N. Am. Deer Registry, Inc. v. Dna Solutions, Inc., Civil Action No. 4:17-CV-00062
| Decision Date | 16 May 2017 |
| Docket Number | Civil Action No. 4:17-CV-00062 |
| Parties | NORTH AMERICAN DEER REGISTRY, INC. v. DNA SOLUTIONS, INC. |
| Court | U.S. District Court — Eastern District of Texas |
MEMORANDUM OPINION AND ORDER
Pending before the Court are Defendant DNA Solutions, Inc.'s Motion to Dismiss Amended Complaint and Compel Arbitration, or in the Alternative, to Transfer Venue to the Western District of Oklahoma (Dkt. #19) and Motion to Stay (Dkt. #31). After reviewing the relevant pleadings, motion, and arguments of counsel, the Court finds the motions should be denied.
In 2007, North American Deer Registry, Inc. ("Deer Registry") engaged DNA Solutions, Inc. ("DNAS") to process deer genetic information, perform matching services, and host a database for Deer Registry's information, which would be accessible online. As part of the agreement, DNAS agreed to preserve the confidentiality of Deer Registry's information and to return such information upon termination of DNAS's services.
In 2013, the parties entered into a revised agreement for DNAS to maintain a registry of information for Deer Registry. The parties entered into a similar agreement in 2014 (the "Contract"). Deer Registry terminated the Contract effective January 1, 2017.
Under the Contract, Deer Registry retained ownership of all biological materials, genetic information, genotype analysis data, membership directory, and any other information provided by Deer Registry. DNAS, on the other hand, retained ownership of any code that it created as a result of running the registry. DNAS agreed to keep confidential the content of the registry or any other information it received from Deer Registry in the performance of the Contract or in its prior dealings with Deer Registry. DNAS further agreed that, upon termination of the Contract, it would return all information provided by Deer Registry.
On January 27, 2017, Deer Registry filed a complaint, alleging unfair competition under the Lanham Act, misappropriation of trade secrets, constructive trust, unjust enrichment, and requesting injunctive relief (Dkt. #1). The same day, Deer Registry made a demand for arbitration seeking relief for breach of contract, temporary and permanent injunctions, declaratory judgment, and attorneys' fees (Dkt. #19, Exhibit 2). On February 22, 2017, Deer Registry filed an amended complaint (Dkt. #14). On March 8, 2017, DNAS filed this motion to dismiss (Dkt. #19). On March 22, 2017, Deer Registry filed a response (Dkt. #25). On March 29, 2017, DNAS filed a reply (Dkt. #29). On March 31, 2017, while the motion to dismiss was still pending, DNAS filed a motion to stay pending arbitration (Dkt. #31). On April 5, 2017, Deer Registry filed a sur-reply to the motion to dismiss (Dkt. #33). On April 14, 2017, Deer Registry filed a response to the motion to stay (Dkt. #34).
On April 27, 2017, the Court held a hearing on the parties' arguments regarding the arbitration provision (Dkt. #37). At the hearing, the Court ordered the parties to submit supplemental briefing regarding each cause of action, in the event that the Court finds the arbitration provision is narrow (Dkt. #37). On May 1, 2017, both parties submitted supplemental briefs (Dkt. #39; Dkt. #41).
"The Federal Arbitration Act ("FAA") expresses a strong national policy favoring arbitration of disputes, and all doubts concerning the arbitrability of claims should be resolved in favor of arbitration." Wash. Mut. Fin. Grp., LLC v. Bailey, 364 F.3d 260, 263 (5th Cir. 2004). The FAA, "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).
When considering a motion to compel arbitration, the Court must address two questions. Graves v. BP Am., Inc., 568 F.3d 221, 222 (5th Cir. 2009) ). "First, whether there is a valid agreement to arbitrate, and second, whether the dispute in question falls within the scope of the arbitration agreement." Id. Concerning the first question of contract validity, the Court should apply "ordinary state-law principles that govern the formation of contracts." Id. at 222 (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). The second question of scope is answered "by applying the 'federal substantive law of arbitrability.'" Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)). Courts construe any ambiguities as to the scope of an arbitration clause in favor of arbitration. See Fleetwood Enters., 280 F.3d at 1073. "[A]rbitration should not be denied 'unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.'" Neal v. Hardee's Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990) (quoting Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984)).
