IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

__________________________________

VDV MEDIA CORPORATION, *

*

Plaintiff, *

*

v. * Civil No. 3:05-CV-1877-H

*

RELM WIRELESS, INC., *

*

Defendant. *

MEMORANDUM OPINION AND ORDER

Before the Court are RELM Wireless, Inc.'s ["RELM"] Motion to Compel Arbitration,

Motion to Abate, and supporting brief and appendix, filed November 10, 2005; Plaintiff's Response

to Defendant's Motion to Compel and to Abate, filed December 1, 2005; and RELM's Reply, filed

December 14, 2005. 

For the reasons that follow, RELM's motion is granted in its entirety.

I. BACKGROUND

Plaintiff VDV Media Corporation ["VDV"] and Defendant RELM are corporations

conducting business in the area of wireless communication products and services. On December 23,

2003, RELM and VDV executed an agreement entitled "Independent Representative and Assumption

Agreement" [the "IRA Agreement"]. The IRA Agreement set out obligations of the parties with

regard to, among other things, sales and service of certain RELM products that the parties refer to

as "ESAS Equipment." Specifically, Plaintiff contracted to market and sell the ESAS Equipment

for Defendant RELM, and to provide related services. See Def's. App. at 0016-20. The IRA

 

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Agreement also contained a clause requiring mutual nondisclosure of trade secrets; a covenant not

to compete; and an arbitration clause. See id., IRA Agr. §§ 11, 12, 15. Plaintiff now alleges that

RELM subsequently sold the ESAS Equipment at below-market cost directly to a third party in

violation of the IRA Agreement. On August 26, 2005, VDV filed this lawsuit in Texas state court

for (1) breach of the IRA Agreement's covenant not to compete; (2) tortious interference with

prospective business relations; and (3) misappropriation of trade secrets. On September 22, 2005,

the case was removed to federal court on the basis of diversity jurisdiction.

RELM now asks the Court to order mandatory arbitration under the Federal Arbitration Act

for each of VDV's claims.

II. ANALYSIS

Under the Federal Arbitration Act, agreements to arbitrate are "valid, irrevocable, and

enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."

9 U.S.C. § 2. When parties have agreed to arbitrate, federal policy strongly supports enforcement

of such agreements. Neal v. Hardee's Food Sys., Inc., 918 F.2d 34, 37 (5th Cir. 1990); Commerce

Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 338 (5th Cir. 1984); Hawk v.

Spaghetti Warehouse Restaurants, Inc., 2003 WL 21246138, *2 (N.D. Tex. 2003). 

To determine whether arbitration should be compelled, the Court must determine:

(1) whether the parties agreed to arbitrate the dispute; and (2) if so, whether any federal statute or

policy renders the claim non-arbitrable. Banc One Acceptance Corp v. Hill, 367 F.3d 426, 429 (5th

Cir. 2004). In this case, Plaintiff VDV does not argue that federal law or policy precludes

arbitration. It is equally undisputed that the parties contracted in the IRA Agreement to arbitrate

 

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 The arbitration clause reads, in relevant part: "The parties agree that any disputes or 1

questions arising hereunder including the construction or application of the Agreement shall be

settled by arbitration in Florida and in accordance with the rules of the American Arbitration

Association." IRA Agr. § 15.

 In its Response, Plaintiff does not address arbitrability of the contract claim and 2

therefore impliedly and appropriately concedes the issue.

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disputes "arising []under" the Agreement. See Def's. App. at 0019 (IRA Agr. § 15). The sole issue 1

is whether the scope of this narrow arbitration clause encompasses some or all of Plaintiff's claims.

See Pennzoil Exploration and Prod. Co. v. Ramco Energy, Ltd., 139 F.3d 1061, 1067 (5th Cir. 1998)

(distinguishing "narrow" clauses requiring arbitration for claims "arising under" a contract, from

"broad" clauses using language such as "related to" or "involving" a contract). Each claim is

examined in turn.

A. Breach of Covenant Not to Compete

Plaintiff's claim for breach of contract is based on RELM's alleged violation of the IRA

Agreement's covenant not to compete. See IRA Agr. § 11. An alleged breach of the IRA Agreement

is a claim clearly and indisputably "arising under" the Agreement and is thus subject to the

Agreement's arbitration clause. See Coffman v. Provost 7 Umphrey Law Firm, 161 F. Supp. 2d 2

720, 726 (E.D. Tex. 2001), aff'd, 33 Fed. Appx. 705 (5th Cir.), cert. denied, 537 U.S. 880 (2002).

Plaintiff's cause of action for breach of contract is therefore referred to mandatory arbitration.

B. Tortious Interference with Prospective Contract

Plaintiff's second cause of action is for tortious interference with a prospective business

relationship. RELM's sale of the ESAS Equipment to a third party allegedly interfered with

Plaintiff's sale of the same equipment to the same party, with whom Plaintiff claims it was

negotiating.

 

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 Although Ford was decided under the Texas General Arbitration Act, rather than under 3

federal law, the court confirmed "no perceptible difference" between the standard applicable to

both. Ford, 141 F.3d at 250 n.7. Subsequent district courts have on that basis applied the

"interwoven" test under the Federal Arbitration Act. See, e.g., Coffman, 161 F. Supp. 2d at 730.

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When determining whether a tort claim falls within the scope of an arbitration clause, the

district court must focus on the factual allegations in the complaint, not on the nominal

characterization of the legal cause of action. Harvey v. Joyce, 199 F3d 790, 795 (5th Cir. 2000).

