Spark Connected, LLC v. Semtech Corp.

• Decision Date: 10 November 2020
• Docket Number: Case No. 4:18-cv-748-KPJ
• Parties: SPARK CONNECTED, LLC, KEN MOORE, EMANUEL STINGU, And RUWANGA DASSANAYAKE, Plaintiffs and Counter-Defendants, v. SEMTECH CORPORATION, Defendant and Counter-Plaintiff.
• Court: U.S. District Court — Eastern District of Texas

SPARK CONNECTED, LLC, KEN MOORE, EMANUEL STINGU,And RUWANGA DASSANAYAKE, Plaintiffs and Counter-Defendants, v. SEMTECH CORPORATION, Defendant and Counter-Plaintiff.

Case No. 4:18-cv-748-KPJ

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION

November 10, 2020

MEMORANDUM OPINION AND ORDER

Before the Court is Plaintiff and Counter-Defendant Ken Moore's ("Moore") Motion to Sever, Stay, and Compel Arbitration of Defendant's Counterclaim for Alleged Breach of Purchase Agreement (the "Motion") (Dkt. 255), to which Defendant and Counter-Plaintiff Semtech Corporation ("Semtech") filed a response (Dkt. 312), and Moore filed a reply (Dkt. 326). On September 1, 2020, the Court heard oral argument on the Motion (the "Hearing"). See Dkt. 332. For the reasons explained below, the Motion (Dkt. 255) is GRANTED.

I. FACTUAL BACKGROUND

Triune Systems, L.L.C. ("Triune") was a startup company operating in the wireless power technology industry. See Dkt. 77 at 2. Moore held an ownership interest in Triune, where he served as Vice President of Marketing and Applications. See id. On March 4, 2015, Semtech acquired Triune through a Purchase Agreement (the "Purchase Agreement"), which was entered into by Semtech, Triune, Moore, and others. See Dkt. 75-1 at 8.

The Purchase Agreement contains a non-compete clause, which restricts Moore and the other selling parties from engaging in the business of:

designing, . . . selling or providing circuit solutions, power system and control semiconductor devices or designs (including firmware), reference designs as related to semiconductor devices or products, or semiconductor products for low power energy harvesting, solar power, wireless charging, isolated switching or any other power management application . . . anywhere in the world.

(the "Restrictive Covenant") Id. at 57. Pursuant to the Restrictive Covenant, Moore and the other selling parties must abstain from the prohibited activity for five (5) years from the Purchase Agreement's date of execution. Id.

The Purchase Agreement also contains a dispute resolution clause, which provides:

10.16 Dispute Resolution. Except as provided in Section 2.5(c), Section 7.2, and Section 10.16(c), any controversy, claim or dispute (including the determination of the scope or applicability of this agreement to arbitrate) ("Controversy") among the parties arising out of or relating to this Agreement will be resolved in accordance with the procedures specified in this Section, which will be the sole and exclusive procedures for the resolution of any such Controversies. The parties intend that these provisions will be valid, binding, enforceable and irrevocable and will survive any termination of this Agreement.

(a) Arbitration. Any Controversy will be submitted to final and binding arbitration with the Judicial Arbitration and Mediation Service ("JAMS") in Los Angeles, California, to be conducted in accordance with the provisions of JAMS' Comprehensive Arbitration Rules and Procedures as in effect at the time of the arbitration. . . . The arbitrators shall have the authority to grant any equitable and legal remedies that would be available in any judicial proceeding instituted in the state and federal courts in Delaware to resolve a disputed matter. . . . An arbitration award rendered pursuant to this Section 10.16 will be final and binding on the parties and may be submitted to a court of competent jurisdiction for entry of a judgment thereon.

. . .

(c) Availability of Equitable Relief. Notwithstanding the parties' agreement to submit all controversies to final and binding arbitration, the parties shall have the right to seek and obtain temporary or preliminary injunction relief or specific performance in any court of competent jurisdiction without the need to post a bond. Such courts shall have authority to, among other things, grant temporary or provisional injunctive relief or specific performance (with such relief effective until the arbitrators have rendered a final award) in order to protect any party's rights under this Agreement or otherwise.

(the "Arbitration Clause") Id. at 75-77.

After Semtech purchased Triune, it employed Moore for approximately two (2) years. See Dkt. 77 at 2-4. On May 5, 2017, Semtech terminated Moore. See id. at 4. Following Moore's termination, Moore and Semtech negotiated a separation agreement, entitled Separation and General Release Agreement (the "Separation Agreement"), which was executed on June 16, 2017. See Dkt. 75.

In May 2017, Moore began working with a business partner to develop a connected smartwatch company under the business name of "Spark." See Dkt. 77 at 7-8. Ultimately, Moore and Spark Connected, LLC ("Spark") began working on wireless power in earnest, and Spark officially formed as an LLC in September 2017. See id. at 11-12. Thus, Moore formed Spark two and a half years after the execution of the Purchase Agreement, but before the Restrictive Covenant's five-year limit had passed. See id.

