T3 Enters., Inc. v. Safeguard Bus. Sys., Inc.
| Citation | 435 P.3d 518,164 Idaho 738 |
| Decision Date | 21 February 2019 |
| Docket Number | Docket No. 45093 |
| Court | United States State Supreme Court of Idaho |
| Parties | T3 ENTERPRISES, INC., an Idaho Corporation, Plaintiff-Respondent, and Thurston Enterprises, Inc., an Idaho Corporation, Plaintiff, v. SAFEGUARD BUSINESS SYSTEMS, INC., a Delaware Corporation, Defendant-Appellant, and Safeguard Acquisitions, Inc., et al., Defendants. |
Hawley Troxell Ennis & Hawley LLP, Boise, and Weil, Gotschal & Manges LLP, Dallas, TX, for appellant. Paul R. Genender argued.
Givens Pursley LLP, Boise and Mulcahy LLP, Irvine, CA, for respondent. James M. Mulcahy argued.
This action arises out of Ada County and involves a distributorship agreement (the Distributor Agreement) between Appellant Safeguard Business Systems (SBS) and Respondent T3 Enterprises (T3). In 2006, T3 entered into the Distributor Agreement with SBS. In 2014, T3 filed suit alleging SBS had breached the Distributor Agreement by failing to prevent other SBS distributors from selling to T3's customers and for paying commissions to the interfering distributors rather than to T3. The Distributor Agreement between SBS and T3 contained an arbitration clause indicating disputes must be resolved in a Dallas, Texas based arbitration procedure. The Distributor Agreement also contained a forum selection clause indicating that the Federal Arbitration Act (FAA) and Texas law would apply to any disputes between the parties. Pursuant to this agreement, SBS moved the district court to compel arbitration in Dallas. The district court determined the parties must submit to arbitration, but that the Dallas forum selection clause was unenforceable, and arbitration was to take place in Idaho. The Arbitration Panel (the Panel) found for T3 and the district court confirmed the award in the amount of $ 4,362,041.95. The district court denied SBS's motion to vacate or modify the award. SBS timely appealed, and we affirm.
SBS is engaged in the distribution of Safeguard brand products (e.g., checks, envelopes, and business forms) and services (e.g., W-2 processing and drop shipping) through a nationwide network of distributors. In 2006, after working eleven years for Roger Thurston, another SBS distributor, Dawn Teply formed T3 and started her own distributorship with SBS. T3 purchased the exclusive rights to commissions on all sales made to 2,000 of Thurston's customers. The purchase was approved by SBS which transferred the "Protected Customers" to T3. Around this same time, on July 28, 2006, T3 entered into the Distributor Agreement with SBS. Pursuant to the agreement, T3 obtained the rights, services, and SBS support that is given to SBS distributors. This included customer protection contractual rights and SBS's enforcement of commission protection and commission rotation. This meant T3 was entitled to all commissions sold to its Protected Customers.
In 2013, Safeguard Acquisitions (a holding company) was funded by SBS's parent company, Deluxe, to acquire independent non-SBS distributor businesses that operated in the same market as SBS. Following the acquisitions, SBS operated the acquired businesses until a qualified buyer could be found to purchase the commission rights on those accounts. Two of the businesses SBS acquired were Form Systems, Inc., (DocuSource) and Idaho Business Forms (IBF). Both DocuSource and IBF were direct competitors of T3 in the same geographic market in Idaho and selling a line of products that directly competed with T3's sale of Safeguard products. Thus, T3 had a high volume of cross-over clients with DocuSource and IBF.
In 2015, SBS entered into a Distributor Agreement with KMMR, (a staffing company to IBF), giving it customer protection rights for the same Protected Customers it had given T3 years earlier. This resulted in customer confusion as to whom they were supposed to order from and pay. SBS's general counsel, Michael Dunlap, was tasked with managing the conflict resulting from the overlap in Protected Customers. In this role, Dunlap sent several email communications to various parties. In 2013 and 2014, Teply attempted, unsuccessfully, to get information from Mr. Dunlap and SBS for T3 about the cross-over accounts.
