Free Appellant's Brief - District Court of California - California

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SQUIRE, SANDERS & DEMPSEY L.L.P. Douglas J. Rovens (State Bar # 106562) [email protected] James E. McDonald (admitted Pro Hac Vice) [email protected] Daniel T. Balmat (State Bar # 230504) [email protected] One Maritime Plaza, Suite 300 San Francisco, CA 94111 Telephone: +1.415.954.0383 Facsimile: +1.415.393.9887 Attorneys for ALPHAMED PHARMACEUTICALS CORP. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA On Appeal from the United States Bankruptcy Court for the Northern District of California Hon. Edward D. Jellen In re Case No. 08-00825-SI (Appeal from Adversary Proceeding No. 074181 in Chapter 11 Bankruptcy Case No. 0742767 AJ) E-FILING PLAINTIFF-APPELLANT ALPHAMED'S OPENING BRIEF IN APPEAL FROM BANKRUPTCY ADVERSARY PROCEEDING

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ARRIVA PHARMACEUTICALS, INC., a California corporation, Debtor. Tax ID: 94-3287067 AlphaMed Pharmaceuticals Corp. Plaintiff vs. Arriva Pharmaceuticals, Inc. Defendant.

ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

Case 3:08-cv-00825-SI

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TABLE OF CONTENTS Page TABLE OF CONTENTS................................................................................................................. i TABLE OF AUTHORITIES .......................................................................................................... ii STATEMENT OF APPELLATE JURISDICTION ....................................................................... 1 STATEMENT OF ISSUES ............................................................................................................ 1 STANDARD OF REVIEW ............................................................................................................ 1 STATEMENT OF THE CASE....................................................................................................... 1 STATEMENT OF FACTS ............................................................................................................. 2 A. B. C. The History Between AlphaMed And Arriva Prior To The Commencement Of Litigation By Allan Wachter.............................................................................. 2 The Florida Federal Action. .................................................................................... 5 The Bankruptcy Court's Erroneous Dismissal Of The AlphaMed Complaint Seeking A Determination That The Protease/Arriva License Is Invalid. .................................................................................................................... 7

ARGUMENT .................................................................................................................................. 9 I. THE BANKRUPTCY COURT ERRED IN HOLDING THAT ALPHAMED LACKED STANDING. ...................................................................................................... 9 A. B. The AlphaMed Complaint Satisfies The Notice Pleading Requirements Under The Federal Civil Rules. .............................................................................. 9 AlphaMed Has Standing To Seek Declaratory Relief. ......................................... 11 1. 2. 3. The AlphaMed Complaint Sets Forth a Justiciable Controversy.............. 12 AlphaMed Has a Direct Interest in the Resolution of the Controversy. .............................................................................................. 13 AlphaMed Established Standing by Demonstrating that it is a Partyin-Interest with Both a Financial Interest and Practical Stake in the Outcome of Debtor Arriva's Chapter 11 Bankruptcy. .............................. 18

II.

THE BANKRUPTCY COURT ERRED IN ALTERNATIVELY HOLDING THAT THE ALPHAMED COMPLAINT SHOULD BE DISMISSED UNDER THE ROOKER-FELDMAN DOCTRINE........................................................................ 19 THE BANKRUPTCY COURT FURTHER ERRED IN RELYING UPON FULL FAITH AND CREDIT TO DISMISS THE ALPHAMED COMPLAINT. ..................... 22

III.

CONCLUSION ............................................................................................................................. 25 -iTABLE OF CONTENTS Case No. 08-00825-SI

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TABLE OF AUTHORITIES Page U.S. CONSTITUTION U.S. Const. art. IV, § 1("Full Faith and Credit Clause") .............................................................. 22 FEDERAL CASES In re Acequia, Inc., 787 F.2d 1352 (9th Cir. 1986)......................................................................... 1 AlphaMed Pharmaceuticals Corp. v. Arriva Pharmaceuticals, Inc., 432 F. Supp. 2d 1319 (S.D. Fla. 2006)......................................................................................................................... 6, 25 Batzel v. Smith, 372 F. Supp. 2d 546 (C.D. Cal. 2005)................................................................. 23 Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955 (2007) ..................................................................... 10 Bly-Magee v. California, 236 F.3d 1014 (9th Cir. 2001).............................................................. 11 In re Catholic Bishop of Spokane, 329 B.R. 304 (Bankr. D. Wash. 2005)................... 7, 11, 12, 15 See In re Commercial W. Fin. Corp., 761 F.2d 1329 (9th Cir. 1985) ............................................ 1 Committee of Tort Litigants v. The Catholic Diocese of Spokane, 2006 U.S. Dist. LEXIS 6025 (E.D. Wash. Jan. 24, 2006) ........................................................................................... passim DCD Programs, Ltd. v. Leighton, 833 F.2d 183 (9th Cir. 1987).................................................. 11 Hood v. Encinitas Union Sch. Dist, 486 F.3d 1099 (9th Cir. 2007). .............................................. 1 District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983) ................................... 20 Erickson v. Pardus, 127 S. Ct. 2197 (2007) ................................................................................. 10 Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) .................................. 20, 21 Fisher v. Tucson Sch. Dist., 625 F.2d 834 (9th Cir. 1980) ........................................................... 10 In re Folks, 211 B.R. 378 (9th Cir. B.A.P. 1997) ......................................................................... 16 In re Fondiller, 707 F.2d 441 (9th Cir. 1983)......................................................................... 15, 16 Gilligan v. Jamco Dev. Corp., 108 F.3d 246 (9th Cir. 1997) ....................................................... 10 In re Harbin, 486 F.3d 510 (9th Cir. 2007) .................................................................................. 20 In re Hutchinson, 5 F.3d 750 (4th Cir. 1993) ............................................................................... 18 Int'l Trade Admin. v. Rensselaer Polytechnic Inst., 936 F.2d 744 (2d Cir. 1991)........................ 19 In re James Wilson Assocs., 965 F.2d 160 (7th Cir. 1992) ........................................................... 19 Johnson v. De Grandy, 512 U.S. 997 (1994) ................................................................................ 20 -iiTABLE OF AUTHORITIES Case No. 08-00825-SI

