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AVR Communications, Ltd. v. American Hearing Systems, Inc.

United States District Court, D. Minnesota

January 31, 2014

AVR Communications, Ltd., an Israeli corporation, and Sonovation, Inc., a Minnesota corporation, Petitioners,
v.
American Hearing Systems, Inc., d/b/a Interton, Inc., a Minnesota corporation, Respondent.

Jonathan M. Bye, Esq., Lindquist & Venum PLLP, appeared for the Petitioners.

Terrence P. Canade, Esq., Locke Lord LLP, and Jeffrey S. Storms, Gaskins Bennett Birrell Schupp LLP, appeared for the Respondent.

ORDER

JOAN N. ERICKSEN, District Judge.

This is a petition to confirm a foreign arbitral award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter, "the Convention"), Sept. 1, 1970, 21 U.S.T. 2517, and its implementing legislation at 9 U.S.C. Chapter 2. The Petitioners are AVR Communications, Inc., an Israeli corporation that develops, produces, and sells hearing aid technology, and Sonovation, Inc., its wholly-owned subsidiary that is incorporated in the United States. The Respondent is American Hearing Systems, Inc., a Minnesota corporation that does business as Interton, Inc. Like the Petitioners, Interton also produces and sells hearing aids.

AVR and Sonovation have brought the petition requesting that this Court recognize and enforce an award that they received in an arbitration proceeding against Interton in Israel. Interton opposes the petition.

For the reasons stated below, the Court will grant the petition.

Background

In 2004, Interton and AVR entered into a written Investment Agreement, according to which Interton acquired a 20% interest in AVR, obtained a seat on AVR's Board of Directors, and provided a sum of money "to be dedicated for R&D projects to be carried out by [AVR] in the area of wireless FM communications and digital signal processing." ECF No. 2 at 5-6. The Investment Agreement also includes a statement of "[t]he parties' intention... that Interton will acquire from [AVR] products deriving from such R&D projects." Id. at 5.

The Investment Agreement contains an arbitration clause, which is incorporated by reference from a separate Stock Purchase Agreement that AVR had signed with several other investors in 1997. ECF No. 2 at 5, 50. This provision is the only agreement to arbitrate that exists between the parties. It reads as follows:

Arbitration. This Agreement shall be construed and enforced in accordance with the laws of the State of Israel. Any dispute between the parties related to (or arising out of) the provisions of this Agreement or any of its Exhibits will be referred exclusively to the decision of a single arbitrator appointed by mutual consent, and failing such consent within 10 days from the date on which an affected party first requested arbitration - the Arbitrator will be appointed by the President of the Israel Bar Association. The Arbitrator will be bound by Israeli substantive law but will not be bound by the rules of evidence or the rules of civil procedure. The Arbitrator will be required to provide the grounds for his ruling in writing.
The competent court will have such supplementary jurisdiction for all issues arising and/or relating to the Arbitration as is provided by the Arbitration Law of 1968, and/or may be necessary to resolve such dispute.

Id. at 50.

Disputes arose between the parties in the years after the Investment Agreement was signed. One dispute centered on Interton's obligation to acquire two products that AVR had developed - referred to as the "DFC technology" and the "W.C. components" - and integrate them into its hearing aids. AVR took the position that Interton had undertaken those obligations as a result of negotiations that took place between the parties in the months surrounding the signing of the Investment Agreement. In 2007, AVR and Sonovation initiated arbitration proceedings against Interton in Israel over this and other disputes pursuant to the arbitration clause in the Investment Agreement. AVR and Sonovation's Statement of Claim asserted a number of breach of contract and tort claims and demanded tens of millions of dollars in damages.

Interton immediately contested the arbitrability of the claims, arguing to the Israeli courts that they were not encompassed by the agreement to arbitrate in the Investment Agreement. However, Interton's narrow reading of the arbitration agreement was rejected by both the Tel Aviv District Court and the Supreme Court of Israel. Applying, as the Investment Agreement specified, Israeli law, the Israeli Supreme Court on ...


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