available and adequate."[15] "If a claim is arbitrable, i.e., properly committed to arbitration, this Court lacks subject matter jurisdiction because arbitration provides an adequate legal remedy."[16]

         Under Rule 56, summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."[17]

         A. The Standard for Determining Substantive Arbitrability

         Because the Tri-Lateral Agreement involves interstate commerce and is not subject to the Delaware Uniform Arbitration Act, [18] the Federal Arbitration Act ("FAA") governs.[19] In a case involving an arbitration governed by the FAA, the United States Supreme Court explained that, "[w]hen deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally . . . should apply ordinary state-law principles that govern the formation of contracts."[20]

         A disagreement about the scope of an arbitration provision-such as whether an arbitration provision governs a particular dispute-is known as an issue of "substantive arbitrability."[21] A recurring area of controversy in our case law is whether a court or an arbitrator should decide questions of substantive arbitrability.

         In accordance with United States Supreme Court authority, Delaware law follows the general rule that "courts should decide questions of substantive arbitrability."[22] In recognition of the fact that arbitration rights ultimately are a creature of contract, however, the general rule contains a significant exception "when there is 'clear and unmistakable evidence' that the parties intended otherwise."[23]

         In James & Jackson, LLC v. Willie Gary, LLC, our Supreme Court articulated a two-prong test for determining when there is clear and unmistakable evidence that the parties intended to have an arbitrator (rather than the Court) decide questions of substantive arbitrability, namely when an arbitration clause: (1) "generally provides for arbitration of all disputes;" and (2) "incorporates a set of arbitration rules that empower[s] arbitrators to decide arbitrability."[24]

         In McLaughlin v. McCann, then-Vice Chancellor Strine, who found the "generally provides for arbitration of all disputes" requirement in the Willie Gary test to be "less than clear, " explained that this requirement logically means that:

. . . the carveouts and exceptions to committing disputes to arbitration should not be so obviously broad and substantial as to overcome a heavy presumption that the parties agreed by referencing the AAA Rules and deciding to use AAA arbitration to resolve a wide range of disputes that the arbitrator, and not a court, would resolve disputes about substantive arbitrability.[25]

         He further explained that, in "a case where there is any rational basis for doubt about that, the court should defer to arbitration, leaving the arbitrator to determine what is or is not before her."[26] Consistent with this policy of deference to the arbitrator, then-Vice Chancellor Strine articulated what has become an additional inquiry to guard against the frivolous invocation of an arbitration clause even when the Willie Gary test has been satisfied:

. . . absent a clear showing that the party desiring arbitration has essentially no non-frivolous argument about substantive arbitrability to make before the arbitrator, the court should require the signatory to address its arguments against arbitrability to the arbitrator.[27]

         This additional "step was added to avoid situations in which the Willie Gary test is technically satisfied but there is no non-frivolous argument that the arbitration clause covers the underlying dispute."[28] In other words, removing the double negative, this additional step was added to avoid a situation where the only basis for one to invoke an arbitration clause is frivolous even though the two prongs of the Willie Gary test technically are satisfied. Since McLaughlin was decided, this Court routinely has applied the Willie Gary/McLaughlin framework to decide who should resolve issues of substantive arbitrability.[29]

         B.The Parties' ...


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