Appendix — Maxim Pharmaceuticals, Inc. v. Crosspoint Venture Partners 1997, L. P.

la

APPENDIX — EXCERPTS OF AGREEMENT AND

PLAN OF MERGER AND REORGANIZATION

AGREEMENT AND PLAN OF

MERGER AND REORGANIZATION

This AGREEMENT AND PLAN OF MERGER AND

REORGANIZATION (“Agreement”) is maded and entered into as

of June 2, 2000, by and among: MAxim PHARMACEUTICALS,

Inc., a Delaware corporation (“Parent”); M-80 AcqQuis!TI0N

Corp., a Delaware corporation and a wholly owned subsidiary

of Parent (“Merger Sub”) and Cytovia, Inc., a Delaware

corporation (the “Company”). Certain capitalized terms used

in this Agreement are defined in Exhibit A.

* * *

1.5 Conversion of Shares.

(a) Subject to Sections 1.8(a) and 1.9, at the Effective

Time, by virtue of the Merger and without any further action

on the part of Parent, Merger Sub, the Company or any

stockholder of the Company:

(i) except as provided in Section 1.5(a)(i1), each

share of the common stock, par value $.001 per share of the

Company (the “Company Common Stock’), outstanding

immediately prior to the Effective Time shall be converted

into the right to receive that fraction of a share of the common

stock, par value $.001 per share of Parent (“Parent Common

Stock’) equal to the Exchange Ratio (as defined in Section

1.5(b)(i));

2a

Appendix

(ii) any shares of Company Common Stock then

held by the Company or held in the Company’s treasury shall

be canceled and retired and shall cease to exist, and no

consideration shall be delivered in exchange therefore; and

(iii) each share of the common stock of Merger

Sub outstanding immediately prior to the Effective Time shall

be converted into one share of common stock of the Surviving

Corporation.

exercise any such repurchase option or other right set forth

in any such restricted stock purchase agreement or other

agreement.

1.6 Company Options and Warrants. At the Effective

Time, each then outstanding Company Option or Company

Warrant, whether vested or unvested, shall be assumed by

Parent in accordance with the terms (as in effect as of the

date of this Agreement) of the Company Stock Option Plan

under which such Company Option was issued, if any, and

the stock option agreement or warrant agreement by which

such Company Option or Company Warrant is evidenced.

To the extent that any Company Options are incentive stock

options, within the meaning of Section 422 of the Code, the

provisions of this Section 1.6 shall be interpreted and applied

SO as to comply with the requirements of Section 424(a) of

the Code, so that such Company Options shail continue to

qualify as incentive stock options after their assumption by

Parent. All rights with respect to Company Common Stock

under outstanding Company Options or Company Warrants

3a

Appendix

shall thereupon be converted into rights with respect to Parent

Common Stock. Accordingly, from and after the Effective

Time, (a) each Company Option or Company Warrant

assumed by Parent may be exercised solely for shares of

Parent Common Stock, (b) the number of shares of Parent

Common Stock subject to each such assumed Company

Option or Company Warrant shall be equal to the number of

shares of Company Common Stock that were subject to such

Company Option or Company Warrant immediately prior to

the Effective Time multiplied by the Exchange Ratio, rounded

down to the nearest whole number of shares of Parent

Common Stock, (c) the per share exercise price for the Parent

Common Stock issuable upon exercise of each such assumed

Company Option or Company Warrant shall be determined

by dividing the exercise price per share of Company Common

Stock subject to such Company Option or Company Warrant,

as in effect immediately prior to the Effective Time, by the

Exchange Ratio, and rounding the resulting exercise price

up to the nearest whole cent, and (d) all restrictions on the

exercise of each such assumed Company Option or Company

Warrant shall continue in full force and effect, and the term,

exercisability, vesting schedule, acceleration rights and other

provisions of such Company Option or Company Warrant

shall otherwise remain unchanged. The Company and Parent

shall take all action that may be necessary (under all Company

Stock Option Plans and otherwise) to effectuate the

provisions of this Section 1.6. Parent shall file with the SEC,

within 90 days after the Closing Date, a registration statement

on Form S-8 registering the exercise of the Company Options

assumed by Parent pursuant to this Section 1.6.

* * *

4a

Appendix

10.14 Parties in Interest. Except for the provisions of

Sections 1.5 and 1.6, none of the provisions of this Agreement

is intended to provide any rights or remedies to any Person

other than the parties and their respective successors and

assigns (if any).

