Addressing the novel issue of whether, under 9 U.S.C. § 205, a district court has removal jurisdiction over a case in which the defendant raises an affirmative defense related to an arbitral award falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. § 201 et seq. (the Convention), the U.S. Court of Appeals for the Ninth Circuit concluded that a federal district court had removal jurisdiction and that dismissal of the plaintiff’s suit was proper because an arbitration award under the Convention. Infuturia Global Ltd. v. Sequus Pharmaceuticals, et. al., Case Nos. 09-16378 (9th. Cir., Feb. 7, 2011) (Smith, J.)

Infuturia brought suit against Sequus and others in California state court alleging tortious interference of its license with Yissum Research and Development Company (Yissum). In March of 1990, Infuturia and Yissum entered into an exclusive license agreement (Infuturia License), giving Infuturia an exclusive worldwide license to certain Yissum patents related to technology for using liposomes as a delivery system for pharmaceuticals to human patients. In January of 1995, Yissum entered into a different license agreement with Sequus, granting rights to certain liposome technology owned by Yissum. In late 1998, Infuturia sued Sequus for tortious interference with its license from Yissum, claiming Sequus had interfered with Infuturia’s license by encouraging Yissum to enter into the Sequus license. Yissum, which was not a party to that lawsuit, successfully petitioned the court to stay the proceedings pending mandatory arbitration under the license with Infuturia. Yissum and Infuturia arbitrated the license before an Israeli arbitrator who found that Infuturia’s license was valid, that Yissum had not breached the license and that Infuturia did not have rights to any of the patents or products covered by the Sequus license.

Following the arbitration decision, the state court lifted the stay. The defendants then filed a Notice of Removal under § 205, and the case was removed to district court. Infuturia motioned for a remand, arguing that because the defendant’s were not a party to the foreign arbitration agreement, removal under the statute was improper. The district court denied the remand finding that removal was proper because the litigation “relates to” the arbitration provision under the convention. Sequus then filed a motion to dismiss, which the court granted. Infuturia appealed, arguing that the district court did not have removal jurisdiction.

The 9th Circuit disagreed and concluded that § 205 provides that federal courts have removal jurisdiction when the subject matter of a state court action relates to an arbitration award or agreement falling under the convention. In reaching its decision, the court found that the phrase “relates to” is broad and construed the phrase to mean that whenever an arbitration agreement falling under the Convention could conceivably affect the outcome of the plaintiff’s case, the agreement “relates to” the plaintiff’s suit.

Based on that interpretation, the court explained that Sequus affirmative defense of collateral estoppel based on an arbitration award under the Convention could conceivably affect the outcome of the case. Thus, the court had removal jurisdiction and its dismissal of Infuturia’s suit was proper.