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Depuy Synthes Sales, Inc. v. Orthola, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

September 11, 2019



          Hon. Jane Magnus-Stinson, Chief Judge United States District Court

         This matter involves the Federal Arbitration Act, (“FAA”), by which Congress has “mandated the enforcement of arbitration agreements.” Southland Corp. v. Keating, 465 U.S. 1, 10 (1984). The existence of arbitration agreements in the contracts at issue in this case affect the Court's analysis at every turn, taking arguments concerning personal and subject-matter jurisdiction beyond the well-established jurisdictional principles at issue in cases where the FAA is not a factor, and altering the Court's analysis under the familiar factors derived from Colorado River Water Cons. Dist. v. U.S., 424 U.S. 800 (1976) in a host of ways.

         In March 2019, nearly five months after a related case had been filed in California state court, Plaintiff DePuy Synthes Sales, Inc. (“DePuy”) filed two petitions in this Court to compel arbitration against Defendants OrthoLA, Inc. (“OrthoLA”) and Bruce A. Cavarno (collectively, “Defendants”) and to enjoin them from proceeding with their California state court action under the Anti-Injunction Act. [Filing No. 1; Filing No. 53.] On July 12, 2019, this Court consolidated the two related cases under this cause number after finding that the two cases involve common questions of law and fact. [Filing No. 52.] Prior to consolidation, Defendants had filed three sets of nearly identical Motions in the two cases, each of which is presently pending before the Court, including: two Motions to Dismiss pursuant to the Colorado River Abstention Doctrine, and Sections 12(b)(1) and 12(b)(2) of the Federal Rules of Civil Procedure, [Filing No. 29; Filing No. 54]; two Motions for Judicial Notice, [Filing No. 45; Filing No. 60]; and two Motions to Strike portions of a reply brief, [Filing No. 46; Filing No. 61]. All of the pending Motions are fully briefed and are ready for the Court's review.

         The Court will first consider the Motions for Judicial Notice. Next, the Court will take up the Motions to Dismiss. Lastly, the Court will consider the Motions to Strike.


         Motions for Judicial Notice

         In their unopposed Motions for Judicial Notice, Defendants request that the Court take judicial notice of two categories of documents: (1) “the court docket reflecting the actions in Los Angeles Superior Court, Case No. 18STCV02833, ” [Filing No. 45 at 2; Filing No. 60 at 2], and (2) documents related to the two separate cases that were then pending before this Court, and have since been consolidated, [Filing No. 45 at 2-3 (originally filed under this cause number, arguing in favor of judicial notice for documents filed under 1:19-cv-1069-JMS-DLP); Filing No. 60 at 2-3 (originally filed under cause number 1:19-cv-1069-JMS-DLP, arguing in favor of judicial notice of documents filed under this cause number)].

         As to the first category, Federal Rule of Evidence Rule 201(b) provides that a court may take judicial notice of a fact that is “not subject to reasonable dispute” because it: “(1) is generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” It is well settled that orders entered by a state court “are public records and appropriate subjects of judicial notice.” In the Matter of Lisse, 905 F.3d 495, 496 (7th Cir. 2018) (citing Menominee Indian Tribe v. Thompson, 161 F.3d 449, 456 (7th Cir. 1998); Fed.R.Evid. 901(b)(7)). Therefore, Defendants' Motions, [Filing No. 45; Filing No. 60], are GRANTED as they relate to the court docket in Los Angeles Superior Court, Case No. 18STCV02833.

         As to the second group of documents, Defendants seek judicial notice of documents that have - for the most part - already been transferred onto the docket for this cause number. To the extent such documents have already been transferred, Defendants' Motions are DENIED as MOOT. To the extent Defendants' request notice of documents in Filing No. 45 that have not been transferred to this docket, Defendants' Motions are GRANTED.


         Motions to Dismiss

         In support of their Motions to Dismiss, Defendants raise both jurisdictional and substantive arguments. But “[d]eciding any part of the merits [of a case] . . . is possible only if there is jurisdiction.” Smith v. Greystone All., LLC, 772 F.3d 448, 450 (7th Cir. 2014). Therefore, the Court must consider Defendants' jurisdictional arguments before turning to any others. Defendants bring their jurisdictional arguments pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(2).