10.18 Negotiations of Disputes. If a dispute arises

between the parties relating to the interpretation or

performance of this Agreement, including any right of setoff,

and the parties cannot resolve the dispute within 30 days of

a written request by either party to the other, such dispute

shall be referred to the Chief Executive Officer, Chief

Financial Officer or General Counsel of Parent and Chief

Executive Officer, Chief Financial Officer or General

Counsel of the Company for resolution. Such persons shall

hold a meeting to attempt in good faith to negotiate a

resolution of the dispute prior to pursuing other available

remedies. If within 10 business days after such meeting, the

Chief Executive Officer, Chief Financial Officer or General

Counsel of Parent and the Chief Executive Officer, Chief

Financial Officer or General Counsel of the Company have

not succeeded in negotiating a resolution of the dispute, such

dispute may be resolved through arbitration pursuant to

Section 10.19.

10.19 Arbitration. Disputes that have not been

successfully resolved pursuant to Section 10.18, with the

exception of any claim for a temporary restraining order or

preliminary or permanent injunctive relief to enjoin any

breach or threatened breach hereof, shall be settled by a panel

Sa

Appendix

of three arbitrators with such arbitration to be held in San

Diego, California, in accordance with the Commercial

Arbitration Rules of the American Arbitration Association,

and judgment upon the award rendered by the arbitrators may

be entered in any court having jurisdiction thereof. All

arbitrators must be knowledgeable in the subject matter at

issue in the dispute. The arbitrators shall make their decision

in accordance with the terms of this Agreement and applicable

law. Each party shall initially bear its own costs and legal

fees associated with such arbitration and the parties shall

split the cost of the arbitrators. The prevailing party in any

such arbitration shall be entitled to recover from the other

party the reasonable attorneys’ fees, costs and expenses

incurred by such prevailing party in connection with such

arbitration. The decision of the arbitrators shall be final and

may be sued on or enforced by the party in whose favor it

runs in any court of competent jurisdiction at the option of

the successful party. The rights and obligations of the parties

to arbitrate any dispute relating to the interpretation or

performance of this Agreement or the grounds for the

termination thereof, shall survive the expiration or

termination of this Agreement for any reason. The arbitrators

shall be empowered to award specific performance,

injunctive relief and other equitable remedies as well as

damages, but shall not be empowered to award punitive or

exemplary damages or award any damages in excess of any

limitations set forth in this Agreement.

* ; * *

Supscme Cour. U.S.

FILED

@

No. 04-1590 OF“ICE CT THF CLERK

IN THE

Supreme Court of the United States

MAXIM PHARMACEUTICALS, INC.,

LARRY STAMBAUGH and KURT GEHLSEN,

Petitioners,

v.

CROSSPOINT VENTURE PARTNERS 1997, L.P., et al.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE

CourRT OF APPEAL OF CALIFORNIA,

FOURTH APPELLATE DISTRICT

REPLY BRIEF

CHARLES H. Dick, JR.

KATHERINE A. BACAL*

BAKER & McKenzie LLP

101 West Broadway

12th Floor

San Diego, CA 92101

(619) 236-1441

* Counsel of Record Counsel for Petitioners

196088 ce

COUNSEL PRESS

(800) 274-3321 * (800) 359-6859

1

STATEMENT PURSUANT TO RULE 29.6

Petitioner’s Rule 29.6 Statement was set forth at page ii

of Petitioner’s Opening Brief, and there are no amendments

to that Statement.

il

TABLE OF CONTENTS

STATEMENT PURSUANT TO RULE 29.6

TABLE OF CONTENTS

I.

Il. THE PETITION PRESENTS A FEDERAL

QUESTION

. THE PETITION PROPERLY PRESENTS

THE WELL-DEVELOPED SPLIT

BETWEEN CIRCUITS

A. The Court Can And Should Review This

Unpublished Opinion

There Is A Well-Established Conflict

Among Circuits Mandating Review ...