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TABLE OF AUTHORITIES (Cont'd) Page FEDERAL CASES (Cont'd) Kalb, Voorhis & Co. v. American Financial Corp., 8 F.3d 130 (2d Cir. 1993) ..................... 15, 16 Kougasian v. TMSL, Inc., 359 F.3d 1136 (9th Cir. 2004)............................................................. 21 In re Lopez, 367 B.R. 99 (B.A.P. 9th Cir. 2007) .................................................................... 20, 21 Lance v. Dennis, 546 U.S. 459 (2006) .......................................................................................... 20 Noel v. Hall, 341 F.3d 1148 (9th Cir. 2003) ........................................................................... 20, 23 Or. Advocacy Ctr. v. Mink, 322 F.3d 1101 (9th Cir. 2003) .......................................................... 12 Palmer & Cay, Inc. v. Marsh & McLennan Cos., 404 F.3d 1297 (11th Cir. 2005) ..................... 23 In re Peachtree Lane Assocs., Ltd., 188 B.R. 815 (N.D. Ill. 1995) .............................................. 18 In re Phenylpropanolamine (PPA) Liab. Litig., 460 F.3d 1217 (9th Cir. 2006) .......................... 10 Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) ....................................................................... 20 Semtek Int'l Inc. v. Lockheed Martin Corp., 531 U.S. 497 (2000) ............................................... 23 Sierra Club v. Morton, 405 U.S. 727 (1972) ................................................................................ 12 In re Stoll, 252 B.R. 492 (B.A.P. 9th Cir. 2000)........................................................................... 11 In re Thirteen Chapter 7 Cases of Former Trustee Germain, 182 B.R. 375 (Bankr. D. Conn. 1995)................................................................................................................................... 18 Unofficial Comm. of Zero Coupon Noteholders v. The Grand Union Co., 179 B.R. 56 (Bankr. D. Del. 1995).................................................................................................................... 18 FEDERAL STATUTES Bankruptcy Code § 1109............................................................................................................... 18 11 U.S.C. § 1109 ........................................................................................................................... 18 11 U.S.C. § 1101 et seq................................................................................................................. 18 28 U.S.C. § 158(a) .......................................................................................................................... 1 28 U.S.C. § 1738 .................................................................................................................... passim Fed. R. Civ. P. 8 ............................................................................................................................ 10 Fed. R. Civ. P. 8(a).................................................................................................................... 9, 10 Fed. R. Civ. P. 12(b) ................................................................................................................... 7, 9 -iiiTABLE OF AUTHORITIES Case No. 08-00825-SI

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TABLE OF AUTHORITIES (Cont'd) Page FEDERAL STATUTES (Cont'd) Fed. R. Civ. P. 12(b)(6)................................................................................................................. 11 Fed. R. Civ. P. 50 ............................................................................................................................ 6 STATE CASES Baxas Howell Mobley, Inc. v. BP Oil Co., 630 So. 2d 207 (Fla. Ct. App. 1993) ......................... 23 Carnival Corp. v. Middleton, 941 So. 2d 421 (Fla. Ct. App. 2006) ............................................. 24 Chaney Bldg. Co. v. City of Tucson, 716 P.2d 28 (Ariz. 1986) .................................................... 24 Dadeland Depot, Inc. v. St. Paul Fire & Marine Ins. Co., 945 So. 2d 1216 (Fla. 2006) ............. 24 Hicks v. Hoagland, 953 So. 2d 695 (Fla. Ct. App. 2007) ............................................................. 23 State Street Bank & Trust Co. v. Badra, 765 So. 2d 251 (Fla. Ct. App. 2000) ............................ 23 MISCELLANEOUS Allan Wachter, et al. v. John Lezdey, et al., Case No. CV1999-009334 (Superior Court for the State of Arizona, Maricopa County) (the "Arizona StateAction") ........................................... 5 AlphaMed Pharmaceuticals Corp. v. Arriva Pharmaceuticals, Inc., Case No. 03-20078 (S.D. Fla.) (the "Florida Federal Action") ...................................................................................... 5 1 COLLIER ON BANKRUPTCY P 1109.04[4] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev. 2007) ........................................................................................................................ 19

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STATEMENT OF APPELLATE JURISDICTION Appellant AlphaMed Pharmaceuticals Corp. ("AlphaMed") brings this appeal from the final judgment entered by the Bankruptcy Court in Adversary Proceeding No. 07-4181 in In re Arriva Pharmaceuticals, Inc., Bankruptcy Case No. 07-42767 (Bankr. N.D. Cal.). On January 11, 2008, the Bankruptcy Court entered its order dismissing AlphaMed's Complaint for Declaratory Relief with prejudice. (Combined Appendix for Appeal Nos. 08-0691, 08-0692, 080693 AND 08-0825 ("Apx.") filed concurrently at 463-66). AlphaMed timely filed its Notice of Appeal on January 23, 2008. (Apx. at 467-68). This Court has jurisdiction under 28 U.S.C. § 158(a)(1). STATEMENT OF ISSUES 1. Did the Bankruptcy Court err in granting Reorganized Debtor-Appellee Arriva

Pharmaceuticals, Inc.'s ("Arriva") motion to dismiss with prejudice AlphaMed's Complaint for Declaratory Relief on the ground that AlphaMed purportedly lacked standing? 2. Did the Bankruptcy Court err in holding alternatively that AlphaMed's Complaint

should be dismissed under the very limited Rooker-Feldman doctrine? 3. Did the Bankruptcy Court err in holding alternatively that AlphaMed's Complaint

should be dismissed based upon the full faith and credit statute, 28 U.S.C. § 1738? STANDARD OF REVIEW The Bankruptcy Court's conclusions of law are reviewed de novo, and this Court may substitute its own legal conclusions for those of the Bankruptcy Court. See In re Commercial W. Fin. Corp., 761 F.2d 1329, 1333 (9th Cir. 1985); In re Acequia, Inc., 787 F.2d 1352, 1357 (9th Cir. 1986). Mixed questions of law and fact also are reviewed de novo. Hood v. Encinitas Union Sch. Dist, 486 F.3d 1099, 1104 (9th Cir. 2007). STATEMENT OF THE CASE On August 29, 2007, Arriva filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. (Apx. at 001-003). On October 30, 2007, AlphaMed filed a Complaint for Declaratory Relief (the "AlphaMed Complaint") against Arriva in the Bankruptcy Court. (Apx. at 059-067). AlphaMed sought a declaration that a purported license agreement between Protease -1ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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Sciences, Inc. ("Protease") and Arriva (hereinafter the "Protease/Arriva License") scheduled by Arriva as an asset was not property of the estate. On November 7, 2007, Arriva moved to dismiss the AlphaMed Complaint. (Apx. at 139157). On December 13, 2007, the Bankruptcy Court held a hearing on Arriva's motion and dismissed the AlphaMed Complaint, principally on the ground that AlphaMed lacked standing. (Apx. at 469-523). On January 11, 2008, the Bankruptcy Court entered a final order dismissing the AlphaMed Complaint with prejudice. (Apx. at 463-66). This timely appeal ensued. (Apx. 46768). STATEMENT OF FACTS The AlphaMed Complaint seeks a declaration that the purported Protease/Arriva License, which is the most critical claimed asset of Arriva and the backbone of its business and reorganization plan, is not property belonging to Arriva's estate. (Apx. at 059-067). This is the type of controversy that routinely is decided by bankruptcy courts because it is essential that the assets of the debtor be determined. AlphaMed's adversary proceeding in Arriva's Chapter 11 case is part of AlphaMed's overall effort to reverse a long-running scheme by Arriva and its affiliates to wrongfully assert ownership and control over intellectual property that was fraudulently obtained by Arriva and now belongs to AlphaMed. As the history between the parties reveals, Arriva has attempted to deny AlphaMed its legal rights and has asserted rights to intellectual property that rightfully belong to AlphaMed, not Arriva. A. The History Between AlphaMed And Arriva Prior To The Commencement Of Litigation By Allan Wachter.

