Opinion
No. 05-15-00669-CV
05-19-2016
STAR SYSTEMS INTERNATIONAL LIMITED, Appellant v. 3M COMPANY AND 3M INNOVATIVE PROPERTIES COMPANY, Appellees
On Appeal from the 401st Judicial District Court Collin County, Texas
Trial Court Cause No. 401-01813-2014
MEMORANDUM OPINION
Before Justices Fillmore, Stoddart, and O'Neill
Opinion by Justice O'Neill
The Hon. Michael J. O'Neill, Court of Appeals, Fifth District of Texas at Dallas, Retired, sitting by assignment.
This is an accelerated, interlocutory appeal of the trial court's order granting in part and denying in part a motion to compel arbitration and to stay litigation pending arbitration. Appellant Star Systems International Limited (SSI) filed a motion to compel arbitration and to stay litigation pending arbitration of claims filed against it by 3M Company and 3M Innovative Properties Company (collectively 3M). The trial court granted SSI's motion with respect to 3M's claims for tortious interference with certain confidentiality agreements that contained mandatory arbitration provisions; the trial court denied SSI's motion with respect to all other claims. In two issues, SSI asserts the trial court erred by: (1) refusing to compel arbitration of 3M's claims against SSI for conversion, conspiracy, and violating the Texas Uniform Trade Secrets Act, because such claims were factually intertwined with the claims being compelled to arbitration; and (2) refusing to stay litigation of all of 3M's claims because they addressed the same issues as the claims being compelled to arbitration. We affirm.
I. FACTUAL AND PROCEDURAL BACKGROUND
3M designs, manufacturers, and sells radio frequency identification (RFID) tags and readers for applications used by government agencies and private businesses in tolling, parking, and security solutions worldwide. Stephen Lockhart was an employee in 3M's traffic safety and security division. Lockhart resigned from 3M in January 2014; his last day of employment with 3M was February 28, 2014. SSI, a company based in China, was founded by former 3M consultants and employees. Robert Karr, a former 3M consultant, became SSI's Managing Director. In late April 2014, SSI announced that Lockhart was joining SSI as its Chief Technology Officer.
On May 13, 2014, 3M filed its original petition and applications for temporary restraining order, temporary and permanent injunctions, and writ of sequestration against Lockhart, alleging that Lockhart took 3M's confidential information and shared it with SSI in violation of his employment agreement with 3M. Lockhart's employment agreement with 3M contained non-compete and confidentiality provisions; it did not contain an arbitration provision.
In January 2015, 3M filed an amended petition, adding SSI as a defendant and alleging that SSI obtained 3M's confidential information not only from Lockhart but also from 3M's former consultants Robert Karr, Chris Cheung, Jet Lai, Darko Shyur, and Ava Tang. Former consultants Cheung, Lai, Shyur, and Tang had signed independent consultant agreements with 3M that contained confidentiality provisions prohibiting them from disclosing or using 3M's confidential information; the agreements also contained arbitration provisions. Former consultant Karr had signed independent consultant agreements with two of 3M's predecessor companies. Karr's agreement with Sirit, Inc. contained a confidentiality provision but did not contain an arbitration provision.
Sirit, Inc. and Federal Signal Technologies (FST) were predecessors to 3M. Karr entered into a consulting agreement with Sirit that does not contain an arbitration provision. After FST acquired Sirit, Karr signed a consulting agreement with FST that contained an arbitration provision; however, the parties dispute whether FST executed Karr's consulting agreement. SSI filed a counterclaim seeking a declaratory judgment that Karr's FST agreement superseded the Sirit agreement. The record does not indicate that the trial court has ruled on this issue, and it is not before this Court in this appeal.
SSI filed a motion to compel arbitration of 3M's claims against SSI, arguing that 3M was equitably estopped from refusing to arbitrate their claims that relied upon, or were intertwined with claims that relied upon, the former consultants' agreements. After a hearing, the trial court entered an order granting in part and denying in part SSI's motion to compel arbitration. The trial court compelled the parties to arbitrate that portion of Count VI of 3M's first amended petition that stated a claim against SSI for tortious interference with 3M's contracts with Cheung, Lai, Shyur, and Tang. The trial court also ordered a stay of proceedings and discovery relating solely to the alleged interference by SSI with the contracts of Cheung, Lai, Shyur, and Tang. The trial court denied SSI's motion to compel arbitration of all other claims asserted by 3M against SSI, and it denied SSI's request to stay litigation with respect to such claims. SSI appealed.