IV. THERE ARE NO ADEQUATE AND

INDEPENDENT STATE LAW GROUNDS

FOR THE LOWER COURT’S DECISION

iti

TABLE OF CITED AUTHORITIES

Cases:

A, Sangivanni and Sons v. FM. Floryan and Co.,

Inc., 158 Conn. 467 (1969)

Bismarck v. Toltz, King, Duvall, Anderson & Assoc.,

Inc., 767 F.2d 429 (8" Cir. 1985)

Bristol-Myers Squibb Co. v. SR Int’l Bus. Ins. Co.,

354 F. Supp. 2d 499 (S.D.N.Y. 2005)

Ewing v. California, 538 U.S. 11 (2003)

Gregory v. Electro-Mech. Corp., 83 F.3d 382

(11" Cir. 1996)

Hannah Furniture Co. v. Workbench, Inc., 561

F. Supp. 1243 (W.D. Pa. 1983)

Harris v. Superior Court, 188 Cal.App.3d 475

(1986)

Hart v. Orion Ins. Co., 453 F.2d 1358 (10" Cir.

Highlands Wellmont Health Network, Inc. v. John

Deere Health Plan, Inc., 350 F.3d 568 (6" Cir.

In re J.D. Edwards World Solutions Co., 87 S.W.3d

546 (Tex. 2002)

Page

iv

Cited Authorities

In re Kinoshita, 287 F.2d 951 (2d Cir. 1961)

Integrated Health Serv., Inc. v. Kirschenbaum, 1996

U.S. Dist. LEXIS 3165 (N.D. Ill. 1996)

J.P. Stevens & Co., Inc. v. Harrell Int’l, Inc., 299

So. 2d 69 (Fla. 1* DCA 1974)

Kaupp v. Texas, 538 U.S. 626 (2003)

Louis Dreyfus Negoce S.A. v. Blystad Shipping &

Trading In.., 252 F.3d 218 (2d Cir. 2001)

Mar-Len of Louisiana, Inc. v. Parsons-Gilbane,

773 F.2d 633 (5" Cir. 1985)

Matthews v. Rollins Hudig Hall Co., 72 F.3d 50

(7 Cir. 1995)

Mediterranean Enters., Inc. v. Ssangyong Corp.,

708 F.2d 1458 (9" Cir. 1983)

MEC Fin. Ltd. Partnership Two v. City of Santee,

125 Cal.App.4th 1372 (2005)

Mormile v. Sinclair, 21 Cal.App.4th 1508 (1994) ...

Moses H. Cone Mem’! Hosp. v. Mercury Constr.

Corp., 460 U.S. 1 (1983)

Cited Authorities

Page

NORCAL Mutual Ins. Co. v. Newton, 84 Cal.App.4th

ER ees era eis Sak os ares kee 9

Peoples Sec. Life Ins. Co. v. Monumental Life Ins.

Co., 867 F.2d 809 (4" Cir. 1989) ............. 8

Perry v. Thomas, 482 U.S. 483 (1987) .......... 4

RCM Tech., Inc. v. Brignik Tech. Inc., 137 F. Supp.

RE ED a Fas oes se pack dg eenap aus 7

Schacht v. Beacon Ins. Co., 742 F.2d 386 (7 Cir.

Ee eee as pads Nees bee + LDR CDC ewes 7

Tracer Research Corp. v. National Envtl. Services

Co., 42 F.3d 1292 (9" Cir. 1994), cert. dismissed,

EM es SOOT EEOOOE, Beas kewcdnedasssnevens 3, 4, 6

Statutes:

ER CEO Srl cath a dak a o> 60:0 00.000. 60-6 4.4 2

Rule:

Ck Ss Ree 2) Ey Pre ei ee eer eT re 2

I. INTRODUCTION

The Petition presents three questions appropriate for this

Court’s review. By their silence, Respondents impliedly concede

the second two of these three questions. Respondents also do

not directly respond to the first question presented by the

Petition, asserting instead their own alternative questions.

Respondents claim (incorrectly) that (1) the scope of the

applicable arbitration provision is not a federal question;

(2) no Circuit conflict is presented because the Ninth Circuit

consistently applies its construction of the Federal Arbitration

Act; and (3) there are alternative state law grounds for the

appellate court’s decision.

The Opposition fails to address the wealth of authority cited

in the Petition. These cases confirm that the Petition presents a

federal question: whether a fraudulent inducement or related

tort claim can be encompassed by less than the broadest

arbitration provision.' The cases cited in the Petition further

demonstrate that there is a well-developed conflict among

Circuits as to how this federal question should be answered.

The minority view — followed by the Ninth Circuit and the

California Court of Appeal — refuses to compel arbitration of

fraudulent inducement claims under subjectively “narrow”

arbitration provisions. This minority view conflicts with the

strong policy in favor of arbitration stated in numerous prior

Supreme Court decisions. However, this Court has never

' The Petition also presents the question of whether the appellate

court properly reviewed the question of arbitrability when the parties

voluntarily submitted this question to the arbitrators and the arbitration

provision incorporates the AAA Rules. Because this question was not

addressed in the Opposition, no additional arguments are presented on

Reply.

