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Medidata brought suit against its competitor, Veeva, alleging that Medidata’s former employees, who eventually left the company to work for Veeva, violated their employment agreements which required them to protect Medidata’s confidential information and to refrain from competing with Medidata during their employment there and for up to one year thereafter. Specifically, Medidata alleged that the former employees misappropriated Medidata’s trade secrets and other confidential information. Three of the five former employees’ agreements included an arbitration clause that mandated arbitration of “any dispute or controversy arising out of or relating to” their agreements. Veeva urged the court to compel arbitration based on the former employees’ arbitration agreements under a theory of equitable estoppel.

The district court denied the motion, and on appeal, the issue was whether Veeva demonstrated the requisite “relationship among the parties” that would make it unfair to decline to require arbitration of this dispute. The Second Circuit, in a summary order, affirmed, reasoning that no such relationship existed: “Veeva was not involved at all in those relationships until it intruded by allegedly poaching Medidata employees and inducing them to divulge Medidata’s secrets; in other words, by ‘wrongfully inducing’ the former employees to breach their contract with Medidata.” As such, because Veeva was in no such relationship at the time the arbitration agreements were signed, no equitable estoppel justification existed to compel arbitration. Medidata Solutions Inc., et al. v. Veeva Systems Inc., Case Nos. 17-2694(L) & 18-681(CON) (2d Cir. Sept. 6, 2018).

This post written by Gail Jankowski.

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Plaintiff Outokumpu Stainless USA, LLC (“Outokumpu”) contracted with F.L. Industries, Inc. “”FLI”), a German company, to provide cold rolling mills (“CRMs”), which are used in the production of certain steel products. FLI later contracted with GE Energy Conversion France SAS (“GE Energy”). Both contracts contained arbitration agreements.

Outokumpu and GE Energy became involved in a dispute over failed CRMs. Outokumpu filed suit in Alabama state court and GE Energy removed to Alabama federal court, and moved to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). Outokumpu sought to remand to state court. The District Court denied remand and granted GE Energy’s motion to compel arbitration. Outokumpu appealed.

The Eleventh Circuit reversed, finding that, while the District Court properly maintained jurisdiction because the dispute “related to” the arbitration agreement at issue, it reversed the granting of the motion to compel arbitration, as the New York Convention requires that the parties signed a written agreement to arbitrate. Here, no agreement was “signed” by both parties, as, at the time Outokumpu entered into the contract with FLI, GE Energy was a stranger to that contract, and had not yet entered into its own contract with GE Energy, through which it ultimately sought to enforce the Outokumpu – FLI arbitration agreement.

The Court remanded for further proceedings before the Alabama federal district court.

Outokumpu Stainless USA, LLC v. Converteam SAS, No. 17-10944 (11th Cir. Aug. 30, 2018)

This post written by John Pitblado.

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The Fifth Circuit has affirmed a district court’s ruling vacating an arbitrator’s decision reforming a contract for mutual mistake, finding that reformation was outside the authority provided to the arbitrator by the parties’ agreement.

The dispute arose from the sale of a business, which included the assets, customer lists, and customer contracts of the business. The agreement provided for the buyer to make future payments contingent upon the buyer achieving certain levels of ongoing revenue from the seller’s former customers. The seller would receive $7 million if an agreed upon threshold amount of revenue was achieved in the first 9 months after the sale, with this payment reduced proportionately to the extent the revenue was under the threshold and reaching $0 if the revenue was less than 90% of the threshold. At the end of nine months, the parties disagreed regarding whether revenues from two customers should be counted toward meeting the threshold amount, such that the seller claimed that it was owed a payment while the buyer asserted that seller was owed nothing.

The parties submitted the matter arbitration, and the arbitrator adopted the seller’s position that revenues from both excluded customers should be counted toward the threshold. However, the arbitrator also decided that the parties had made a mutual mistake in their initial calculation of the threshold amount. He then reformed the agreement to fix that mistake, leading to a new calculation under which the buyer was owed no payment.

The buyer challenged arbitration award in court, and by the time the matter got before the Fifth Circuit. the only issue was whether the arbitrator had exceeded his authority by deciding the issue of mutual mistake and reforming the contract. The court noted that the parties went to arbitration under the authority of a provision saying that, in the case of a dispute over the revenue calculation, the parties would “select [an arbitrator] to resolve any remaining dispute over the Seller’s proposed adjustments . . . .” This, the court held, only allowed the arbitrator to resolve disputes over the question of “Seller’s proposed adjustments,” and not to decide whether the parties had erred in calculating the threshold amount. In reaching this conclusion, the court noted that the arbitration provision was only one of four separate arbitration provisions in the agreement, each of which was dedicated to different types of disputes, with the agreement further providing that other disputes would be decided by state or federal courts in Texas. Thus, the issue of mutual mistake was outside of the authority given by the parties to the arbitrator, and the court remanded the matter to the district court to decide the issue of mutual mistake.

Hebbronville Lone Star Rentals, L.L.C. et al. v. Sunbelt Rentals Industrial Services, L.L.C., No. 17-50613 (Fifth Cir. Aug. 6, 2018)

This post written by Jason Brost.

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