The parties do not dispute that there is a valid arbitration agreement that covers disputes concerning interpretation of the Contract. The only dispute is whether Deer Registry's claims in this Court come within the scope of the arbitration agreement.
As an initial matter, DNAS makes a passing reference to the choice of law provision of the Contract to state that Oklahoma law and the Oklahoma Uniform Arbitration Act should apply to this case. However, DNAS then admits that there is no conflict between Oklahoma law and the FAA. Therefore, the Court will apply federal arbitration law to determine the scope of the arbitration clause, in accordance with the FAA.1 Graves, 568 F.3d at 223.
The arbitration provision states:
20. Dispute Resolution. In the event a dispute arises concerning the interpretation of the terms of this Agreement, the parties agree that such dispute shall be submitted to binding arbitration pursuant to the Commercial Rules of the American Arbitration Association. In the event of such arbitration, the prevailing party shall be entitled to recover all reasonable and necessary attorneys' fees, arbitration fees, and all other expenses related to the arbitration action. The arbitration shall be held in Oklahoma City, Oklahoma County, State of Oklahoma.
(Dkt. #19, Exhibit 2 at p. 23). DNAS argues the Court should dismiss the case in favor of arbitration because all of Deer Registry's claims involve interpretation of the Contract and thus fall within the scope of the arbitration provision. Deer Registry responds that it complied with the arbitration clause by demanding arbitration for breach of contract and declaratory judgment claims and by filing the rest of its claims in the district court.
Deer Registry made a demand for arbitration on claims for breach of contract, declaratory judgment, and injunctive relief. Specifically, Deer Registry seeks declaratory judgment for:
(Dkt. #19, Exhibit 2). Simultaneously, Deer Registry made claims in this Court for unfair competition under the Lanham Act, misappropriation of trade secrets, constructive trust, and unjust enrichment, and for injunctive relief. Deer Registry argues that its claims in arbitration "concern[] the interpretation" of the Contract but that its claims in this Court do not "concern[] the interpretation" of the Contract.
In its reply, DNAS argued for the first time that the Court does not have the power to determine whether the present dispute is subject to arbitration. DNAS argues that the arbitrator must decide arbitrability because the arbitration provision incorporates the American Arbitration Association ("AAA") Rules. Deer Registry responds by arguing that a passing reference to the AAA Rules is not a clear and unmistakable delegation to the arbitrator.
The Court need not pass on this argument by DNAS because DNAS waived the argument by not asserting it in its motion. A reply brief is limited to "responding to the issues raised in the response." E.D. Tex. Civ. R. CV-7(f). Deer Registry did not make this argument in its response. Deer Registry only mentions the "question of arbitrability" in a block quote addressing whetherthe arbitration provision was broad or narrow (See Dkt. #25 at pp. 7-8). Aside from that, Deer Registry does not make any substantive argument about whether the Court or the arbitrator may determine arbitrability. Therefore, DNAS has waived its argument and the Court will determine arbitrability.2
The Court must first determine whether the scope of the arbitration agreement is "broad" or "narrow." Jones v. Halliburton Co., 583 F.3d 228, 235 (5th Cir. 2009); Pennzoil Expl. & Prod. Co. v. Ramco Energy Ltd., 139 F.3d 1061, 1067 (5th Cir. 1998). Agreements mandating arbitration of disputes that "relate to" or "are connected with" a subject are "broad arbitration clauses capable of expansive reach." Pennzoil, 139 F.3d at 1067. On the other hand, agreements mandating arbitration of disputes "arising out of" a subject are narrow. Id. For a claim to be arbitrable...
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