2

addressed the precise question presented by the Petition.”

Finally, the state appellate court itself stated that there was no

alternative state law ground for its decision. This Court should

therefore grant the Petition.

Il. THE PETITION PRESENTS A FEDERAL

QUESTION

It is beyond dispute that the Federal Arbitration Act

(“FAA”), 9 U.S.C. §§ 1-16, applies to transactions involving

interstate commerce, such as the merger transaction between

Maxim and Cytovia. Indeed, Respondents do not debate that

the FAA applies to the arbitration provision in question.

In their Opposition, however, Respondents take

contradictory positions as to whether the court below decided a

federal question. Respondents argue, on the one hand, that the

court below “decided no federal question.” Oppo., p. 7. On the

other hand, Respondents argue throughout their brief that the

state court ruled “under Ninth Circuit law.” Jd, see also p. 6

(“the opinion straightforwardly applies Ninth Circuit law”)

(“the court of appeal’s decision did nothing more than correctly

apply settled Ninth Circuit law to the dispute between these

parties”); p. 8 (“The California appellate court properly applied

Ninth Circuit law in determining the Cytovia Stockholder’s tort

claims are not arbitrable.”). Respondents clearly do not dispute

that the lower court based its decision on the Ni 1th Circuit’s

opinions. These opinions were constructions of federal law.

2 Because of the Circuit conflict, Supreme Court Rule 10 is fully

satisfied. In addition, many state courts of last resort follow the majority

view that fraudulent inducement claims can be compelled even under

narrow arbitration provisions. See, e.g., In re J.D. Edwards World

Solutions Co., 87 S.W.3d 546, 550-51 (Tex. 2002); and A. Sangivanni

and Sons v. F-M. Floryan and Co., Inc., 158 Conn. 467, 472-73 (1969).

These decisions conflict with the Ninth and Second Circuits, thus

establishing an alternative basis for satisfaction of Rule 10.

3

The crux of the opinion below was that the applicable

arbitration clause was not broad enough to encompass

Respondents’ claims. This question as to the scope of the

applicable provision is one of federal law. See, e.g., Moses H.

Cone Mem 'I Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983)

(“Federal law in the terms of the Arbitration Act governs

[arbitrability of a dispute] in either state or federal court.”);

Tracer Research Corp. v. National Envtl. Services Co., 42 F.3d

1292, 1294 (9 Cir. 1994), cert. dismissed, 515 U.S. 1187 (1995)

(“the scope of the arbitration clause is governed by federal law’’);

Bismarck v. Toltz, King, Duvall, Anderson & Assoc., Inc., 767

F.2d 429, 431 (8 Cir. 1985) (“Determining what claims fall

within the class of disputes governed by an arbitration agreement

is a question of federal law.””); Hart v. Orion Ins. Co., 453 F.2d

1358, 1361 (10® Cir. 1971) (“The validity and interpretation of

arbitration clauses affecting interstate commerce are governed

by federal law.”).

In rendering its decision, the California appellate court

“assume[d] without deciding” that the FAA applies. Moreover,

the appellate court cited to and relied exclusively on federal

cases interpreting the FAA for its conclusion that the dispute

was outside the scope of the applicable arbitration provision.

The lead Ninth Circuit case cited by the appellate court is

Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458

(9" Cir. 1983). In that case, the Ninth Circuit specifically held,

“[flederal law therefore applies to our determination of the scope

of this arbitration agreement.” /d. at 1463. Respondents are

simply mistaken when they contend that the Ninth Circuit

applied California law in Mediterranean. Indeed, the court in

Mediterranean further noted that neither party disputed the

application of federal law. /d. at n. 4. In Tracer, the Ninth Circuit

4

similarly stated that “the scope of the arbitration clause is

governed by federal law.” Tracer, 42 F.3d at 1294.°

[il. THE PETITION PROPERLY PRESENTS THE

WELL-DEVELOPED SPLIT BETWEEN CIRCUITS

The Petition demonstrates that there is a conflict between

the Circuits as to when a fraudulent inducement claim is subject

to a contractual arbitration provision. Not only has this conflict

developed, it is fully ripened.