II. DISCUSSION
SSI raises two issues in this interlocutory appeal. First, SSI contends the trial court erred by refusing to compel arbitration of 3M's claims against SSI for conversion, conspiracy, and violating the Texas Uniform Trade Secrets Act. SSI argues these claims are factually intertwined with 3M's claims for tortious interference with the former consultants' confidentiality agreements—claims that have been compelled to arbitration. Second, SSI contends the trial court erred by denying its request to stay litigation of 3M's claims against Lockhart and 3M's claims against SSI for tortious interference with 3M's confidentiality agreement with Karr. SSI argues these claims address the same issues as the arbitrable claims for tortious interference with 3M's agreements with former consultants Cheung, Lai, Shyur, and Tang.
A. MOTION TO COMPEL ARBITRATION
In appeals under section 51.016 of the Texas Civil Practice and Remedies Code, we review the trial court's ruling for an abuse of discretion. TEX. CIV. PRAC. & REM. CODE ANN. § 51.016 (West 2015); see Big Bass Towing Co. v. Akin, 409 S.W.3d 835, 838 (Tex. App.—Dallas 2013, no pet.). Under this standard, we review the trial court's legal determinations de novo and defer to the trial court's factual determinations if they are supported by evidence. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding); Cleveland Constr., Inc. v. Levco Constr., Inc., 359 S.W.3d 843, 851 (Tex. App.—Houston [1st Dist.] 2012, pet. dism'd). In reviewing the trial court's factual determinations, we must credit favorable evidence if a reasonable fact finder could and disregard contrary evidence unless a reasonable fact finder could not. In re Trammell, 246 S.W.3d 815, 820 (Tex. App.—Dallas 2008, orig. proceeding). Whether an arbitration clause imposes a duty to arbitrate is a question of law we review de novo. In re Labatt Food Serv., 279 S.W.3d at 643; Sidley Austin Brown & Wood, LLP v. J.A. Green Dev. Corp., 327 S.W.3d 859, 862-63 (Tex. App.—Dallas 2010, no pet.).
Arbitration is strongly favored. Royston, Rayzor, Vickery, & Williams, LLP v. Lopez, 467 S.W.3d 494, 499 (Tex. 2015). A party attempting to compel arbitration under either the federal or state act must first establish the existence of a valid arbitration agreement and then show that the claims asserted fall within the scope of the arbitration agreement. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003); Weekley Homes, L.P. v. Rao, 336 S.W.3d 413, 419 (Tex. App.—Dallas 2011, pet. denied). If a valid arbitration agreement exists, the burden shifts to the party opposing arbitration to raise an affirmative defense to arbitration. J.M. Davidson, 128 S.W.3d at 227.
In Count VI of its First Amended Petition, 3M alleged that SSI tortiously interfered with 3M's independent consultant agreements with its former consultants. SSI was not a signatory to 3M's agreements with former consultants Cheung, Lai, Shyur, and Tang. Nevertheless, SSI sought to compel arbitration of all of 3M's claims that relate to or arise out of the former consultants' agreements. The trial court compelled the parties to arbitrate only that portion of Count VI of 3M's First Amended Petition that states a claim against SSI for tortious interference with the confidentiality provisions of the consulting agreements of former consultants Cheung, Lai, Shyur, and Tang. The parties do not dispute that each of these agreements contains an arbitration provision.
On appeal, SSI complains that in addition to its claim for tortious interference with the consultants' agreements, 3M should also be compelled to arbitrate its claims against SSI for conspiracy, conversion, and violation of the Texas Uniform Trade Secrets Act. SSI contends that for 3M to prevail on its claim for tortious interference with the former consultants' confidentiality agreements, 3M will have to present evidence that SSI used 3M's trade secrets, inventions, processes, information, legal documents, financial records, specifications, and other confidential and proprietary information. SSI argues this is the same evidence that 3M will be required to present in support of its claims against SSI for conspiracy, conversion, and violation of the Texas Uniform Trade Secrets Act.
