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Precision-Hayes, International, Inc. v. JDH Pacific, Inc.

United States District Court, S.D. Texas, Houston Division

November 5, 2019

Precision-Hayes, International, Inc. Plaintiff,
JDH Pacific, Inc., Defendant.


          Gray H. Miller Senior United States District Judge

         Pending before the court are defendant JDH Pacific, Inc.'s (“JDH”) Motion to Dismiss Pursuant to Fed.R.Civ.P. 9(c) (Dkt. 2) and Motion to Compel Arbitration (Dkt. 12). Plaintiff Precision-Hayes, International, Inc. (“PHI”) responded to both motions. Dkts. 7, 14. JDH replied. Dkts. 9, 16. Having considered the motions, the responses, the replies, and applicable law, the court finds that JDH's Motion to Compel Arbitration should be GRANTED and JDH's Motion to Dismiss should be DENIED AS MOOT.

         I. Background

         This case is about agreements between PHI and JDH (the “Agreements”) governing JDH's rights as a licensee to “import cast metal anchor plates manufactured outside the United States for sale into the construction industries.” Dkt. 1-1 ¶¶ 24, 26, 34. The Agreements purport to grant JDH two exclusive licenses to PHI's patents and trademarks. Id. ¶¶ 26, 34. On April 15, 2019, PHI terminated the Agreements. Id. ¶ 25. PHI alleges that JDH failed to comply with the terms of the Agreements, such as using the marks in commerce without PHI's consent, failing to pay royalties, refusing to allow PHI to inspect relevant books and records, failing to meet specifications, ignoring requests for samples of anchors, failing to return PHI's confidential information, and failing to provide a description of anchor inventory. Id. ¶ 43. PHI also alleges various violations of PHI's “patents, trademarks, trade secrets, and/or confidential information.” Id.

         PHI filed its original petition in the 400th District Court in Fort Bend County, Texas, on April 18, 2019. Dkt. 1-1. On May 17, 2019, JDH timely removed the case to this court, asserting that this court has diversity jurisdiction and Federal Question jurisdiction over this action. Dkt. 1. On May 21, 2019, this court ordered an initial pretrial and scheduling conference and disclosure of interested persons. Dkt. 3. PHI submitted a joint discovery/case management plan on June 28, 2019 (Dkt. 11) and filed initial disclosures on July 23, 2019 (Dkt. 13).

         On May 20, 2019, JDH moved to dismiss the case for failure to satisfy conditions precedent, asserting PHI failed to plead that PHI “has attempted to ‘amicably settle all disputes' and only then invoke binding arbitration in breach of Section 5.10 of the Agreements.” Dkt. 2 at 1. PHI responded to the Motion to Dismiss. Dkt. 7.

         On July 5, 2019, JDH filed a Motion to Compel Arbitration, arguing that PHI and JDH entered into agreements that required arbitration of all disputes and that PHI “ignored the clearly defined agreement of the contracts” when PHI sued JDH rather than submit the disputes to arbitration. Dkt. 12-1. Section 5.10 of the Agreements recites in pertinent part:

DISPUTE RESOLUTION/ARBITRATION - The parties hereto will attempt to amicably resolve settle all disputes, controversies, or differences arising out of or in relation to this AGREEMENT by good faith negotiation. If such amicable settlement cannot be obtained, then any such dispute shall be submitted to binding arbitration in Dallas, Texas in accordance with the rules of the American Arbitration Association.

Dkt. 2-4 at 14; Dkt. 2-5 at 7. JDH asserted that the disputes are arbitrable under the Federal Arbitration Act, that the parties agreed to arbitrate the disputes in question, and that no external legal constraints foreclosed arbitration of the claims. Dkt. 12-1. Moreover, JDH argued that since all issues were subject to arbitration, dismissal of the case was appropriate. Id.

         II. Legal Standard

         Determining whether parties “should be compelled to arbitrate involves two steps: (1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement.” TRC Envtl. Corp. v. LVI Facility Servs., Inc., 612 Fed.Appx. 759, 761 (5th Cir. 2015). Whether there is a valid agreement to arbitrate “is evaluated on the basis of ordinary state-law principles that govern the formation of contracts.” Id. Under this framework, “a court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute.” Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 297, 130 S.Ct. 2847 (2010). In determining whether a dispute falls within the scope of the arbitration agreement, the court “resolves ambiguities in favor of arbitration.” Scudiero v. Radio One of Texas II, L.L.C., 547 Fed.Appx. 429, 430 (5th Cir. 2013). “Once the court finds that the parties agreed to arbitrate, it must consider whether any federal statute or policy renders the claims nonarbitrable.” Will-Drill Res., Inc. v. Samson Res. Co., 352 F.3d 211, 214 (5th Cir. 2003).

         A party may waive its right to arbitrate if it “substantially invokes the judicial process to the detriment or prejudice of the other party.” In re Mirant Corp., 613 F.3d 584, 588 (5th Cir. 2010). Invocation of the judicial process involves engaging “in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration.” Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir. 1999). Waiver is determined under the facts of each case. In re Mirant Corp., 613 F.3d at 589. The party claiming waiver has a “heavy burden” because “[t]here is a strong presumption against finding a waiver of arbitration.” Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 344 (5th Cir. 2004).

         Section 3 of the Federal Arbitration Act provides that when claims are properly referable to arbitration, the court shall stay the trial of the action until the arbitration is complete. 9 U.S.C. § 3. The court “may not deny a stay” upon a showing that “the opposing party has commenced suit upon any issue referable to arbitration under an agreement in writing for such arbitration.” Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161, 1164 (5th Cir. 1992). However, “when all of the issues raised in the district court must be submitted to arbitration, ” then the case can be dismissed. Id. (emphasis in original).

         III. ...

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