Respondents respond by arguing that (1) the lower court’s

opinion was not published, and (2) there is no Circuit split

because the opinion “straightforwardly applies Ninth Circuit

law. ...” Oppo., p. 6. Neither of these arguments carries any

weight.

A. The Court Can And Should Review This

Unpublished Opinion

It is well-established that an unpublished opinion may

provide the basis for certiorari. See, e.g., Kaupp v. Texas, 538

U.S. 626, 629 (2003). In fact, the Court has at least twice recently

granted certiorari of unpublished opinions by a California Court

of Appeal after the California Supreme Court refused review

(the situation at bar). See Ewing v. California, 538 U.S. 11, 20

(2003); Perry v. Thomas, 482 U.S. 483, 488-89 (1987) (reversing

decision affirming the denial of a petition to compel arbitration).

Moreover, the fact that the lower court’s opinion was

unpublished actually supports review in this case. Such an

unpublished decision gives no guidance to future litigants and

therefore violates the strong federal policy in favor of arbitration.

Other unfortunate litigants may again go through the process of

* Respondents fail to mention, let alone address, the Tracer

decision.

5

compelling arbitration, having the appellate court deny an

interlocutory appeal, arbitrating the matter, only to have their

judgment reversed on appeal when the matter is deemed outside

the scope of arbitration.

B. There Is A Well-Established Conflict Among

Circuits Mandating Review

Respondents argue, in sum, that there is no Circuit conflict

because the Ninth Circuit is internally consistent. In objecting

to this Court’s review, Respondents argue that the appellate court

did not create a conflict of federal law. Of course, if the creation

of a conflict were necessary, such conflict would never have

time to fully mpen. In this case, the conflict at issue was not

created by the California Court of Appeal, but its decision

illustrates that such conflict is fully developed: the Ninth Circuit

stands in a position out of step with most of the rest of the

country, supported only most tenuously by the Second Circuit.

The conflict is fully-ripened and ready for review.

Respondents’ unsupported statement that “Maxim attempts

to create a conflict where none exists,” is simply untrue. As set

forth in the Petition, over forty years ago the Second Circuit set

down a rule under which “narrow” arbitration provisions —

those limited to controversies related to interpretation and

performance of a contract — do not encompass fraudulent

inducement claims. See Jn re Kinoshita, 287 F.2d 951, 953

(2d Cir. 1961); see also Louis Dreyfus Negoce S.A. v. Blystad

Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001) (under

the Second Circuit rule, courts must first determine whether an

arbitration clause is broad or narrow; narrow clauses do not

encompass collateral matters).

Interestingly, Respondents mention Kinoshita only to make

the point (as is stated in the Petition) that the Second Circuit

6

has not yet overruled it. Thus, though the Second Circuit has

limited its holding to the precise facts of that case, district courts

in the Second Circuit remain constrained to follow Kinoshita if

they cannot distinguish a “narrow” arbitration clause.

See Bristol-Myers Squibb Co. v. SR Int’l Bus. Ins. Co., 354 F.

Supp. 2d 499 (S.D.N.Y. 2005).

The Second Circuit rule has been adopted by the Ninth

Circuit. See Mediterranean Enters., 708 F.2d at 1463; Tracer,

42 F.3d at 1295. The California Court of Appeal has relied on

the Ninth Circuit rule more than once. See MHC Fin. Ltd.

Partnership Two v. City of Santee, 125 Cal.App.4" 1372, 1398

(2005) (explaining that the Ninth Circuit’s rule means that a

more narrow provision “encompasses only those actions directly

involving the application of [the subject contract] in specific

factual contexts addressed by the [the subject contract].’’).

In contrast to the Ninth and Second Circuits, a slew of other

Circuits (cited in the Petition) have held that fraudulent

inducement claims must be arbitrated even under provisions

that require arbitration only of disputes “relating to the

interpretation or performance” of an agreement—the exact

language contained in the arbitration provision here.

Respondents claim that the Petition relies on cases in which

the arbitration provision required arbitration only of matters

“arising out of” or “arising under” a contract. Oppo., p. 10.

In point of fact, the Ninth Circuit has held that an arbitration

provision that uses the phrase “arising hereunder” is synonymous

with one limited to disputes “relating to the interpretation or

performance” of the contract. Mediterranean Enters., 708 F.2d

at 1464; Tracer, 42 F.3d at 1295.4

* This argument underscores one of the problems arising because

of the Circuit conflict. Without a presumption of arbitrability of all

(Cont'd)