Tort claims of trade secret theft, fraud, unfair competition, tortious interference with contract, and civil conspiracy can fall within the scope of an overly broad arbitration clause. Medversant Technologies, LLC v Leverage Health Solutions, LLC, et al., 114 F. Supp. 3d 290 (E.D. Pa. 2015). In this case, the district court looked “not to the labels or legal theories attached to the claims,” but rather “focused on the factual underpinnings of the claim” when assessing whether these claims fell within the scope of the arbitration clause of a business development and marketing consulting agreement. Id. (citing CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165 , 173 (3d Cir.2014)).
In this case, the plaintiff (“Medversant”) hired the defendant (“Leverage”) to provide business development and marketing consultant services (“Agreement”). In doing so, Leverage obtained comprehensive knowledge of Medversant’s trade secrets relating to its methods and technologies for provisioning credentials to healthcare providers. The Agreement’s arbitration clause was extremely broad and required that “any disputes that arise between the parties with respect to the performance of this agreement shall be submitted to arbitration . . . .”
Pursuant to the Agreement, Medversant directed Leverage, through its individual agents (collectively with Leverage, “the Leverage Defendants”), to negotiate the purchase of a directly competing credentialing business called “Aperture.” Although Medversant entrusted the Leverage Defendants to communicate with Aperture’s owner about Medversant’s purchase, the sale of Aperture to Medversant was never consummated.
In the midst of a related litigation between the parties, however, Medversant learned that Leverage itself acquired and began to operate Aperture, in direct competition with Medversant. While Aperture had previously been known as “a poorly performing credentialing business,” it now touted itself “as one of the largest and most experienced credentialing companies,” with possession of proprietary credentialing tools.
Medversant immediately filed suit against the Leverage Defendants in the Eastern District of Pennsylvania alleging claims of trade secrets theft, fraud, unfair competition, tortious interference with contract, and civil conspiracy. In response, the Leverage Defendants collectively moved to compel arbitration of all claims.
With no dispute as to the validity of the arbitration clause, the district court turned to the second threshold question in determining jurisdiction: does the dispute between the parties fall within the language of the arbitration agreement? In reaching that decision, the court put the legal theories aside, and determined that “Medversant’s five claims for relief could essentially be reduced to two factual allegations: (1) Leverage was contractually obligated to aid Medversant in acquiring Aperture, but instead fraudulently violated that obligation by acquiring Aperture itself without informing Medversant; and (2) Leverage misappropriated Medversant’s confidential trade secrets.” Based on the factual basis rather than the legal theory, the district court held that all of Medversant’s claims, including its trade secret claims, fell within the scope of the Agreement between the parties.
The district court thereafter turned to whether the arbitration clause of the Agreement applied to Medversant’s claims against the individual defendants, as they were not personal signatories to the Agreement. Relying on Third Circuit precedent, the district court held that the arbitration agreement could be upheld against non-parties where the interests of such parties are directly related to, if not congruent with, those of a signatory. Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1122 (3d Cir.1993) (citation omitted). Accordingly, the district court compelled arbitration as to the individual defendants as well.
This ruling demonstrates why companies that don’t want to be compelled to arbitrate the theft of their prized (and proprietary) business methods should be very wary of agreements with broad arbitration clauses covering all disputes between the parties.