Field Intelligence, Inc. v. Xylem Dewatering Sols., Inc.

FIELD INTELLIGENCE, INC., Plaintiff, v. XYLEM DEWATERING SOLUTIONS, INC., Defendant.

Civil Action No. 19-20590

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

May 13, 2021

Hon. Joseph H. Rodriguez

Opinion

This matter comes before the Court by way of Defendant Xylem Dewatering Solutions, Inc.'s ("Defendant") Motion to Stay Pending Arbitration [Dkt. 86] and Plaintiff Field Intelligence, Inc.'s ("Plaintiff") Opposition and Cross-Motion for Declaration of Non-Arbitrability [Dkt. 88]. For the reasons discussed below, the Court will deny Defendant's motion, deny Plaintiff's cross-motion, and enjoin arbitration on the issues disputed here.

I. Factual and Procedural Background

Because this matter involves facts similar to those that the Court considered previously when deciding Defendant's Motion to Dismiss [Dkt. 46], the Court largely repeats the factual background recited there.

Plaintiff is "a leading provider of Internet of Things (IoT) smart-enabled services that provide satellite and terrestrial wireless communications to agriculture, oil and gas, heavy equipment, and industrial assets, enabling customers to easily gather, compile, analyze, and transform edge-data from a broad range of remote equipment assets." [Dkt. 1 ("Compl.") ¶ 2]. Plaintiff developed the following proprietary products relevant to the present dispute:

hardware units, including dual cellular and satellite remote terminal units (RTUs), that connect to devices deployed in the field, collect data from the devices and relay the data back to a company's computer systems ('Field Units'),¹ (2) computer software that is used to monitor the operation and status of remotely located machinery and provides clients with a user interface to view the real-time and historical operation of their machinery ('Software'), and (3) support services and hosted websites to monitor the status and operation of remotely located machinery via the Field Units and Software.

[Compl. ¶ 11].

Defendant is a "water technology provider" that deals in portable electric or diesel driven water pumps, which may be used in a variety of circumstances." [Dkt. 24-5 at ¶ 2, 3]. Its "diesel motor driven pumps included a programmable microprocessor control system (marketed under the PrimeGuard® brand) capable of managing the operation of the diesel motor based on a variety of external inputs, including flow meters, level transducers, pressure transducers, and float switches." [Dkt. 24-5 at ¶ 3]. According to Defendant, the control system allows pumps to operate without constant operator intervention [Id.], for which Defendant offers limited remote wireless connectivity. [Id. at ¶ 4].

In May 2012, Defendant contacted Plaintiff to research, develop, and provide Field Units for Defendant's wireless communications with its pumps. [Id. at ¶ 5]. On or around June 19, 2012, Defendant began to issue purchase orders for certain "research services," "telemetry units," and other goods and services from Plaintiff. [Id. at ¶ 6; Dkt. 90-3]. The parties entered into a non-disclosure agreement on August 2, 2013 ("the 2013 Contract") to "discuss the development of a custom telematics solution." [Dkt. 12-2]. The 2013 Contract provides: "Confidential Information disclosed hereunder shall at all times remain, as between the Parties, the property of the Disclosing Party. No license under any trade secrets, copyrights, or otherrights is granted by this Agreement or any disclosure of Confidential Information hereunder." [Id. at ¶ 3]. The 2013 Contract defines "Confidential Information" broadly to include "any and all of either Party's confidential, secret, or proprietary data or information ... including but not limited to, products and services, intellectual property ... and any other data or information relating to either Party...." [Id. at ¶ 1]. The 2013 Contract also contains the following arbitration clause:

Any dispute, controversy or claim arising out of or in connection with this Agreement, or the breach, termination, or invalidity thereof, shall be finally settled by arbitration in accordance with the Rules of the American Arbitration Association (AAA). The arbitration tribunal shall be composed of a sole arbitrator in accordance with the aforementioned Rules. The place of arbitration shall be selected by the party against whom such action is filed.... This Agreement shall be governed by and construed in accordance with the laws of the state where the request for arbitration or injunction is filed, without regard to its principles of conflict of law.

[Dkt. 12-2 at 4]. After entering the 2013 Contract, Plaintiff continued to supply Defendant with its technology, and sold pumps that included Plaintiff's technology to its customers. [Dkt. 24-5 at ¶¶ 7, 9].

