Innotec LLC v. Visiontech Sales, Inc., 3:17-cv-00007

Innotec LLC (Colorado seller) sued Visiontech Sales, Inc. (Virginia buyer), VSG HK, and Perrault seeking payment for goods; Count I alleges breach of an "Exclusivity Agreement" and seeks invoices and attorneys' fees.
The Exclusivity Agreement (effective March 28, 2013) between Innotec (signed by Allen Ting) and Visiontech (signed by Richard Perrault) contains a broad arbitration clause: "any controversies or disputes arising out of or relating to this Agreement" to be arbitrated under AAA Commercial Rules.
Defendants answered and later sought to amend pleadings to add defenses including lack of standing (Innotec not a signatory) and to compel arbitration; magistrate recommended allowing the amendment.
Defendants moved (alternatively) for partial judgment on the pleadings or summary judgment, or to compel arbitration as to Count I; court considered motion to compel arbitration first under the FAA.
Court analyzed (1) whether the arbitration clause is enforceable against Innotec (a nonsignatory who seeks to enforce contract terms) and (2) whether defendants waived arbitration by participating in litigation and delaying the motion.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Enforceability of arbitration clause	Arbitration provision should not apply because Innotec is not a signatory / lacks standing	Arbitration clause is severable and binding; nonsignatory can be estopped where it seeks benefits under the contract	Arbitration clause enforceable; Innotec estopped from avoiding arbitration because Count I arises from the Agreement
Scope/applicability to Count I	Count I need not be arbitrated; claim is "immaterial" to the Agreement	Count I arises from and seeks to enforce rights under the Exclusivity Agreement, thus falls within clause’s scope	Claims in Count I fall within the broad "arising out of or relating to" arbitration clause and must be arbitrated
Waiver/default defense	Defendants waived arbitration by delaying (~13 months), answering, counterclaiming, engaging in discovery, and filing motion to enforce alleged oral settlement	Delay and litigation participation do not automatically waive arbitration absent actual prejudice to plaintiff	No waiver/default: plaintiff failed to show actual prejudice from delay or defendants’ litigation activity
Sequencing of motions	(Implicit) plaintiff wanted court to decide merits	Defendants requested arbitration be resolved before merits motions	Court must decide motion to compel arbitration first; granted motion to compel and denied without prejudice defendants’ alternative motions

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (Sup. Ct.) (FAA reflects federal policy favoring arbitration)
Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (Sup. Ct.) (district courts must direct parties to arbitration where agreement exists)
Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (Sup. Ct.) (arbitration clause severability; challenges to contract generally do not avoid arbitration clause)
Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287 (Sup. Ct.) (treatment of arbitration clause as separable)
Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 (4th Cir.) (nonsignatory may enforce/be bound by arbitration clause under equitable estoppel)
R.J. Griffin & Co. v. Beach Club II Homeowners Ass'n, Inc., 384 F.3d 157 (4th Cir.) (nonsignatory estopped when seeking direct benefits under contract)
Adkins v. Labor Ready, Inc., 303 F.3d 496 (4th Cir.) (elements to compel arbitration under FAA)
Rota-McLaarty v. Santander Consumer USA, Inc., 700 F.3d 690 (4th Cir.) (default/waiver requires showing of actual prejudice; heavy burden on party asserting waiver)
Patten Grading & Paving Inc. v. Skanska U.S. Bldg., Inc., 380 F.3d 200 (4th Cir.) (assessing whether litigation conduct constitutes waiver of arbitration)
Wheeling Hosp., Inc. v. Health Plan of the Upper Ohio Valley, Inc., 683 F.3d 577 (4th Cir.) (prejudice analysis for waiver/default)