Labarge v. Elutia, Inc.

Opinion

1 2 3 4 5 6 7 8 9 10 UNITED STATES DISTRICT COURT 11 SOUTHERN DISTRICT OF CALIFORNIA 12 13 WILLIAM LABARGE, et al., Case No. 24-cv-1857-MMA-DEB

14 Plaintiffs, ORDER GRANTING MOTION TO 15 v. COMPEL ARBITRATION OF CROSSCLAIMS 16 ELUTIA, INC., et al., 17 Defendants. [Doc. No. 41] 18 19 20 21 22 On March 28, 2025, Defendant Elutia, Inc., f/k/a Aziyo Biologics, Inc. (“Aziyo”) 23 filed a motion to compel arbitration as to Defendant DCI Donor Services Inc.’s, d/b/a 24 Tennessee Donor Services (“DCI”) crossclaims. Doc. No. 41. DCI filed a response in 25 opposition, to which Aziyo replied, and the Court took the matter under submission on 26 April 29, 2025, pursuant to Federal Rule of Civil Procedure 78(b) and Civil Local Rule 27 7.1.d.1. Doc. Nos. 47, 52–53. For the following reasons, the Court GRANTS Aziyo’s 28 motion to compel arbitration. 1 I. BACKGROUND 2 Plaintiffs William and Carol LaBarge (collectively “Plaintiffs”) filed their initial 3 complaint on October 15, 2024. Doc. No. 1. They subsequently amended the complaint 4 with the Court’s leave. Doc. Nos. 93–94. In their amended complaint, Plaintiffs assert 5 claims for negligence against Aziyo, negligence against DCI, and loss of consortium 6 against both. Doc. No. 94 (“FAC”) ¶¶ 63–81. These claims arise from allegations that 7 Plaintiff William LaBarge received a defective spinal implant, manufactured by Aziyo 8 and DCI, that exposed him to tuberculosis and caused illness, injury, emotional distress, 9 and continued pain, among other effects. FAC ¶¶ 4–9, 38–40, 48–62. As to Defendants’ 10 respective roles, Plaintiffs allege that “Aziyo developed, manufactured, marketed, 11 promoted, distributed, supplied[,] and/or sold Vibone[,] which was implanted into 12 Plaintiff William LaBarge . . . .” Id. ¶ 5. “DCI recovered, processed, supplied[,] and/or 13 sold human tissue for . . . Vibone[,] which was implanted into . . . Plaintiff William 14 LaBarge . . . .” Id. ¶ 8. 15 Before Plaintiffs amended their complaint, DCI filed a crossclaim against Aziyo 16 for breach of contract, express indemnity, equitable indemnity, contribution, and 17 declaratory relief. See generally Doc. No. 10 (“Crossclaim”).1 Aziyo now moves to 18 compel DCI to arbitrate its crossclaims based upon a “Cadaveric Tissue Recovery and 19 Services Agreement,” Doc. No. 45 (“Agreement”), between them, which Aziyo asserts 20 includes an enforceable arbitration requirement. Doc. No. 41. Aziyo also argues, as an 21 alternative to its motion to compel arbitration, that the Court should dismiss this claim for 22 lack of subject matter jurisdiction under Rule 12(b)(1).2 Id. Though Defendants briefed 23 this motion before Plaintiffs amended the complaint, both agree the briefing is still 24 25 26 1 DCI did not re-file its crossclaims in response to Plaintiffs’ amended complaint, but as Defendants 27 agree that their briefing on the Crossclaims is responsive post- amendment, Doc. No. 101, the Court infers that DCI stands on its original crossclaims. 28 1 responsive to the issues. Doc. No. 101. The Court will address both subject matter 2 jurisdiction and arbitration in turn. 3 II. AZIYO’S 12(B)(1) ARGUMENT 4 Aziyo argues as an alternative to its motion to compel arbitration that the Court 5 should dismiss the counterclaims for lack of subject matter jurisdiction under Rule 6 12(b)(1). Doc. No. 41 at 14–15. 3 The Court begins its analysis with this argument, as it 7 cannot compel arbitration if it lacks jurisdiction over the claims. 