In the early 1990s, John Lezdey ("Lezdey"), a patent attorney, in his name and that of Allan Wachter ("Wachter"), a doctor, patented certain methods for using a protein known as Alpha1-antitrypsin ("AAT"), an anti-inflammatory agent that has proven to be very successful in treating several medical conditions (the "AAT Patents"). Thereafter, Lezdey and Wachter formed a Nevada limited liability company known as Sonoran Desert Chemicals, L.L.C. ("Sonoran"). Lezdey and Wachter assigned all of their rights in the AAT Patents to Sonoran, which was owned -2ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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by Lezdey and his entities and Wachter and his entities. Lezdey and Wachter also formed Protease to act as Sonoran's agent. (Apx. at 062). On or around December 31, 1992, Sonoran entered into an agreement with Protease (the "Protease Agency Agreement") whereby Protease was appointed as Sonoran's agent for various purposes including negotiating and entering into licensing, distribution and other agreements for and on behalf of Sonoran worldwide, subject to Sonoran's approval. (Apx. at 062). The Protease Agency Agreement specifically provided, however, that Sonoran retained all rights to the patents. (Apx. at 062, 110). The Protease Agency Agreement also expressly provided that any licensing agreement entered into by Protease had to be ratified by Sonoran. (Apx. at 062, 110). In 1997, Arriva (then known as AlphaOne Pharmaceuticals, Inc.) was incorporated in California by its founders, Lezdey, Wachter, Philip Barr ("Barr") (whom Lezdey and Wachter brought in to head up research and development work), and David Kent (whom Barr brought in to head up investment related activities). (Apx. at 062). In November 1997 Arriva and Protease signed a Term Sheet, which outlined the terms of a proposed license agreement. As a precondition to moving forward with an exclusive,

worldwide license agreement, Arriva was required to meet express financial milestones. The Term Sheet, to remain in effect for a period of twelve months, was signed by both Lezdey and Wachter. (Apx. at 063). During the spring of 1998 Arriva and Protease began negotiating the terms of a proposed license agreement that would be executed on the condition that the financial requirements and other conditions of the Term Sheet were met and all other terms and conditions were satisfactory to Lezdey and Sonoran. As a result of disagreements over the terms of the proposed license and Arriva's failure to raise the required capital, Protease consistently refused to enter into any license agreement with Arriva. (Apx. at 063). In November 1998, Lezdey, on behalf of Protease, agreed to extend the Term Sheet for an additional thirty days, through December 31, 1998, based on representations that Arriva was close to obtaining the required financing. The funding, however, was never achieved and the Term Sheet expired by its own terms on December 31, 1998. (Apx. at 063-064). -3ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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Unbeknownst to Lezdey at the time, Arriva induced Wachter, who was an officer and board member of Arriva at the time, to sign on Protease's behalf the draft Protease/Arriva License. (Apx. at 064). Wachter had no authority to sign the agreement on behalf of Protease or Sonoran. At the time the purported Protease/Arriva License was signed by Wachter, Lezdey was the president of Protease. Protease's bylaws provide that the president (Lezdey) held the office of Chief Executive Officer. (Apx. at 064, 101). Wachter was the secretary and vice president of Protease--positions that, according to the Protease bylaws, did not afford him the right to execute the purported Protease/Arriva License. Furthermore, because Protease never owned the patents, any license entered into by Protease had to be ratified by Sonoran, which it was not. (Apx. at 064). The limitation on Wachter's authority was known to Arriva and to its officers and

directors. (Apx. at 064, 386-430). Moreover, Protease did not have the ability to convey an interest in the AAT patents because all rights, title, and interest in the patents were owned by Sonoran for the United States and by Lezdey and Wachter, individually, throughout the rest of the world. Furthermore, as Arriva knew, Sonoran and Lezdey had to approve any licensing agreement entered into by Protease. Arriva did not seek or obtain Sonoran's consent and knew Lezdey did not approve or ratify the agreement on Sonoran's behalf. (Apx. at 064-065). In or around March or April 1999, based on the unauthorized and fraudulent Protease/Arriva License, Arriva entered into an unauthorized sublicense with Prometic BioSciences for exploitation of the AAT patents for dermatological applications. In or around July 1999, based on the unauthorized and fraudulent Protease/Arriva License, Arriva entered into a joint venture agreement with Baxter Healthcare Corporation for the worldwide right to make, use, and sell AAT. Arriva failed to obtain the required consent and approval of Protease or Sonoran to enter into these agreements. (Apx. at 065). Protease informed Baxter that Arriva did not have rights to the AAT patents or any license under which to issue a sublicense. In response, Arriva and Wachter filed or sponsored five separate lawsuits concurrently in four different states against John Lezdey, his family, and his companies, including a 1999 lawsuit brought in Arizona state court by Wachter and his -4ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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companies against John Lezdey, his wife Noreen, his sons Darren and Jarrett, and several of their companies. See Allan Wachter, et al. v. John Lezdey, et al., Case No. CV1999-009334 (Superior Court for the State of Arizona, Maricopa County) (the "Arizona State Action").1 B. The Florida Federal Action.

