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Cajun Services Unlimited LLC v. Benton Energy Service Co.

United States District Court, E.D. Louisiana

November 19, 2019

CAJUN SERVICES UNLIMITED, LLC, ET AL.
v.
BENTON ENERGY SERVICE COMPANY dba BESCO TUBULAR, ET AL.

         SECTION M

          ORDER & REASONS

          BARRY W. ASHE UNITED STATES DISTRICT JUDGE.

         Before the Court is a motion to compel arbitration submitted by defendant Benton Energy Service Company d/b/a Besco Tubular (“Besco”), [1] to which the plaintiffs Cajun Services Unlimited, LLC d/b/a Spoked Manufacturing (“Cajun”), T2 Tools & Design, LLC, Shane Triche, and Heath Triche (collectively, “Plaintiffs”) respond in opposition, [2] and in support of which Besco replies.[3] Having considered the parties' memoranda, the record, and the applicable law, the Court issues this Order & Reasons finding that Besco has waived arbitration.

         I. BACKGROUND

         This action is one among three consolidated lawsuits over rights to an elevator roller insert system (“ERIS”), a technology used in drilling for oil. On January 20, 2017, Cajun filed suit against Besco (the “Cajun I Lawsuit”), alleging violation of the Defend Trade Secrets Act (“DTSA”), 18 U.S.C. §§ 1831, et seq.; violation of the Louisiana Uniform Trade Secrets Act (“LUTSA”), La. R.S. 51:1431, et seq.; violation of the Louisiana Unfair Trade Practices and Consumer Protection Law (“LUTPA”), La. R.S. 51:1401, et seq.; bad faith breach of contract; fraud; and civil conspiracy.[4] Cajun also sought injunctive relief and a declaratory judgment that Cajun was the owner of all right, title, and interest to all improvements and modifications made to the ERIS, its practice, and any inventions, patent applications, or patents that relate to the ERIS.[5] Besco filed a motion for partial summary judgment to dismiss Cajun's claim under the DTSA on the ground that Cajun lacked standing because it did not own any trade secrets.[6] To streamline the litigation, Cajun agreed not to oppose dismissal on that ground.[7] The Court granted the motion for partial summary judgment, dismissed Cajun's DTSA claim without prejudice, and administratively closed the case in anticipation of Cajun's moving to amend its complaint to assert a patent-infringement claim.[8]

         On June 4, 2018, the day before Cajun's ERIS patent issued (Patent No. 9, 988, 862, “the '862 Patent”), Besco filed suit against Cajun (the “Besco Lawsuit”), seeking a declaration that Cajun's patent was invalid, unenforceable, and/or not infringed by Besco.[9] On June 14, 2018, Cajun, its officers Shane Triche and Heath Triche, and a related entity, T2 Tools, filed suit against Besco, re-alleging the same causes of action asserted in the Cajun I Lawsuit and adding a patent-infringement claim (the “Cajun II Lawsuit”).[10] Besco answered asserting counterclaims that re-alleged the same causes of action it alleged in the Besco Lawsuit plus allegations of unfair and deceptive trade practices, fraudulent inducement, breach of oral contract, and invalidity of contract.[11] The Court consolidated the Cajun I Lawsuit with the Besco Lawsuit and the Cajun II Lawsuit on August 15, 2018.[12] On April 3, 2019, the Court granted Cajun's motion to dismiss the Besco Lawsuit for lack of subject-matter jurisdiction, leaving only the claims asserted in the Cajun I and Cajun II Lawsuits.[13] On June 7, 2019, the Court denied Besco's motions for partial summary judgment to dismiss Plaintiffs' breach-of-contract claim, trade-secret claims, and patent-infringement claims.[14] On July 8, 2019, a four-day jury trial commenced, [15] which resulted in a jury verdict in favor all of Plaintiffs' remaining claims and against all of Besco's.[16]

