Gray Holdco Inc. v. Cassady

• Decision Date: 17 August 2011
• Docket Number: No. 10–4325.,10–4325.
• Citation: 32 IER Cases 1182,654 F.3d 444
• Parties: GRAY HOLDCO, INC., Appellantv.Randy CASSADY and RWLS, LLC.
• Court: U.S. Court of Appeals — Third Circuit

654 F.3d 444

32 IER Cases 1182

GRAY HOLDCO, INC., Appellant

v.Randy CASSADY and RWLS, LLC.

No. 10–4325.

United States Court of Appeals, Third Circuit.

Submitted Pursuant to Third Circuit LAR 34.1(a) June 23, 2011. Filed: Aug. 17, 2011.

Ryan P. Hartman, Fulbright & Jaworski, Washington, DC, Thomas H. May, Dickie, McCamey & Chilcote, Pittsburgh, PA, Gerard G. Pecht, Fulbright & Jaworski, Houston, TX, for Appellant.Kevin P. Lucas, Erin M. Lucas, Manion, McDonough & Lucas, Pittsburgh, PA, for Appellee Randy Cassady.Heather J. Brandau, Willman & Arnold, Terrance R. Henne, Concetta A. Silvaggio, Willman & Silvaggio, Pittsburgh, PA, for Appellee RWLS, LLC.BEFORE: HARDIMAN and GREENBERG, Circuit Judges, and POLLAK ^*, District Judge.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

This matter comes on before this court on an appeal from orders the District Court ¹ entered on November 10, 2010, denying appellant Gray Holdco, Inc.'s (Gray) Motion to Stay Proceedings in the District Court pending the outcome of a separate arbitration proceeding of its claims against appellee Randy Cassady (Cassady) and granting Cassady's Motion to Enjoin the same arbitration proceedings. Gray made the arbitration demand more than ten months after it initiated this civil suit in the District Court on November 13, 2009, alleging that Cassady breached the employment contract between him and Gray and that Cassady and a new business venture that he established, RWLS, were interfering with Gray's contractual relationships.² On September 17, 2010, Gray, pursuant to an arbitration provision in an agreement between it and Cassady, filed the demand to arbitrate its claims against Cassady with the American Arbitration Association (“AAA”) in Delaware and filed the Motion to Stay the Proceedings against Cassady in the District Court.³ Cassady opposed the Motion to Stay and filed the Motion to Enjoin the arbitration proceedings arguing that Gray, through its initiation and pursuit of this litigation in the District Court, waived the right to enforce the arbitration agreement. Inasmuch as we agree with the District Court that Gray waived its right to enforce the arbitration agreement, we will affirm the Court's orders.

II. FACTS AND PROCEDURAL HISTORY

In June 2006, Cassady began work for Gray's second-tier operating subsidiary, Gray Wireline Service, Inc. (Gray Wireline), a cased-hole wireline business, as a manager of its facility in Granbury, Texas. Gray alleges that, as part of Cassady's employment agreement with Gray Wireline, he agreed to an “Option Agreement” with “certain restrictive covenants” which prohibited him from: (1) misusing Gray Wireline's confidential information; (2) engaging in business while still an employee of Gray Wireline; (3) competing with Gray Wireline for two years after the end of his employment with Gray Wireline; and (4) soliciting Gray Wireline employees for one year following the end of his employment relationship with Gray Wireline. App. at 74–77. Gray Wireline also alleges that an additional agreement between Gray and Cassady, entitled the 2006 New Hire Stock Option Plan, contains the following arbitration provision:

SECTION 13. ARBITRATION. Any dispute or controversy between the Company and a Participant, arising out of or relating to this Plan or the Participant's Option Agreement, the breach of this Plan or the Participant's Option Agreement, or otherwise, shall be settled by arbitration in Wilmington, Delaware administered by the American Arbitration Association in accordance with its Commercial Rules then in effect and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.... [E]ither party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such dispute or controversy and seek interim provisional, injunctive or other equitable relief until the arbitration award is rendered or the controversy is otherwise resolved.

Id. at 70–71.⁴

In March 2009, Gray Wireline promoted Cassady to District Manager of its facility in New Kensington, Pennsylvania, and in July 2009, Cassady rose to the position of Region Manager of Gray Wireline's operations in Pennsylvania, Louisiana, and Mississippi. According to Gray, on September 21, 2009, Cassady resigned his position at Gray Wireline and formed RWLS, an entity that competed with Gray in the cased-hole wireline business. Gray also alleges that Cassady solicited multiple Gray Wireline employees to join RWLS and solicited Gray Wireline customers to transfer their business to RWLS.

