Cayenne Medical Incorporated v. MedShape Incorporated

Filing 131

ORDER: because all of Cayenne's claims against Nash and Ray are subject to arbitration, dismissal is appropriate. Nash's and Ray's motion to dismiss and to compel arbitration is granted. Cayenne's claims against Nash and Ray are dismissed without prejudice. Signed by Judge H Russel Holland on 9/15/15.(SJF)

WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA

CAYENNE MEDICAL, INC.,

)
)
Plaintiff,
)
)
vs.
)
)
MEDSHAPE, INC., a Georgia corporation,
)
KURT JACOBUS, KEN GALL, TIMOTHY
)
NASH, and JOSHUA RAY,
)
)
Defendants.
)
__________________________________________)

No. 2:14-cv-0451-HRH

ORDER
Defendants Nash’s and Ray’s Motion to Dismiss
Defendants Timothy Nash and Joshua Ray move to dismiss Cayenne’s claims
against them and to compel arbitration of these claims.1 This motion is opposed.2 Oral
argument was requested and has been heard.

1

Docket No. 93.

2

Docket No. 109.
-1-

Background
Defendants Timothy Nash and Joshua Ray are former employees of plaintiff
Cayenne Medical, Inc. After leaving Cayenne’s employ, both Nash and Ray went to work
for one of Cayenne’s competitors, defendant MedShape, Inc.
On March 6, 2014, Cayenne commenced this action against MedShape, alleging that
one of MedShape’s medical devices infringed two of Cayenne’s patents. On January 27,
2015, Cayenne filed an amended complaint which named Nash and Ray as defendants.
Cayenne asserts the following claims against Nash and Ray in its amended complaint: 1)
misappropriation of trade secrets, 2) intentional interference with contract, 3) intentional
interference with business expectancy, 4) unfair competition, 5) aiding and abetting, 6) civil
conspiracy, 7) breach of contract, and 8) breach of the covenant of good faith and fair
dealing.
Cayenne’s misappropriation of trade secrets claims against Nash and Ray are based
on allegations that Nash and Ray acquired confidential information while working for
Cayenne and that they then shared this information with defendants MedShape, Kurt
Jacobus, and Ken Gall.3 Cayenne’s intentional interference with contract claims against
Nash and Ray are based on allegations that Nash and Ray knew that Cayenne had
contracts with “Matrix Biosurgical, Integra Medikal, EHRM Orthopedics, Dr. Uribe, AMG
3

Jacobus and Gall are officers of MedShape. First Amended Complaint at 4, ¶¶ 1314, Docket No. 86.
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Medical Distributor, Inc./Ramiro Parra” and that Nash and Ray “cause[d] these parties to
breach their agreements with Cayenne[.]”4

Cayenne’s intentional interference with

business expectancies claims against Nash and Ray are based on allegations that Nash and
Ray knew that Cayenne had business expectancies with “Matrix Biosurgical, Integra
Medikal, EHRM Orthopedics, Dr. Uribe, AMG Medical Distributor, Inc./Ramiro Parra” and
that Nash and Ray “cause[d] these parties to breach their expectancies with Cayenne[.]”5
Cayenne’s unfair competition claims against Nash and Ray are based on allegations that
they “unfairly competed with Cayenne through their tortious interference with Cayenne’s
valid contractual relationships and business expectancies” and that they “unfairly
competed against Cayenne by misappropriating Cayenne’s Confidential Information[.]”6
Cayenne’s aiding and abetting claims against Nash and Ray are based on allegations that
they “substantially assisted and encouraged each of the other named Defendants in the
achievement of the tortious conduct directed against Cayenne.”7

Cayenne’s civil

conspiracy claims against Nash and Ray are based on allegations that they agreed with at

4

Id. at 25-26, ¶¶ 137 & 139.

5

Id. at 27, ¶¶ 145-146.

6

Id. at 28, ¶¶ 152 & 154.

7

Id. at 29, ¶ 161.
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least one other defendant to accomplish tortious conduct.8 Cayenne’s breach of contract
claims against Nash and Ray are based on allegations that they breached confidentiality
agreements and non-compete agreements that they had with Cayenne.9 And, Cayenne’s
breach of the covenant of good faith and fair dealing claims against Nash and Ray are
based on allegations that their “actions in disclosing confidential information and Mr.
Nash’s action in violating the terms of the non-competition clauses of the Agreements are
inconsistent with Cayenne’s justifiable expectations under the Agreements.”10
Nash and Ray now move to dismiss Cayenne’s claims against them and to compel
arbitration of these claims.
Discussion
The Federal Arbitration Act “provides that any arbitration agreement within its
scope ‘shall be valid, irrevocable, and enforceable’ and permits a party ‘aggrieved by the
alleged ... refusal of another to arbitrate’ to petition any federal district court for an order
compelling arbitration in the manner provided for in the agreement.” Chiron Corp. v.
Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (quoting 9 U.S.C. §§ 2, 4).
“By its terms, the Act ‘leaves no place for the exercise of discretion by a district court, but

8

Id. at 29-30, ¶ 166.

