CyberXForce Corp. v. Inspira Enter. India

1

CYBERXFORCE CORPORATION and DIGITALXFORCE CORPORATION, Plaintiffs, v. INSPIRA ENTERPRISE INDIA LIMITED and INSPIRA ENTERPRISE, INC., Defendants.

Civil Action No. 4:23-cv-00452-O

United States District Court, N.D. Texas, Fort Worth Division

June 14, 2023

MEMORANDUM OPINION & ORDER

REED O'CONNOR UNITED STATES DISTRICT JUDGE

This is a trade secrets case about the misappropriation of disputed cybersecurity technology, replete with cross allegations of foul play. Before the Court is Third-Party Defendant's Motion to Compel Arbitration and Rule 12(b)(3) Motion to Dismiss Third-Party Complaint and Brief (ECF No. 25), filed May 18, 2023. Defendants filed their Response (ECF No. 41) on June 8, 2023. With both parties having had an opportunity to present their positions, and given the timesensitive nature of this case, the Court now takes up the question of whether this case should be compelled to arbitration.

Having reviewed the briefing and applicable law, the Court determines that the Third-Party Defendant's Motion to Compel Arbitration and Rule 12(b)(3) Motion to Dismiss Third-Party Complaint and Brief (ECF No. 25) should be GRANTED in part and DEFERRED in part. Specifically, all parties in this dispute should be COMPELLED to arbitration. Furthermore, the Court DEFERS judgment on the extent of this compulsion pending further briefing on the purported injunctive relief carveout to binding arbitration.

I. BACKGROUND

There are multiple parties to this dispute. Defendant Inspira Enterprise India Limited (“Inspira India”) is a cybersecurity firm based in India, and Defendant Inspira Enterprise, Inc. (“Inspira USA”) is its United States based subsidiary.^[1] Inspira USA hired Third-Party Defendant Lalit Ahluwalia as its CEO in April 2022, and he maintained his position until he was terminated under contested circumstances in April 2023.^[2] During his tenure as the CEO of Inspira USA, Mr. Ahluwalia formed Plaintiff CyberXForce Corporation (“CyberXForce”), and two days after his termination from Inspira USA, Mr. Ahluwalia formed Plaintiff DigitalXForce Corporation (“DigitalXForce”).^[3] Mr. Ahluwalia owns both Plaintiffs, and he is the CEO of both Plaintiffs.^[4]Also during his time with Inspira USA, Mr Ahluwalia formed Third-Party Defendant Inspire CyberX Excellence, Inc. (“Inspire CyberX”) as a purportedly non-profit entity, and he serves as its owner and sole officer.^[5]

The facts of this case are highly disputed. Mr. Ahluwalia contends that he is the creator and owner of a revolutionary new cybersecurity technology.^[6] He asserts that Defendants hired him because of his unique skillset, but then terminated him under false pretenses in order to steal his cybertechnology.^[7] On the contrary, Defendants argue that they created and own the disputed cybertechnology, not Mr Ahluwalia.^[8] They suggest that Mr. Ahluwalia tried to steal their cybertechnology and pass it off as his own, which is why they terminated him.^[9] Despite the many factual disputes in this case, the parties agree on most of the issues relevant to arbitration. They agree that Mr. Ahluwalia was employed by Inspira USA, and they agree that his work was wholly subject to an employment agreement (the “Agreement”).^[10] They also agree that the Agreement contains the following arbitration provision:

13. Arbitration. Any dispute or claim between you and the Company concerning or arising from this Agreement or in any way arising out of your employment or the termination of your employment will be submitted to binding arbitration administered by JAMS pursuant to its Employment Arbitration Rules & Procedures and subject to JAMS Policy on Employment Arbitration Minimum Standards of Procedural Fairness. Any such arbitration will be held within the State of Delaware and any judgment on any Award may be entered in any court having jurisdiction.^[11]

Additionally, they agree that Mr. Ahluwalia and Inspira USA are currently-and properly- engaged in an ongoing arbitration regarding the circumstances of his employment and termination.^[12]

Two further sections of the Agreement are relevant. Specifically, Defendants note that the Agreement contains the following provision:

5. Employee understands and acknowledges that any disclosure or misappropriation of any of the Confidential Information in violation of this Agreement may cause the Company irreparable harm that may not be adequately compensated by damages and, therefore, agree that the Company shall be entitled to injunctive relief preventing or limiting the disclosure of any of the Company's Confidential Information. Nothing contained herein will be construed as prohibiting the Company from pursuing any other remedies otherwise available to it, at law or in equity, including the recovery of damages from the breaching party or any third party.^[13]

