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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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UNITED STATES COURT OF APPEALS F I L E D 

United States Coprt(?f Appeals 

FOR THE TENTH CIRCUIT Tenth C1rcu1t 

OCT 3 f 1991 

CARDIOMED, INC., 

Plaintiff-Appellee, 

) ROBERT L. HOECKER 

) Clerk 

v. 

KARDIOTHOR, INC., COBE LABORATORIES, 

Defendants-Appellants, 

and 

DOES 1 THROUGH 50, 

Defendants. 

) 

) 

) No. 91-4032 

) (D.C. No. 88-CV-940) 

) (D. Utah) 

) 

) 

) 

) 

) 

) 

) 

) 

ORDER AND JUDGMENT* 

Before ANDERSON, BARRETT, and BRORBY, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

Defendants appeal the 

The case is therefore ordered 

district court's order of 

February 13, 1991, denying their Motion for Stay of Action Pending 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

Appellate Case: 91-4032 Document: 010110093044 Date Filed: 10/31/1991 Page: 1 
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Arbitration Proceedings. Defendants moved for a stay pursuant to 

the Federal Arbitration Act, which requires a federal court, upon 

application of a party, to stay a suit that is brought on an issue 

the court concludes is referable to arbitration under a written 

agreement concerning a transaction involving commerce. 9 u.s.c. 

§§ 2, 3. Defendants filed a timely notice of appeal from the 

district court's denial of their motion pursuant to 9 u.s.c. § 16, 

which permits a party to appeal from the denial of a stay under 

§ 3. We have jurisdiction over this appeal pursuant to 28 u.s.c. 

§ 1292(a). See Peterson v. Shearson/American Express, Inc., 849 

F.2d 464, 465 (10th Cir. 1988). Based upon our de nova review, 

Republic of Nicar. v. Standard Fruit Co., 937 F.2d 469, 474 (9th 

Cir. 1991), we reverse. 

Plaintiff Cardiomed, Inc. and Defendant Kardiothor, Inc. 

entered into a License and Distribution Agreement in 1987 pursuant 

to which Cardiomed was to be the exclusive distributor in four 

states of a blood recovery and cell-washing system manufactured by 

Kardiothor. The agreement provided in Article 9 that "[d]isputes 

arising from the process of termination, that are not determined 

by this contract, and which are not satisfactorily negotiated by 

both parties within thirty (30) days of notice of termination, 

shall be submitted to the American Arbitration Association." 

Appellants' App. at 23. 

In 1988, Cardiomed brought suit alleging that Kardiothor had 

breached the agreement by various acts, including attempting to 

terminate the agreement without justification, and that Cabe 

Laboratories, Kardiothor's successor in interest, had tortiously 

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Appellate Case: 91-4032 Document: 010110093044 Date Filed: 10/31/1991 Page: 2 
interfered with the parties' contractual relationship. The suit 

sought damages, as well as a declaratory judgment that 

the language of the agreement upon which Kardiothor 

claims to rely for unilateral termination of the 

agreement does not in fact justify termination under the 

circumstances, but is rather a breach of the agreement 

by Kardiothor, and further that as such, no right to 

binding arbitration under Section 9 of the agreement 

presently exists. 

Appellants' App. at 11. Before answering Cardiomed's amended 

complaint, Kardiothor and Cobe Laboratories filed a motion to stay 

the proceedings because Cardiomed's claim for declaratory relief 

concerned a subject that the parties had agreed to submit to 

arbitration under Article 9 of the agreement. The district court 

denied the motion without stating its reasons for doing so. 

Our analysis of this appeal is guided by three general 

principles. First, although the distribution agreement provides 

that it is to be governed by Texas law, whether the parties' 

dispute is arbitrable is determined by federal law. Mitsubishi 

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 

(1985); see also Merrill Lynch, Pierce, Fenner & Smith, Inc. v. 

Decaro, 577 F. Supp. 616, 619 (W.D. Mo. 1983). Second, "the 

court's role is limited to determining whether the parties 

submitted the 'subject matter' of a particular dispute to 

arbitration." Denhardt v. Trailways, Inc., 767 F.2d 687, 690 

(10th Cir. 1985). Third, "[t]here is a strong federal policy 

favoring arbitration for dispute resolution." Peterson, 849 F.2d 

at 465. Accordingly, all "doubts are to be resolved in favor of 

arbitrability." Oil, Chem. & Atomic Workers Int'l Union, Local 

2-124 v. American Oil Co., 528 F.2d 252, 254 (10th Cir. 1976). 

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Appellate Case: 91-4032 Document: 010110093044 Date Filed: 10/31/1991 Page: 3 
Pursuant to the arbitration clause at issue here, a dispute 

must (1) arise from the process of termination, (2) not be 

determined by the agreement, and (3) not be satisfactorily 

negotiated by the parties within thirty days of notice of 

termination, to be arbitrable. In support of the district court's 

order denying stay, Cardiomed advances arguments based on each of 

these three conditions. 

First, Cardiomed argues that because the distribution 

agreement did not permit Kardiothor to terminate it on the ground 

allegedly advanced by Kardiothor--that Kardiothor had been 

acquired by Cobe Laboratories--Kardiothor's attempt to terminate 

the agreement was a breach of the agreement, not a termination 

thereof, so the dispute between the parties did not arise from the 

process of termination. This argument is circular, and we 

it. Cardiomed's claim for declaratory relief 

Kardiothor's right to terminate the agreement. Such a 

necessarily arises from the process of termination. 

reject 

disputes 

dispute 

Second, Cardiomed argues that even if Kardiothor attempted to 

terminate the agreement because Cardiomed breached its obligation 

to perform, the propriety of that termination would not be 

arbitrable because the agreement determines Cardiomed's 

obligations to perform. In deciding whether an issue is 

arbitrable, we must accept the facts as advanced by the party 

seeking arbitration. See Shanferoke Coal & Supply Corp. v. 

