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Kawasaki Heavy Industries, Ltd. A/K/A Kawasaki Jukogyo v. Bombardier Recreational Products

May 5, 2011

KAWASAKI HEAVY INDUSTRIES, LTD. A/K/A KAWASAKI JUKOGYO KABUSHIKI KAISHA AND KAWASAKI MOTORS MANUFACTURING CORP., U.S.A., PLAINTIFFS,
v.
BOMBARDIER RECREATIONAL PRODUCTS, INC., BRP U.S., INC., BANK OF MONTREAL (IN THE CAPACITY AS ADMINISTRATIVE AGENT), HARRY MARCUS, AND ROBERT GOETHALS DEFENDANTS.



The opinion of the court was delivered by: Herndon, District Judge:

MEMORANDUM and ORDER

I. Introduction

Presently before the Court is defendants Bombardier Recreational Products, Inc. ("BRP") and BRP U.S., Inc.'s ("BRP U.S.") (collectively referred to as "defendants" or "the BRP parties") motion to dismiss, or in the alternative, to stay plaintiffs' action pending arbitration and supporting memorandum (Doc. 28). Plaintiffs Kawasaki Heavy Industries, Ltd.'s ("KHI") and Kawasaki Motors Manufacturing Corp., U.S.A. ("KMM") (collectively referred to as "plaintiffs" or "Kawasaki") filed an opposition to defendants' motion to dismiss, or in the alternative, to stay plaintiffs' action pending arbitration (Doc. 48). For the reasons stated below, the Court denies defendants' motions to dismiss, or in the alternative, to stay plaintiffs' action pending arbitration.

II. Background

A. The BRP/Kawasaki Litigation

This dispute arises out of several cases filed between February 2006 and April 2007 between Kawasaki and the BRP Parties involving numerous allegations of patent infringement (Doc. 2, ¶ 1). The relevant cases are: Bombardier Recreational Products, Inc. and BRP-US, Inc. v. Kawasaki Heavy Industries, Ltd. et al., Case No. 06-cv-JA-JGG, filed in the Middle District of Florida (the "Florida Litigation"); Kawasaki Heavy Industries, Ltd. v. Bombardier Recreational Products, Inc. and BRP-US, Inc., Case No. 06-cv-222-DF, filed in the Eastern District of Texas (the "Texarkana Litigation"); and Bombardier Recreational Products, Inc. and BRP-US, Inc. v. Kawasaki Heavy Industries, Ltd. et al., Case No. 07-cv-156-LED, also filed in theEastern District of Texas (Id. at ¶¶ 12, 14-15). In relation to the Florida Litigation, Kawasaki also requested reexamination of three BRP patents from the United States Patent and Trademark Office, concerning Patent Nos. 6,336,833 (Control No. 90/008222), 6,405,669 (Control No. 95/000179), and 6,428,371 (Control No. 95/000163) (Id. at ¶ 13).

B. The BRP/Kawasaki Settlement Agreement

In September 2007, Kawasaki and the BRP parties reached an agreement in principle to settle the disputes alleged in the various lawsuits (Id. at ¶ 16). This settlement agreement contained an alternative dispute resolution provision in which the parties mutually agreed to arbitrate "any claim, dispute or controversy between the parties arising out of or relating to [the] Settlement Agreement." (Doc. 28, Ex. A, pp. 15-16.).*fn1 Additionally, pursuant to the settlement agreement, the BRP parties were to obtain an agreement from the Bank of Montreal ("Bank of Montreal" or "the Bank") to subordinate certain security interests the Bank possessed in the BRP parties' patent portfolio on behalf of several secured lenders to the BRP parties (Doc. 2, ¶¶ 17-18). This subordination agreement would prevent the Bank in the event of a foreclosure from taking the patents free of a covenant not to sue which the BRP parties had granted Kawasaki (Doc. 48, p. 2).

Prior to executing the settlement agreement, Kawasaki requested confirmation from the BRP parties that the Bank was willing to subordinate its security interest (Doc. 2, ¶ 18). In response to this request, counsel for the BRP parties, defendants Robert Goethals and Harry Marcus, sent an email stating that "BRP has just received word that the Bank of Montreal will agree to subordinate the security interests." (Id. at ¶ 19). In reliance on this representation, Kawasaki and the BRP parties finalized the settlement agreement, which became effective on March 31, 2008 (Id. at ¶ 20; see also Doc. 28, Ex. A, pp. 13, 18). Pursuant to the settlement agreement, the parties timely dismissed their respective patent lawsuits (Doc. 2, ¶ 22). Shortly thereafter, counsel to the BRP parties informed Kawasaki "that it is taking longer than expected to work with the Bank to prepare and execute the subordination documents" and that "it will take an additional 15 days beyond the 10 day period provided in the settlement agreement." (Id. at ¶ 23). Kawasaki expressed concern that the BRP parties would not fulfill their obligations under the settlement agreement, to which counsel for the BRP Parties replied: "[t]he unexpected delay we are encountering with the subordination agreement results from having to work with the bank's attorneys. We discussed the need for the subordination agreement with the bank before finalizing the settlement agreement and we don't expect any problems with obtaining the subordination agreement. However, we cannot dictate the timeframe for finalizing it since we are dealing with another party." (Id. at ¶ 24). Shortly after this statement, Kawasaki fully performed its obligations under the settlement agreement (Id.).

On May 14, 2008, the BRP parties informed Kawasaki that they were not going to provide the required subordination agreement from the Bank (Id. at ¶ 25). In response, Kawasaki sought to vacate the stipulated dismissal of the Texarkana Litigation on April 1, 2009 (Case No. 5:06-cv-222, Doc. 28, Ex. C). Both parties participated in briefing before the United States District Court for the Eastern District of Texas (Doc. 48, pp. 5-6), which ultimately denied Kawasaki's motion (Doc. 28, Ex. D); this decision was upheld on appeal.

Kawasaki subsequently filed suit in this Court on August 23, 2010, against the BRP parties, as well as the Bank, Goethals, and Marcus (these three parties being hereafter collectively referred to as the "non-signatory parties" or "nonsignatories"), requesting specific performance of the BRP parties' obligations under the settlement agreement, or in the alternative, asserting against varying defendants claims for breach of contract, fraud, fraud in the inducement, negligent misrepresentation, negligence, breach of a third party beneficiary contract, and tortious interference, and seeking damages accordingly (See generally Doc. 2).*fn2 Against the BRP parties specifically, Kawasaki alleged breach of the settlement agreement, fraud, fraud in the inducement, negligent misrepresentation, and negligence (Id.).

In response, the BRP parties filed the motion presently before the Court.

III. Discussion

The defendants contend that this Court should dismiss Kawasaki's claims or, in the alternative, to stay those claims pending arbitration pursuant to the Federal Arbitration Act ("FAA"). Specifically, the BRP parties argue that plaintiffs' claims arise out of and relate to the settlement agreement between plaintiffs and themselves, thus, these claims are subject to the arbitration clause contained in the settlement agreement. In response, Kawasaki argues that (i) the BRP parties have waived any claim to arbitration they may have; (ii) the Bank and other non-signatory parties do not have the right to participate in the arbitration; and ...


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