United American Healthcare Corp. v. Backs
997 F. Supp. 2d 741
E.D. Mich.2014Background
- United American Healthcare (United) bought 100% of Pulse Systems, LLC and sues former Pulse executives Demian Backs and Vince Barletta for breach of the Stock Purchase Agreement (SPA) — alleging misappropriation of Pulse proprietary information, formation of competing company (Aduro), and solicitation of employees/customers.
- Backs and Barletta each signed employment agreements with Pulse containing confidentiality, noncompete, nonsolicitation, and arbitration clauses; the SPA (between United and Defendants) contains confidentiality, noncompete, nonsolicitation covenants and a Michigan forum-selection clause but no arbitration clause.
- Pulse filed a California state suit against Defendants asserting trade secret and related claims; that state action was ordered to arbitration as between Pulse and Defendants. United filed the federal breach-of-contract action in Michigan based on the SPA.
- Defendants moved to (1) compel arbitration (invoking their Pulse employment arbitration clauses), (2) transfer venue to N.D. Cal. under §1404(a), or (3) stay under Colorado River abstention in deference to the California proceedings.
- The district court denied all relief: refused to compel United (a nonsignatory to employment agreements) to arbitrate, enforced the Michigan forum-selection clause, denied transfer to California, and declined Colorado River abstention/stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Should United be compelled to arbitrate under Defendants’ Pulse employment arbitration clauses? | United: is a nonsignatory to employment agreements and never agreed to arbitrate SPA disputes. | Defs: federal claims "arise out of" employment agreements so arbitration applies; cite theories binding nonsignatories. | Denied — nonsignatory United not bound; defendants failed to invoke an applicable exception to force arbitration. |
| 2. Is the SPA forum-selection clause (Michigan) enforceable? | United: clause valid; governs forum and choice of law. | Defs: clause invalid under Michigan law; Michigan is inconvenient and lacks ties to case. | Enforceable — federal law controls; defendants failed to show fraud, unfairness, or serious inconvenience. |
| 3. Should the case be transferred to N.D. Cal. under 28 U.S.C. §1404(a)? | United: parties bargained for Michigan; private convenience factors weigh for Michigan. | Defs: witnesses/documents in California; related California litigation makes transfer appropriate. | Denied — under Atlantic Marine private factors favor the preselected forum; public factors do not strongly support transfer. |
| 4. Should the court stay under Colorado River abstention in deference to California proceedings/arbitration? | United: state arbitration does not provide complete relief to United; federal courts have a virtually unflagging duty to exercise jurisdiction. | Defs: state action is parallel and more appropriate; abstention prevents duplication. | Denied — although proceedings are parallel, Colorado River abstention not warranted; risk of piecemeal litigation is low and state action cannot fully protect United’s rights. |
Key Cases Cited
- Atkinson v. Sinclair Ref. Co., 370 U.S. 238 (1962) (arbitration agreement is a contract requiring consent to arbitrate)
- AT&T Techs. v. Commc’ns Workers, 475 U.S. 643 (1986) (court must decide arbitrability when parties dispute agreement to arbitrate)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614 (1985) (court first determines whether parties agreed to arbitrate)
- Javitch v. First Union Sec., 315 F.3d 619 (6th Cir. 2003) (theories for binding nonsignatories to arbitration agreements)
- J.J. Ryan & Sons v. Rhone Poulenc Textile, S.A., 863 F.2d 315 (4th Cir. 1988) (parent/subsidiary arbitration interplay where claims are inseparable)
- Wong v. PartyGaming Ltd., 589 F.3d 821 (6th Cir. 2009) (enforceability of forum-selection clauses in diversity cases governed by federal law)
- Sec. Watch, Inc. v. Sentinel Sys., 176 F.3d 369 (6th Cir. 1999) (factors for evaluating forum-selection clauses)
- Atlantic Marine Const. Co. v. U.S. Dist. Ct., 571 U.S. 49 (2013) (forum-selection clauses alter §1404(a) analysis; private factors favor the preselected forum)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr., 460 U.S. 1 (1983) (standard for arbitration and federal jurisdiction duties)
- Colorado River Water Cons. Dist. v. United States, 424 U.S. 800 (1976) (narrow circumstances permitting federal abstention in favor of parallel state proceedings)
- Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981) (public factors relevant to §1404(a) transfers)