9

Id. at 30, ¶¶ 170-174.

10

Id. at 31, ¶ 180.
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instead mandates that district courts shall direct the parties to proceed to arbitration on
issues as to which an arbitration agreement has been signed.’” Id. (quoting Dean Witter
Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985)). Generally, “[t]he court’s role under the Act
is ... limited to determining (1) whether a valid agreement to arbitrate exists and, if it does,
(2) whether the agreement encompasses the dispute at issue.” Id. “[T]here is a presumption that courts will decide which issues are arbitrable[.]” Oracle America, Inc. v. Myriad
Group A.G., 724 F.3d 1069, 1072 (9th Cir. 2013). However, “incorporation of ... arbitration
rules is clear and unmistakable evidence that the parties agreed the arbitrator would decide
arbitrability.” Id. at 1074–75.
Nash
Nash’s 2008 amended and restated employment agreement contained an arbitration
clause that provided that “[a]ny controversy, dispute or claim between Executive and the
Company ... shall be resolved by binding arbitration, at the request of either party.”11 The
2008 amended and restated employment agreement further provided that
[t]he claims which are to be arbitrated include, but are not
limited to any Claim arising out of or relating to this Agreement or the employment relationship between Executive and
the Company, claims for wages and other compensation,
claims for breach of contract (express or implied), claims for

11

Amended and Restated Employment Agreement at 9, § 7.1, Exhibit F, First
Amended Complaint, Docket No. 86.
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violation of public policy, wrongful termination, [and] tort
claims[.12]
Nash’s 2012 Separation Agreement contained a similar arbitration clause.13 The 2012
Separation Agreement arbitration clause provided that “[a]ny controversy, dispute or claim
between Nash and Cayenne, whether as to validity, construction, capacity, performance,
or otherwise, shall be resolved by binding arbitration, at the request of either party.”14 The
2012 Separation Agreement arbitration clause further provided that
[t]he claims which are to be arbitrated include, but are not
limited to any Claim arising out of or relating to this Agreement or the employment relationship between Nash and
Cayenne, claims for wages and other compensation, claims for
breach of contract (express or implied), claims for violation of
public policy, wrongful termination, [and] tort claims[.15]
Cayenne does not dispute that its breach of contract, breach of the covenant of good
faith and fair dealing, and misappropriation of trade secret claims against Nash are subject
to arbitration.

But, Cayenne argues that its intentional interference with contract,

intentional interference with business expectancy, unfair competition, aiding and abetting,

12

Id.

13

The 2012 Separation Agreement provides that it “supersedes any and all prior and
contemporaneous agreements, promises, representations, negotiations, and understandings
of the parties[.]” Employment Separation Agreement at 11, § XX, Exhibit I, First Amended
Complaint, Docket No. 86.
14

Id. at 7, § X.A.

15

Id. at 8.
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and civil conspiracy claims (the tort claims) against Nash do not fall within the scope of the
arbitration clauses. For example, Cayenne contends that its intentional inference with
contract claim is based on allegations that Nash caused third-party distributors to breach
their contracts with Cayenne and plaintiff contends that this interference was unrelated to
Nash’s employment relationship with Cayenne. Cayenne points out that this same conduct
is alleged against defendants Jacobus and Gall, who did not have an employment
relationship with Cayenne. Thus, Cayenne argues that this could not be a claim “arising
out of or relating to” Nash’s employment agreement.
It is irrelevant whether Cayenne’s claims against Nash arose out of or relate to his
employment agreement. The arbitration clauses in Nash’s 2008 amended employment
agreement and in his 2012 Separation Agreement do not limit arbitrable claims to those
“arising out of or related to” Nash’s employment agreement. Rather, the arbitration
clauses provided that any controversy, dispute or claim between Nash and Cayenne shall
be resolved by binding arbitration. While the arbitration clauses provided that claims
arising out of or related to the employment agreement or separation agreement are subject
to arbitration, the clauses also provided that these are not the only claims subject to
arbitration. In fact, the arbitration clauses expressly provided that tort claims are subject
to arbitration. Thus, all of Cayenne’s claims against Nash, including its tort claims, fall
within the scope of the arbitration clauses in Nash’s agreements.

