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North American Deer Registry, Inc. v. DNA Solutions, Inc.

United States District Court, E.D. Texas, Sherman Division

May 16, 2017

NORTH AMERICAN DEER REGISTRY, INC.
v.
DNA SOLUTIONS, INC.

          MEMORANDUM OPINION AND ORDER

          AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

         Pending before the Court are Defendant DNA Solutions, Inc.'s Motion to Dismiss Amended Complaint and Compel Arbitration, or in the Alternative, to Transfer Venue to the Western District of Oklahoma (Dkt. #19) and Motion to Stay (Dkt. #31). After reviewing the relevant pleadings, motion, and arguments of counsel, the Court finds the motions should be denied.

         BACKGROUND

         In 2007, North American Deer Registry, Inc. (“Deer Registry”) engaged DNA Solutions, Inc. (“DNAS”) to process deer genetic information, perform matching services, and host a database for Deer Registry's information, which would be accessible online. As part of the agreement, DNAS agreed to preserve the confidentiality of Deer Registry's information and to return such information upon termination of DNAS's services.

         In 2013, the parties entered into a revised agreement for DNAS to maintain a registry of information for Deer Registry. The parties entered into a similar agreement in 2014 (the “Contract”). Deer Registry terminated the Contract effective January 1, 2017.

         Under the Contract, Deer Registry retained ownership of all biological materials, genetic information, genotype analysis data, membership directory, and any other information provided by Deer Registry. DNAS, on the other hand, retained ownership of any code that it created as a result of running the registry. DNAS agreed to keep confidential the content of the registry or any other information it received from Deer Registry in the performance of the Contract or in its prior dealings with Deer Registry. DNAS further agreed that, upon termination of the Contract, it would return all information provided by Deer Registry.

         On January 27, 2017, Deer Registry filed a complaint, alleging unfair competition under the Lanham Act, misappropriation of trade secrets, constructive trust, unjust enrichment, and requesting injunctive relief (Dkt. #1). The same day, Deer Registry made a demand for arbitration seeking relief for breach of contract, temporary and permanent injunctions, declaratory judgment, and attorneys' fees (Dkt. #19, Exhibit 2). On February 22, 2017, Deer Registry filed an amended complaint (Dkt. #14). On March 8, 2017, DNAS filed this motion to dismiss (Dkt. #19). On March 22, 2017, Deer Registry filed a response (Dkt. #25). On March 29, 2017, DNAS filed a reply (Dkt. #29). On March 31, 2017, while the motion to dismiss was still pending, DNAS filed a motion to stay pending arbitration (Dkt. #31). On April 5, 2017, Deer Registry filed a sur-reply to the motion to dismiss (Dkt. #33). On April 14, 2017, Deer Registry filed a response to the motion to stay (Dkt. #34).

         On April 27, 2017, the Court held a hearing on the parties' arguments regarding the arbitration provision (Dkt. #37). At the hearing, the Court ordered the parties to submit supplemental briefing regarding each cause of action, in the event that the Court finds the arbitration provision is narrow (Dkt. #37). On May 1, 2017, both parties submitted supplemental briefs (Dkt. #39; Dkt. #41).

         LEGAL STANDARD

         “The Federal Arbitration Act (“FAA”) expresses a strong national policy favoring arbitration of disputes, and all doubts concerning the arbitrability of claims should be resolved in favor of arbitration.” Wash. Mut. Fin. Grp., LLC v. Bailey, 364 F.3d 260, 263 (5th Cir. 2004). The FAA, “leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.” Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985).

         When considering a motion to compel arbitration, the Court must address two questions. Graves v. BP Am., Inc., 568 F.3d 221, 222 (5th Cir. 2009) (citing Fleetwood Enters. Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002)). “First, whether there is a valid agreement to arbitrate, and second, whether the dispute in question falls within the scope of the arbitration agreement.” Id. Concerning the first question of contract validity, the Court should apply “ordinary state-law principles that govern the formation of contracts.” Id. at 222 (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). The second question of scope is answered “by applying the ‘federal substantive law of arbitrability.'” Id. (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (1985)). Courts construe any ambiguities as to the scope of an arbitration clause in favor of arbitration. See Fleetwood Enters., 280 F.3d at 1073. “[A]rbitration should not be denied ‘unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue.'” Neal v. Hardee's Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990) (quoting Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984)).

         ANALYSIS

         The parties do not dispute that there is a valid arbitration agreement that covers disputes concerning interpretation of the Contract. The only dispute is whether Deer Registry's claims in this Court come within the scope of the arbitration agreement.

         As an initial matter, DNAS makes a passing reference to the choice of law provision of the Contract to state that Oklahoma law and the Oklahoma Uniform Arbitration Act should apply to this case. However, DNAS then admits that there is no conflict between Oklahoma law and the FAA. Therefore, the Court will apply federal arbitration law to determine the scope of the arbitration clause, in accordance with the FAA.[1] Graves, 568 F.3d at 223.

         The arbitration provision states:

20. Dispute Resolution. In the event a dispute arises concerning the interpretation of the terms of this Agreement, the parties agree that such dispute shall be submitted to binding arbitration pursuant to the Commercial Rules of the American Arbitration Association. In the event of such arbitration, the prevailing party shall be entitled to recover all reasonable and necessary attorneys' fees, arbitration fees, and all other expenses related to the arbitration action. The arbitration shall be held in Oklahoma City, Oklahoma County, State of Oklahoma.

(Dkt. #19, Exhibit 2 at p. 23). DNAS argues the Court should dismiss the case in favor of arbitration because all of Deer Registry's claims involve interpretation of the Contract and thus fall within the scope of the arbitration provision. Deer Registry responds that it complied with the arbitration clause by demanding arbitration for breach of contract and declaratory judgment claims and by filing the rest of its claims in the district court.

         Deer Registry made a demand for arbitration on claims for breach of contract, declaratory judgment, and injunctive relief. Specifically, Deer Registry seeks declaratory judgment for:

a. [O]wnership of specific rights to data
b. [C]ompliance with confidentiality provisions.
c. What is described by the phrase, “Any information developed by DNAS (the “DNAS Data”) incidentally through the performance of its services hereunder that analyze or organize the collective database (as distinct from the original NADR Information) shall not be considered member or NADR Information and such information shall be solely the property of DNAS.”
d. The extent, if any, of “DNAS's exclusive continued ownership of the rights to the Data (as defined in the Agreement) obtained and the Database (as defined in the Agreement) ...

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