         II. PENDING MOTION

         In its motion to compel arbitration, Besco seeks to have this Court vacate the jury verdict on all issues other than the finding of a valid and enforceable written agreement between Cajun and Besco (the “Rental Agreement”), dismiss the proceeding, and refer the matter to arbitration for determination in accordance with the Rental Agreement.[17] Besco asserts that it has consistently challenged the validity of the Rental Agreement, and that it has maintained that if the Rental Agreement was ever adjudicated to be a valid and binding agreement enforceable against Besco, it would move to compel arbitration in accordance with its express provisions.[18]As the jury found that the Rental Agreement is indeed valid, binding, and enforceable against Besco, Besco explains that if the Court adopts this finding, this will be the first adjudication on the issue, and so Besco now moves to compel arbitration.[19] Besco argues that because the relevant provision of the Rental Agreement provides that “[a]ny dispute or difference arising out of or in connection with this contract shall be determined by [an arbitrator], ” then not only Plaintiffs' breach-of-contract claims, but also each and every other claim made (including Plaintiffs' claims for fraud, unfair trade practices, trade-secret violations, and patent infringement) must be decided through arbitration because the claims arise out of the equipment rentals under the Rental Agreement.[20] Besco further argues that it has not waived its right to compel arbitration because throughout the litigation it was challenging the existence of the Rental Agreement as a valid and enforceable agreement - an issue which must be decided by the court, not an arbitrator - and so Besco could not move to compel arbitration until the agreement was found to be valid and enforceable.[21] Besco explains that, in its answers to the Cajun I Lawsuit, [22] it reserved until the completion of discovery the right to assert additional defenses; that it raised the issue of arbitration in its opposition to Cajun's motion for summary judgment, [23]which was the first motion seeking adjudication of the contract validity issue;[24] and that since then it maintained that if the Court found the Rental Agreement valid and enforceable, it would move for arbitration.[25] Lastly, Besco argues that if the Court grants the motion to compel arbitration, the jury verdict should be sealed to prevent unduly prejudicing the arbitrator, and that the Court should rule that any findings by the jury are not binding on the arbitrator.[26]

         In opposition, Plaintiffs first contend that Besco's motion contravenes fundamental principles underlying the judicial process, as it runs counter to federal courts' power to prevent their processes from becoming instruments of abuse, oppression, and injustice, and counter to the fundamental order and sequence of the judicial process.[27] Next, they argue that Besco has waived any right to compel arbitration by failing to timely raise and move on it, by filing its own lawsuit, by seeking to litigate the case to Plaintiffs' prejudice, and by seeking to arbitrate patent-infringement claims, which are beyond the scope of the arbitration clause.[28] Plaintiffs also argue that Besco should be estopped from relitigating to an arbitrator issues decided at trial.[29] Lastly, Plaintiffs argue that Besco has failed to comply with the Rental Agreement's arbitration provision, defeating the purpose of arbitration to resolve claims quickly.[30] They add that Besco has waived arbitration under Louisiana law, which governs the Rental Agreement.[31]

         Besco replies that Plaintiffs failed to address its argument that because the validity of the Rental Agreement itself was in dispute, Besco could not move for arbitration earlier.[32] It reiterates that all of Plaintiffs' other claims, including the patent-infringement and LUTPA claims, arise out of the Rental Agreement, and therefore, must be decided by arbitration.[33]

         III. LAW & ANALYSIS

         A. Legal Standard on Motion to Compel Arbitration

         1. In General

         There is a “strong federal policy in favor of enforcing arbitration agreements.” N. Am. Specialty Ins. Co. v. First Millennium Constr., LLC, 2015 WL 1842962, at *1 (E.D. La. Apr. 21, 2015) (citing Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985)). The Federal Arbitration Act “requires courts to ‘compel arbitration of otherwise arbitrable claims, when a motion to compel arbitration is made.'” Id. (quoting Dean Witter, 470 U.S. at 219). The Supreme Court has made it clear that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

         “Courts conduct a two-step inquiry when considering motions to compel arbitration.” N. Am. Specialty Ins., 2015 WL 1842962, at *1 (citing Primerica Life Ins. Co. v. Brown, 304 F.3d 469, 471 (5th Cir. 2002)).