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Ray
Ray’s 2008 employment agreement provided that
[e]xcept as provided in subsection (b) below, I agree that any
dispute, claim or controversy concerning my employment or
the termination of my employment or any dispute, claim or
controversy arising out of or relating to the interpretation,
construction, performance or breach of this Agreement, shall
be settled by arbitration to be held in Maricopa County,
Arizona in accordance with the rules then in effect of the
American Arbitration Association.[16]
Ray argues that all of Cayenne’s claims against him arise out of or are related to his
employment agreement and thus are subject to arbitration.
Cayenne argues that none of its claims against Ray are subject to arbitration because
only Ray agreed to arbitration. Cayenne contends that it did not agree to arbitrate its
claims against Ray. Cayenne contends that it only agreed to the covenants provided in
Section 2(a)(i) of Ray’s contract, which does not include an agreement to submit its claims
against Ray to arbitration. The signature block of Ray’s employment agreement provides
“that the Company executed this Agreement solely for the purpose of entering into the
covenants contained in Section 2(a)(i).”17 Section 2(a)(i) provides, in pertinent part, that
[t]he Company agrees that upon the commencement of my
employment, it will make available to me that Confidential

16

Employment, Confidential Information, and Invention Assignment Agreement at
3, § 9(a), Exhibit K, First Amended Complaint, Docket No. 86.
17

Id. at 5.
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Information of the Company that will enable me to optimize
the performance of my duties to the Company. In exchange,
I agree to use such Confidential Information solely for the
Company’s benefit.[18]
In addition, in the introduction to the Agreement, Ray agreed that
[a]s a condition of my employment with Cayenne Medical, Inc.,
..., and in consideration of my further employment with the
Company and my receipt of compensation now and hereafter
paid to me by the Company and the Company’s agreement in
Section 2(a)(i), I agree to the following terms and conditions of
this Employment, Confidential Information and Invention
Agreement....[19]
Cayenne argues that this introduction defines the bargain reached between the parties,
which was that Ray agreed to the covenants listed in the Agreement, while Cayenne agreed
to compensate and employ Ray and to provide him with confidential information at set out
in Section 2(a)(i).
Cayenne also argues that nothing in the arbitration clause indicates that Cayenne
agreed to arbitrate any claims it might have against Ray. The arbitration clause provided
that
I agree that any dispute, claim, or controversy concerning my
employment or the termination of my employment or any
dispute, claim or controversy arising out of or relating to any

18

Id. at 1, § 2(a)(1).

19

Id. at 1.
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interpretation, construction, performance or breach of this
Agreement shall be settled by arbitration....[20]
Cayenne argues that the use of the term “I” and “my” plainly applies to Ray only, and not
to Cayenne. Thus, Cayenne insists that the arbitration clause contains no language that
indicates an agreement on its part to arbitrate any claims it might have against Ray.
“Ordinary principles of contractual construction apply to the interpretation of
arbitration clauses, and the contract containing the arbitration agreement must be read as
a whole.” United Government Sec. Officers of Amer., Int’l. Union v. Exelon Nuclear Sec.,
LLC, 24 F. Supp. 3d 460, 465 (E.D. Pa. 2014). Section 9(a) of Ray’s employment agreement
provided:
I agree that any dispute, claim, or controversy concerning my
employment or the termination of my employment or any
dispute, claim or controversy arising out of or relating to any
interpretation, construction, performance or breach of this
Agreement shall be settled by arbitration....[21]
When the arbitration clause in Section 9(a) is read in the context of Ray’s employment
agreement as whole, it plainly provides that Ray and Cayenne agreed to arbitrate any
claims flowing from Ray’s employment. The use of the words “I” and “my” does not
render this clause applicable to Ray only. But, to the extent that “the clause is ambiguous,
... the Supreme Court has been clear that ‘ambiguities as to the scope of the arbitration

20

Id. at 3, § 9(a).

21

Id.
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clause’ must be ‘resolved in favor of arbitration.’” Adams v. AT & T Mobility, LLC, Case
No. 11–35871, 2013 WL 1633129, at *1 (9th Cir. April 17, 2013 (quoting Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995)). Moreover, it may be for the arbitrator
to decide whether Cayenne’s claims against Ray fall within the scope of the arbitration
clause. The arbitration clause provides that arbitration will be held “in accordance with the
rules then in effect of the American Arbitration Association.”22 “[I]ncorporation of the
AAA Rules effectively delegates jurisdictional questions, including arbitrability and
validity, to the arbitrator.” Zenelaj v. Handybook Inc., 82 F. Supp. 3d 968 (N.D. Cal. 2015).
Conclusion
“If ... the district court decides that the arbitration agreement is valid and
enforceable, then it should stay or dismiss the action pending arbitration proceedings to
allow the arbitrator to decide the remaining claims[.]” Nagrampa v. MailCoups, Inc., 469
F.3d 1257, 1276 77 (9th Cir. 2006). Generally, a stay is appropriate but it is within the
court’s discretion to dismiss a case “if all of the alleged claims are subject to arbitration.”
Delgadillo v. James McKaone Enters., Inc., Case No. 1:12–cv–1149 AWI MJS, 2012 WL
4027019, at *3 (E.D. Cal. Sept. 12, 2012.) Here, because all of Cayenne’s claims against Nash
and Ray are subject to arbitration, dismissal is appropriate. Nash’s and Ray’s motion to

22

Id.
-11-

dismiss and to compel arbitration23 is granted. Cayenne’s claims against Nash and Ray are
dismissed without prejudice.
DATED at Anchorage, Alaska, this 15th day of September, 2015.
/s/ H. Russel Holland
United States District Judge

23

Docket No. 93.
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