United States District Court, D. Arizona
G. Campbell United States District Judge.
Arizona Science and Technology Enterprises
(“AzTE”) moves to compel compliance with the
alternative dispute resolution (“ADR”) provisions
set forth in its License Agreement with Plaintiff Altela,
Inc. Doc. 22. Defendant Arizona State University Foundation
for a New American University (“Foundation”),
which is not a party to the License Agreement, files a
separate motion to compel ADR with respect to the claims
against it. Doc. 23. The motions have been fully briefed
(Docs. 26, 27, 28, 30), and the Court concludes that oral
argument will not aid in its decision. The Court will
grant the motions in part and deny them in part.
allegations in the complaint are taken as true, unless
contradicted by an evidentiary submission. In the 1990s,
Professor James Beckman of Arizona State University
(“ASU”) developed a water purification process
that uses air to evaporate dirty water, forming pure
condensate. Doc. 1, ¶ 8. Professor Beckman invented a
device known as a “dewvaporation tower” to
facilitate this process. ¶ 9. The Arizona Board of
Regents obtained a patent for this technology, and together
with the Foundation, it later founded AzTE to manage all of
ASU's intellectual property. ¶¶ 10, 14. Thus,
AzTE is the entity currently charged with managing the
a complicated series of transactions that are not relevant
here, Altela was assigned the right to develop, use, and sell
the dewvaporation technology in 2006, pursuant to a License
Agreement (“Agreement”) with AzTE. ¶¶
12, 15-20. In exchange, Altela promised to pay royalties to
AzTE on the sale of any “Licensed Product” -
“any product or part thereof which incorporates or has
been developed or made using” the dewvaporation
technology, and “any services offered in connection
with or related to the use of” such a product. ¶
provision proved insufficiently precise to avert controversy.
Beginning in 2007, the parties began to have disputes over
the meaning of “Licensed Product.” ¶ 27.
This, in turn, led to disputes over how much Altela owed AzTE
in royalties. Between 2007 and 2015, the parties exchanged
proposals and counterproposals for revising the definition.
¶ 28. In November 2010, AzTE threatened to terminate the
Agreement based on its allegation that Altela had not paid
royalties. ¶ 30. Altela made a payment under protest to
avoid termination. Id.
2013, AzTE performed an audit of Altela. ¶ 31. Based on
the results of this audit, AzTE claimed that Altela had
improperly withheld royalties. ¶ 32. AzTE demanded that
Altela pay the amount in dispute and the cost of the audit.
Id. Altela disputed AzTE's interpretation of the
audit results, and refused to pay either sum. Id.
March 26, 2014, AzTE sent a letter to Altela, alleging that
Altela had materially breached the Agreement by failing to
pay certain royalties due in 2011, failing to pay for the
audit, and failing to provide certain annual reports. Doc.
26-1 at 2. AzTE indicated that it intended to terminate the
Agreement and pursue all available legal remedies if Altela
did not cure these breaches within the time period specified
by the Agreement. Id. Altela responded by invoking
the Agreement's ADR Addendum. Id. at 5. AzTE
agreed to submit the dispute to ADR, and attended a
negotiation session, as required by the ADR Addendum. Doc. 1,
late 2014 and early 2015, the parties continued to negotiate,
ultimately producing a draft second amendment to the
Agreement. ¶ 38; see Doc. 26-1 at 10-11. On May
19, 2015, AzTE informed Altela that it needed to provide
certain information, and pay “the amount that it
concedes is owed” pursuant to the audit report, before
the second amendment could be finalized. Doc. 26-1 at 13. The
letter stated that AzTE would “continue to separately
address through our discussions or, if necessary, a dispute
resolution procedure, the additional payments and interests
that AzTE is owed for 2011 and subsequent years.”
29, 2015, AzTE informed Altela that it was in material breach
of the Agreement, based on its failure to pay certain
royalties due in 2011, its failure to pay for the audit, and
its failure to provide certain requested information. Doc.
26-1 at 16. AzTE indicated that it would terminate the
agreement within 30 days if Altela failed to cure these
breaches. Id. at 17. In addition, AzTE requested an
in-person meeting “to begin the process for initiating
an arbitration for recovery of all amounts due to
AzTE.” Id. Altela responded by denying any
material breach, but indicating its willingness to proceed
via ADR. Doc. 1-3 at 2. It requested that the parties proceed
directly to mediation. Id. AzTE presents no evidence
that it responded to this request. On July 30, AzTE
terminated the Agreement. Doc. 26-1 at 27.
