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Vemics, Inc. v. Radvision

May 16, 2007

VEMICS, INC., PLAINTIFF,
v.
RADVISION, LTD., DEFENDANT.
RADVISION, LTD., THIRD-PARTY PLAINTIFF,
v.
IRON MOUNTAIN INTELLECTUAL PROPERTY MANAGEMENT, INC., THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Brieant, J.

Memorandum and Order

Before the Court in this diversity case for breach of contract is a motion by Third Party Defendant Iron Mountain Intellectual Property Management ("Iron Mountain"), heard and fully submitted for decision on May 11, 2007, to dismiss the Third-Party Complaint in favor of Arbitration (Doc. No. 18). Plaintiffs sue for tortious interference with contract and seek declaratory judgment, an accounting, and a permanent injunction. Plaintiff Vemics and Defendant Radvision oppose third party Defendant's motion, and Radvision has Counter-Claimed against Vemics.

The following facts are not disputed, or presumed true for purposes of this motion only.

In December 2004, Vemics and First Virtual Communications ("FVC") entered into a non-exclusive License entitled "Non-Exclusive Service Provider Agreement," by which Vemics purchased a license to use FVC's "Click to Meet" conferencing software and related services. The License Agreement provided that the source code for the software be placed in escrow with Iron Mountain, and that it would be released to Vemics under specified "release conditions." In compliance with the License Agreement, FVC also entered into a separate standard Escrow Agreement with Iron Mountain for the source code and related properly. Both the License Agreement and the Escrow Agreement are governed by California law.

FVC filed for bankruptcy on March 11, 2005, and the Bankruptcy Court approved an asset sale and transfer of contracts from FVC to Radvision. Accordingly, Radvision became the successor in interest to FVC's rights and duties under the License Agreement and the Escrow Agreement.

Vemics approached Iron Mountain in January 2006, demanding release of Radvision's proprietary source code from the escrow. Vemics apparently claimed that FVC's bankruptcy filing the previous year constituted a "release condition" under the Escrow Agreement. Radvision claims that there was no valid basis for Vemic's demand, but that Iron Mountain nevertheless declared in writing that Vemics was entitled to the source code, and that Iron Mountain had actually lost the source code.

The interactions between Vemics and Iron Mountain were apparently not at that time disclosed to Radvision, and Radvision did not learn that Vemics had been attempting to obtain Radvision's source code from escrow until Radvision was served with process in a California State Action in September 2006, in which Iron Mountain sued Radvision and Vemics for "interpleader, declaratory relief and contractual indemnity."

On August 9, 2006, Vemics sued Iron Mountain in the Supreme Court of the State of New York (County of Rockland), claiming that it was entitled to receive Radvision's source code from escrow, seeking an order directing Iron Mountain to turn over the source code, and claiming over $100 million in damages. The New York State action was stayed earlier this year because the key records and witnesses were located predominantly in California, as was the underlying bankruptcy proceeding. Radvision is not a party to the New York State action.

As earlier noted, on September 22, 2006, Iron Mountain filed an action in the Santa Clara Superior Court in California for interpleader, declaratory relief and indemnity against Radvision and Vemics. In the California action, Iron Mountain asked the Court to resolve the dispute between Radvision and Vemics. In November of 2006, Radvision moved in the California action to compel arbitration under the arbitration clauses in the Agreements, apparently asking the Court to decide whether all of the parties' claims, cross-claims and counterclaims should be submitted to arbitration, so as to consolidate the entire set of disputes. Vemics and Iron Mountain opposed arbitration on grounds including the "opt-out" provision in the Agreement.

By letter dated December 22, 2006, Radvision terminated the License Agreement, based on Vemics' claimed failure to pay over $2 million in license fees, and demanded that Vemics cease selling products incorporating the Click to Meet software. On December 28, 2006, Radvision notified Iron Mountain of the termination and directed Iron Mountain to return the Click to Meet source code to Radvision. Although Iron Mountain had previously asserted the source code was lost, it now responded that since it believed there were competing demands for the source code, that it would not be released until the open cases were adjudicated, or otherwise resolved.

On January 3, 2007, while the California motion was pending, Vemics filed this case against Radvision, and on February 20, 2007, Radvision asked the California Court to stay the California action pending resolution of this action.

On February 19, 2007, Radvision answered the Complaint in this action and also filed counterclaims against Vemics. On March 5, 2007, Radvision filed a Third Party Complaint against Iron Mountain, as an indispensable party, and also asserted claims for breach of contract, breach of fiduciary duty, and negligence, seeking declaratory and equitable relief. When Radvision then asked the California Court to stay proceedings there, the California Court did so.

Radvision's claims against Iron Mountain arise only out of the Escrow Agreement and the relationship of the parties thereunder.

Arbitration "is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 648, 89 L.Ed. 2d 648, 106 S.Ct. 1415 (1986) (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 4 L.Ed. 2d 1409, 80 S.Ct. 1347 (1960)). The Federal Arbitration Act creates a "body of federal substantive law of arbitrability, applicable to any arbitration agreement within ...


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