Cold Springs Ventures, LLC v. Gilead Sci., Inc.

2014 NCBC 58

• Court: North Carolina Business Court
• Decided: November 18, 2014
• Docket: 14-CVS-1873
• Status: Published

Opinion

Cold Springs Ventures, LLC v. Gilead Sci., Inc., 2014 NCBC 58.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION COUNTY OF DURHAM 14 CVS 1873

COLD SPRINGS VENTURES, LLC, a North ) Carolina Limited Liability Company; ) COMMONWEALTH VENTURES, LLC, a ) Virginia Limited Liability Company; ) ENDEAVORS VENTURE, a Florida General ) Partnership; JAMES M. STRATHMEYER; ) BRUCE J. BOEHM and JEANNIE MULLEN, ) Plaintiffs ) ) OPINION AND ORDER ON v. ) MOTION TO DISMISS ) GILEAD SCIENCES, INC.; a California ) Corporation; KRYOSPHERE, INC.; a ) Georgia Corporation; L. ERIC HALLMAN; ) DOUGLAS BAKER; NEIL JONES; MICHAEL ) J. SCHEIRBEEK; JOHN O. NORTON; ) PATRIC NORTON and RYAN NORTON, ) Defendants )

THIS CAUSE, designated a mandatory complex business case by Order of the Chief

Justice of the North Carolina Supreme Court, pursuant to N.C. Gen. Stat. § 7A-45.4(b)

(hereinafter, references to the North Carolina General Statutes will be to "G.S."), and

assigned to the undersigned Special Superior Court Judge for Complex Business Cases,

came before the Court on Defendants Kryosphere, Inc., Michael J. Schierbeek, John O.

Norton, Patrick Norton, and Ryan Norton's Motion to Dismiss the Amended Complaint

("Motion"), pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure

("Rule(s)"); and

THE COURT, after reviewing the Motion, briefs in support of and in opposition to

the Motion, and other appropriate matters of record, FINDS and CONCLUDES that the

Motion should be GRANTED, for the reasons stated herein.

Morningstar Law Group by William J. Brian, Jr., Esq. and Keith P. Anthony, Esq. for Plaintiff Cold Springs Ventures, LLC. Ellis & Winters LLP by Paul K. Sun, Jr., Esq. and Joseph D. Hammond, Esq. for Defendants Kryosphere, Inc., Michael J. Schierbeek, John O. Norton, Patrick Norton, and Ryan Norton.

Womble Carlyle Sandridge & Rice, LLP, by Pressley M. Millen, Esq. and Robert Numbers, Esq. for Defendant Gilead Sciences, Inc.

McGuire, Judge.

PROCEDURAL HISTORY

[1] On or about October 7, 2013, Defendant Gilead Sciences, Inc. ("Gilead")

instituted an arbitration proceeding with the American Arbitration Association, naming as

respondents Plaintiffs Cold Spring Ventures, LLC ("Cold Springs"), Commonwealth

Ventures, LLC, Endeavors Venture, James M. Strathmeyer ("Strathmeyer"), Bruce J.

Boehm ("Boehm"), and Jeannie Mullen.1 Gilead additionally named in the arbitration

proceeding Defendants Kryosphere, Inc., L. Eric Hallman, Douglas Baker, Neil Jones,

Michael J. Schierbeek, John O. Norton, Patrick Norton, and Ryan Norton.

[2] In the arbitration proceeding, Gilead seeks to recover damages for harm

allegedly suffered as a result of a breach of a contract between Gilead and Defendant

Kryosphere, Inc., or some predecessor thereof. Gilead contends that Plaintiffs are liable for

the damages Gilead sustained on a corporate veil piercing, or instrumentality rule, theory.

Gilead further contends that, although Plaintiffs are not signatories to the agreement to

arbitrate this dispute, Plaintiffs may nevertheless be compelled to arbitrate this matter as

a result of their alleged liability under the instrumentality rule.

[3] Plaintiffs initiated this civil action on January 31, 2014, and filed their

Amended Complaint on February 28, 2014. Plaintiffs primarily seek a declaratory

1 Plaintiffs Commonwealth Ventures, LLC, Endeavors Venture, and Jeannie Mullen voluntarily

dismissed all claims they assert in this action with prejudice on June 16, 2014. Now remaining in this action are Plaintiffs Cold Springs Ventures, LLC, James M. Strathmeyer, and Bruce J. Boehm (collectively, "Plaintiffs"). judgment that they cannot be compelled to arbitrate this dispute ("Claim One") and,

alternatively, a declaratory judgment resolving a dispute regarding the arbitrator selection

process ("Claim Two"). Plaintiffs further seek a declaratory judgment disqualifying Womble

Carlyle Sandridge & Rice, LLP, from representing Gilead in this matter ("Claim Three").

Finally, Plaintiffs seek injunctive relief prohibiting the arbitration proceeding from moving

forward with Plaintiffs as parties ("Claim Four").