"Generally, if the facts alleged 'touch matters,' have a 'significant relationship' to, are 'inextricably enmeshed' with, or are 'factually intertwined' with the contract that is subject to the arbitration agreement, the claim will be arbitrable." Pennzoil Co. v. Arnold Oil Co., Inc., 30 S.W.3d 494, 498 (Tex. App.—San Antonio 2000, no pet.); see also Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992) (although misrepresentation claims are grounded in legal theory distinct from contract claim, they are factually intertwined and thus subject to arbitration); Ascendant Anesthesia PLLC v. Abazi, 348 S.W.3d 454, 462 (Tex. App.—Dallas 2011, no pet.) (claims that are factually intertwined with arbitrable claims or otherwise touch upon the subject matter of the agreement containing the arbitration provision are subject to the arbitration provision). "But '[i]f the facts alleged in support of the claim stand alone, are completely independent of the contract [containing the arbitration provision], and the claim can be maintained without reference to the contract, the claim is not subject to arbitration.'" VSR Fin. Servs., Inc. v. McLendon, 409 S.W.3d 817, 832 (Tex. App.—Dallas 2013, no pet.) (quoting Pennzoil, 30 S.W.3d at 498).
The facts alleged in support of the claims remaining in the trial court primarily allege misconduct by Lockhart and Karr, neither of whom is a party to a consulting agreement that was compelled to arbitration. 3M alleged that while Lockhart was still employed by 3M, he joined with former 3M consultants to form SSI, copied and retained 3M's trade secrets and confidential technical, business, and product information from his 3M email account and 3M laptop, forwarded this confidential information to his personal email, used an alias email account to conduct continuous communications with Karr, forensically wiped his 3M laptop to conceal his activities, and failed to return various RFID devices that belonged to 3M. With respect to Karr, 3M alleged that before terminating his relationship with 3M, Karr made disparaging comments about 3M to a 3M customer. 3M also alleged that as SSI's managing director, Karr urged Lockhart to leave 3M and join the SSI leadership team and promised Lockhart partial ownership of SSI as one of the founding members. We conclude the facts alleged in support of the remaining claims stand alone, and the claims can be maintained without reference to 3M's agreements with former consultants Cheung, Lai, Shyur, and Tang. Under our standard of review, we credit favorable evidence if a reasonable fact finder could and disregard contrary evidence unless a reasonable fact finder could not. See In re Trammell, 246 S.W.3d at 820. Accordingly, we conclude the trial court did not abuse its discretion by denying, in part, SSI's motion to compel arbitration. See VSR Fin. Servs., 409 S.W.3d at 832. SSI's first issue is overruled.
The trial court did not issue findings of fact and conclusions of law. When SSI argued the facts were intertwined during the hearing on its motion to compel arbitration, the trial judge disagreed, stating the facts were not intertwined because Lockhart's agreement with 3M did not have an arbitration provision. The trial court stated, "while certain subject matters do blend in, they are easily separable."
B. MOTION TO STAY LITIGATION
Both the Federal and Texas Arbitration Acts require courts to stay litigation of issues that are subject to arbitration. 9 U.S.C.A. § 3 (West 2009); TEX. CIV. PRAC. & REM. CODE ANN. §§ 171.025, 172.174 (West 2011); see also In re Merrill Lynch Trust Co. FSB, 235 S.W.3d 185, 195 (Tex. 2007); Carr v. Main Carr Dev., LLC, 337 S.W.3d 489, 500 (Tex. App.—Dallas 2011, pet. denied). When an issue is pending in both arbitration and litigation, arbitration should be given priority to the extent it is likely to resolve issues material to the lawsuit. In re Merrill Lynch Trust Co. FSB, 235 S.W.3d at 195. However, issues that are not the subject of arbitration need not be stayed until the arbitration is concluded. Carr, 337 S.W.3d at 500. We apply an abuse of discretion standard of review when considering a trial court's ruling on a motion to stay litigation pending the outcome of arbitration. In re Merrill Lynch Trust Co. FSB, 235 S.W.3d at 196.
