Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_10-cv-02467/USCOURTS-casd-3_10-cv-02467-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 09:0010 Petition to Vacate Arbitration Award

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

CHINMAX MEDICAL SYSTEMS

INC., a Chinese Corporation,

Plaintiff,

CASE NO. 10cv2467 WQH (NLS)

ORDER

vs.

ALERE SAN DIEGO, INC. (formerly

known as BIOSITE INCORPORATED),

a Delaware Corproation,

Defendant.

HAYES, Judge:

The matters before the Court are the Petition (ECF No. 1) and the Motion to Vacate

Arbitration Award filed by Petitioner Chinmax Medical Systems Inc. (ECF No. 10). 

BACKGROUND

On December 1, 2010, Chinmax Medical Systems Inc., a Chinese Corporation, 

(“Chinmax”) initiated this action by filing a Verified Petition to Vacate Arbitration Award.

(ECF No. 1). On that same day, Chinmax filed an Ex Parte Motion for Stay of an Interim Final

Award issued in Arbitration which was denied by this Court. (ECF Nos. 3, 12). On December

6, 2010, Chinmax filed a Motion to Vacate Arbitration Award. (ECF No. 10). On December

27, 2010, Alere San Diego, Inc, a Delaware Corporation, (“Alere”) filed an Opposition. (ECF

Case 3:10-cv-02467-WQH-NLS Document 18 Filed 05/27/11 Page 1 of 8
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No. 14). On January 3, 2011, Chinmax filed a Reply. (ECF No. 16). 

ALLEGATIONS OF PETITION

The principal place of business for Chinmax is Shanghai, China. Chinmax has been

the exclusive distributor of certain medical devices manufactured by Alere and its

predecessors since 2001. Chinmax and Alere operated under a distribution agreement for

five years. 

On April 1, 2007, Chinmax and Alere entered into a second distribution agreement

which is the subject of the current Petition. The second distribution agreement set an initial

one-year term which ran until March 31, 2008. The agreement allowed for an optional

two-year renewal which would run until March 31, 2010, and an automatic renewal which

would run until March 31, 2012, unless a party gave ninety-days notice of non-renewal

prior to expiration of the previous term. Alere renewed the distribution agreement through

March 31, 2010. 

The second distribution agreement provided Chinmax the right to register new

products in China, but in 2008, Alere “dictated” that it would register new products. (ECF

No. 1 at 8). “Chinmax demanded value in return for giving up its contractual right over

registration renewals[,]” and “required” that Chinmax continue to be named as the service

agent. Id.

Chinmax and Alere established sales targets each year. Alere increased the sales

targets in 2008 and 2009. Alere’s representatives stated that Alere would renew the

distribution agreement for the final two-year term if Chinmax met at least ninety-percent of

the 2009 sales target. Chinmax exceeded the 2009 sales target despite Alere making over

$9 million in “illegal sales” during the same time period. Id. at 9. 

On January 5, 2010, Alere informed Chinmax that Alere would not renew the

second distribution agreement. Alere claimed that Chinmax was in material breach of the

second distribution agreement for failing to make payments on delivered products totaling

$2,685,658.50. Chinmax retained the $2,685,658.50 as a set-off for its damages suffered as

a result of Alere’s “illegal sales” during 2009 which Chinmax estimates as totaling more

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than $3,240,000.00. Id. at 10. 

On September 10, 2010, Chinmax provided Alere notice that it intended to arbitrate

the dispute pursuant to the arbitration agreement stated in the second distribution

agreement. The parties arbitration agreement states as follows: 

Any dispute, controversy or claim initiated by either party arising out

of or relating to [the Distribution Agreement], its negotiations,

execution, or interpretation, or in the performance by either party of

obligations under [the Distribution Agreement] ... shall be finally

resolved by binding arbitration in the event that the parties are

unable to resolve it.... Any such arbitration shall be conducted in the

English language under the International Dispute Resolution

Procedures and Arbitration Rules of the American Arbitration

Association (the “Rules”) by a panel of three (3) arbitrators

appointed in accordance with such Rules .... Notwithstanding the

foregoing, either party shall have the right, without waiving any right

or remedy available to such party under this Agreement or otherwise,

to seek and obtain from any court of competent jurisdiction any

interim or provisional relief that is necessary or desirable to protect

the rights or property of such party, pending the selection of the

arbitrators hereunder or pending the arbitrator’s determination of any

dispute, controversy or claim hereunder.