[4] On April 3, 2014, Defendants Kryosphere, Inc., Michael J. Schierbeek, John

O. Norton, Patrick Norton, and Ryan Norton (collectively, "Moving Defendants") filed the

Motion seeking dismissal of Plaintiffs' Amended Complaint for failure to state a claim for

relief against the Moving Defendants, pursuant to Rule 12(b)(6).

[5] On November 5, 2014, the Court convened a telephonic status conference in

this matter wherein counsel for all parties consented to the Court deciding the Motion

without oral argument, pursuant to Rule 15.4 of the General Rules of Practice and

Procedure for the North Carolina Business Court ("BCR").

[6] The Motion has been fully briefed and is ripe for determination.

FACTUAL BACKGROUND

Among other things, the Amended Complaint alleges the following:

[7] Plaintiffs are former shareholders and/or directors of Old Kryo, Inc. ("NC

Kryo"), a now-dissolved North Carolina corporation. NC Kryo was originally incorporated

under the name Kryosphere, Inc.

[8] NC Kryo entered into a Master Services Agreement with Gilead, whereby NC

Kryo would store and manage biomaterials belonging to Gilead ("Gilead Contract"). The

Gilead Contract contained an arbitration provision providing that Gilead and NC Kryo

would submit all disputes to arbitration before the American Arbitration Association. The Gilead Contract was subsequently assigned to Defendant Kryosphere, Inc., a Georgia

corporation ("GA Kryo").

[9] Gilead initiated an arbitration proceeding pursuant to the Gilead Contract

and named Plaintiffs and the Moving Defendants as respondents. Plaintiffs contend that

they are not required to arbitrate their dispute with Gilead because they are not signatories

to the Gilead Contract and, moreover, no facts or law support Gilead's contention that

Plaintiffs may be held liable for the harm suffered by Gilead under a corporate veil-piercing

or instrumentality theory.

[10] In the Amended Complaint, Plaintiffs allege only that the Moving

Defendants are named "as nominal defendants in this action to the extent that they are

necessary parties by virtue of the fact that they have been named as respondents by Gilead

in the underlying arbitration proceeding that gives rise to this action." Further, Plaintiffs

concede that they "do not seek any relief from the Court as to the [Moving Defendants] at

this time."2

DISCUSSION

[11] When considering a motion to dismiss pursuant to Rule 12(b)(6), the Court

must determine "whether, as a matter of law, the allegations of the complaint . . . are

sufficient to state a claim upon which relief may be granted." Harris v. NCNB Nat'l Bank,

85 N.C. App. 669, 670 (1987). To make this determination, a court is to take the well-

pleaded allegations of the complaint as true and admitted, but conclusions of law or

unwarranted deductions of fact are not admitted. Sutton v. Duke, 277 N.C. 94, 98 (1970).

Consistent with the standard of notice pleading, a court, when considering a motion

2 Am. Compl. ¶ 16. pursuant to Rule 12(b)(6), should afford the complaint a liberal construction. Zenobile v.

McKecuen, 144 N.C. App. 104, 110 (2001).

[12] Under Rule 12(b)(6), a complaint may be properly dismissed if: (a) the

complaint on its face reveals that no law supports plaintiff's claim; (b) the complaint on its

face reveals the absence of facts sufficient to make a good claim; or (c) any fact disclosed in

the complaint necessarily defeats plaintiff's claim. Jackson v. Bumgardner, 318 N.C. 172,

175 (1986).

[13] In the Motion, the Moving Defendants argue that, because Plaintiffs admit in

their Amended Complaint that they do not seek any sort of relief from the Moving

Defendants, the Amended Complaint fails to state a claim upon which relief can be granted

and should be dismissed under Rule 12(b)(6). Moving Defendants further contend that the

Amended Complaint violates Rule 8 insofar as it does not seek any relief as to the Moving

Defendants. Additionally, Moving Defendants contend that they are not necessary parties

to the resolution of whether Plaintiffs can be required to participate in the arbitration

proceeding.

[14] In response, Plaintiffs argue that the requirement that all necessary parties

be joined in a civil action is an independent requirement under the Rules of Civil Procedure

and, because the Moving Defendants are necessary parties, they must be joined regardless

of whether any direct relief is sought against them.

[15] Rule 19 requires that all "who are united in interest must be joined as

plaintiffs or defendants." Any determinative judgment entered in the absence of a party

united in interest, or a necessary party, is null and void. Rice v. Randolph, 96 N.C. App. 112

(1989). A party is a necessary party under Rule 19 when he is "'so vitally interested in the

controversy that a valid judgment cannot be rendered in the action completely and finally determining the controversy without his presence.'" Karner v. Roy White Flowers, Inc., 351

N.C. 433, 438-39 (2000) (quoting Strickland v. Hughes, 273 N.C. 481, 485 (1968)).

[16] A party is not a necessary party simply because a pending action might have

some impact on the party's rights, or otherwise affect the party. Instead, one "whose

interest may be affected by a decree, but whose presence is not essential in order for the

court to adjudicate the rights of others” is a “proper” party, but not a necessary party.