In response to wrongful conduct by Arriva, AlphaMed filed a lawsuit against Arriva in the United States District Court for the Southern District of Florida alleging misappropriation of trade secrets, tortious interference with business relations, and unfair competition. See AlphaMed Pharmaceuticals Corp. v. Arriva Pharmaceuticals, Inc., Case No. 03-20078 (S.D. Fla.) (the "Florida Federal Action"). The case was tried to a jury and after a three and a half month trial resulted in a unanimous jury verdict in favor of AlphaMed against Arriva for $78 million, including $30 million in punitive damages. During the more than three months of trial, the validity of the purported Protease/Arriva License was directly at issue. The jury ultimately returned a special verdict specifically finding that the Protease/Arriva License was invalid and that Arriva knew that it was invalid. (Apx. at 301-302).
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On February 2, 2000, Wachter obtained a preliminary injunction in the Arizona State Action enjoining John Lezdey and his family from acting on behalf of Protease or Sonoran or contacting any business prospects of Protease's without Wachter's consent. (Apx. at 359-367). Just prior to the trial, the Arizona court entered judgment in favor of Wachter and against Darren and Jarett Lezdey on the issue of liability as a discovery sanction. (Apx. at 363-364). The trial on the issue of damages proceeded against John Lezdey's family in abstentia, and the Arizona court ultimately entered a judgment against Noreen, Darren and Jarett Lezdey, and J.L. Technology in favor of Wachter. (Apx. at 381-385). The Court also entered a Permanent Injunction (Apx. 162176), which, among other things, purported to find that the draft license agreement between Protease and Arriva signed by Wachter was in effect because Lezdey advised Wachter that the agreement was valid and authorized Wachter to sign the agreement--a finding that a federal jury in Florida unanimously rejected (after hearing all of the evidence and arguments presented by both Arriva and AlphaMed). The validity of the Protease/Arriva License was not actually litigated on the merits because the so-called factual findings set forth in the Permanent Injunction were the product of a default judgment against the defendants who were not represented by counsel. Those findings were prepared by counsel and signed virtually verbatim by the Arizona court. (Apx. at 162-176). By their express terms, none of the Arizona injunctions bind AlphaMed. (Apx. at 359, 162-176, 178-181). Indeed, neither AlphaMed nor Arriva were parties to the Arizona State Action. In addition, John Lezdey is not bound by the Permanent Injunction or judgment entered by the Arizona court because he filed for personal bankruptcy on January 14, 2002, prior to the commencement of the Arizona trial. (Apx. at 368-380). To date, Arriva has failed to obtain a permanent injunction against Mr. Lezdey in the Arizona State Action. (Apx. at 310-346). -5ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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Specifically, when asked by an interrogatory to specify unauthorized acts of Arriva, the jury foreperson wrote out in longhand the following jury finding: When AlphaOne/Arriva improperly accepted the signature of Alan [sic] Wachter as Protease Science CEO the process of unfair competition began as the Protease Science By-Laws do not provide for said office and give authority for signing contracts to the President. (Apx. at 066; Apx. at 301-302). Following trial, Arriva moved for and obtained a post-verdict judgment as a matter of law (the "JNOV") under Federal Rule of Civil Procedure 50(b). The Florida District Court ultimately granted post-trial relief to Arriva on the narrow ground that AlphaMed, as a start-up company, failed to prove lost profit damages (a finding that AlphaMed vigorously contests and has appealed to the Eleventh Circuit Court of Appeals). Significantly, however, the Florida District Court did not overturn or set aside the jury's special verdict as it relates to the invalidity of the Protease/Arriva License or Arriva's tortious actions against AlphaMed. Indeed, Arriva never challenged the jury's factual findings regarding liability. To the contrary, as the District Court correctly recognized, "AlphaMed presented competent and sufficient evidence to prove to the jury's satisfaction that 1) Arriva and Spinelli exhibited tortious and anti-competitive behavior, and that 2) AlphaMed was unable to execute its business plan." AlphaMed, 432 F. Supp. 2d at 1334. The District Court entered its JNOV solely because it concluded (erroneously) that

AlphaMed had failed to "link these findings" regarding Arriva's conduct to the actual damages suffered by AlphaMed in the form of lost anticipated profits. Id.2 AlphaMed's lawsuit against Arriva is significant because it is the one and only time the validity of the purported Protease/Arriva License, which is the most critical claimed asset of Arriva and the backbone of its reorganization plan, actually has been litigated by a party to the alleged license. ///

The Florida District Court's erroneous decision on damages is the key issue in AlphaMed's pending appeal before the Eleventh Circuit, which is scheduled to hear oral argument on the matter on August 27, 2008. -6ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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C.

The Bankruptcy Court's Erroneous Dismissal Of The AlphaMed Complaint Seeking A Determination That The Protease/Arriva License Is Invalid.

On October 30, 2007, AlphaMed filed a Complaint for Declaratory Relief against Arriva in the Bankruptcy Court in Adversary Proceeding No. 07-4181. (Apx. at 059-067). AlphaMed sought a determination that the purported Protease/Arriva License was not property of the estate. In demonstrating particularized injury to itself and distinguishing itself from the other bankruptcy creditors, AlphaMed alleged in paragraph 5 of the AlphaMed Complaint that it "is a creditor of the Debtor, and has an interest in the intellectual property that is the subject of the purported license agreement . . . ." (Apx. at 060). AlphaMed further alleged in paragraph 11 of the Complaint that it received the interest in the property "by assignment" from Sonoran. (Apx. at 061). On December 13, 2007, the Bankruptcy Court held a hearing and dismissed the AlphaMed Complaint. (Apx. at 469-523). The Court set forth several reasons to support its ruling. First, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Bankruptcy Court held that AlphaMed had no standing to bring the adversary action. The Court concluded that AlphaMed had not alleged "any particularized injury" because it was "not trying to quiet [its] own title to anything." (Apx. at 514). According to the Bankruptcy Court, because AlphaMed was seeking a declaration that a particular asset was not property of the estate, as opposed to a declaration that the asset was part of the estate, AlphaMed's cause of action was too generalized and there was "no specific injury" alleged. (Apx. at 514-515). According to the Bankruptcy Court, "[i]f there were standing to assert such a cause of action it would lie in every single creditor in the estate," and "the law is that not every single creditor in the estate has the right to prosecute actions to determine what is and isn't property of the estate . . . ." (Apx. at 515). In so ruling, the Bankruptcy Court expressly rejected AlphaMed's reliance on the decisions in In re Catholic Bishop of Spokane, 329 B.R. 304 (Bankr. D. Wash. 2005), and Committee of Tort Litigants v. The Catholic Diocese of Spokane, 2006 U.S. Dist. LEXIS 6025 (E.D. Wash. Jan. 24, 2006), which held that a creditor had standing to seek a declaration as to whether assets are part of the bankruptcy estate. The Bankruptcy Court initially attempted to -7ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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distinguish Catholic Diocese. The Bankruptcy Court first found it significant that the case involved "an action to bring in property of the estate not to exclude property from the estate." (Apx. at 515). The Court further stated that unlike the party in Catholic Diocese, AlphaMed was not a creditor on the record before it. The Bankruptcy Court, however, also went further and rejected Catholic Diocese outright on the ground that it was "wrongly decided" and "I don't want to follow it." (Apx. at 515). The Bankruptcy Court stated that "to the extent Catholic Diocese would support AlphaMed's position, I decline to follow it and believe that it is not correctly decided." (Apx. at 516-517). As an alternative ground for dismissing the AlphaMed Complaint, the Bankruptcy Court stated that "AlphaMed is, indeed, subject to the Rooker-Feldman doctrine." (Apx. at 517). However, the Bankruptcy Court never explained how AlphaMed could be bound by the Arizona State Action given that AlphaMed was never a party to that action and was thus not a "losing party" to the state proceedings--a necessary requirement for applying the Rooker-Feldman doctrine. (Apx. at 517). Finally, the Bankruptcy Court stated that "[o]n top of Rooker-Feldman there is . . . 28 U.S.C. 1738, which is a full-faith-and-credit statute which requires Federal Courts [to] give full faith and credit to decisions of state courts. And here, I have to give full faith and credit to the Florida court's ruling." (Apx. at 517). The Bankruptcy Court never provided additional

