Field Intelligence Inc. v. Xylem Dewatering Solutions Inc.

• Decision Date: 13 September 2022
• Docket Number: 21-2087
• Citation: 49 F.4th 351
• Parties: FIELD INTELLIGENCE INC v. XYLEM DEWATERING SOLUTIONS INC, Appellant
• Court: U.S. Court of Appeals — Third Circuit

49 F.4th 351

FIELD INTELLIGENCE INC
v.
XYLEM DEWATERING SOLUTIONS INC, Appellant

No. 21-2087

United States Court of Appeals, Third Circuit.

Argued on January 11, 2022
Opinion filed: September 13, 2022

Christopher Larus, Benjamen C. Linden, Rajin S. Olson, David A. Prange (Argued), Robins Kaplan, 800 LaSalle Avenue, 2800 LaSalle Plaza, Minneapolis, MN 55402, Counsel for Appellant

Aaron M. Frankel (Argued), Kramer Levin Naftalis & Frankel, 1177 Avenue of the Americas, New York, NY 10036, Counsel for Appellee

Before: AMBRO, BIBAS, and ROTH, Circuit Judges

OPINION OF THE COURT

AMBRO, Circuit Judge

Two companies, Xylem Dewatering Solutions and Field Intelligence, entered into two contracts. The first contained an arbitration provision; the second required the parties to litigate their disputes. As sure as Camille coughing in the first scene and dying of consumption in the last, a conflict arose between the businesses. Field Intelligence filed suit in federal court alleging a breach of their second agreement. Xylem, unconvinced that Field Intelligence's lawsuit did not implicate the parties' first contract, filed an arbitration demand and moved to stay the federal litigation pending the outcome of the arbitration.

Field Intelligence protested. It asked the District Court to hold that the parties' second contract superseded the first such that the arbitration provision contained in that earlier agreement was no longer in effect. While disputing this interpretation of the contracts, Xylem responded that Field Intelligence's supersession challenge could, per the first contract's arbitration provision, only be decided by an arbitrator. The Court disagreed. It held, first, that it had authority to decide the supersession issue and, second, that the parties' later agreement did supersede their earlier contract, thereby eliminating any duty to arbitrate. Xylem appeals both rulings.

We agree with the District Court that it was authorized to determine whether the parties' second agreement superseded, and hence replaced, their first. But we disagree that the first agreement was superseded. We therefore reverse in part, vacate in part, and remand for further proceedings.

I. Background

Xylem is a water technology company that manufactures and sells large-capacity water pumps. It wanted a better way for its customers to monitor those pumps remotely. In 2012 it called on Field Intelligence to develop a custom telematics solution that would consist of hardware built to interface with the pumps ("Hardware Units" or "Units"), and computer software

49 F.4th 354

and support services for monitoring and controlling the equipment.

Two contracts followed. The first, in 2013, was a "Non-Disclosure Agreement." It governed the disclosure and protection of "certain information and related materials" that the parties considered to be "confidential and secret and in which each has a proprietary interest" in connection with their "development of a custom telematics solution." Appx. 531. Significantly, the agreement contained an arbitration provision requiring that any "dispute, controversy or claim arising out of or in connection with this Agreement, or the breach, termination or invalidity thereof," be "settled by arbitration in accordance with the Rules of the American Arbitration Association." Id. at 533.

The parties launched the first-generation Hardware Units shortly thereafter. Second-generation Units became available around December 2014. Xylem purchased them from Field Intelligence via written Purchase Orders. It also purchased monthly subscriptions that permitted Xylem's customers to access and use Field Intelligence's software via satellite or cellular networks, thereby allowing them to monitor and control their Xylem pumps using the Hardware Units.

There was no written agreement governing Xylem's software subscription purchases until 2017, when the parties signed the second contract relevant to this dispute: the "Software Subscription Service Agreement." It states that Field Intelligence is "the owner of certain proprietary computer software" and "sells subscriptions for subscribers to access and use" that software. Id. at 535. The contract allowed Xylem to access the software via a Field Intelligence-hosted website and provided subscription terms and monthly fees based on the number of Hardware Units actively deployed in the field.

The 2017 agreement also contained an "integration clause" (known also as a "merger clause") stating that "[t]his Agreement constitutes the entire agreement between the parties with respect to its subject matter, and supersedes any and all prior or contemporaneous understandings or agreements whether written or oral." Id. at 540. And, unlike its predecessor, the 2017 contract contained no arbitration provision, instead requiring any "action under or concerning" that contract to be litigated in a state or federal court in New Jersey. Id. at 539.

Eventually, Xylem began building its own hardware. Suspecting Xylem had developed its product by reverse-engineering the Units, Field Intelligence sued it for breach of the 2017 contract, among other things. Per that contract's forum-selection provision, Field Intelligence filed its action in the U.S. District Court for the District of New Jersey. Its complaint did not mention the 2013 contract, let alone allege any breach of that first agreement.

Xylem moved to dismiss on the following rationale: Field Intelligence could not maintain its breach-of-contract claim because, even if Xylem had reverse-engineered the Hardware Units, the 2017 agreement did not bar it from doing so. The District Court rejected that interpretation of the contract and denied Xylem's motion to dismiss in part.

The parties then moved to discovery. Xylem sent Field Intelligence an interrogatory request asking if it intended to rely on the parties' 2013 contract to support any of its claims. Field Intelligence responded that

Xylem breached the provisions [of the 2013 contract] by copying the design and functionality of the [Hardware Units], modifying [them], using [them] to test and develop Xylem's knock off designs,

49 F.4th 355

sending [them] to APD&M for purposes of developing

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