Crosrol Carding Devs., Inc. v. Gunter & Cooke, Inc., 12 N.C. App. 448, 452 (1971). Unlike

necessary parties, a proper party may, but is not required to, be joined. Id. at 451.

[17] In their brief in opposition to the Motion, Plaintiffs contend that the Moving

Defendants' rights and interests will be necessarily affected by the Court's ultimate

resolution of this action in two ways. First, Plaintiffs contend that Moving Defendants'

ability to "litigate their dispute with Gilead" is directly affected by this Court's stay of the

pending arbitration ("Arbitration Stay").3 Second, Plaintiffs contend that their request for

declaratory judgment regarding the arbitrator selection process necessarily affects Moving

Defendants' right to select an arbitrator in the arbitration proceeding. The Court will

address these contentions in turn.

[18] As to the Arbitration Stay, the Court acknowledges that this temporary stay

might have some impact on Moving Defendants as respondents in the arbitration

proceeding. However, the resolution of the Arbitration Stay does not require the presence of

the Moving Defendants. The Court stayed arbitration pending its resolution "on the

jurisdictional issue of whether Plaintiffs may be compelled to be parties to the

[a]rbitration."4 Moving Defendants, who do not appear to argue that they are improperly

named in the arbitration action, are not necessary to determine whether Plaintiffs can be

3 Amended Order on Motion for Preliminary Injunction (Mar. 26, 2014) ("Amended PI Order"). 4 Amended PI Order, p. 19, ¶¶ 3-4. compelled to arbitrate under a veil-piercing theory. Regardless of the Court's determination

of whether Plaintiffs are required to arbitrate, Moving Defendants will proceed to

arbitration with Gilead. While the Court's resolution of the veil-piercing issue will delay the

arbitration, such delay does not make Moving Defendants' interests "of such a nature as to

render it impossible for the [C]ourt to finally adjudicate the question presented."

Williamson v. Bullington, 139 N.C. App. 571, 578 (2000) (citations omitted), aff'd per

curiam, 353 N.C. 363 (2001).

[19] Plaintiffs additionally contend that Moving Defendants are necessary parties

to this action because Plaintiffs have sought declaratory relief concerning the arbitrator

selection process. The Court's declaration regarding that process, Plaintiffs contend, will

affect the rights of the Moving Defendants.

[20] As Moving Defendants note, however, in the event a dispute is subject to

arbitration, "procedural questions which grow out of the dispute and bear on its final

disposition are presumptively not for the judge, but for an arbitrator, to decide." Howsam v.

Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (citations omitted). In Howsam, the

Supreme Court found that determining whether a 6 year time limitation for submitting

claims to arbitration was a procedural question for the arbitrator, not for the court. Id.

[21] Alternatively, as this Court has noted in its Amended PI Order, the question

of arbitrability, or whether a valid agreement to arbitrate exists in the first place, is a

question for this Court.5 Accord Howsam, 537 U.S. at 84. This question is one of limited

scope, focused on whether a valid arbitration agreement exists, whether it applies to a

given dispute, or, as most relevant to the instant action, whether certain non-signatories to

the arbitration agreement may be compelled to arbitrate. See id.

5 Id. pp. 7-8, ¶¶ 10-11. [22] The primary relief sought by Plaintiffs in this action is a declaratory

judgment that they cannot be compelled to arbitrate their dispute with Gilead.6

Alternatively, Plaintiffs request a declaratory judgment regarding the interpretation of the

arbitrator selection process. In the event the Court ultimately holds that Plaintiffs cannot

be compelled to arbitrate, their request that the Court find they are entitled to select their

own arbitrator will be moot. If, on the other hand, the Court finds that Plaintiffs may be

compelled to arbitrate, the contractual interpretation of the arbitrator selection issue

appears to the Court to be precisely the type of procedural question that that lies within the

domain of the arbitration panel. See Dockser v. Schwartzberg, 433 F.3d 421, 426 (4th Cir.

2006) (finding that a question regarding the number of arbitrators involved in an

arbitration proceeding "fits squarely within the Supreme Court's jurisprudence regarding

what constitutes a 'procedural' question"). Because it appears this issue, if ever reached,

would not be an issue for this Court, the Court finds that Moving Defendants are not a

necessary party to this action based on Plaintiffs' arbitrator selection process claim.

[23] Because Moving Defendants are not necessary parties to the resolution of

whether Plaintiffs may be compelled to arbitration, and because the issue of arbitrator

selection, in the event Plaintiffs may be compelled to arbitration, is not properly for this

Court, the Motion should be GRANTED.

THEREFORE, based on the foregoing FINDINGS and CONCLUSIONS, it hereby is

ORDERED that:

[24] The Motion is GRANTED.

[25] Defendants Kryosphere, Inc., Michael J. Schierbeek, John O. Norton, Patrick

Norton, and Ryan Norton are hereby DISMISSED from this action.

6 As noted in the Amended PI Order, the Court finds that this question is a question of arbitrability

that is properly decided by this Court. See Amended PI Order, pp. 8-9, ¶ 10. This the 18th day of November, 2014.