(ECF No. 10-3 at 12). 

On October 13, 2010, Chinmax filed a demand for arbitration with the International

Centre for Dispute Resolution division of the American Arbitration Association (“AAA”). 

On October 15, 2010, Alere filed a request for an emergency interim award pursuant to

Article 37 of the American Arbitration Association International Dispute Resolution

Procedures. On October 20, 2010, Chinmax filed a Motion to Strike, or Alternatively, to

Consolidate the Merits Hearing with the Interim Proceedings. On November 23, 2010, an

emergency arbitrator issued an “Order re [Alere’s] Request for Emergency Interim Award

Pending Arbitration.” (ECF No. 1 at 12 ¶ 40, 23-28). 

The interim order states: 

The parties confirmed their mutual interest in assuring that product

registrations ... for products covered by the Distribution Agreement be

renewed on time and as necessary, and not be allowed to expire....However,

the parties have been unable to agree on a process for assuring that these

product registration renewals are accomplished as required. In light of

these facts ... to ensure timely product registration renewals, without

prejudicing the rights of either party: (I) Chinmax shall promptly deliver

into an escrow to be established by Alere ... the following documents: the

original license of the [Triage BNP]; the original license of the [Triage

Cardiac Panel]; [and YZB/USA]. Chinmax shall also promptly make and

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transmit to Alere copies of all applications for product registrations, or

renewal of product registrations, in its files concerning any products which

are subject to the Distribution Agreement.” 

Id. at 24-25. 

The interim order states: 

All renewal applications may identify [Alere] as the after-sales service

agent....[S]olely for the purpose of assuring that the product

registration/renewals are accomplished without unnecessary disruption or

delay ... (I) Chinmax shall not initiate any communications concerning the

registration, or renewal of registrations, of any product subject to the

Distribution agreement with the SFDA [China’s product registration and

renewal agency] or other Chinese governmental agencies or officials; and

(ii) to the extent that the SFDA or other Chinese agency or officials might

inquire of Chinmax concerning registrations or renewals ... Chinmax may

respond to those inquires after informing Alere of the inquiry, and after

conferring with Alere on the appropriate response.

Id. at 26-27. The interim order states: “Chinmax shall not initiate communications with any

customs officials concerning products subject to the 2007 Distribution Agreement, but may

respond to any inquiries ... in the same manner as with inquiries which Chinmax might

receive from the SFDA....” Id. at 27. 

The interim order states: 

[G]iven the admission by Chinmax that $2.8 million is indeed due and

owing under the distribution agreement (subject only to alleged offsets), in

order to facilitate any consideration by the full panel of conservancy or

other orders regarding payment of this amount, Chinmax shall provide to

Alere the following information within ten (10) days of the date of this

order: a listing of all current bank accounts of Chinmax, including bank

name and contact information, numbers of bank accounts in which any

monies currently exist, and a statement of the balances in said accounts as

of December 1, 2010.

Id. at 27-28. The interim order states: “This Order shall remain in effect pending review of

the full arbitration tribunal, once appointed, and thereafter as the tribunal may order.” Id. at

28. 

In the Petition, Chinmax alleges that the emergency arbitrator did not have

jurisdiction to issue the interim order on the grounds that the parties’ agreement only

allowed arbitration by a three arbitrator panel for final resolution and the parties’ agreement

provided that they would seek interim or provisional orders through a court of competent

jurisdiction. Chinmax alleges that the emergency arbitrator lacked authority to issue the

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interim order under Article 37 of the International Dispute Resolution Procedures on the

grounds that the arbitrator failed to find that there was an emergency, that the obligations of

the interim order alter the status quo between the parties, and that the interim order

manifestly disregards the law. 