reasoning to support this alternative ruling. It did not explain how the Florida litigation (which was a federal action, not state action) supported the dismissal of the AlphaMed Complaint given that there was no finding in that lawsuit that the Protease/Arriva License was valid. To the contrary, the Florida jury in the Florida Federal Action unanimously found that the Protease/Arriva License was invalid and that Arriva knew that it was invalid. (Apx. at 301-302). /// /// /// /// /// -8ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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ARGUMENT The Bankruptcy Court erred in dismissing the AlphaMed Complaint. In concluding that AlphaMed lacked standing to seek a declaration that the Protease/Arriva License was invalid and thus did not belong to Arriva's estate, the Bankruptcy Court rejected well-reasoned bankruptcy authority that is directly on point and which fully supports AlphaMed's standing in this case. The Bankruptcy Court also erred as a matter of law in alternatively relying upon the Rooker-Feldman doctrine to give effect to the findings in the Arizona State Action in order to preclude AlphaMed from seeking declaratory relief in bankruptcy court in this case. explained below, the Bankruptcy Court failed to apply the basic elements of this doctrine. Finally, the Bankruptcy Court erred in invoking 28 U.S.C. § 1738 to dismiss the AlphaMed Complaint based on the Florida Federal Action. The Florida action actually supports (not defeats) AlphaMed's claim for declaratory relief because the jury unanimously found that the Protease/Arriva License was in fact invalid. For the reasons set forth below, the Bankruptcy Court's decision dismissing the AlphaMed Complaint should be reversed. I. THE BANKRUPTCY COURT ERRED IN HOLDING THAT ALPHAMED LACKED STANDING. As the allegations of the Complaint demonstrate, AlphaMed has pled sufficient facts to establish its standing to seek declaratory relief. The Bankruptcy Court's holding to the contrary directly conflicts with the letter and intent of the bankruptcy laws. The Bankruptcy Court erred in granting Arriva's motion to dismiss under Federal Civil Rule 12(b)(6). A. The AlphaMed Complaint Satisfies The Notice Pleading Requirements Under The Federal Civil Rules. As

First, as an initial matter, the AlphaMed Complaint clearly satisfies the minimal notice pleading requirements under the Federal Rules. A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. See Fed. R. Civ. P. 12(b)(6). Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires only a "short and plain statement of the claim showing that the pleader is entitled to -9ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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relief." Fed. R. Civ. P. 8(a). "The Rule 8 standard contains `a powerful presumption against rejecting pleadings for failure to state a claim.'" Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 249 (9th Cir. 1997) (citations and quotations omitted). A complaint need only set forth enough facts to state a claim to relief that is "plausible on its face." See Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1974 (2007). Thus, after accepting the factual allegations as true (which this Court must do), the claims must only be plausible (which is consistent with the minimal notice pleading requirements of Civil Rule 8). Id. at 1965. As the United States Supreme Court has stated, "[s]pecific facts are not necessary; the statement need only `give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Erickson v. Pardus, 127 S. Ct. 2197, 2200 (2007) (quoting Twombly, 127 S. Ct. 1955). The AlphaMed Complaint clearly satisfies these pleading requirements. In paragraph 5 of the AlphaMed Complaint, AlphaMed alleged that it "is a creditor of the Debtor, and has an interest in the intellectual property that is the subject of the purported license agreement . . . ." (Apx. at 060). AlphaMed further alleged in paragraph 11 of the Complaint that it received the interest in the property "by assignment" from Sonoran. (Apx. at 061). Thus, AlphaMed plainly and concisely alleged that it owns an interest in property that Arriva falsely claimed was property of the estate. The AlphaMed Complaint is also plausible. Since the so-called factual findings from the Arizona State Action do not--and cannot--have preclusive effect against AlphaMed in this case (under any theory advanced by Arriva), there is no other judicial decision establishing that the purported Protease/Arriva License is valid. Quote to the contrary, the jury in the Florida Federal Action unanimously found that the Protease/Arriva License was invalid and that Arriva knew that it was invalid. (Apx. at 301-302). Thus, the AlphaMed Complaint plausibly alleges that

AlphaMed owns an interest in property that is the subject of the invalid Protease/Arriva License, and that AlphaMed received that interest "by assignment" from Sonoran. See Twombly, 127 S. Ct. at 1965.3
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The fact that Arriva disputed the validity of the assignment does not affect the plausibility of AlphaMed's allegations. To the contrary, if Arriva believed that AlphaMed's interest in the -10ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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For these reasons, the Bankruptcy Court erred in holding that the AlphaMed Complaint failed to satisfy the pleading requirements under the Federal Rules.4 B. AlphaMed Has Standing To Seek Declaratory Relief.