First, whether the party has agreed to arbitrate the dispute is examined. This question itself is further subdivided; to determine whether the party has agreed to arbitrate a dispute, our court must ask: (1) is there a valid agreement to arbitrate the claims and (2) does the dispute in question fall within the scope of that arbitration agreement. If both questions are answered in the affirmative, our court then asks whether any federal statute or policy renders the claims nonarbitrable.

Jones v. Halliburton Co., 583 F.3d 228, 233-34 (5th Cir. 2009) (internal quotation marks and citations omitted).

         The parties do not contend that a federal statute or policy would bar arbitration, and so analysis is restricted to the first step. Here, the jury determined that the Rental Agreement is a valid contract between Cajun and Besco, [34] and the parties do not dispute that the Agreement contains an enforceable arbitration provision. Furthermore, Plaintiffs do not dispute that the contract claims are within the scope of the arbitration agreement.[35] Plaintiffs do dispute, however, whether the non-contract claims, and in particular, the patent-infringement and trade-secret claims, are within the scope of the arbitration clause.[36] Besco argues that because Plaintiffs' non-contract claims arise out of the equipment rentals, which the jury found were subject to the Rental Agreement, these claims must be arbitrated.[37] The Court need not decide whether these claims are arbitrable, however, because even assuming they are, as discussed below, it is clear that Besco has waived arbitration in their regard - as with the contract claims.

         2. Waiver

         “Under [Fifth Circuit] precedent, a party waives its right to arbitrate if it (1) substantially invokes the judicial process and (2) thereby causes detriment or prejudice to the other party.” Janvey v. Alguire, 847 F.3d 231, 243 (5th Cir. 2017) (quoting Al Rushaid v. Nat'l Oilwell Varco, Inc., 757 F.3d 416, 421 (5th Cir. 2014)). The Fifth Circuit has declined to adopt a bright-line rule on the issue of waiver, which instead depends on the facts of the case. In re Mirant Corp., 613 F.3d 584, 589 (5th Cir. 2010).

         Due to the federal policy favoring arbitration, there is a presumption against the finding of waiver. Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 897 (5th Cir. 2005) (citing Steel Warehouse Co. v. Abalone Shipping Ltd. of Nicosai, 141 F.3d 234, 238 (5th Cir. 1998), and Miller Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 496-97 (5th Cir. 1986)). The burden to show that the right to arbitrate has been waived “falls even more heavily when the party seeking arbitration has included a demand for arbitration in its answer.” Id. at 897 (internal citations omitted). Even if a defendant waits several months to move for arbitration, after asserting his right to arbitration in an answer, he may not have waived the right, as the plaintiff is thereby placed on notice of the defendant's “desire to arbitrate the matter.” Tenneco Resins, Inc. v. Davy Int'l, AG, 770 F.2d 416, 420 (5th Cir. 1985). This “affords that party the opportunity to avoid compromising its position with respect to arbitrable and nonarbitrable claims.” Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 347 (5th Cir. 2004) (quoting Price v. Drexel Burnham Lambert, Inc., 791 F.2d 1156, 1161 (5th Cir. 1986)). On the other hand, while “the mere failure to assert the right of arbitration does not alone translate into a waiver of the right, such failure does bear on the question of prejudice, and may, along with other considerations, require a court to conclude that waiver has occurred.” Petroleum Pipe Am. Corp. v. Jindal Saw, Ltd., 575 F.3d 476, 480 (5th Cir. 2009) (quoting Price, 791 F.2d at 1161) (internal quotation marks omitted). “[W]here a party fails to demand arbitration and, in the meantime engages in pretrial activity inconsistent with an intent to arbitrate, the party later opposing a motion to compel arbitration may more easily show that its position has been compromised, i.e., prejudiced.” Nicholas v. KBR, Inc., 565 F.3d 904, 910 (5th Cir. 2009) (internal citations and quotation marks omitted).

         In the context of waiver, “prejudice means the inherent unfairness in terms of delay, expense or damage to a party's legal position that occurs when the party's opponent forces it to litigate an issue and later seeks to arbitrate the same issue.” Jindal Saw, 575 F.3d at 480 (citing Republic, 383 F.3d at 346). “[T]hree factors are particularly relevant to the prejudice determination: (1) whether discovery occurred relating to arbitrable claims; (2) the time and expense incurred in defending against a motion for summary judgment; and (3) a party's failure to timely assert its right to arbitrate.” Id.