EMERGENCY ARBITRATION RULE

 The AAA International Dispute Resolution Procedures Article 37 regarding 

emergency measures of protection states:

Unless the parties agree otherwise, the provisions of this Article 37

shall apply to arbitrations conducted under arbitration clauses or

agreements .... A party in need of emergency relief prior to

constitution of the tribunal shall notify the administrator[,] ... the

administrator shall appoint a single emergency arbitrator from a

special panel of emergency arbitrators designated to rule on

emergency applications .... The emergency arbitrator shall have the

power to order or award any interim or conservatory measure the

emergency arbitrator deems necessary, including injunctive relief

measures for the protection or conservation of property. Any such

measure may take the form of an interim award or of an order....

Once the tribunal has been constituted, the tribunal may reconsider,

modify or vacate the interim award or order of emergency relief

issued by the emergency arbitrator.

(ECF No. 14-3 at 17). 

CONTENTIONS OF THE PARTIES

Chinmax requests that the Court vacate the “Order re [Alere’s] Request for

Emergency Interim Award Pending Arbitration.” Chinmax contends that this Court has

jurisdiction to review the interim order on the grounds that it is a “temporary equitable

award[] involving the preservation of assets relating to the subject matter of the arbitration

....” (ECF No. 16 at 6 (citing Pac. Reins. Mgmt. Corp. v. Ohio Rein. Corp., 935 F.2d 1019,

1023 (9th Cir. 1991)). Chinmax contends that the interim order is a final award, and that

finality is demonstrated by the terms of the interim order which sets a ten-day deadline for

compliance. Chinmax also contends that the interim order should be vacated on the

grounds that the arbitrator exceeded his powers and the arbitrator manifestly disregarded

the law. 

Alere contends that the Court does not have jurisdiction to review the interim order

because it is not a final award. Alere contends that the full panel of arbitrators are

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authorized to reconsider, modify, or vacate the interim order. Alere contends that the Court

should review a non-final award “if at all, only in the most extreme case[].” (ECF No. 14

at 9 (citing Pac. Reins. Mgmt. Corp., 935 F.2d at 1022)). Alere contends that this case does

not present “extreme” circumstances justifying review because it the interim order is

reviewable by the fully constituted panel of arbitrators. Alere also contends that the

arbitrator’s interpretation of his powers is non-reviewable, the arbitrator did not exceed his

powers, and the arbitrator did not manifestly disregard the law. 

DISCUSSION

“The use of arbitration as a means of settling disputes has been accorded specific

Congressional endorsement in the [Federal Arbitration Act] and should be encouraged by

the federal courts.” Aerojet-General Corp. v. Am. Arbitration Ass'n, 478 F.2d 248, 251 (9th

Cir. 1973). “The basic purpose of arbitration is the speedy disposition of disputes without

the expense and delay of extended court proceedings.” Id.

Historically, for an arbitration award to be subject to judicial review, it must be final

and binding as to all of the issues presented to the arbitrator. See Millmen Local 550,

United Broth. of Carpenters and Joiners of Am., AFL-CIO v. Wells Exterior Trim, 828 F.2d

1373, (9th Cir. 1987); New United Motor Mfg., Inc. v. United Auto Workers Local, 617

F.Supp.2d 948, 954 (N.D. Cal. 2008) (citing ConnTech Development Co. v. University of

Connecticut Educ. Properties, Inc., 102 F.3d 677, 686 (2nd Cir. 1996)). “[B]ecause of the

Congressional policy favoring arbitration when agreed to by the parties, judicial review of

non-final arbitration awards ‘should be indulged, if at all, only in the most extreme cases.’” 

Pac. Reins. Mgmt. Corp., 935 F.2d at 1022 (citations omitted) (emphasis in original). 

