Molecular Dynamics Ltd. v. Spectrum Dynamics Medical Limited

Background

Molecular Dynamics Ltd. (MD) brought this action after an arbitration in Switzerland largely favored Spectrum Dynamics Medical Limited (Spectrum) and Biosensors International Group Ltd. (Biosensors). The arbitration award required MD to pay $11,243,178 as of May 22, 2022.

The parties and other entities had signed a group of four agreements in 2013. One agreement, the License Agreement, provided that New York courts would have exclusive jurisdiction over matters concerning the arbitration. After the arbitration began, MD, Chauncey Capital Corp., and SDBM, Ltd. obtained an emergency asset-freezing order against Spectrum from a court in the British Virgin Islands. That order was later vacated.

After the arbitration panel issued its award, MD sought emergency relief in New York to prevent Spectrum or Biosensors from starting proceedings outside New York to recognize, confirm, or enforce the award. The court first issued a temporary restraining order and then, on June 10, 2022, granted MD a preliminary injunction. The injunction barred proceedings to confirm or enforce the award outside New York, although the court distinguished those proceedings from enforcement of a later court judgment resulting from confirmation of the award.

Defendants’ arguments

Spectrum and Biosensors opposed continuing the preliminary injunction. They argued that MD was judicially estopped—a doctrine that can prevent a party from taking inconsistent positions after successfully advancing an earlier position before a court.

They contended that MD had relied in the British Virgin Islands on a provision of that jurisdiction’s arbitration law allowing interim relief only when the arbitration could produce an award enforceable there. According to the defendants, that position conflicted with MD’s position in this case that the award could be enforced only in New York under the License Agreement’s forum-selection clause.

The defendants also argued that the injunction should be modified to apply only to MD and not to SDBM and Chauncey. Because the court accepted the judicial-estoppel argument, it did not decide that second argument.

Court’s analysis

The court identified the usual judicial-estoppel considerations in the Second Circuit: whether the later position is clearly inconsistent with the earlier one, whether the earlier position was adopted by the prior court, and whether allowing the later position would create an unfair advantage. The court also noted that these considerations are not inflexible requirements and that the doctrine focuses on the circumstances of the particular case and the risk to judicial integrity.

The court found the positions inconsistent. In New York, MD argued that the forum-selection clause barred proceedings outside New York to enforce the arbitration award itself. In the British Virgin Islands, MD had sought an asset-freezing order under a law requiring that the arbitration be capable of producing an award enforceable there. The court rejected MD’s attempt to characterize its New York position as limited to requiring confirmation in New York before a resulting judgment could be enforced elsewhere.

Although the British Virgin Islands court’s written decision did not conclusively explain its reasoning, the court found that the record strongly indicated reliance on MD’s argument under the arbitration statute. During the earlier hearing, MD’s counsel repeatedly identified that statute as the basis for the British Virgin Islands court’s authority to issue the freeze and did not mention the alternative statutory basis during the hearing.

The court also rejected MD’s argument that the defendants had to prove specific prejudice, such as an intent to dissipate assets absent the freeze. It concluded that the circumstances showed an unfair advantage: MD had obtained a lengthy asset freeze in the British Virgin Islands and then obtained the New York filing injunction based on positions the court viewed as incompatible.

Disposition

The court dissolved the preliminary injunction. It held that judicial estoppel barred MD from taking before this court the position that the arbitration award could be enforced only in New York. The court expressly stated that it still considered MD’s New York interpretation of the forum-selection clause correct, but judicial estoppel prevented MD from maintaining the broad injunction on that basis.

The court did not decide how the forum-selection clause should ultimately be interpreted in a future enforcement dispute or whether judicial estoppel would apply in that later context. The parties were directed to file a joint letter within one week addressing any next steps in the litigation.