October 12, 2015, Altela proposed that the parties resume the
ADR process and skip directly to arbitration. Doc. 29-1 at 2.
It requested that AzTE reinstate the Agreement pending the
outcome of arbitration. Id. On October 16, AzTE
responded that it was open to expedited arbitration, and
proposed a schedule for the proceedings. Doc. 26-1 at 21. It
indicated that while it was not willing to reinstate the
Agreement pending arbitration, it would agree not to grant
the rights to the dewvaporation technology to any third party
until after the arbitration. Id. On October 29, AzTE
reiterated its position, and requested that the parties move
forward with the selection of an arbitrator. Doc. 29-2 at 2.
Altela produces no evidence that it ever responded to this
request; AzTE produces emails and letters that suggest no
response was received. See Docs. 29-4 at 3 (counsel
for AzTE, informing Altela that she never received response
to her October 29 letter, her November 13 email, or her
November 19 voicemail); 29-5 at 2 (same); see also
29-3 at 2 (internal AzTE email, dated November 13, 2015,
noting that AzTE has not received any response).
AzTE received no response to its October 16, 2015 letter, it
made two additional offers to proceed with arbitration. On
November 30, AzTE stated: “If after our recent
correspondence Altela believes that there remain open
questions about the Agreement or its termination . . . it is
imperative that Altela immediately proceed to the next step
of the Dispute Resolution Procedure to avoid prejudice to
AzTE from delay in addressing them. AzTE stands ready to
arbitrate now.” Doc. 29-4 at 3. Altela responded by
stating only that it was “evaluating its legal and
financial options.” Doc. 26-1 at 24-25. On December 15,
2015, AzTE stated: “If Altela wishes to arbitrate any
issues under the Agreement, please let us know by December
31, 2015 and we will immediately move forward with the
process.” Doc. 29-5 at 4. Altela submits no evidence
that it responded to this letter. It filed this action on
June 6, 2016, asserting four claims against AzTE for breach
of contract, as well as claims for tortious interference with
business relations and unjust enrichment. Doc. 1. It also
asserted a claim against the Foundation for aiding and
abetting. ¶¶ 104-08.
Relevant Contractual Provisions.
The ADR Procedure.
28.11 of the Agreement provides that “any disputes
under or relating to this Agreement . . . shall be . . .
resolved pursuant to the dispute resolution procedure set
forth in [the ADR Addendum].” Doc. 22-1 at 26. The ADR
Addendum provides a procedure for the parties to resolve
“any dispute between them arising out of or relating to
this Agreement.” Id. at 28. First,
representatives of each party are required to meet “to
attempt in good faith to negotiate a resolution of the
dispute.” Id. If the parties are unable to
negotiate a written resolution to the dispute within 30 days,
either party may request the appointment of a neutral
mediator. Id. “The parties agree to
participate in good faith in the Mediation to its
conclusion.” Id. If the parties have not
resolved the dispute within 120 days, either party may move
to terminate the mediation. Id. at 28-29. Following
such a motion, the mediator shall recommend a resolution;
each party is required to consider this recommendation in
good faith. Id. at 29.
either party rejects the mediator's recommendation, the
dispute will be submitted to binding arbitration.
Id. The arbitration tribunal will consist of three
arbitrators, one chosen by each party, and the third jointly
appointed by the party-selected arbitrators. Id.
“The award of the arbitration tribunal shall be final
and judgment upon such an award may be entered in any
competent court.” Id.
The Termination Procedure.
16.1 provides that failure of either party to comply with a
material obligation imposed by the Agreement shall entitle
the other party to give written notice requiring the
defaulting party to cure the default. Doc. 22-1 at 20. If the
default concerns a payment obligation, the defaulting party
has 30 days to cure the breach; if the default concerns
something else, the defaulting party has 90 days to cure.
Id. If the defaulting party fails to cure within the
specified time, the other party is entitled to terminate the
Agreement. Id. Such termination shall be
“without prejudice to any . . . other rights conferred
. . . by this Agreement.” Id.
17.1 states specifically that termination of the agreement
“for any reason” shall be without prejudice to
“the rights and obligations provided for in . . .
Article 28.” Id. at 21. Article 28 provides,
inter alia, that the parties shall resolve
“any disputes ...