In Pacific Reinsurance Management Corp., the Ninth Circuit considered as a matter

of first impression “[w]hether temporary equitable relief that is necessary to prevent a

potential final award from being meaningless can be confirmed and enforced in the district

courts.” Pac. Reins. Mgmt. Corp., 935 F.2d at 1022. Prior to deciding the merits of the

arbitration, the arbitration panel issued an ‘interim final order’ which created an escrow

account and ordered the deposit of disputed funds in that escrow account. Id. The Ninth

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Circuit stated that judicial confirmation of the “interim final award” was “not inconsistent

... with the policy favoring arbitration ... [g]iven the potential importance of temporary

equitable awards in making the arbitration proceedings meaningful....” Id. at 1023. The

Ninth Circuit stated that “court enforcement of [final temporary equitable awards], when

appropriate, is not an undue intrusion upon the arbitral process, but is essential to preserve

the integrity of that process.” Id. (quotation omitted). The court held that: “temporary

equitable orders calculated to preserve assets or performance needed to make a potential

final award meaningful ... are final orders that can be reviewed for confirmation and

enforcement by district courts under the [Federal Arbitration Act] .” Id. 

“[C]ourts go beyond a document’s heading and delve into its substance and impact

to determine whether the decision is final.” Publicis Commc’n v. True N. Commc’ns, Inc.,

206 F.3d 725, 729 (7th Cir. 2000); see also Pac. Reins. Mgmt. Corp., 935 F.2d at 1030

(“finality should be judged by substance and effect, not by superficial technicalities.”). 

“Where an arbitrator retains jurisdiction in order to decide a substantive issue the parties

have not yet resolved, this retention of jurisdiction indicates that the arbitrator did not

intend the award to be final.” Orion Pictures Corp. v. Writers Guild of Am., W., Inc., 946

F.2d 722, 724 (9th Cir. 1991) (quotation omitted); Hyosung (America) Inc. v. Tranax Tech.

Inc., Case. No. C 10-0793 VRW, 2010 WL 1853764, at *4 (N.D. Cal. May 6, 2010)

(explaining that when determining whether an arbitration award is final, courts consider

whether the arbitrator intended the award to be final); see also New United Motor Mfg.,

Inc., 617 F. Supp. 2d at 958 (finding that an arbitration award regarding liability only was

final, in part, on the grounds that “[t]here [was] no evidence that either party believed that

either the parties or the Arbitrator would be able to reopen or revisit the liability phase once

[the arbitrator] issued his award.”). 

In this case, prior to the constitution of the full arbitration panel, a single emergency

arbitrator issued a temporary equitable order pursuant to Article 37 of the AAA

International Dispute Resolution Procedures. Although the interim order required Chinmax

to take certain conservatory actions within ten days, the interim order also that the

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temporary equitable order was issued “in order to facilitate any consideration by the full

panel of conservancy ....” and the interim order would “remain in effect pending review of

the full arbitration tribunal, once appointed, and thereafter as the tribunal may order.” Id.

at 27-28 (emphasis added). In addition, Article 37 of the AAA International Dispute

Resolution Procedures provides: “Once the tribunal has been constituted, the tribunal may

reconsider, modify or vacate the interim award or order of emergency relief issued by the

emergency arbitrator.” (ECF No. 14-3 at 17) (emphasis added). When considering the

“substance and impact” of the interim order, this Court concludes that the interim order was

not a final order and is not subject to review by this Court. Publicis Commc’n, 206 F.3d at

729. The rules provide that the full arbitration panel has the authority to “reconsider,

modify or vacate” the interim order; thus, the rules expressly retained jurisdiction over the

issue for further consideration by the full panel. See Orion Pictures Corp., 946 F.2d at 724. 

The arbitrator stated that the interim order was issued to facilitate a conservancy order by

the full arbitration panel; thus, the arbitrator did not intend the interim order to be final. See

Hyosung (America) Inc., 2010 WL 1853764, at *4; New United Motor Mfg., Inc., 617 F.

Supp. 2d at 958. The Court concludes that the evidence does not present an “extreme” case

permitting judicial review of a non-final order because the interim order is expressly

subject to reconsideration, modification, or vacatur by the full tribunal. The Motion to

Vacate Arbitration Award filed by Petitioner Chinmax (ECF No. 10) and the Petition

seeking the same relief (ECF No. 1) are DENIED. 

CONCLUSION

IT IS HEREBY ORDERED that the Petition (ECF No. 1) and the Motion to Vacate

Arbitration Award filed by Petitioner Chinmax Medical Systems Inc. (ECF No. 10) are

DENIED. The Clerk shall close the case. 

DATED: May 27, 2011

WILLIAM Q. HAYES

United States District Judge

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