Court Stays Action Pending Arbitration

March 6, 2014

A recent order from a federal district court in Massachusetts sheds light on the analysis courts perform when addressing whether to stay a civil action pending arbitration. In MOCA Systems, Inc. v. Bernier and Penley Systems, LLC, the court considered the defendants' motion to stay an action pending arbitration. The defendants proffered only an unsigned employment agreement that included an arbitration clause, and testimony suggesting the agreement was valid. The court allowed the motion and stayed the litigation.

The plaintiff's complaint primarily alleged that the defendants, an ex-employee of the plaintiff company and the business he created, used company resources and confidential information to guide important clients from the plaintiff company to the defendant business. The plaintiff alleged that the defendants committed a number of statutory violations, including a breach of the Confidentiality and Non-Solicitation Agreement executed by the defendant and violation of M.G.L. 93A, as well as the following common law claims: misappropriation of confidential, proprietary and trade secret information; breach of the duty of loyalty; intentional interference with prospective business relations; conversion; commercial disparagement; constructive trust; and accounting.

The defendants moved to stay the action, asserting that an employment agreement existed that required the complaint be submitted to arbitration. Generally, a party seeking to compel arbitration under the Federal Arbitration Act must prove four criteria: (1) that a valid agreement to arbitrate exists, (2) that the person moving to arbitrate is entitled to invoke the arbitration clause, (3) that the other party is bound by the arbitration clause, and (4) that the claim asserted is within the clause's scope.

The defendants submitted an unsigned copy of the agreement and attested that the agreement was signed by a director of the plaintiff company on behalf of the company's Board of Directors, and that the Board agreed to ratify the agreement. Because the plaintiff conceded that it had no evidence to dispute the defendants' assertion that the unsigned agreement was executed, and that the parties conformed subsequent behavior to the terms of the unsigned Employment Agreement the defendants submitted, the court found that the defendants met their burden of proof of showing the existence of a valid arbitration agreement.

The parties further disputed whether the claims against the defendants arose of the ex-employee's employment, and thus were within the scope of the arbitration clause. Although many of the claims did not necessarily depend on an employment relationship, the factual allegations that the plaintiff used to support those claims did have a connection to the employment relationship. And, for those claims for which the reach of the arbitration clause was more ambiguous, the court found that the strong public policy favoring arbitration required that they be submitted to arbitration.

As this case illustrates, courts often favor the submission of claims to arbitration when they can infer that a valid agreement to arbitrate exists and that the claims fall within that agreement.