On November 13, 2009, Gray filed the complaint in this action in the District Court against Cassady and RWLS, asserting that Cassady breached the Option Agreement and tortiously interfered with Gray's existing contractual relationships. The complaint also asserted claims of unjust enrichment and civil conspiracy based on Cassady and RWLS's solicitation of Gray clients and employees. The complaint primarily requested injunctive relief although it also sought money damages. Significantly, the complaint did not mention the arbitration agreement in the New Hire Stock Option Plan or include any arbitration clause in the employment agreement labeled as “Exhibit A” which Gray attached to the complaint. On the same day that Gray filed the complaint, it filed a motion for a preliminary injunction against both defendants, requesting that the Court enjoin them from, among other things, soliciting Gray's customers and employees.

On November 17, 2009, Gray filed a motion for expedited discovery which the District Court granted the next day. An attorney representing RWLS filed an appearance in the District Court on November 20, 2009, and a separate attorney representing Cassady filed an appearance on November 25, 2009. Cassady and RWLS then filed a joint motion opposing expedited discovery. On December 4, 2009, the Court conducted a discovery conference during which the parties agreed to a discovery schedule and the Court set the dates for hearing the application for a preliminary injunction as January 12–13, 2010.

The parties intensely litigated the preliminary injunction proceedings. In the discovery Gray served 15 requests for the production of documents and 11 interrogatories and deposed Cassady and a corporate representative of RWLS. Cassady propounded 118 requests for production of documents and RWLS propounded 15 requests for production of documents, 7 requests for admissions, and 13 interrogatories. The District Court conducted an evidentiary hearing on the preliminary injunction application and on January 13, 2010, following the conclusion of the hearing, the Court filed an opinion setting forth its conclusion that Gray did not meet its burden to establish that it was entitled to injunctive relief under Federal Rule Civil Procedure 65. In its conclusion, the Court, inter alia, held “as a matter of law, that the agreement entered into between Cassady and the plaintiff is not enforceable” and that “the plaintiff has not demonstrated that it will likely succeed on the merits.” Gray Holdco, Inc. v. Cassady, Civ. No. 2:09–cv–1519, 2010 WL 235106, at *5 (W.D.Pa. Jan. 13, 2010) ( Gray I). Consequently, the Court denied Gray's motion for a preliminary injunction.

On March 2, 2010, the parties filed a Federal Rule Civil Procedure 26(f) discovery report and a proposed discovery plan. On March 9, 2010, the District Court conducted a status conference and set deadlines for mediation and for filing motions for judgment on the pleadings. On March 19, 2010, Cassady and RWLS separately moved for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) or, in the alternative, to dismiss the complaint under Fed.R.Civ.P. 12(b)(6), with Cassady asserting that the Court's findings at the preliminary injunction hearing were “law of the case” and barred Gray's claims as a matter of law and RWLS asserting that Gray did not suffer any damage as a result of Cassady's alleged contract breach. As a matter of convenience we will refer to the motions simply as motions to dismiss. Gray filed a brief opposing the motions to dismiss. On June 8, 2010, the Court held another status conference and established discovery deadlines and on June 30, 2010, the Court denied Cassady's and RWLS's motions to dismiss.

On September 17, 2010, after obtaining a new attorney, Gray filed a demand for arbitration against Cassady with the AAA in Delaware. Gray based the demand on the arbitration clause included in the New Hire Stock Option Plan that we already have quoted. Then, on September 21, 2010, Cassady filed a motion in the District Court to enjoin the arbitration and to impose sanctions under 28 U.S.C. § 1927. In the motion, Cassady argued that Gray waived its right to arbitrate by participating in substantial litigation and discovery in the District Court and by acting inconsistently with its later action seeking to enforce its right to arbitrate. The following day Gray filed a motion pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., in the District Court to stay the judicial proceedings as to Cassady pending the outcome of the Delaware arbitration. Gray argued that the arbitration agreement was mutual and enforceable and that Cassady could not demonstrate the necessary prejudice arising from Gray's participation in the litigation to justify the Court to hold that it waived its right to arbitrate. Cassady opposed the motion and renewed its argument that Gray waived its right to enforce the arbitration provision and also contended that the provision was not enforceable against him.

The District Court granted Cassady's motion to enjoin the arbitration and denied Gray's motion to stay the proceedings pending arbitration. It did not, however, impose sanctions against Gray. In its opinion accompanying its orders, the Court determined that three of the six non-exclusive factors we outlined in Hoxworth...