Fortis Advisors LLC v. Stratasys Ltd.

Background

The action arose from an alleged “Agreement and Plan of Merger and Reorganization” involving Stratasys, Ltd., Stratasys, Inc., Origin Laboratories, Inc., Origin Merger, Inc., and Fortis Advisors LLC. Fortis represents the interests of former Origin shareholders. The agreement called for an upfront payment of $60 million and potentially another $40 million if specified earnout targets were met. Fortis alleged that Stratasys wrongfully refused to pay the additional $40 million.

The parties had previously proceeded before the Delaware Court of Chancery concerning whether Fortis’s claims belonged in court or arbitration. The Delaware court sent the issue to the arbitrator to determine which claims, if any, were arbitrable. Fortis’s initial arbitration demand included contract damages, specific performance, breach of the covenant of good faith and fair dealing, promissory estoppel, unjust enrichment, and quantum meruit. Fortis later added a fraud claim.

Stratasys acknowledged that the contract damages, specific-performance, and good-faith-and-fair-dealing claims were subject to arbitration, but argued that the other claims were not. After Stratasys moved in the arbitration to dismiss those extra-contractual claims for lack of arbitrability, Fortis voluntarily dismissed them from the arbitration and filed this action in San Francisco Superior Court. The complaint closely tracked the allegations concerning those claims and added one individual defendant. Stratasys removed the action to federal court.

Motion to stay

Stratasys sought a stay while the arbitration of the contractual claims proceeded. It argued that the Federal Arbitration Act requires a stay of a lawsuit brought “upon any issue referable to arbitration.” Fortis argued that the mandatory stay provision did not apply because the extra-contractual claims in this case were no longer subject to arbitration.

The court noted that the promissory-estoppel, unjust-enrichment, and quantum-meruit claims were alternative theories of recovery that could fall away if the express contract governed. The court said the fraud claim was different because it might remain relevant regardless of the outcome of the contractual arbitration.

Ruling

The court held that, even assuming the claims in this action were distinct issues for purposes of the Federal Arbitration Act, the circumstances warranted a discretionary stay under the court’s inherent power to manage its docket. The court found no cognizable hardship or prejudice from allowing the arbitration to proceed first. It concluded that judicial efficiency and the possibility of simplifying the issues weighed against proceeding with both matters at the same time.

The court granted the motion to stay and stayed the action pending conclusion of the arbitration. The parties were ordered to file a status report by September 30, 2025. The court stated that it would entertain a motion to lift the stay if the arbitration became unduly protracted or delayed. It also granted the pending sealing motions. The order did not decide the merits of Fortis’s claims.