Even "narrow" arbitration clauses may encompass claims other than for breach of contract. See id.;

Coffman, 161 F. Supp. 2d at 730. The test in this Circuit for applying a contract's narrow arbitration

clause to a tort claim is whether the tort is "so interwoven with the contract that it could not stand

alone." Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 250 (5th Cir. 1998).3

In this case, Plaintiff's claim for tortious interference rests on precisely the same transaction

that comprises its claim for breach of the IRA Agreement. Even more to the point, the IRA

Agreement provides the sole basis by which Plaintiff was entitled to sell the ESAS Equipment at all.

Absent the IRA Agreement, RELM can be accused of nothing more than selling its own equipment

in the free market. See Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 726-27 (Tex. 2001)

(holding that when two parties are competing for a business interest to which neither has superior

entitlement, a cause of action fortortiousinterference cannot arise from merely competitive conduct,

even if that conduct is “unfair”). It is the IRA Agreement itself that transforms the sale into a

potentially tortious act. For that reason, Plaintiff’s claim is interwoven with and arises, if at all,

under the IRA Agreement. Like the claim for breach of contract, the claim for tortious interference

with prospective business relationship is subject to arbitration.

 

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 Plaintiff’s argument to the contrary is misplaced. In the line of cases on which

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Plaintiff relies, the duty not to disclose trade secrets arises from the presence of an employment

relationship, not present in this case. See, e.g., Fox v. Tropical Warehouses, Inc., 121 S.W.3d

853, 858 (Tex. App.--Ft. Worth 2003, no writ). 

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C. Misappropriation of Trade Secrets

In the third and final cause of action, Plaintiff allegesthat RELM misappropriated Plaintiff's

trade secrets. Specifically, Plaintiff asserts that RELM wrongfully disclosed Plaintiff's confidential

cost information to the third party with whom they both were allegedly negotiating the ESAS

Equipment sale. This claim, too, is interwoven with the contract at issue.

In the IRA Agreement, the parties included a clause requiring nondisclosure of each other's

"Intellectual Property, any trade secrets and confidential and proprietary information." Def.'s App.

at 0018 (IRA Agr. § 12). Plaintiff's claim for "misappropriation of trade secrets" is therefore nothing

more nor less than an additional ground for breach of the IRA Agreement. As such it clearly "arises

under" the contract and is subject to arbitration.

In opposition, Plaintiff argues that its trade secret claim would lie even in the absence of the

IRA Agreement and thus "stands alone." See Ford, 141 F.3d at 250. A duty not to reveal another

party's business information, however, does not arise in a vacuum. Under law so settled as to be 4

axiomatic, the owner of a trade secret "will lose his secret by its disclosure unless it is done in some

manner by which he creates a duty and places it on the other party not to further disclose or use it

in violation of that duty." Furr's, Inc. v. United Specialty Advert. Co., 385 S.W.2d 456, 459 (Tex.

Civ. App.--El Paso 1964, writ ref'd n.r.e.), cert. denied, 382 U.S. 824 (1965). In the absence here

of the IRA Agreement, RELM had no duty to keep secret the cost information that Plaintiff divulged.

Plaintiff's claim is therefore interwoven with the IRA Agreement and arises, if at all, under its terms.

 

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A final issue, though not expressly raised in Plaintiff’s Response, requires consideration. In

Plaintiff's Original Petition, the cause of action for revealing trade secrets is predicated not on the

IRA Agreement but rather on a previous contract between the parties, a nondisclosure agreement

executed in February2003 ["Nondisclosure Agreement"]. The Nondisclosure Agreement contained

no arbitration clause; thus, its violation would not be arbitrable. The Court finds, however, that the

Nondisclosure Agreement was expressly merged into and superceded by the IRA Agreement. See

Def.'s App. at 0019 (IRA Agr. § 14) (“RELM and VDV each agree to adhere to the terms and

conditions of the Nondisclosure Agreement between the companies dated February 20, 2003.”);

Def.'s App. at 0019 (IRA Agr. § 16) ("This Agreement contains the entire understanding and

agreement of the parties with respect to this subject matter set forth herein, superseding any and all

prior agreements, written and oral, between the parties regarding the same subject matter."); see also

Coffman, 161 F. Supp. 2d at 728 (discussing and enforcing in the arbitration context a similar

integration clause). The allegedly wrongful disclosure of Plaintiff's confidential information

occurred after the Nondisclosure Agreement was extinguished; and thus the IRA Agreement, with

its arbitration clause, applies to the trade secrets dispute. Cf. id. (applying the arbitration clause of

a superceded contract to a claim arising before the new integrated contract took effect).

Accordingly, Plaintiff's claim for misappropriation of trade secrets arises under the IRA

Agreement and is subject to arbitration by its terms.

D. Stay Pending Arbitration

In its motion, Defendant requests a stay of these proceedings pending arbitration. Because

all of Plaintiff’s claims are subject to arbitration, the Court instead dismisses the case. See Saturn

 

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Distrib. Corp. v. Paramount Saturn, Ltd., 326 F.3d 684, 686-87 (5th Cir.2003) (discussing dismissal

versus stay of a lawsuit when most or all claims are referred to arbitration).

III. CONCLUSION

For the reasons given above, Defendant RELM's motion to compel arbitration is

GRANTED. The Parties are hereby ORDERED to proceed to arbitration in accordance with the

terms of the Independent Representative and Assumption Agreement of December 23, 2003.

Because no claims remain before the Court, this case is DISMISSED WITHOUT

PREJUDICE.

SO ORDERED.

DATED: February 27, 2006..

___________________________________

BAREFOOT SANDERS, SENIOR JUDGE

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

 

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