The issues to be addressed in arbitration are whether Cheung, Lai, Shyur, and Tang breached their respective consulting agreements with 3M and whether SSI tortiously induced such breaches. However, SSI argues the entire lawsuit must be stayed pending the conclusion of arbitration to avoid parallel proceedings—claims related to the confidentiality provisions in 3M's consulting agreements with Cheung, Lai, Shyur, and Tang will be determined in arbitration, while claims related to the confidentiality provisions in 3M's consulting agreement with Karr and employment agreement with Lockhart will be determined by the trial court. SSI argues the parallel litigation threatens to undermine or moot the arbitration because all of 3M's claims involve the same "confidential information." SSI does not argue the arbitration is likely to resolve all the issues in the lawsuit; SSI just wants the arbitration to go first. However, there is no authority to support what SSI suggests—that arbitrable claims must proceed before claims that are not subject to arbitration. See Carr, 337 S.W.3d at 500.
SSI refers to Gray Wireline Serv., Inc. v. Cavanna, 374 S.W.3d 464 (Tex. App.—Waco 2011, no pet.) in support of its argument that the litigation should be stayed. "Even when a party has brought arbitrable claims against one party and claims not subject to arbitration against another party in the same lawsuit, courts should stay all litigation if the collateral litigation addresses the same issues as arbitration which threatens to render the arbitration moot." Gray Wireline Serv, 374 S.W.3d at 472. We do not agree with SSI that the on-going litigation addresses the same issues as the arbitration.
We previously concluded the remaining claims against Lockhart and SSI are not subject to arbitration and do not depend on whether Cheung, Lai, Shyur, and Tang breached their respective consulting agreements with 3M and whether SSI tortiously induced such breaches. The arbitration of whether SSI tortiously induced Cheung, Lai, Shyur, and Tang to breach their consulting agreements will not resolve the issues of whether Lockhart breached his employment agreement, misappropriated trade secrets, breached his fiduciary duty, converted 3M's confidential and proprietary information, unfairly competed with 3M, aided and abetted SSI in its tortious interference and misappropriation of trade secrets, and conspired with SSI to tortiously interfere with contracts and misappropriate trade secrets. Likewise, the arbitration will not resolve the issues of whether SSI tortiously interfered with Lockhart's employment agreement with 3M, misappropriated trade secrets under the Texas Uniform Trade Secrets Act, converted 3M's confidential and proprietary information, aided and abetted, and conspired with Lockhart to tortiously interfere with 3M's contracts and misappropriate 3M's trade secrets. Accordingly, we conclude the parallel litigation does not threaten to undermine or moot the arbitration. See Carr, 337 S.W.3d at 500.
SSI also complains that the trial court stayed discovery relating to Cheung, Lai, Shyur, and Tang, but did not stay discovery relating to Karr or Lockhart. SSI argues this "creates a quagmire" and renders the arbitration proceedings moot because 3M does not distinguish its claims between Karr and the other former consultants. But other than SSI's assertion that the arbitration and the litigation both involve the same confidential information, SSI does not identify the common issues that will lead to such a result.
The trial court did not abuse its discretion by denying, in part, SSI's motion to stay litigation. See In re Merrill Lynch Trust Co. FSB, 235 S.W.3d at 196. SSI's second issue is overruled.
V. CONCLUSION
Based on our conclusions, we affirm the trial court's order granting in part and denying in part SSI's motion to compel arbitration and to stay litigation pending arbitration.
/Michael J. O'Neill/
MICHAEL J. O'NEILL
JUSTICE, ASSIGNED 150669F.P05
JUDGMENT
On Appeal from the 401st Judicial District Court, Collin County, Texas
Trial Court Cause No. 401-01813-2014.
Opinion delivered by Justice O'Neill. Justices Fillmore and Stoddart participating.
In accordance with this Court's opinion of this date, the order of the trial court granting in part and denying in part a motion to compel arbitration and to stay litigation pending arbitration is AFFIRMED.
It is ORDERED that appellees 3M COMPANY AND 3M INNOVATIVE PROPERTIES COMPANY recover their costs of this appeal from appellant STAR SYSTEMS INTERNATIONAL LIMITED. Judgment entered this 19th day of May, 2016.