II. PROCEDURAL HISTORY

Plaintiffs Spark, Moore, Emanuel Stingu, and Ruwanga Dassanayake (collectively, "Plaintiffs") filed suit on October 17, 2018, "seeking a declaratory judgment that Plaintiffs have not breached any agreements with [Semtech] and/or misappropriated trade secrets belonging to [Semtech]." Dkt. 1 at 1. Moore, in particular, sought a declaratory judgment that he had "not breached [the Restrictive Covenant] of his Purchase Agreement with Semtech because that Agreement had been superseded" by the Separation Agreement. See id.

On November 16, 2018, Semtech answered Plaintiffs' Complaint and asserted seven (7) counterclaims (the "Counterclaims"), including a breach of contract claim against Moore for violating the Purchase Agreement's Restrictive Covenant. See Dkt. 7 at 27. In Plaintiffs' Answer (Dkt. 32) to Semtech's Counterclaims, Moore reiterated his argument that the SeparationAgreement superseded the Purchase Agreement and its Restrictive Covenant. See Dkt. 32 at 18. Moore made no mention of the Arbitration Clause.

On November 21, 2018, Semtech filed a Motion for Preliminary Injunction (Dkt. 14), wherein Semtech sought to enjoin Moore and Spark "from conducting any business that competes with Semtech" in violation of the Purchase Agreement. See Dkt. 14 at 8, 29. That same day, Semtech filed a Motion for Expedited Discovery (Dkt. 22), requesting the Court expedite discovery related to its Motion for Preliminary Injunction, including discovery regarding "[t]he details and timing of Spark's founding," Plaintiffs' involvement in Spark, and "Spark's competition with Semtech in the context of wireless power products and services." Dkt. 22 at 4. On November 30, 2018, Plaintiffs and Spark filed a Joint Stipulation (Dkt. 30), wherein they set a schedule for the expedited discovery and briefing as they related to the Motion for Preliminary Injunction. See Dkt. 30 at 2-3.

On January 15, 2019, Plaintiffs filed a Motion to Dismiss Semtech's Counterclaims pursuant to the Texas Citizens Participation Act ("TCPA"), TEX. CIV. PRAC. & REM. CODE § 27.005, including Semtech's claim against Moore for breach of the Purchase Agreement's Restrictive Covenant. See Dkt. 35. After the Fifth Circuit held the TCPA does not apply in federal court, see Klocke v. Watson, 936 F.3d 240, 242 (5th Cir. 2019), Plaintiffs withdrew their Motion to Dismiss. See Dkts. 237, 238. The Motion to Dismiss did not mention the Arbitration Clause.

On March 13, 2019, Plaintiffs filed their First Amended Answer (Dkt. 43) to Semtech's Counterclaims. The First Amended Answer made no mention of the Arbitration Clause.

On April 2, 2019, Plaintiffs filed Plaintiffs' Motion for Partial Summary Judgment (Dkt. 72), seeking summary judgment on Plaintiffs' claims for declaratory judgment and all of Semtech's Counterclaims against Plaintiffs, including the claim that Moore breached the PurchaseAgreement's Restrictive Covenant. See Dkt. 72 at 7. Notably, the Motion for Partial Summary Judgment asserted two arguments regarding Moore's prayer for declaratory judgment and Semtech's Counterclaim against Moore for breach of the Purchase Agreement's Restrictive Covenant: (1) the Court should find the Separation Agreement superseded the Purchase Agreement; and (2) if the Court finds the Separation Agreement did not supersede the Purchase Agreement, "any dispute regarding the Purchase Agreement, such as the enforceability of the non-compete clause, must be submitted to arbitration." Id. at 26-30, 31 n.3.

On April 4, 2019, Plaintiffs filed their response to Semtech's Motion for Preliminary Injunction (Dkt. 92), wherein Plaintiffs argued the Court should deny Semtech's request for injunctive relief, in part because:

The parties to the Purchase Agreement specified that arbitration . . . would be the exclusive means of resolving disputes. . . . The parties can seek injunctive relief under Section 10.16(c), but only in support of arbitration.

Dkt. 92 at 35. On May 29, 2019, and May 30, 2019, the Court held a two-day evidentiary hearing regarding the Motion for Preliminary Injunction. See Dkts. 157, 158. During the hearing, Plaintiffs reiterated their argument that the Arbitration Clause applies to Semtech's Counterclaim that Moore breached the Purchase Agreement's Restrictive Covenant. See id.

On May 8, 2019, Semtech filed an Amended Answer and Counterclaims (Dkt. 131), wherein Semtech continued to assert its claim against Moore for breach of the Restrictive Covenant. See Dkt. 131 at 27-28. Plaintiffs filed their Answer to Semtech's Amended Counterclaims (Dkt. 164), wherein Moore made no mention of the Arbitration Clause.

On July 12, 2019, the Court issued the Order Governing Proceedings, wherein the Court scheduled a Rule 16 management conference for August 28, 2019. See Dkt. 242. The day before the management conference, on August 27, 2019, Plaintiffs filed the Motion, contending that thePurchase Agreement contains an unambiguous Arbitration Clause under which...