         Under both subsets of Rule 12, courts look beyond the complaint's allegations and view whatever evidence has been submitted on the issue to determine whether subject matter jurisdiction and personal jurisdiction exist. See Ciarpaglini v. Norwood, 817 F.3d 541, 543 (7th Cir. 2016) (discussing subject matter jurisdiction); Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003) (discussing personal jurisdiction). As such, the Court will first set forth the relevant background of the case consistent with the standards set forth below for Federal Rule of Civil Procedure 12(b)(1) and 12(b)(2). Next the Court will consider Defendants' jurisdictional arguments, first those relating to subject matter jurisdiction, then those related to personal jurisdiction.[1] Lastly, the Court will consider Defendants' arguments concerning the Colorado River Abstention Doctrine.

         A. Background

         1. Agreements between Mr. Cavarno, OthroLA, and DePuy

         DePuy manufactures, markets, and sells medical implants and instruments, including joint reconstruction products. [Filing No. 1 at 2.] DePuy's joint reconstruction product line is sold, marketed, and distributed through exclusive distributors who are assigned to specific sales territories in certain geographic areas. [Filing No. 1 at 2.]

         In 2008, DePuy entered into a Sales Representative Agreement (“Sales Agreement”) with Defendants OrthoLA and Bruce Cavaro, which provided that Defendants would be DePuy's exclusive sales distributors for certain joint reconstruction products in and around Los Angeles, California. [Filing No. 1 at 3.] The Sales Agreement was renewed several times after the original 2008 Sales Agreement. [Filing No. 1 at 4.]

         Most recently, on November 30, 2015, DePuy, OrthoLA, and Mr. Cavarno signed a Sales Agreement appointing OrthoLA as DePuy's “exclusive sales representative” in a territory consisting of several counties in southern California for the “solicitation of orders for Products from hospitals, medical centers, trauma centers, outpatient facilities and orthopaedic (sic) surgeons.” [Filing No. 30-2 at 1; Filing No. 30-2 at 22.]

         The Sales Agreement contains a clause (the “Arbitration Clause”) that provides as follows:

14.1 Any controversy or claim arising out of or relating to this Agreement shall be resolved by arbitration before a single arbitrator in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA ") then pertaining (available at, except where those rules conflict with this provision, in which case this provision controls. Any court with jurisdiction shall enforce this clause and enter
judgment on any award. The arbitrator shall be selected within twenty business days from commencement of the arbitration from the AAA's National Roster of Arbitrators pursuant to agreement or through selection procedures administered by the AAA, Within 45 days of initiation of arbitration, the parties shall reach agreement upon and thereafter follow procedures, including limits on discovery, assuring that the arbitration will be concluded and the award rendered within no more than eight months from selection of the arbitrator or, failing agreement, procedures meeting such time limits will be designed by the AAA and adhered to by the parties. The arbitration shall be held in Indianapolis, Indiana and the arbitrator shall apply the substantive law of Indiana, except that the interpretation and enforcement of this arbitration provision shall be governed by the Federal Arbitration Act. Prior to appointment of the arbitrator or thereafter if he/she is unavailable, emergency relief is available from any court to avoid irreparable harm. THE ARBITRATOR SHALL NOT AWARD EITHER PARTY PUNITIVE, EXEMPLARY, MULTIPLIED OR CONSEQUENTIAL DAMAGES, OR ATTORNEYS FEES OR COSTS,

[Filing No. 30-2 at 18-19.]

         DePuy, OrthoLA and Mr. Cavarno also entered into a Continuing Incoming Agreement (the “Income Agreement”) with an effective date of November 30, 2015, that provided the terms by which DePuy would pay OrthoLA income for ten years following the termination or expiration of the Sales Agreement. [Filing No. 30-3 at 1.] The Income Agreement provided that DePuy would have no obligation to pay any continuing income if it terminated the Sales Agreement pursuant to specific terms of the Sales Agreement. [Filing No. 30-3 at 3.] The Income Agreement contained an Arbitration Clause identical to the one contained in the Sales Agreement. [Filing No. 30-3 at 4-5.]

         The parties attempted to renegotiate the Sales Agreement in late 2017 but were unsuccessful and the Sales Agreement lapsed on January 7, 2018.[2] [Filing No. 1 at 5.] The next day, all of OrthoLA's sales representatives left OrthoLA and began working for DePuy's distributor, Golden State Orthopedics (“GSO”). [Filing No. 30-5 at 12.]

         Notwithstanding the existence of the Income Agreement, DePuy did not make any continuing income payments to Mr. Cavarno or OrthoLA because DePuy concluded that they had engaged in competitive activities and/or solicitation activities and had voluntarily forfeited their rights to receive continuing income. [Filing No. 1 at 6.]