The Bankruptcy Court erred in holding that AlphaMed lacked standing to seek a declaration that the purported Protease/Arriva License is not property of Arriva's estate. Courts in very similar cases have held that parties such as AlphaMed have standing to seek declarations to determine whether certain assets are part of the bankruptcy estate. Indeed, courts properly have recognized that such adversary proceedings should be encouraged, not dismissed. In this case, AlphaMed's adversary proceeding is especially important because it addresses the single most critical claimed asset of Arriva upon which its entire business enterprise hinges. Lack of standing is a "subspecies of dismissal for failure to state a claim under Fed. R. Civ. P. 12(b)(6)." In re Stoll, 252 B.R. 492, 495 (B.A.P. 9th Cir. 2000). There is a two-part analysis for determining standing, as set forth by the bankruptcy court in In re Catholic Bishop of Spokane, 329 B.R. 304 (Bankr. D. Wash. 2005), aff'd in relevant part, Catholic Diocese, 2006 U.S. Dist. LEXIS 6025: (1) Does the subject matter of the complaint present a justiciable controversy?

intellectual property at issue is invalid or that the AlphaMed assignment from Sonoran is ineffective, then it could take discovery to disprove AlphaMed's interest. See In re Phenylpropanolamine (PPA) Liab. Litig., 460 F.3d 1217, 1240 (9th Cir. 2006) (stating that discovery reveals what evidence the opposing party has, thereby helping determine which facts are truly undisputed). But AlphaMed was not required to plead more detail in order to state a clam for relief, and it should not have been required to prove its case at the pleading stage. For purposes of Rule 12(b)(6), AlphaMed alleged sufficient facts demonstrating that it has suffered or is threatened with a "distinct and palpable injury to [itself]" to satisfy the constitutional requirements for standing. Fisher v. Tucson Sch. Dist., 625 F.2d 834, 837 (9th Cir. 1980) (emphasis added). To the extent the Bankruptcy Court concluded that AlphaMed failed to allege sufficient facts to state a claim (and more should not be required), the Bankruptcy Court should have granted AlphaMed leave to amend. The Ninth Circuit consistently has held that "leave to amend should be granted unless the district court determines that the pleading could not possibly be cured by the allegation of other facts." Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (holding that plaintiff shall be permitted to amend) (citation and internal quotations omitted). "Rule 15's policy of favoring amendments to pleadings should be applied with `extreme liberality.'" DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987) (reversing denial of leave to amend) (emphasis added). -11ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI
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(2)

Does the person seeking the relief have a direct interest in the resolution of the controversy?

Id. at 316. See also Sierra Club v. Morton, 405 U.S. 727, 731 (1972) (standing requires a "sufficient stake in an otherwise justiciable controversy"); Or. Advocacy Ctr. v. Mink, 322 F.3d 1101, 1108 (9th Cir. 2003) (asking whether plaintiff has "alleged" a "personal stake in the outcome of the controversy") (citation omitted). The AlphaMed Complaint satisfies each of these elements and thus states a cognizable claim for relief. 1. The AlphaMed Complaint Sets Forth a Justiciable Controversy.

First, the AlphaMed Complaint sets forth a justiciable controversy. As the allegations of the AlphaMed Complaint demonstrate, there exists a live dispute regarding whether a valuable asset--the purported Protease/Arriva License--is actually owned by Arriva. As explained above, the alleged Protease/Arriva License is the single most critical claimed asset of Arriva and the backbone of its reorganization plan. Without this asset, Arriva's entire business enterprise is in jeopardy. This is the type of controversy that should be decided (and routinely is decided) by the bankruptcy courts. See In re Catholic Bishop of Spokane, 329 B.R. at 316 ("As the identification of property of the estate constitutes a core proceeding arising under Title 11 and is an issue necessarily addressed in every case arising under Title 11, there can be no doubt that this is the type of controversy which is to be addressed in a judicial proceeding."); Catholic Diocese, 2006 U.S. Dist. LEXIS 6025, at *16 ("It is at the heart of a Chapter 11 bankruptcy proceeding as to what the assets are of the debtor, so that the creditors who vote upon a reorganization plan and the Bankruptcy Court can have before it a full understanding of what is available to satisfy the claims of the creditors."). In moving to dismiss, Arriva never disputed that the AlphaMed Complaint sets forth a justiciable controversy. The Bankruptcy Court also never held otherwise. Thus, it is clear that the AlphaMed Complaint satisfies the first part of the two-part test for determining standing. /// -12ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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2.

AlphaMed Has a Direct Interest in the Resolution of the Controversy.

Second, AlphaMed also alleged a sufficient stake in the resolution of this justiciable controversy to seek relief from the Bankruptcy Court, thus satisfying the second part of the twopart test for standing. The allegations in the AlphaMed Complaint demonstrate that AlphaMed has suffered direct injury, as found by the jury in the Florida District Court litigation, and thus it has a direct interest and personal stake in the resolution of the controversy regarding the validity of the Protease/Arriva License. Accepting the facts of the Complaint as true (as the Bankruptcy Court was required to do), AlphaMed alleged it has received "by assignment" from Lezdey ("as inventor") and Sonoran an interest in the property that AlphaMed seeks to have excluded from Arriva's estate. (Apx. at 061). AlphaMed clearly has a sufficient interest in the property, and if AlphaMed prevails in this action, that property would not be subject to the claims of other creditors. Ultimately, the issue before this Court regarding AlphaMed's standing is simple and can be illustrated by the following example: Party A owns the prized football caught by Dwight Clark from Joe Montana in the 1982 NFC championship game against the Dallas Cowboys. Party B files for bankruptcy. Party B lists the prized football as an asset of the bankrupt estate and has possession of the football. The issue is whether Party A has standing to file a complaint in an adversary proceeding in bankruptcy court seeking a declaration that the football is not part of the estate because Party A (not Party B) owns the football, and Party A wants to build a museum devoted to great moments in 49ers history. As part of its Complaint, Party A alleges that it has an interest in the football (to which Party B wrongfully is claiming ownership). In a similar fashion, AlphaMed has alleged an interest in property that wrongfully has been included in Arriva's bankruptcy estate, and it seeks a declaration that the property is not part of the estate because it rightfully belongs to AlphaMed. AlphaMed, moreover, also claims to be a creditor of Arriva based on the jury's findings in the Florida Federal Action. The question is whether, under the facts alleged in the AlphaMed Complaint, AlphaMed has alleged a direct interest and personal stake in the outcome of the bankruptcy proceeding to satisfy the -13ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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requirements for standing. Courts directly addressing this issue have said yes. The exercise of a creditor's right to seek such declaratory relief recently was affirmed by the well-reasoned decisions in the Catholic Diocese case, which involved an appeal from the bankruptcy court's denial of the debtor's motions to dismiss two adversary proceedings, one initiated by an individual unsecured creditor and the other initiated by a creditor's committee. See Catholic Diocese, 2006 U.S. Dist. LEXIS 6025, at *14-*17. Both adversary proceedings sought a declaration regarding whether certain assets were part of the bankruptcy estate. In moving to dismiss the actions, the debtor contended (among other things) that the individual creditor and the committee lacked standing. Both the bankruptcy court and the district court soundly rejected this argument. Id. at *16-*17. In affirming the bankruptcy court's denial of the motions to dismiss, the district court recognized that "[c]learly it is essential that the assets of the debtor . . . be determined." Id. at *9. The district court pointed out that the bankruptcy judge, in her opinion, "not only denied the jurisdictional and standing Motions to Dismiss, but also tacitly approved the bringing of the adversary complaints, because if the actions had not been brought, there is no way the creditors and the Court could know what assets are available for creditors' claims." Id. at *16-*17 (emphasis added). The court ultimately found that the adversary proceedings were consistent with the policy and procedure of Chapter 11. Id. at *14-*15. Despite the fact that the Catholic Diocese case is directly on point, the Bankruptcy Court rejected it. The Bankruptcy Court ignored that the decisions in Catholic Diocese did not turn on the distinction between determining that certain property was part of the estate as opposed to determining that it was outside the estate. To the contrary, such an artificial distinction directly conflicts with Catholic Diocese's stated policy of encouraging adversary complaints so that the assets of the debtor can be determined (which furthers the goals of bankruptcy law). See Catholic Diocese, 2006 U.S. Dist. LEXIS 6025, at *16-*17. It is neither startling nor unusual for a bankruptcy court to hear one creditor claim that a particular piece of property or asset is or is not property of the estate. Bankruptcy courts routinely address such questions. As Catholic Diocese makes clear, AlphaMed has the right to -14ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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show how and why a valuable asset is not property of the estate. See Catholic Diocese, 2006 U.S. Dist. LEXIS 6025, at *8 ("Under the circumstances of this case, a Chapter 11 reorganization proceeding, it is essential that the creditors and the court know what the assets of the estate are in order to vote and rule upon a Chapter 11 reorganization plan."). To hold otherwise, as the Bankruptcy Court did, is "contrary to the letter and intent of the bankruptcy laws" because it "prevent[s] the court and the creditors from having full information as to all assets of the debtor in voting and ruling upon a Chapter 11 reorganization plan." Id. at *15 (emphasis added).