The parties' relationship expanded, and in April 2017 the parties entered into a Software Subscription Agreement (the "2017 Contract"). [Dkt. 12-3]. Defendant entered the 2017 Contract to "access and use [Plaintiff's software] via a website hosted by [Plaintiff] to monitor the status and operation of remotely located machinery via the Hardware Unit." [Dkt. 12-2 at ¶ C]. The 2017 Contract gave Defendant

a limited non-exclusive, non-transferable right to access and use and permit Authorized Users to access and use the Services solely for internal business use. The services shall not be used by client or by Authorized users for, or on behalf of, third parties that are not authorized under this Agreement ... Client shall be responsibleand liable to Provider for any breach of this Agreement by any Authorized user, subject to terms of this Agreement. Client Acknowledges that its right to use the services will be web-based only pursuant to the terms of this Agreement and the software will not be installed on any servers or other computer equipment owned or controlled by Client or otherwise provided to Client.

[Dkt. 12-3 at ¶ 1]. The 2017 Contract further states that "[Defendant] acknowledges that all right, title, and interest in and to the Services and the Software, together with its codes, sequences, derivative works, organization, structure, interfaces, any documentation, data, trade names, trademarks, or other related materials ... is, and at all times shall remain, the sole and exclusive property of [Plaintiff]." [Dkt. 12-3 ¶ 2.a]. The 2017 Contract also contains the following choice of law and forum selection clause:

Governing Law; Forum Selection. This Agreement shall be governed exclusively by the laws of the State of New Jersey, without regard to its conflicts of laws principles. Any action under or concerning this Agreement shall be brought exclusively in a state or Federal court in New Jersey. The parties irrevocably agree and consent that said forum is convenient and has jurisdiction to hear and decide any such action.

[Dkt. 12-3 at ¶ 11.b].

In 2019, Plaintiff discovered that Defendant built its own RTUs and believed that Defendant's RTU "was a near identical copy" of Plaintiff's technology. [Compl. at ¶ 23]. Plaintiff filed a complaint with this Court asserting the following claims: Breach of Contract (Count I); Breach of the Implied Covenant of Good faith and Fair Dealing (Count II); Misappropriation of Trade Secrets under New Jersey law (Count III); Misappropriation of Trade Secrets under Federal law (Count IV); and Unfair Competition (Count V). The Complaint grounds these theories of liability entirely in the 2017 Contract and does not mention the 2013 Contract. [Compl. at ¶ 3-4].

On April 30, 2020, this Court issued an opinion addressing Plaintiff's Motion for Preliminary Injunction and for Expedited Discovery [Dkt. 11] and Defendant's Motion to Dismiss or for More Definite Statement [Dkt. 16]. [Dkt. 46]. The Court's opinion made certain findings regarding the 2013 Contract, which will be discussed in detail below.

The parties then commenced discovery. Defendant served interrogatories on Plaintiff, one of which stated

If [Plaintiff] intends to rely on the Parties' [2013 Contract] to support any part of its affirmative claims, provide the full basis for such reliance, including, but not limited to, identification of all terms in the Parties' [2013 Contract] that [Plaintiff] intends to rely on and identification of any actions or statements by the parties that [Plaintiff] intends to rely on to show compliance or non-compliance with a particular term in the Parties' [2013 Contract].

[Dkt. 86-3]. On December 16, 2020, Plaintiff responded that

sections of the [2013 Contract] obligated Xylem to keep confidential, not copy, not modify, and not create derivative works from the design.... Xylem breached the provisions [of the NDA] by copying the design and functionality of the Field Units, modifying Field Units, using Field Units to test and develop Xylem's knock off designs, sending Field Units to APD&M for purposes of developing Xylem's knock off designs, and not taking reasonable precautions to protect the confidentiality of the Field Units.

[Id.].

After receiving this interrogatory response, Defendant filed a demand for arbitration with the American Arbitration Association ("AAA"). [Dkt. 86-4]. The demand seeks "inter alia, final and binding determinations that Xylem has not breached the 2013 NDA; that the 2013 NDA imposed no obligations on Xylem to maintain the confidentiality of RTUs; and that Xylem did not misappropriate any of FI's alleged trade secrets." [Dkt. 86 at 9; Dkt. 86-4]. Defendant thenfiled the present Motion to Stay Pending Arbitration. [Dkt. 86]. Plaintiff filed a response brief and a cross-motion seeking a Court declaration that Defendant may not arbitrate claims under the 2013 Contract or, alternatively, an order to continue litigation without stay while the parties arbitrate issues related to the 2013 Contract. [Dkt. 88]. After the parties submitted their motions, Judge Williams ordered that the AAA proceedings be stayed pending this Court's ruling on the motions. [Dkt. 93].

II. Analysis

To determine whether to stay this case pending...