8 A. Legal Standard 9 A party may challenge the court’s subject-matter jurisdiction through a motion 10 filed pursuant to Rule 12(b)(1). See Fed. R. Civ. P. 12(b)(1); White v. Lee, 227 F.3d 11 1214, 1242 (9th Cir. 2000). Because “[f]ederal courts are courts of limited jurisdiction,” 12 “[i]t is to be presumed that a cause lies outside this limited jurisdiction.” Kokkonen v. 13 Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Consequently, “the burden of 14 establishing the contrary rests upon the party asserting jurisdiction.” Id. 15 “Rule 12(b)(1) jurisdictional attacks can be either facial or factual.” White, 227 16 F.2d at 1242. “A ‘facial’ attack accepts the truth of the plaintiff’s allegations but asserts 17 that they ‘are insufficient on their face to invoke federal jurisdiction.’” Leite v. Crane 18 Co., 749 F.3d 1117, 1121 (9th Cir. 2014) (quoting Safe Air for Everyone v. Meyer, 373 19 F.3d 1035, 1039 (9th Cir. 2004)). “The district court resolves a facial attack as it would a 20 motion to dismiss under Rule 12(b)(6): Accepting the plaintiff’s allegations as true and 21 drawing all reasonable inferences in the plaintiff’s favor, the court determines whether 22 the allegations are sufficient as a legal matter to invoke the court’s jurisdiction.” Id. 23 (citing Pride v. Correa, 719 F.3d 1130, 1133 (9th Cir. 2013)). 24 “A ‘factual’ attack, by contrast, contests the truth of the plaintiff’s factual 25 allegations, usually by introducing evidence outside the pleadings.” Id. (citing Safe Air 26 for Everyone, 373 F.3d at 1039; Thornhill Publ’g Co. v. Gen. Tel. & Elec. Corp., 594 27

28 1 F.2d 730, 733 (9th Cir. 1979)). “When the defendant raises a factual attack, the plaintiff 2 must support her jurisdictional allegations with ‘competent proof’” and “prov[e] by a 3 preponderance of the evidence that each of the requirements for subject-matter 4 jurisdiction has been met.” Id. (quoting Hertz Corp. v. Friend, 559 U.S. 77, 96–97 5 (2010), and citing Harris v. Rand, 682 F.3d 846, 851 (9th Cir. 2012)). Generally, “if the 6 existence of jurisdiction turns on disputed factual issues, the district court may resolve 7 those factual disputes itself.” Id. at 1121–22 (citing Safe Air for Everyone, 373 F.3d at 8 1039–40; Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983); Thornhill 9 Publ’g, 594 F.2d at 733). 10 B. Discussion 11 Aziyo argues that the Court lacks subject matter jurisdiction over the counterclaims 12 because they are not yet ripe, and thus presently non-justiciable. Doc. No. 41-1 at 14–15. 13 Specifically, it argues that “[DCI’s] [crossclaim] is patently unripe for review because 14 [DCI] has not submitted to any portion of the alternative dispute resolution process as 15 required by the Agreement.” Id. at 15. “As a result, [DCI] cannot show any concrete 16 injury or imminent harm.” Id. DCI disagrees, arguing in turn that “[t]his Court has 17 subject matter jurisdiction over the issues raised in the crossclaim since . . . there is no 18 mandatory language requiring arbitration and no exclusivity language to render 19 arbitration as the sole dispute resolution or to preclude litigation.” Doc. No. 47 at 7. 20 Aziyo previously sought similar relief based on the argument that “there is no case 21 or controversy between the parties, because Aziyo’s purported duty to indemnify can be 22 triggered only by a finding in favor of Plaintiffs in the underlying litigation.” See Doc. 23 No. 12. The Court denied that motion for procedural reasons without assessing the 24 merits. Doc. No. 33. Because the Court has an independent duty to ensure proper 25 jurisdiction, and because the parties had opportunity to examine the issue previously, it 26 will consider this argument now. See Nevada v. Bank of Am. Corp., 672 F.3d 661, 673 27 (9th Cir. 2012) (“[I]t is well established that ‘a court may raise the question of subject 28 1 matter jurisdiction, sua sponte, at any time during the pendency of the action, even on 2 appeal.’”) (quoting Snell v. Cleveland, Inc., 316 F.3d 822, 826 (9th Cir. 2002)). 3 To exercise jurisdiction over a case, the Court must determine the dispute is ripe 4 for review. Addington v. U.S. Airline Pilots Ass’n, 606 F.3d 1174, 1179 (9th Cir. 2010) 5 The ripeness doctrine rests, in part, on the Article III requirement that federal courts decide only cases and controversies and in part on prudential concerns. 6 The ripeness inquiry is intended to prevent the courts, through avoidance of 7 premature adjudication, from entangling themselves in abstract disagreements. To determine whether a case is ripe, we consider two factors: 8 the fitness of the issues for judicial decision, and the hardship to the parties of 9 withholding court consideration.