Moreover, "[p]recluding creditors from disputing a Chapter 11 debtor's identification of property of the estate could easily result in rewarding dishonest or improperly motivated debtors." See In re Catholic Bishop of Spokane, 329 B.R. at 314.5 After failing to meaningfully distinguish the Catholic Diocese case, the Bankruptcy Court went further and rejected the case in its entirety, claiming that it violated Ninth Circuit law. The Bankruptcy Court cited three cases to support its dismissal of AlphaMed's Complaint: In re Fondiller, 707 F.2d 441 (9th Cir. 1983), Kalb, Voorhis & Co. v. American Financial Corp., 8 F.3d 130 (2d Cir. 1993), and In re Folks, 211 B.R. 378 (9th Cir. B.A.P. 1997). Each of these cases, however, is inapposite and does not support the Bankruptcy Court's ruling. First, the Fondiller case clearly misses the mark. It was a Chapter 7 case that involved the issue of appellate standing under the so-called "person aggrieved" test derived from section 39c of the Bankruptcy Act of 1898. The appellant had argued that she had standing to appeal an order of the bankruptcy court authorizing the employment of a law firm as special counsel for the bankruptcy trustee. See In re Fondiller, 707 F.2d at 441. The court disagreed and held that the order appointing the special counsel had "no direct and immediate impact on appellant's pecuniary interests" because the employment of counsel was "for the exclusive purpose of representing the trustee in an attempt to recover assets allegedly concealed by the appellant and the debtor [appellant's husband]." Id. at 443. As a result, appellant's "only demonstrable

Discouraging improper behavior, of course, is a genuine concern in this case given the wrongful conduct committed by Arriva as unanimously found by the jury in the Florida Federal Action. -15ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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interest" in the order was "as a potential party defendant in an adversary proceeding," and thus she was not a "person aggrieved." Id. As the facts and holding from this case make clear, Fondiller is not on point. It does not address the rights of a creditor to seek a declaration that a key asset is or is not part of the bankruptcy estate, as Catholic Diocese recognized. The Kalb and Folks cases likewise do not support the Bankruptcy Court's ruling. Both cases involved the question (irrelevant in this case) of whether a party lacked standing to raise an alter ego claim because the claim, as determined under applicable state law in each case, was property of the bankruptcy estate and therefore the bankruptcy trustee had exclusive standing to bring the claim. See Kalb, Voorhis, 8 F.3d at 135; In re Folks, 211 B.R. at 389 (holding that CBS, a creditor, lacked standing to pursue a complaint against the debtor Folks (an individual), who CBS alleged was the alter ego of BYCA, a debtor corporation that owed CBS money, because the alter ego claim was the property of BYCA's bankruptcy estate, not CBS). The Kalb case is particularly inapposite because that case was not even filed in bankruptcy court. It was filed in a federal district court in New York. The Second Circuit held that the appellant had no standing outside of the bankruptcy proceedings to assert the bankrupt corporation's alter ego claim against a defendant shareholder because that claim, under applicable Texas law which applied in the case, belonged to the bankruptcy estate. See Kalb, Voorhis, 8 F.3d at 135 ("As a creditor of Circle K, Appellant has no standing to assert Circle K's alter ego claims against AFC outside the Circle K bankruptcy proceedings. Under applicable Texas state law, such claims belong to the bankruptcy estate."). Clearly, none of the cases cited by the Bankruptcy Court address the standing issues that correctly are raised by the Catholic Diocese case. In dismissing the AlphaMed Complaint, the Bankruptcy Court expressed its concern that "[i]f the Catholic Diocese [case] is correct, then any creditor can bring any action to exclude property or bring property into the estate without any particularized injury whatsoever. And I just don't think that's the law." (Apx. at 516). AlphaMed, however, never argued for a rule of law that would allow anyone to walk into bankruptcy court to seek declaratory relief. Nor does Catholic Diocese stand for such a proposition. The Bankruptcy Court ignored the critical fact -16ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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that AlphaMed is not a stranger or a third party to the intellectual property at issue in this case. To the contrary, AlphaMed has alleged specific facts in the Complaint demonstrating that it has a direct interest in the intellectual property that is the subject of the purported Protease/Arriva License, and thus it properly seeks a determination that the purported License is not property of the estate (because it belongs to AlphaMed). This distinguishes AlphaMed from all other parties who do not have such an interest (and who would not have standing to bring this action). Ultimately, in dismissing AlphaMed's Complaint on standing grounds, the Bankruptcy Court stated that only the debtor in possession (here Arriva) can bring an action to determine whether certain property should be brought into the bankrupt estate or excluded from the estate. (Apx. at 516) ("[Y]ou can only have one party doing that . . . [a]nd that's the representative of the estate, in this case the debtor-in-possession without all of the creditors running around willynilly bringing actions to bring in property of the estate or to exclude property of the estate."). It only requires a quick overview of the facts and circumstances of this case to recognize that the Bankruptcy Court's decision is fundamentally wrong. Here, the AlphaMed Complaint seeks a declaration that Arriva's most critical key asset is invalid and does not belong to Arriva. Obviously, Arriva--the proverbial fox guarding the hen house--would never have the incentive to bring an action in bankruptcy court to challenge its own key asset (particularly if it was unlawfully obtained, as the jury determined in the Florida Federal Action). Only AlphaMed, who alleges an interest in that asset and ultimately claims ownership, would have the incentive to bring such a challenge. In this sense, AlphaMed is like the owner of the Joe Montana football who initiates an adversary proceeding seeking a declaration that the prized football does not belong to the debtor, who wrongfully is claiming that the football is part of the bankrupt estate and thus is subject to other creditors. As the court in Catholic Diocese properly recognized, bankruptcy courts should encourage, rather than dismiss, these types of adversary proceedings because "it is essential that the assets of the debtor . . . be determined." Catholic Diocese, 2006 U.S. Dist. LEXIS 6025, at *9, *16-*17 (recognizing that if such actions are not brought, "there is no way the creditors and the Court could know what assets are available for creditors' claims") (emphasis added). -17ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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The Bankruptcy Court erred in rejecting the Catholic Diocese case, and its decision dismissing the AlphaMed Complaint should be reversed. AlphaMed clearly has standing to seek declaratory relief that the purported Protease/Arriva License is invalid. 3. AlphaMed Established Standing by Demonstrating that it is a Partyin-Interest with Both a Financial Interest and Practical Stake in the Outcome of Debtor Arriva's Chapter 11 Bankruptcy.

