United States District Court, E.D. Texas, Sherman Division
NORTH AMERICAN DEER REGISTRY, INC.
DNA SOLUTIONS, INC.
MEMORANDUM OPINION AND ORDER
L. MAZZANT UNITED STATES DISTRICT JUDGE
before the Court is Plaintiff North American Deer Registry,
Inc.'s Application for Preliminary Injunction (Dkt. #17).
After reviewing the relevant pleading, motions, and evidence
received at hearing, the Court finds the motion should be
deer breeding industry is a potentially lucrative industry
with single straws of buck semen selling for $5, 000 to $20,
000 on average, and ranging all the way up to $1 million to
purchase the entire buck. Many deer are sold through
auctions. Auction houses require a deer either to be
registered, or if it is a fawn, to have a registration
belong to several different deer associations nationwide.
Before 2007, each association had its own registry. In
particular, the Texas Deer Association and North American
Deer Farmers Association (the “Associations”) had
their own registries. Under this system, information about a
deer's lineage was often spread across several
registries. If a breeder needed information about a deer from
a different state or association, the breeder would have to
join that registry. This increased the overhead cost of the
breeder, as well as lowered the price of a deer. Deer prices
suffered because lineage verification required substantial
work and was of questionable reliability.
2007, the Associations joined forces to create the North
American Deer Registry, Inc. (“NADR”). NADR is
comprised of five board members from each of the Associations
plus two board members from a Mexican association. To be a
member of the NADR, a breeder only needed to be a member of
either the Texas Deer Association or the North American Deer
Farmer's Association. This allows breeders to gain access
to a larger database to confirm lineage, therefore reducing
Solutions, Inc. (“DNAS”) began performing DNA
lineage verification in 2000 when both Associations employed
DNAS. DNAS hosted a registry for each Association that
performed DNA testing and confirmed lineage for the deer
profiles therein. Each registry restricted DNAS's ability
to compare lineages only to those deer within the respective
service can be broken down in two steps. First, DNAS performs
a DNA analysis wherein DNAS creates a genetic profile of the
deer. This profile is comprised of various DNA markers known
to the public. The second step uses DNAS's proprietary
system to interpret DNA markers and compare them to other
deer related in the first-degree. From DNAS's proprietary
system, they are able to create or verify the lineage of each
2007, NADR hired DNAS to host its registry (the
“Registry”). The contract required DNAS to
process deer genetic information, perform matching services,
and host a database for NADR's information, which would
be accessible online. As part of the agreement, DNAS agreed
to preserve the confidentiality of NADR's information and
to return such information upon termination of DNAS's
services. Also under this agreement, DNAS performed most of
the client outreach for NADR and DNAS accepted samples
directly at its office in Oklahoma City.
2013, NADR reduced DNAS's role in their relationship. The
2013 contract eliminated DNAS's role in administration
and client outreach. Under this agreement, clients sent
samples to NADR in Edmond, Oklahoma, rather than to DNAS. As
part of NADR's new client outreach role, clients were
directed to call NADR directly with questions or concerns.
NADR forwarded the question to DNAS, who answered NADR, and
finally NADR would inform the client. Debra Lyon
(“Lyon”) and Dr. Brandt Cassidy
(“Cassidy”) testified for DNAS that the switch in
2013 caused some confusion with customers who did not
understand the evolving relationship between NADR and DNAS.
parties further revised their agreement in 2014 (the
“Contract”). The Contract terminated by its terms
on January 1, 2017.
the Contract, NADR retained ownership of all biological
materials, genetic information, genotype analysis data,
membership directory, and any other information provided by
NADR. DNAS, on the other hand, retained ownership of any code
it created because of running the registry. DNAS agreed to
keep confidential the content of the registry or any other
information it received from NADR in the performance of the
Contract or in its prior dealings with NADR. DNAS further
agreed that, upon termination of the Contract, it would
return all information provided by NADR.
January 27, 2017, NADR 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, NADR
made a demand for arbitration seeking relief for breach of
contract, temporary and permanent injunctions, declaratory
judgment, and attorneys' fees (Dkt. #21, Exhibit 2). On
February 27, 2017, NADR filed its Application for Preliminary
Injunction (Dkt. #17). On March 14, 2017, DNAS filed a
response (Dkt. #21). On March 21, 2017, NADR filed a reply
(Dkt. #23). On March 28, 2017, DNAS filed a sur-reply (Dkt.