Similarly, Defendants also cite the following parallel provision of the Agreement:

5. Employee expressly acknowledge that any breach or threatened breach of any of the terms and/or conditions set forth in this Agreement may result in substantial, continuing, and irreparable injury to the Company. Therefore, Employee hereby agrees that, in addition to any other remedy that may be available to the Company, the Company may be entitled to injunctive relief, specific performance, or other equitable relief by a court of appropriate jurisdiction in the event of any breach or threatened breach of the terms of this Agreement. The Company's waiver or failure to enforce the terms of this Agreement or any similar agreement in any one instance will not constitute a waiver of its rights hereunder with respect to other violations of this Agreement.^[14]

Defendants contend these provisions collectively serve as a carveout to the Agreement's arbitration clause that allows this Court to award injunctive relief in this matter.^[15] Third-Party Defendants have yet to reply on this point.

II. LEGAL STANDARDS

The Federal Arbitration Act (“FAA”) permits a party to move to compel arbitration when a party to a valid arbitration agreement refuses to arbitrate. Am. Bankers Ins. Co. of Fla. v. Inman, 436 F.3d 490, 493 (5th Cir. 2006) (quoting Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 25 (1991)); see also 9 U.S.C. § 4. When ruling on a motion to compel, courts must determine if the dispute is arbitrable. Papalote Creek II, L.L.C., v. Lower Colorado River Auth., 918 F.3d 450, 454 (5th Cir. 2019). The Fifth Circuit holds that this endeavor requires the trial court to decide: “(1) whether there is a valid agreement to arbitrate between the parties; and (2) whether the dispute in question falls within the scope of that arbitration agreement.” Gross v. GGNSC Southaven, L.L.C., 817 F.3d 169, 176 (5th Cir. 2016) (quoting Tittle v. Enron Corp., 463 F.3d 410, 418-19 (5th Cir. 2006)). If an arbitrable dispute exists, the FAA mandates that the Court shall direct parties to proceed to arbitration on issues as to which an arbitration agreement exists. See 9 U.S.C. §§ 3, 4.

III. ANALYSIS

Although the parties generally agree about the validity and scope of the arbitration clause in the Agreement, they disagree over whether the Agreement should cover nonsignatories and whether the extent of the arbitration clause in the Agreement is limited by a carveout for injunctive relief. The Court addresses each issue in turn, beginning with the core arbitration analysis, then considering the Agreement's application to nonsignatories and the potential carveout for injunctive relief.

1. The Arbitration Clause in the Agreement is Valid and Has a Broad Scope.

The first step of an arbitration inquiry is to assess whether the alleged arbitration agreement is valid. See, e.g., Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199, 201 (5th Cir. 2016). Here, the parties agree that the Agreement between Inspira USA and Mr. Ahluwalia is valid.^[16] Thus, the Court proceeds directly to the second step of the arbitration inquiry and evaluates the scope of the Agreement. See, e.g., Kubala, 830 F.3d at 201. Once again, the parties agree that the scope of the Agreement is broad enough to cover the entire business relationship of Inspira USA and Mr. Ahluwalia.^[17] And even if the parties did not agree on these points, the Court would find that the Agreement contains a valid and broad arbitration clause due to the presence of all requisite elements of contract formation, the sophistication of the parties, and the expansive language used in the Agreement itself. Since the arbitration clause in the Agreement is valid and broadly worded, the Court finds that Inspira USA and Mr. Ahluwalia are bound to arbitrate their dispute as Agreement signatories.

Importantly, this finding is neither dependent upon, nor disrupted by, any injunctive relief carveout in the Agreement. Looking to the text of the parties' contract, the Agreement specifies that “the Company may be entitled to injunctive relief,” but that such relief operates “in addition to any other remedy that may be available to the Company.”^[18] This plain language in the Agreement clearly states that the possibility of injunctive relief does not limit the arbitrability of any dispute between the parties. Instead, any injunctive relief contemplated by the Agreement is meant to function as an additional remedy on top of any relief that could-and indeed should-be secured through arbitration.

2. All the Parties are Subject to the Arbitration Clause of the Agreement.

The parties disagree over which nonsignatories to the Agreement-if any-are subject to the arbitration provision of the Agreement. Mr. Ahluwalia argues that the scope of the Agreement also encompasses his relationship with nonsignatory Inspira India, but not his own companies.^[19]Conversely Defendants argue that Mr....