In dismissing the AlphaMed Complaint, the Bankruptcy Court also ignored AlphaMed's argument that it has standing as a "party in interest" in the adversary proceeding. Bankruptcy Code § 1109 provides that a "party in interest" may "raise and may appear and be heard on any issue in a case under this chapter [11 USCS §§ 1101 et seq.]." 11 U.S.C. § 1109(b) (emphasis supplied); see also Unofficial Comm. of Zero Coupon Noteholders v. The Grand Union Co., 179 B.R. 56, 58 (Bankr. D. Del. 1995) (holding that zero coupon noteholders were "parties in interest" under § 1109(b) such that they had standing to be heard, even though they were not creditors or shareholders and did not have any direct claim to the debtor's assets). While "party in interest" is not defined by the Bankruptcy Code, it "is generally understood to include all persons whose pecuniary interests are directly affected by the bankruptcy proceedings." In re Thirteen Chapter 7 Cases of Former Trustee Germain, 182 B.R. 375, 377-78 (Bankr. D. Conn. 1995) (quoting In re Hutchinson, 5 F.3d 750, 756 (4th Cir. 1993)). To be a "party in interest," an entity need not be a creditor holding a claim against the debtor. Rather, if the entity has a practical or sufficient stake in the outcome of the proceedings, "fundamental fairness" requires that it be afforded an opportunity to be heard on the issues that affect it. In re Peachtree Lane Assocs., Ltd., 188 B.R. 815, 827 (N.D. Ill. 1995) ("fundamental fairness requires that those who have a practical stake in the proceedings be afforded an opportunity to be heard on the issues that affect them"). Accordingly, even if AlphaMed did not hold a "claim" against Arriva, its pecuniary interest and practical stake in the outcome of this adversary proceeding (seeking a determination that the purported Protease/Arriva License is not part of Arriva's estate and alleging an interest in the intellectual property that is the subject of the purported license agreement) clearly affords it a right to be heard. Moreover, the Article III case or controversy requirements for standing are met -18ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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when a party in interest participates in an adversary proceeding that may affect the ultimate disposition of that party's stake in the Chapter 11 case as a direct result of the adversary proceeding. See 1 COLLIER ON BANKRUPTCY P 1109.04[4] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev. 2007). The participation of a "party in interest" in an adversary proceeding "almost always" satisfies the standing requirement under Article III. COLLIER at 1109.04[4][4][a]. Standing is satisfied where a participant holds a financial stake in the outcome of the adversary proceeding such that it gives the party in interest an appropriate incentive to litigate to protect its interests. COLLIER at 1109.04[4][a]. See also In re James Wilson Assocs., 965 F.2d 160, 168 (7th Cir. 1992); Int'l Trade Admin. v. Rensselaer Polytechnic Inst., 936 F.2d 744, 747 (2d Cir. 1991). Hence, in this case, even if AlphaMed does not hold a "claim" against Arriva, its financial stake in the outcome of this adversary proceeding clearly satisfies Article III case or controversy requirements for standing. The Bankruptcy Court, however, in fact recognized that AlphaMed holds a claim against Arriva by making Arriva's reorganization plan subject to the outcome of AlphaMed's Eleventh Circuit appeal.6 For these various reasons, the Bankruptcy Court erred as a matter of law in holding that AlphaMed lacked standing to seek a declaration that the purported Protease/Arriva License is invalid. II. THE BANKRUPTCY COURT ERRED IN ALTERNATIVELY HOLDING THAT THE ALPHAMED COMPLAINT SHOULD BE DISMISSED UNDER THE ROOKER-FELDMAN DOCTRINE. In addition to its erroneous holding that AlphaMed lacked standing to seek declaratory relief, the Bankruptcy Court also erred as a matter of law in alternatively holding that the RookerFeldman doctrine required the Bankruptcy Court to give effect to so-called factual findings made in the Arizona State Action regarding the purported validity of the Protease/Arriva License. As explained below, the Rooker-Feldman doctrine only applies to losing parties in a state court proceeding. It does not apply to "non-parties." Here, it is uncontroverted that AlphaMed was never a party to the Arizona State Action, and therefore it is not a losing party seeking to appeal
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In addition, AlphaMed hereby incorporates the arguments set forth in AlphaMed's Opening Brief in Appeal from Disallowance of Proof of Claim, filed in Case No. 08-0691. -19ALPHAMED'S APPEAL FROM ADVERSARY PROCEEDING Case No. 08-00825-SI

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or overturn an unfavorabl