In August 2014, T3 filed suit in Idaho alleging SBS breached its Distributor Agreement by failing to prevent other SBS distributors from selling to T3's customers and for paying commissions to the interfering distributors rather than to T3. The Distributor Agreement contained an arbitration clause stating that:
The Distributor Agreement also contained a forum selection clause that stated:
This Agreement shall become effective when executed and accepted by us in Texas. All matters relating to arbitration will be governed by the Federal Arbitration Act .... Except to the extent governed by the Federal Arbitration Act, ... or other federal law, this Agreement, the distributorship and the relationship between you and Safeguard will be governed and construed under and in accordance with the laws of Texas, except that the provisions of the Texas Deceptive Trade Practices Act (and the regulations thereunder) will not apply unless its jurisdictional requirements are met independently without reference to this subsection.[1 ]
SBS moved to compel arbitration of T3's claims against it in Dallas, Texas. SBS also moved to stay proceedings pending the outcome of the arbitration proceeding. T3 initially conceded it was bound to arbitrate but sought to sever the forum provision from the arbitration clause. Later, T3 contended the invalid forum selection provision rendered the entire arbitration clause void. The district court determined that it had jurisdiction to consider the validity of the forum selection clause, that Texas law was applicable, and that under Texas law the forum selection clause was unenforceable. Thus, the court ordered the parties to arbitrate in Idaho and denied SBS's motion to stay proceedings. The district court also granted T3's motion to compel the Dunlap emails and ordered SBS to produce the documents. The Panel found for T3, and in a supplemental award, awarded T3 over $ 4.3 million in damages which included attorney fees. The district court confirmed the award and denied SBS's motion to vacate or modify the award. SBS timely appealed.
"When ruling on a motion to compel arbitration, the district court applies the same standard as if ruling on a motion for summary judgment."
Wattenbarger v. A.G. Edwards & Sons, Inc. , 150 Idaho 308, 317, 246 P.3d 961, 970 (2010) . As a result, "[a]rbitrability is a question of law to be decided by the court." Id. at 315, 246 P.3d at 968 (quoting Mason v. State Farm Mut. Auto. Ins. Co. , 145 Idaho 197, 200, 177 P.3d 944, 947 (2007) ). This Court "exercise[s] free review over questions of arbitrability and may draw [its] own conclusions from the evidence presented." Id . "Whether the district court had subject matter jurisdiction is a question of law over which this Court exercises free review." H.F.L.P., LLC v. City of Twin Falls , 157 Idaho 672, 678, 339 P.3d 557, 563 (2014).
"Trial courts have broad discretion over the admission of evidence at trial, including ... determining whether or not to grant a motion to compel." Kirk v. Ford Motor Co. , 141 Idaho 697, 700, 116 P.3d 27, 30 (2005). "Such decisions will only be reversed when there has been a clear abuse of discretion." Id. at 701, 116 P.3d at 31. When this Court reviews whether a trial court has abused its discretion, the four-part inquiry is "[w]hether the trial court: (1) correctly perceived the issue as one of discretion; (2) acted within the outer boundaries of its discretion; (3) acted consistently with the legal standards applicable to the specific choices available to it; and (4) reached its decision by the exercise of reason." Lunneborg v. My Fun Life , 163 Idaho 856, 863, 421 P.3d 187, 194 (2018).
"The scope of review for awards made pursuant to the [FAA] ... parallels the review of arbitrations governed by Idaho's Uniform Arbitration Act[.]" Barbee v. WMA Sec., Inc. , 143 Idaho 391, 396 n.4, 146 P.3d 657, 662 n.4 (2006) ; see also Hecla Min. Co. v. Bunker Hill Co. , 101 Idaho 557, 561 n.3, 617 P.2d 861, 865 n.3 (1980) (). "When reviewing a district court's decision to vacate or modify an award of an arbitration panel this...
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