Infuturia Global Ltd. v. Sequus Pharmaceuticals, Inc., et al., No. 09-16378 (9th Cir. Feb. 7, 2011), addressed what the Court of Appeals described as the “novel question” whether, under the U.S.’s statutory embodiment of the New York Convention in 9 U.S.C., “removal” jurisdiction exists over a case where the defendant raises an affirmative defense related to an arbitralaward falling under the Convention. The Court of Appeals determined that removal jurisdiction existed.
The claims in the case arose from a dispute over medical licensing rights between Infutuia, a BVI company, and severalother entities, including citizens of Israel. Initially, claims were being litigated in both a California state litigation and an international arbitration in Israel. Once the arbitration concluded, Infuturia removed the state court case to federal district court on the argument that the litigation “relates to” the arbitration provision, and the arbitration provision fell under the New York Convention. Sequusthen, in its Answer to the Second Amended Complaint, raised the affirmative defense of collateral estoppel, arguing that these issues had already been resolved against Infuturia in the Israeli arbitration.
The case has significance to international practice for several reasons:
First, the Court of Appeals decided that subject matter jurisdiction existed by reason of diversity of citizenship and thus did not reach the question whether subject matter jurisdiction was also grounded under Sections 203 and 205 of the Convention’s statutory embodiment in Title 9, U.S.C.
Second, it ruled that diversity jurisdiction did not have to be tested as of the commencement of the complaint, which would have been the rule in the absence of the New York Convention’s special right to remove. In support, the Court of Appeals cited the Supreme Court’s decision in Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 574 (2004), holding that the requirement that there be diversity at the time of removal is a statutory, nonjurisdictional requirement imposed by 28 U.S.C. § 1441(a), and cited Lively v. Wild Oats Markets, Inc., 456 F.3d 933, 939 (9th Cir. 2006), for the proposition that the forum defendant rule was also a statutory, non-jurisdictional requirement imposed by 28 U.S.C. § 1441(b) and hence did not undermine removal pursuant to Section 205.
Third, on the crucial question of how the litigation related to the arbitration provision in a contract that not all parties to the litigation were parties to, the Court of Appeals agreed with the Fifth Circuit’s decision in Beiser v. Weyler, 284 F.3d665, 669 (5th Cir. 2002), 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”. It reaffirmed that the removal statute rejected the “well-pleaded complaint” rule, which would have narrowed the class of cases removable, stating that, “As long as the defendant’s assertion is not completely absurd or impossible, it is at least conceivable that the arbitration clause will impact the disposition of the case. That is all that is required to meetthe low bar of ‘relates to’.” It did not require that the parties to the court action actually even be the ones entering into the arbitration provision. The Court of Appeals concluded that the defense of collateral estoppelwas enough to relate to the earlier arbitration and that, as a result, removal jurisdiction existed.
Fourth, citing a case in which the author was counsel, Pan Atl. Grp., Inc. v. Republic Ins. Co., 878 F. Supp. 630, 638-39 (S.D.N.Y. 1995), the Court of Appeals found the removal timely as measured from the time of the trial of the litigation, not the arbitration.