Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-02139/USCOURTS-azd-2_08-cv-02139-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Declaratory Judgment

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

ZILA BIOTECHNOLOGY, INC., an

Arizona corporation, 

Plaintiff, 

vs.

QUINTILES, INC., a North Carolina

corporation, 

Defendant. 

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No. CV 08-2139-PHX-JAT

ORDER

Pending before this Court is Plaintiff Zila Biotechnology, Inc.’s Motion to Remand

and For Award of Attorneys’ Fees (Doc. # 9), and Defendant Quintiles, Inc.’s Motion to

Dismiss (Doc. # 7). For the reasons that follow, Plaintiff’s Motion to Remand and For

Award of Attorneys’ Fees is denied and Defendant’s Motion to Dismiss is granted.

BACKGROUND

Zila is a pharmaceutical manufacturer. Quintiles is a research organization that

conducts drug studies for companies like Zila. The parties entered into an agreement,

whereby Quintiles conducted a study of a cancer screening drug developed by Zila. Zila

alleges that Quintiles muddled the study, thus causing significant financial injury to Zila.

The parties’ agreement contains agreed-upon provisions pertaining to dispute

resolution. Namely, that both parties are bound to seek a redress of any grievance arising out

of the agreement through arbitration. The agreement also contains a provision, titled

Case 2:08-cv-02139-JAT Document 32 Filed 05/21/09 Page 1 of 6
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“Remedies; Limitation of Liability,” setting forth certain agreed-upon remedies in the event

of a breach by either party, including that neither party “shall have any liability . . . for any

loss of profits, opportunity or goodwill, or any type of special, incidental, indirect or

consequential damage or loss in connection with or arising out of this Agreement or the

Services performed or to be performed hereunder.” Doc. #1, Exhibit B, at ¶ 7. The

agreement further provides that “[t]he arbitrator shall not have the power to award any

punitive damages or any damages excluded by this Agreement.” Id. 

Zila filed suit in the Maricopa County Superior Court, seeking a declaratory judgment

that the future arbitrator is empowered to reform the agreement between the parties by

eliminating the limitation of liability provisions in the parties’ agreement. Zila also sought

a declaration that the future arbitrator is empowered with the ability to reform the agreement

between the parties to the extent the arbitrator believes is warranted under Arizona law.

Quintiles removed to this Court, premising jurisdiction upon 28 U.S.C. §§ 1441, 1446, and

LRCiv. 3.7.

MOTION TO REMAND

Zila argues that this Court lacks subject matter jurisdiction because the amount in

controversy requirement has not been satisfied. In order to support removal based on

diversity jurisdiction, Quintiles has the burden of proving, by a preponderance of the

evidence, that the amount in controversy exceeds $75,000. Sanchez v. Monumental Life Ins.

Co., 102 F.3d 398, 404 (9th Cir. 1996). Zila is not seeking monetary damages in this present

action. Rather, Zila is only seeking a declaratory judgment concerning the enforceability of

the limitation of liability provisions contained in the agreement between the parties. “In

actions seeking declaratory or injunctive relief, it is well established that the amount in

controversy is measured by the value of the object of the litigation.” Hunt v. Wash. State

Apple Adver. Comm'n, 432 U.S. 333, 347 (1977); Cohn v. Petsmart, Inc., 281 F.3d 837, 840

(9th Cir. 2002). See also Vaden v. Discover Bank, __ U.S. __, __, 129 S.Ct. 1262, 1273

(2009) (“The text of [9 U.S.C.] § 4 drives our conclusion that a federal court should

determine its jurisdiction by ‘looking through’ a § 4 petition to the parties’ underlying

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 Zila argues initially in its Motion to Remand and For Award of Attorneys Fees that

the “plaintiff viewpoint” rule is applicable. Then, in its reply memorandum, Zila concedes

that the “either viewpoint” rule should be applied. In any event, whether this Court applies

the “plaintiff viewpoint” or “either viewpoint” rule, the conclusion reached would remain

unaltered.

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substantive controversy. We reiterate § 4's relevant instruction: When one party seeks

arbitration pursuant to a written agreement and the other resists, the proponent of arbitration

may petition for an order compelling arbitration in ‘any United States district court which,

save for [the arbitration] agreement, would have jurisdiction under title 28, in a civil action

or in admiralty of the subject matter of a suit arising out of the controversy between the

parties.’”) (quoting 9 U.S.C. § 4).

Zila concedes that the value of the object of the litigation is measured by the “either

viewpoint” rule.1

 “Under the ‘either viewpoint’ rule, the test for determining the amount in

controversy is the pecuniary result to either party which the judgment would directly

produce.” In re Ford Motor Co./Citibank (South Dakota), N.A., 264 F.3d 952, 958 (9th Cir.

2001). It is clear that in this present action, Zila is solely seeking declaratory relief.