11 Addington, 606 F.3d at 1179 (internal quotation marks and citations omitted). 12 Rule 13, however, provides that a “crossclaim may include a claim that the coparty 13 is or may be liable to the crossclaimant for all or part of a claim asserted in the action 14 against the crossclaimant.” Fed. R. Civ. P. 13(g). Where the action’s central claims are 15 ripe, then, a crossclaim “for indemnification or contribution need not be mature at the 16 time of pleading.” Garot v. Cnty. of San Diego, No. 19-CV-01650-H-AGS, 2021 WL 17 51415 *4 (S.D. Cal. Jan. 5, 2021) (collecting cases); see Glens Falls Indem. Co. v. U.S. 18 ex rel. & to Use of Westinghouse Elec. Supply Co., 229 F.2d 370, 373 (9th Cir. 1955) 19 (“Claims under [Rule 13 or 14] must arise out of the transaction or occurrence on which 20 the original action is based and . . . can be asserted even if liability is only contingent or a 21 mere possibility”). Similarly, some courts have taken the approach that “a counterclaim 22 that is contingent only on the outcome of the plaintiff’s claims in the same action is ripe” 23 even where a plainitff’s claims are yet unresolved. Rivas v. Coverall N. Am., Inc., No. 24 SACV181007JGBKKX, 2019 WL 6332245 *3 (C.D. Cal. July 12, 2019); cf. Springs v. 25 First Nat. Bank of Cut Bank, 835 F.2d 1293, 1296 (9th Cir. 1988). 26 Here, DCI alleges that “[Aziyo’s] failure and refusal indemnify, defend, and hold 27 harmless [DCI] in connection with the claims, demands, and losses arising out of 28 Plaintiffs’ underlying [c]omplaint[] constitutes a breach of the very terms of the 1 Agreement.” Crossclaim ¶ 8. Thus, the crossclaim arises from the same transaction or 2 occurrence as the original cause of action—Plaintiffs’ allegedly defective transplant. As 3 DCI’s claims are therefore a proper crossclaim in Plaintiffs’ action, the Court DENIES 4 Aziyo’s motion as to its Rule 12(b)(1). 5 As to the related argument that the arbitration issue is not “ripe” because of 6 language requiring informal resolution or mediation, that issue does not truly involve 7 standing or jurisdiction, but instead rests on whether the parties entered into an arbitration 8 agreement and whether such an agreement requires arbitration at this time. Thus, the 9 Court will address it below. 10 III. AZIYO’S MOTION TO COMPEL ARBITRATION 11 As the Court has jurisdiction, it turns to Aziyo’s motion to compel arbitration. 12 A. Legal Standard 13 The Federal Arbitration Act (“FAA”) permits “[a] party aggrieved by the alleged 14 failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration 15 [to] petition any United States District Court . . . for an order directing that . . . arbitration 16 proceed in the manner provided for in [the arbitration] agreement.” 9 U.S.C. § 4. Upon a 17 showing that a party has failed to comply with a valid arbitration agreement, the district 18 court must issue an order compelling arbitration. Id. The FAA espouses a general policy 19 favoring arbitration agreements. AT & T Mobility v. Concepcion, 563 U.S. 333, 339 20 (2011). Accordingly, federal courts are required to rigorously enforce an agreement to 21 arbitrate. See id. Courts resolve any “ambiguities as to the scope of the arbitration 22 clause. . . in favor of arbitration.” Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford 23 Jr. Univ., 489 U.S. 468, 476–77 (1989). 24 When determining whether to compel a party to arbitrate, the Court may not 25 review the merits of the dispute; rather, the Court’s role under the FAA is limited “to 26 determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether 27 the agreement encompasses the dispute at issue.” Cox v. Ocean View Hotel Corp., 533 28 F.3d 1114, 1119 (9th Cir. 2008) (internal quotation marks and citation omitted). If the 1 Court finds that the answers to those questions are “yes,” it must compel arbitration. See 2 Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). If there is a genuine 3 dispute of material fact as to any of these queries, a court should apply a “standard 4 similar to the summary judgment standard of [Federal Rule of Civil Procedure 56].” 5 Concat LP v. Unilever, PLC, 350 F. Supp. 2d 796, 804 (N.D. Cal. 2004). 6 In assessing a purported arbitration agreement, “the ‘fundamental principle [is] that 7 arbitration is a matter of contract . . . .’” AT&T Mobility, 563 U.S. at 339 (quoting Rent– 8 A–Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010)). Accordingly, courts must 9 apply ordinary state law principles in determining an arbitration agreement’s validity. 