Westchester Serv. Corp., 70 F.2d 297, 299 (2d Cir. 1934), aff'd, 

293 U.S. 449 (1935). Kardiothor contends that one of the reasons 

it terminated the agreement is that Cardiomed failed to "use its 

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Appellate Case: 91-4032 Document: 010110093044 Date Filed: 10/31/1991 Page: 4 
best efforts to develop and exploit the markets and to sell the 

System in the Exclusive Territory," as required by Article 2.5 of 

the agreement. Appellants' App. at 16. Pursuant to Article 

7.1(2), a party may terminate the agreement upon written notice if 

the other party fails to cure a material breach within thirty days 

after receipt of written notice of the breach. Id. at 22. 

Kardiothor presented evidence to the district court that it sent 

written notice to Cardiomed in March of 1988 that Cardiomed was in 

breach of the agreement because it had failed to use its best 

efforts to promote the system, and that in September and December 

of that year, Kardiothor sent Cardiomed written notice of 

termination. Id. at 63-64, 60, 61-62. 

We reject Cardiomed's contention that the propriety of 

terminating 

perform is 

the 

not 

agreement 

arbitrable. 

due to Cardiomed's alleged failure to 

Under Cardiomed's theory, the 

propriety of termination could never be arbitrable, because the 

agreement sets forth the circumstances under which it can be 

terminated. In a sense, every dispute is determined by the 

contract because the contract governs the relationship between the 

parties. Such a broad construction is inappropriate, however, 

because it negates the arbitration clause altogether. Assuming 

that Cardiomed's theory is somewhat narrower, if we extend it to 

its logical conclusion, the dispute here still would be arbitrable 

because the agreement does not define what constitutes "best 

efforts." Therefore, a dispute as to whether Cardiomed used its 

best efforts would not be determined by the agreement. 

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Finally, Cardiomed argues that no claim before the court 

failed to be satisfactorily negotiated by both parties within 

thirty days of notice of termination. Specifically, Cardiomed 

contends that because Article 14 of the agreement requires that 

any notice be given by personal delivery or by registered mail and 

Kardiothor's termination letter of September 29, 1988, was not 

sent by registered mail, it did not constitute notice of 

termination that would trigger the thirty-day negotiation period 

set forth in the arbitration clause. Again, we reject Cardiomed's 

argument. 

Cardiomed does not deny that it received Kardiothor's letter 

of September 29, 1988, nor does it deny that the letter 

unequivocally states that Kardiothor is terminating the agreement. 

See Appellants' App. at 60. Cardiomed obviously understood the 

letter to be a notice of termination, as Cardiomed filed suit 

shortly thereafter seeking to prevent Kardiothor from terminating 

the agreement. Kardiothor gave Cardiomed written notice of 

termination and thereby fulfilled the condition precedent to 

arbitration set forth in the agreement. The purpose of providing 

for service of a notice by personal delivery or registered mail is 

to assure receipt of the notice and avoid disputes about receipt. 

Cf. Fleisher Enq'q & Constr. Co. v. United States, 311 U.S. 15, 

18-19 (1940)(making same distinction regarding requirement in 

Miller Act that notice be sent by registered mail). Under the 

circumstances, Cardiomed got what it bargained for in the 

agreement. See LJC Corp. v. Boyle, 768 F.2d 1489, 1495 (D.C. Cir. 

1985). Moreover, on December 7, 1988, after Cardiomed filed suit 

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Appellate Case: 91-4032 Document: 010110093044 Date Filed: 10/31/1991 Page: 6 
but more than thirty days before Kardiothor and Cobe Laboratories 

moved for a stay of the proceedings, Kardiothor sent Cardiomed a 

second notice of termination by registered mail. See Appellants' 

App. at 61. Therefore, at the time Kardiothor and Cobe 

Laboratories sought to stay the proceedings, the thirty-day 

negotiation period had expired. 

We conclude that the district court erred in not holding that 

Cardiomed's claim concerning termination was arbitrable. 

Kardiothor and Cobe Laboratories concede that not all of 

Cardiomed's claims are arbitrable, but argue, nonetheless, that 

the district court should stay the proceedings on all claims 

pending arbitration. Whether to stay all proceedings pending 

arbitration, or only those proceedings relating to the arbitrable 

issues, is a matter within the discretion of the district court. 

Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 856 (2d Cir. 

1987). Because the district court apparently concluded that none 

of the claims raised in the amended complaint was arbitrable, it 

did not consider whether the arbitrable claim should be severed 

from the nonarbitrable claims, or whether proceedings should be 

stayed on all claims pending arbitration. We note that resolution 

of some of Cardiomed's other claims may depend on whether 

Kardiothor's attempt to terminate the agreement was proper. On 

remand, the district court should address this matter and enter a 

stay order accordingly. 

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♦ 

The judgment of the United States District Court for the 

District of Utah is REVERSED, and the case is REMANDED for further 

proceedings consistent with this order and judgment. 

Entered for the Court 

Wade Brorby 

Circuit Judge 

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