         The Fifth Circuit has explained that to invoke the judicial process, a “party must, at the very least, engage in some overt act in court that evinces a desire to resolve the arbitrable dispute through litigation rather than arbitration.” Mirant, 613 F.3d at 589 (quoting Subway Equip. Leasing Corp. v. Forte, 169 F.3d 324, 329 (5th Cir. 1999)). “A party waives arbitration by seeking a decision on the merits before attempting to arbitrate, ” Jindal Saw, 575 F.3d at 480, but it “only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate.” Subway Equip., 169 F.3d at 328. When determining whether a defendant's actions substantially invoked the judicial process, the Fifth Circuit distinguishes between pleadings and motions which are “perfunctory, ” or in other words, only act as defensive measures, and those which “invoke[] the judicial process to a greater degree.” Electrostim Med. Servs., Inc. v. Health Care Serv. Corp., 2012 WL 5373462, at *6-7 (E.D. La. Oct. 30, 2012) (citing Mirant, 613 F.3d at 589). A defendant may act consistently with pursuing a right to arbitration, such as filing motions to dismiss “in a case involving several claims that [are] non-arbitrable … [as] it might be necessary for the defendant to file the motion both to sort out the claims before it can intelligently decide whether to arbitrate and to protect its rights in court if the arguably non-arbitrable claims do turn out to be non-arbitrable.” Id. (quoting Mirant, 613 F.3d at 591-92).

         B. Analysis of Waiver

         This case presents an unusual situation in which Besco, after receiving an adverse jury verdict finding the existence of a binding and enforceable contract, now argues that all of Plaintiffs' other claims must be sent to arbitration, despite not having made this argument previously.[38] Until this motion, Besco has argued that if the Rental Agreement was found to be a binding and enforceable contract, then Plaintiffs' breach-of-contract and damages claims would have to be arbitrated.[39] Because a party “only invokes the judicial process to the extent it litigates a specific claim it subsequently seeks to arbitrate, ” Subway Equip., 169 F.3d at 328 (emphasis added), and Besco has acted differently in regards to the non-contract and contract claims, the issue of waiver will be analyzed separately as to each category of claims. Because it is useful for understanding the analysis of both categories, the Court first provides a thorough timeline of pertinent events:

• On January 17, 2017, Cajun filed the Cajun I Lawsuit against Besco (R. Doc. 1)
• On February 16, 2017, Besco filed its answer to the Cajun I Lawsuit (R. Doc. 15)
• On March 9, 2017, Cajun filed its first amended complaint in the Cajun I Lawsuit against Besco (R Doc. 19)
• On March 29, 2017, Besco filed its answer to the first amended complaint in the Cajun I Lawsuit (R. Doc. 22)
• On April 7, 2017, the Court entered a scheduling order (R. Doc. 24), setting:
o A discovery deadline of October 16, 2017
o The final pretrial conference on November 16, 2017
o Trial on December 4, 2017
• On June 26, 2017, the Court entered a protective order, as filed jointly by all parties, with one amendment (R Doc. 26)
• On October 17, 2017, Besco filed a motion for partial summary judgment seeking dismissal of Cajun's trade-secret claims (R. Doc. 49)
• On October 17, 2017, Cajun filed a motion for summary judgment seeking grant of Cajun's claim for breach-of-contract and denial of Besco's breach-of-oral-contract claim (R Doc. 50)
• On October 17, 2017, Cajun filed a motion for summary judgment seeking denial of Besco's counterclaims for unfair and deceptive trade practices and fraudulent inducement (R Doc. 51)
• On October 24, 2017, Besco filed an opposition to Cajun's motion for summary judgment on its trade-practices and fraudulent-inducement counterclaims (R. Doc. 59)
• On October 24, 2017, Besco filed an opposition to Cajun's motion for summary judgment on the contract claims (R. Doc. 60)
• On November 16, 2017, the Court held a pretrial conference and reset trial for March 5, 2018 (R ...

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