However, Zila alleges that the value of its underlying claims–the claims that would be

arbitrated under the parties’ agreement–exceeds $70 million in lost profits. Because of the

parties’ limitation of liability clause contained in the parties’ agreement, Zila is foreclosed

from obtaining an award of lost profits in arbitration. Thus, absent a declaration that an

arbitrator is empowered to reform the parties’ agreement for the purposes of eliminating the

limitation of liability provisions, Zila cannot pursue its claim for $70 million in lost profits.

Stated another way, if Zila were to prevail in this present action and obtain the declaratory

relief it has requested, then Zila can pursue its claim for lost profits in the arbitration

proceedings. If Zila proves its claim for lost profits before an arbitrator, Zila would be

entitled to an award that was otherwise unavailable. Accordingly, the value of the object of

Zila’s present action is Zila’s ability to pursue its claim for lost profits, which far exceeds the

$75,000 amount in controversy requirement. See Vaden, __ U.S. at __, 129 S.Ct. at 1275

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(“[W]e read [9 U.S.C.] § 4 to convey that a party seeking to compel arbitration may gain a

federal court's assistance only if, ‘save for’ the agreement, the entire, actual ‘controversy

between the parties,’ as they have framed it, could be litigated in federal court.”); Webb v.

Investacorp, Inc., 89 F.3d 252, 257 n.1 (5th Cir.1996) (stating that the amount in controversy

requirement is satisfied because difference to plaintiffs “between winning and losing the

underlying arbitration will be $75,000”).

MOTION TO DISMISS

Quintiles argues that the relief Zila seeks is subject to mandatory arbitration and,

hence, Zila’s claims should be dismissed. The Court agrees.

In their agreement, the parties included a clause pertaining to arbitration for the

purpose of resolving any disputes that are connected with the parties’ agreement. The clause

provides:

Arbitration. Any controversy or claim arising out of or relating to this

Agreement or the breach thereof shall be settled by arbitration administered by

the American Arbitration Association (“AAA”) under its Commercial

Arbitration Rules, and judgment on the award rendered by the arbitrator shall

be binding and may be entered in any court having jurisdiction thereof.

Zila agrees that the underlying dispute between the parties must be arbitrated. However, Zila

asserts that the initial determination concerning the enforceability of the limitation of liability

provisions should be made by this Court, and not an arbitrator. However, the Supreme Court

has made clear that such issues are to be resolved by an arbitrator, and not the courts.

In Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), the Supreme Court

confronted a similar issue to the one presented by the relief Zila requests. In Buckeye, the

plaintiffs filed suit in state court alleging that certain portions of the parties’ agreement were

unenforceable on state law grounds. 546 U.S. at 443. Defendant argued that such issues

should be resolved by an arbitrator, not the court. The Supreme Court agreed. Id. at 449.

In so holding, the Court recognized that there are two types of challenges to the validity of

arbitration agreements: “One type challenges specifically the validity of the agreement to

arbitrate. The other challenges the contract as a whole, either on a ground that directly

affects the entire agreement . . . or on the ground that the illegality of one of the contract's

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provisions renders the whole contract invalid.” Id. at 444. The Court held that the former

challenge is resolved by the courts, whereas the latter challenge is resolved by an arbitrator:

“[w]e reaffirm today that, regardless of whether the challenge is brought in federal or state

court, a challenge to the validity of the contract as a whole, and not specifically to the

arbitration clause, must go to the arbitrator.” Id. at 449.

Given that Zila does not challenge the validity of the parties’ agreement to arbitrate,

and because this action relates to the enforceability of certain provisions in the parties’

agreement, including an arbitrator’s ability to reform the limitation of liability clauses, this

Court finds that the issues raised by Zila in this present action must be resolved in the first

instance by an arbitrator. Id. at 445-46 (“[U]nless the challenge is to the arbitration clause

itself, the issue of the contract's validity is considered by the arbitrator in the first instance.”).

Moreover, the language of the arbitration clause supports this Court’s determination

that the issues raised by Zila must be submitted to an arbitrator. The opening sentence in the

parties’ arbitration clause states that “[a]ny controversy or claim arising out of or relating to

this Agreement or the breach thereof shall be settled by arbitration . . . .” Whether Quintile’s

actions constituted bad faith such that the limitation of liabilities clause is rendered void by

state law is a controversy related to the parties’ agreement. As such, based on the agreed

upon language contained in the parties’ agreement and the direction provided by our

Supreme Court in Buckeye, Zila’s claims in this action are subject to mandatory arbitration.

Accordingly,

IT IS ORDERED denying Plaintiff’s Motion to Remand and For Award of

Attorneys’ Fees (Doc. # 9).

IT IS FURTHER ORDERED granting Defendant Quintiles’ Motion to Dismiss

(Doc. # 7). Quintiles’ request for attorneys’ fees under A.R.S. § 12-341.01(A) is denied.

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IT IS FINALLY ORDERED that the Clerk of the Court shall enter judgment

accordingly and close this case.

DATED this 21st day of May, 2009.

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