1:19-cv-20590
D.N.J.May 13, 2021Background
- Field Intelligence (Plaintiff) develops IoT "Field/Hardware Units," software, and services; Xylem (Defendant) used Plaintiff’s technology and entered a 2013 NDA that included an AAA arbitration clause.
- In 2017 the parties executed a Software Subscription Agreement (SSSA) that granted Xylem limited software access, protected Plaintiff’s IP, contained a New Jersey governing-law and exclusive-forum (New Jersey courts) clause, and an integration/merger clause.
- Plaintiff later sued in federal court (claims grounded in the 2017 SSSA) alleging Xylem copied Plaintiff’s RTUs; discovery revealed Plaintiff relied on the 2013 NDA’s confidentiality obligations.
- Xylem filed an AAA demand under the 2013 NDA and moved to stay the federal case pending arbitration; Plaintiff opposed and cross-moved for a declaration that the 2013 NDA is not arbitrable.
- The Court was asked to decide whether the 2013 arbitration clause still binds the parties or whether the 2017 SSSA superseded it for disputes about the Field Units (and who decides formation/arbitrability).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides threshold arbitrability/contract formation? | Court must decide whether Plaintiff agreed to be bound by the 2013 NDA after the 2017 SSSA. | Delegation to arbitrator via incorporation of AAA rules (Rule 7) requires arbitrator to decide threshold issues. | Court decides threshold formation questions (MZM line of authority controls); delegation clause does not preclude court review. |
| Whether the 2017 SSSA supersedes the 2013 NDA as to the Field Units (i.e., whether arbitration clause survives) | The 2017 SSSA covers the same subject matter (Field Units/IP), contains a forum-selection clause and integration clause that supersede the 2013 NDA’s arbitration clause. | The 2013 NDA and 2017 SSSA concern different subject matter; merger clause limited to SSSA subject matter so it does not displace the NDA. | 2017 SSSA supersedes the 2013 NDA on the issues here: both contracts address Field Units and dispute resolution, so the SSSA’s forum-selection clause displaced the NDA’s arbitration clause. |
| Whether arbitration should be enjoined or case stayed pending arbitration | Plaintiff sought a declaration of non-arbitrability and asked the court to enjoin arbitration. | Xylem sought a stay pending arbitration under the NDA. | Court denied both substantive motions but enjoined the AAA proceedings; no valid arbitration obligation exists for the Field Unit IP issues, so stay pending arbitration denied. |
Key Cases Cited
- MZM Constr. Co., Inc. v. N.J. Bldg. Laborers Statewide Benefit Funds, 974 F.3d 386 (3d Cir. 2020) (court must decide formation/existence of contract even where delegation clause exists).
- Puleo v. Chase Bank USA, N.A., 605 F.3d 172 (3d Cir. 2010) (general rule that courts resolve arbitrability questions).
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (parties may delegate arbitrability to arbitrator by clear and unmistakable evidence).
- Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, 809 F.3d 746 (3d Cir. 2016) (caution against inferring a clear and unmistakable delegation from ambiguous references to AAA).
- Applied Energetics, Inc. v. NewOak Capital Mkts., LLC, 645 F.3d 522 (2d Cir. 2011) (later forum-selection clause can displace an earlier arbitration clause when contracts conflict).
- AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643 (1986) (arbitration is a matter of contract; parties cannot be forced to arbitrate disputes they did not agree to submit).