#26). On May 17 and 18, the Court held an evidentiary hearing
on NADR's application.
seeking a preliminary injunction must establish the following
elements: (1) a substantial likelihood of success on the
merits; (2) a substantial threat plaintiffs will suffer
irreparable harm if the injunction is not granted; (3) the
threatened injury outweighs any damage the injunction might
cause the defendant; and (4) the injunction will not disserve
the public interest. Nichols v. Alcatel USA, Inc.,
532 F.3d 364, 372 (5th Cir. 2008). “A preliminary
injunction is an extraordinary remedy and should only be
granted if the plaintiffs have clearly carried the burden of
persuasion on all four requirements.” Id.
Nevertheless, a movant ‘“is not required to prove
its case in full at a preliminary injunction
hearing.'” Fed. Sav. & Loan Ins. Corp. v.
Dixon, 835 F.2d 554, 558 (5th Cir. 1985) (quoting
Univ. of Tex. v. Comenisch, 451 U.S. 390, 395
(1981)). The decision whether to grant a preliminary
injunction lies within the sound discretion of the district
court. Weinberger v. Romero-Barcelo, 456 U.S. 305,
addressing the merits, the Court must assess its jurisdiction
to grant injunctive relief. DNAS continues to argue the Court
does not have jurisdiction to grant injunctive relief. DNAS
argues that injunctive relief is proper for the arbitrator
because: (1) the arbitration clause is broad and encompasses
injunctive relief; (2) NADR requested injunctive relief in
its demand for arbitration; and (3) any determination by the
Court will necessarily interfere with the arbitration
claims that the Court does have jurisdiction. NADR argues:
(1) the arbitration provision is narrow and does not prefer
either the Court or arbitrator to order injunctive relief;
(2) the arbitrator could not even order injunctive relief;
and (3) the Court may enter injunctive relief in order to
preserve the status quo pending arbitration. During closing
arguments of the hearing, NADR went even further to argue the
Court can order injunctive relief over even the breach of
contract claim, which is undisputedly in front of the
did not request relief over its breach of contract claim in
its application. Therefore, the Court will only address the
claims argued in the application: Lanham Act, trade secrets,
unjust enrichment, and constructive trust (the
“non-contract claims”). Based on the foregoing
analysis, the Court finds it has jurisdiction to order
injunctive relief over the non-contract claims.
the non-contract claims are properly before this Court and
are not subject to arbitration. The Court has already entered
an order regarding the arbitrability of NADR's claims
(Dkt. #43). The Court found NADR's claims under the
Lanham Act were not subject to arbitration (Dkt. #43 at p.
10). The Court denied DNAS's motion as to NADR's
trade secret claims, but left open the question of whether
the basis for NADR's claim was so related to the contract
that it should be ultimately sent to arbitration (Dkt. #43 at
hearing, the Court finds NADR's trade secret claims are
not subject to arbitration. NADR developed its trade secret
deer profiles, lineages, and member list over several years
predating the Contract. NADR is composed of two other
associations that have been in existence for many years. The
other associations had their own contracts with DNAS
beginning in 2000. Since 2000, they have developed deer
profiles, lineages, and member lists independently from the
Contract. While the Contract will be evidence of protection
of the trade secrets and NADR's entrustment of
information to DNAS, it is not dispositive of the entire
trade secret history. Therefore, the trade secret claims are
not subject to arbitration under the narrow arbitration
provision in the Contract.
the Court has jurisdiction to order injunctive relief to
preserve the status quo. The Fifth Circuit recognizes the
general authority of a district court to enter injunctive
relief to maintain the status quo. Janvey v.
Alguire, 647 F.3d 585, 595 (5th Cir. 2011). In
Janvey, the Fifth Circuit recognized a circuit split
over the question of whether a district court has power to
enter an injunction while arbitration is pending.
Id. at 592. However, the Fifth Circuit held that the
circuit-split cases were not applicable because it had not
yet decided whether the case was arbitrable. Id. at
594. Similar to Janvey, the circuit-split cases are
not applicable to the non-contract claims because the court
has determined those claims are not subject to arbitration at
Fifth Circuit precedent on the issue, the parties cite
opposing district court opinions from districts in Texas to
support their positions.
cites Grasso to argue that the Court should not
enter injunctive relief because it would “necessarily
would inject the court into the merits of issues more
appropriately left to the arbitrator.” Grasso,
143 F.Supp.3d at 543 (quoting Merrill, Lynch, Pierce,
Fenner & Smith, Inc. v. Hovey, 726 F.2d 1286, 1292
(8th Cir. 1984)). In its sur-reply, DNAS also cites East
El Paso Physicians' Medical Center, LLC v. Aetna Health
Inc., to argue that the Court cannot order injunctive
relief when it is inextricably linked with the agreement. No.