10 Ferguson v. Countrywide Credit Indus., 298 F.3d 778, 782 (9th Cir. 2002). Agreements 11 to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at 12 law or in equity for the revocation of any contract . . . .” 9 U.S.C. § 2. As such, 13 arbitration agreements may be invalidated by generally applicable contract defenses, such 14 as fraud, duress, or unconscionability. AT&T Mobility, 563 U.S. at 339–41. 15 B. Discussion 16 Aziyo argues that the Court should compel arbitration because: (1) the Agreement 17 contains an enforceable arbitration clause; and (2) the Agreement encompasses DCI’s 18 crossclaims. See generally Doc. No. 41-1. DCI argues in opposition that: (1) the 19 Agreement does not strictly require arbitration nor prohibit litigation; and (2) the motion 20 to compel is premature because the parties have not engaged in required predicate 21 attempts at resolution. See generally Doc. No. 47. The parties do not dispute the 22 Agreement’s actual language or its validity, but merely the relevant clause’s 23 interpretation. See generally Doc. Nos. 41-1, 47. Likewise, DCI does not appear to 24 contest that, if the Agreement requires arbitration, this action would fall under its 25 purview. See generally Doc. No. 47. 26 As a preliminary matter, Aziyo and DCI agree that Maryland law governs the 27 Agreement, based on the choice-of-law clause within. Doc. No. 41-1 at 9; Doc. No. 47 at 28 4; Agreement at 10. Seeing no reason to find otherwise, the Court will apply Maryland 1 law. See In re Facebook Biometric Info. Priv. Litig., 185 F. Supp. 3d 1155, 1167–68 2 (N.D. Cal. 2016) (discussing choice-of-law provisions and district courts in California); 3 Ferguson, 298 F.3d 778 at 782. 4 “Maryland follows the law of objective contract interpretation.” Sy-Lene of 5 Washington, Inc. v. Starwood Urb. Retail II, LLC, 829 A.2d 540, 546 (Md. Ct. App. 6 2003) (collecting cases); Freedman v. Comcast Corp., 988 A.2d 68, 76 (Md. Ct. Special 7 App. 2010); Ford v. Antwerpen Motorcars Ltd., 117 A.3d 21, 25 (Md. Ct. App. 2015). 8 “A court construing an agreement under this objective test must first determine from the 9 language of the agreement itself what a reasonable person in the position of the parties 10 would have meant at the time it was effectuated.” Freedman, 988 A.2d at 76 (quoting 11 Koons Ford of Balt., Inc. v. Lobach, 919 A.2d 722, 728 (Md. Ct. App. 2007)); see also 12 Sy-Lene of Washington, Inc., 829 A.2d at 546–47. “[W]hen the language of the contract 13 is plain and unambiguous there is no room for construction, and a court must presume 14 that the parties meant what they expressed.” Freedman, 988 A.2d at 76 (quoting Koons 15 Ford of Balt., Inc., 919 A.2d at 728). 16 The relevant language, found in § 7.4 of the Agreement, is as follows: 17 In the event of any dispute, claim, question, or disagreement arising from or relating to this Agreement or the breach thereof, 18 the Parties hereto shall use their best efforts to settle the dispute, 19 claim, question, or disagreement. To this effect, the Parties shall consult and negotiate with each other in good faith and, 20 recognizing their mutual interests and acknowledging the 21 purpose of the Agreement, attempt to reach a just and equitable solution satisfactory to both Parties. If the parties are unable to 22 reach a solution, the Parties agree to submit the dispute to a 23 mediator, selected and agreed upon by both Parties. If such mediation is unsuccessful in the resolution of the dispute, either 24 Party may, upon notice to the other Party, demand that the 25 dispute be resolved by arbitration in accordance with the Rules of the American Arbitration Association. Each Party hereby 26 consents to any such dispute being so resolved, and agrees that 27 any court of competent jurisdiction may enter any judgment 28 1 rendered by the Arbitrator(s) as a final judgment, binding on both Parties. 2

3 Agreement at 10. 4 According to Aziyo, § 7.4 “[b]y its plain language, . . . covers [DCI’s] cross- 5 claims, all of which are rooted in conditional claims that, to the extent Aziyo breached 6 the Agreement, it may be obligated to indemnify [DCI] under the terms of the 7 Agreement” and that “[a]s a result, [DCI’s] crossclaims are subject to the Agreement’s 8 alternative dispute resolution procedure and thus are not properly asserted in this Court.” 9 Doc. No. 41-1 at 13–14. 10 DCI, to the contrary, reads the provision to: 11 merely provide[] options and steps to deal with disputes . . . . The parties choice of verbiage must be considered. The first step uses 12 the word “shall” negotiate in good faith. The second step 13 indicates [they] agree to seek mediation. The third step uses the word “may” seek arbitration. The use of the permissive term 14 “may” indicates the intent to only propose arbitration as an 15 option, not as a requirement, and only after other resolution attempts have failed. Therefore, any decision to forgo arbitration 16 does not prevent [DCI] from pursuing its [crossclaim] . . . . 17