         2. The California Suit

         On October 25, 2018, OrthoLA and Mr. Cavarno filed suit in the Los Angeles Superior Court (the “California Suit”) against GSO, Bradford Lapoint, Kevin Fryxell, DePuy, and Does 1-50. [Filing No. 30-5 at 1.] In their complaint in the California Suit, OrthoLA and Mr. Cavarno brought seven causes of action, including:

• a claim against GSO, Mr. LaPoint, and Mr. Fryxell (the “GSO Defendants”) for intentional interference with contractual relations, [Filing No. 30-5 at 13];
• a claim against the GSO Defendants for intentional interference with prospective economic advantages, [Filing No. 30-5 at 14];
• a claim against the GSO Defendants for negligent interference with prospective economic advantages, [Filing No. 30-5 at 14-15];
• a claim against the GSO Defendants for unfair competition, [Filing No. 30-5 at 15];
• a claim against DePuy for breach of the Income Agreement, [Filing No. 30-5 at 16];
• a claim against DePuy for breach of implied covenant of good faith and fair dealing, [Filing No. 30-5 at 17]; and
• a claim against DePuy seeking declaratory relief that the Sales Agreement and the Income Agreement violate California law, [Filing No. 30-5 at 18].

         On December 5, 2018, DePuy filed a motion in the California suit seeking an order compelling OrthoLA and Mr. Cavarno to arbitrate their claims against DePuy and staying the California Suit. [Filing No. 30-6 at 8.] On February 14, 2019, the Los Angeles County Superior Court denied DePuy's Motion, finding the following:

• that California law applies, [Filing No. 30-6 at 8-12];
• the Agreements' choice of law provisions and forum selection provisions are unconscionable because “applying Indiana law to the contractual dispute between the parties would be unduly oppressive or unconscionable and would result in substantial injustice” to OrthoLA and Mr. Cavarno, [Filing No. 30-6 at 25-26]; and
• although “there is no dispute that the parties entered two agreements that contain arbitration provisions, ” [Filing No. 30-6 at 13], procedural unconscionability is not completely absent, [Filing No. 30-6 at 21], and both agreements are “substantively unconscionable” due, in part, to the fact that DePuy, but not OrthoLA or Mr. Cavarno, could file a lawsuit to enforce potentially any of the provisions of the Income Agreement and two provisions of the Sales Agreement, [Filing No. 30-6 at 24-25].

         On March 15, 2019, DePuy appealed the Los Angeles County Superior Court Order Denying Motion to Compel for Order Compelling Arbitration and Staying Action Pending Arbitration. [Filing No. 30-8.] That appeal remains pending.

         3. DePuy Files a Demand for Arbitration in Indianapolis, Indiana and Files Two Suits Seeking to Compel Arbitration in the U.S. District Court for the Southern District of Indiana

         The same day it filed an appeal in the California suit, DePuy filed a demand for arbitration with the American Arbitration Association in Indianapolis, Indiana listing Mr. Cavarno and OrthoLA as respondents. [Filing No. 30-9 at 4.] In its demand for arbitration, DePuy: (1) sought “a declaration that the actions taken by both DePuy . . . and the GSO Parties, as [DePuy's] designee, ” in connection with the termination of the Sales Agreement and the “transition of business” from Mr. Cavarno and OrthoLA to the GSO Parties, including the GSO Parties' engagement with Mr. Cavarno and OrthoLA's sales representatives, “were consistent with the express provisions” of the Sales Agreement; and (2) brought “a breach of contract claim to recover the damages that it has sustained, and will continue to sustain, ” as a result of Mr. Cavarno and OrthoLA's “conduct in improperly asserting and maintaining their lawsuit in California.” [Filing No. 30-9 at 6.]

         On March 18, 2019, DePuy filed a Petition to Compel Arbitration against OrthoLA, Inc. and Bruce A. Cavarno and to enjoin them from proceeding with their California state court action under the Anti-Injunction Act. [Filing No. 1.] DePuy's petition referenced the Income Agreement. [Filing No. 1 at 1.] The same day, under cause number 1:19-cv-1069, DePuy filed a Petition to Compel Arbitration against the same Defendants and to enjoin them from proceeding with their California state court action under the Anti-Injunction Act pursuant to the Sales Agreement. [Filing No. 53.]

         On July 12, 2019, this Court found that that consolidation was appropriate under Rule 42(a) and consolidated DePuy's two cases before this Court into the instant case, in which the two Motions ...

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