EP-16-CV-44-KC, 2017 WL 876313, at *15 (W.D. Tex. Mar. 2,
cites Amegy Bank National Association v. Monarch Flight
II, LLC to argue that most circuits that have addressed
this issue have held that a district court may enter
injunctive relief to preserve the status quo pending
arbitration. 870 F.Supp.2d 441 (S.D. Tex. 2012). In
Amegy, the court entered an injunction before ruling
on the motion to compel arbitration. Id. at 451. The
court then decided the motion to compel arbitration and
determined all claims should be tried in arbitration.
Id. at 450-51. Having gone a step further than
Janvey by deciding the arbitrability of disputes,
the court dealt with the circuit split Janvey
avoided. Id. at 451-52. In recounting the circuit
split, the court recognized that only the Eighth Circuit
reached the result that a district court cannot order
injunctive relief when all claims are sent to arbitration.
Id. at 452. The court also recognized that most
district courts in the Fifth Circuit follow the majority
position. Id. The court went on to hold that a court
should be able to order injunctive relief pending arbitration
so that the parties are not able to “continue
maneuvering to the disadvantage of each other outside the
arbitration model.” Id. (citation omitted).
Court agrees with the majority of circuits that a district
court has discretion to grant injunctive relief to preserve
the status quo pending arbitration. First, DNAS's cases
are distinguishable simply because they involved broad
arbitration clauses. Broad arbitration clauses embrace
“all disputes between the parties having a significant
relationship to the contract.” E. El Paso,
2017 WL 876313, at *13. Here, the arbitration clause is
narrow. It only encompasses disputes that fall within the
scope of the clause. Injunctive relief does not fall within
the scope of the arbitration clause. The Fifth Circuit has
held that when an arbitration provision is limited to
“interpretation” of the contract, then the
parties intend that their dispute be governed by the four
corners of the agreement. United Offshore Co. v. S.
Deepwater Pipeline Co., 899 F.2d 405, 410 (5th Cir.
1990). In United Offshore, the court found that the
contract did not provide a means by which the arbitrator
could resolve the dispute because there was not remedy within
the four corners of the contract. Id. Similarly
here, the Contract does not provide any means by which the
arbitrator could resolve a dispute as to the non-contract
claims. Therefore, the non-contract claims do not fall within
the arbitration clause.
as the Amegy court recognized, Hovey and
Grasso are parts of an extremely small minority. The
majority of courts in the circuit split considered
Hovey and refused to follow it. See, e.g.,
Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 910 F.2d 1049 (2d Cir. 1990); Ortho Pharm.
Corp. v. Amgen, Inc., 882 F.2d 806 (3d Cir. 1989);
Teradyne, Inc. v. Mostek Corp., 797 F.2d 43 (1st
Cir. 1986); Merrill Lynch, Pierce, Fenner & Smith,
Inc. v. Bradley, 756 F.2d 1048 (4th Cir. 1985).
the Court does not interpret Hovey to foreclose this
result. Hovey held “where the Arbitration Act
is applicable and no qualifying contractual language has been
alleged, the district court errs in granting injunctive
relief.” Hovey, 726 F.2d at 1292. Here,
neither prong is satisfied. The Court found the Federal
Arbitration Act (“FAA”) does not apply because
the non-contract claims are not subject to arbitration. There
is also qualifying language in the Contract. The parties did
not agree to arbitrate injunctions. The parties agreed to
arbitrate disputes concerning interpretation of the Contract.
Injunctive relief does not fall within the scope of the
arbitration clause. See United Offshore Co., 899
F.2d at 410.
majority of circuits have found, this position is more
consistent with, and necessary to enforce, the federal policy
on arbitration. Amegy, 870 F.Supp.2d at 452. The
First Circuit explained, “the congressional desire to
enforce arbitration agreements would frequently be frustrated
if the courts were precluded from issuing preliminary
injunctive relief to preserve the status quo pending
arbitration.” Teradyne, 797 F.2d at 51.
“A district court must ensure that the parties get what
they bargained for-a meaningful arbitration of the
dispute.” Blumenthal, ...