18 Doc. No. 47 at 5. Aziyo rejects this reading. See Doc. No. 52 at 2–5. 19 The language at issue here is not novel. The court in Freedman v. Comcast Corp. 20 examined a nearly identical term, rejecting an argument that “the clause ‘you or Comcast 21 may elect to arbitrate that [d]ispute’ implies that, because ‘Appellant acted first, electing 22 to litigate in court,’ the dispute must be heard in court.” 988 A.2d at 78. Instead, that 23 court found that “the plain and common-sense reading of the clause . . . is that if either 24 party elects to arbitrate the dispute, it must be arbitrated.” Id.; see also McCrea v. Drs. 25 Copeland, Hyman & Shackman, P.A., 945 F. Supp. 879, 881–82 (D. Md. 1996) 26 (assessing similar language and collecting cases). Thus, under Maryland law, this usage 27 of “may” is not permissive, as DCI argues, but instead renders arbitration mandatory 28 1 upon a party’s timely request. Additionally, as Aziyo argues, it appears that at least one 2 other district court has reached this same conclusion in a dispute between DCI and Aziyo 3 over this language. See Wilcox v. Aziyo Biologics, Inc., No. 1:23-CV-619, 2023 WL 4 11717093 *2–3 (E.D. Va. Aug. 30, 2023). As the language here is the same, the Court 5 adopts the same interpretation. 6 DCI’s arguments to the contrary are unconvincing. Its interpretation, that the 7 arbitration clause is permissive and allows for litigation instead of arbitration, requires 8 contorting the clause and rendering it meaningless. Were the Court to interpret the 9 Agreement accordingly, neither party could truly invoke arbitration, they could merely 10 suggest it subject to the other’s agreement. Specifically identifying arbitration as a means 11 of resolution then serves no purpose, as any other resolution would ostensibly be equally 12 available once mediation fails. DCI’s version also renders the notice and consent 13 language of the arbitration clause mere surplusage, despite a plain reading imposing 14 substantive duties and consents. See Agreement at 10 (“[E]ither Party may, upon notice 15 to the other Party, demand that the dispute be resolved by arbitration . . . . Each Party 16 hereby consents to any such dispute being so resolved . . . .”). This is inconsistent with 17 § 7.4’s unambiguous language. In short, the Agreement unambiguously requires 18 arbitration, and DCI’s argument cannot withstand scrutiny. See also Freedman, 988 A.2d 19 at 78 (“We will not discuss every permutation because it suffices to say that the clause 20 gives either party the option to compel arbitration, but . . . neither party the option to 21 compel litigation.”) (emphasis original). 22 DCI also argues that “Aziyo has not engaged in informal negotiations, has never 23 responded to [DCI]’s tender . . , has not requested to mediate,” nor made demands for 24 arbitration. Doc. No. 47 at 6. According to DCI, “a notice to seek arbitration is 25 specifically reserved after exhaustion of informal negotiations and failure of resolution 26

27 4 Courts interpreting similar language according to California law have agreed. See, e.g., Boudreau v. Am. Home Shield Corp., No. 23-CV-681-WQH-BGS, 2024 WL 2786048 *4–5 (S.D. Cal. Feb. 28, 2024) 28 | through mediation” and thus Aziyo may not demand arbitration. Jd. Aztyo argues that 2 || DCI, not itself, has refused to engage and negotiate as the Agreement requires. Doc. No. 3 ||41-1 at 8; Doc. No. 52 at 5—6. Regardless of who failed to satisfy their duties to whom, 4 || “any issues about whether those pre-conditions to arbitration have been satisfied are to be 5 || decided by the arbitrator, not this Court.” Wilcox, 2023 WL 11717093 at *3 (citing John 6 || Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 556-58 (1964)); See also Howsam v. 7 || Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002) (citing same). Thus, the Court 8 GRANTS Aziyo’s motion to compel arbitration. 9 IV. CONCLUSION 10 For the foregoing reasons, the Court determines it has jurisdiction over the case 11 GRANTS 3-4. 18 IT IS SO ORDERED. 19 || Dated: August 25, 2025 Mihi LH — hts: 20 HON. MICHAEL M. ANELLO 21 United States District Judge 22 23 24 25 26 27 28