SmartSky Networks, LLC v. Wireless Sys. Solutions, LLC

584 F.Supp.3d 36

SMARTSKY NETWORKS, LLC, a Delaware limited liability company, Plaintiff,

v.WIRELESS SYSTEMS SOLUTIONS, LLC, a Delaware limited liability company; DAG Wireless Ltd., an Israeli company; DAG Wireless USA, LLC, a North Carolina limited liability company; Laslo Gross, a North Carolina resident; Susan Gross, a North Carolina resident; David D. Gross, a resident of Israel Defendants.

1:20-cv-000834

United States District Court, M.D. North Carolina.

Signed February 7, 2022

Fred M. Wood, Jr., Nelson Mullins Riley & Scarborough LLP, Charlotte, NC, Mark S. VanderBroek, Peter L. Munk, Samuel W. Malone, Nelson Mullins Riley & Scarborough LLP, Atlanta, GA, for Plaintiff.

Kenneth Kyre, Jr., Richard Leonard Pinto, Pinto Coates Kyre & Bowers, PLLC, Greensboro, NC, for Defendants Wireless Systems Solutions, LLC, Laslo Gross, Susan Gross.

Matthew W. Buckmiller, Buckmiller Boyette & Frost, PLLC, Raleigh, NC, for Defendants DAG Wireless, Ltd., David D. Gross.

Joseph Z. Frost, Matthew W. Buckmiller, Buckmiller Boyette & Frost, PLLC, Raleigh, NC, for Defendant DAG Wireless USA, LLC.

MEMORANDUM OPINION AND ORDER

THOMAS D. SCHROEDER, Chief United States District Judge.

This matter comes before the court following an American Arbitration Association ("AAA") Tribunal's ("Tribunal") final Arbitration Award issued on October 1, 2021 (the "Final Award"). (Doc. 166-1.) Plaintiff SmartSky Networks, LLC ("SmartSky") filed the present Motion to Confirm Arbitration Award and for Entry of Final Judgment pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 9. (Doc. 166.) Defendants DAG Wireless, Ltd., DAG Wireless, USA, and David Gross (collectively "the DAG Defendants") then moved to vacate the arbitration award pursuant to FAA § 10(a). (Doc. 167.) Separately, Defendants Wireless Systems Solutions, LLC ("Wireless Systems"), Laslo Gross, and Susan Gross (collectively "the Wireless Systems Defendants") filed a similar Motion to Vacate and Modify the Final Arbitration Award. (Doc. 170.) The parties have also separately filed motions to seal certain documents. (Docs. 177, 181.) In addition, the DAG Defendants have filed a Motion to Dismiss or Compel Arbitration dated June 30, 2021. (Doc. 160.)

For the reasons to follow, the motion to confirm the Arbitration Award will be granted, the motions to vacate will be denied, and because the arbitration has been completed, the motion to dismiss will be denied as moot.

I. BACKGROUND

SmartSky develops air-to-ground wireless communications networks. (Doc. 5 ¶¶ 9, 23.) Wireless Systems, controlled by Susan and Laslo Gross, focuses on developing cellular capabilities and producing components for use in wireless transmissions. (Id. ¶¶ 10, 30-31; Doc. 145 at 1-2.) Wireless Systems entered several agreements with SmartSky to develop and build proprietary components for use in SmartSky's communications network. Central to this case is the parties’ Teaming Agreement, which set forth the contractual terms between SmartSky and Wireless Systems. (Doc. 5 ¶¶ 34-38, 44; Doc. 104 at 3.) During that same period, Susan and Laslo Gross, along with their son David Gross, established DAG Wireless Ltd., which is engaged in developing technology for wireless communication. (Doc. 5 at ¶¶ 39-42.) This business relationship between SmartSky and Wireless Systems soon soured, and on September 10, 2020, SmartSky filed this lawsuit against the Wireless Systems and DAG Defendants alleging ongoing breaches of the intellectual property and confidentiality provisions of the Teaming Agreement as well as misappropriation of trade secrets. (Docs. 1, 5.)

Soon thereafter, pursuant to the Teaming Agreement -- which required "disputes relating to or arising under this agreement" to be resolved by binding arbitration -- SmartSky filed a Statement of Claims with the AAA on September 14, 2020, asserting claims for breach of contract. (Doc. 166 at 2.) On September 30, 2020, Wireless Systems filed counterclaims against SmartSky in the arbitration for various alleged breaches of the parties’ agreements and breach of the implied contractual duty of good faith and fair dealing. (Id. at 3.) Wireless Systems later amended its counterclaims to include claims against SmartSky for unfair and deceptive trade practices and fraudulent inducement to contract. (Id. )

On December 11, 2020, Wireless Systems filed a brief with the Tribunal arguing that all claims and counterclaims between the parties were subject to arbitration. Agreeing with Wireless Systems, the Tribunal entered Procedural Order 8, stating that the Teaming Agreement required all claims and counterclaims between SmartSky and Wireless Systems be arbitrated. (Doc. 166-2.) On January 13, 2021, following Procedural Order 8, the parties agreed to consolidate all pending claims and counterclaims into the arbitration, and all Defendants agreed to submit to the jurisdiction of the Tribunal and to be bound by the arbitration. (Doc. 166-1 at ¶ 48; Doc. 166-3.) On January 19, 2021, SmartSky amended its claims against the Defendants to include claims for breach of the Teaming Agreement, breach of non-disclosure agreements between SmartSky, Wireless Systems, and DAG, misappropriation of trade secrets, unfair and deceptive trade practices, false advertising under the Lanham Act, and alter ego and estoppel liability against DAG as an alter ego of Wireless Systems. (Doc. 166-1 at ¶ 50.)

On January 18, 2021, the Wireless Systems Defendants moved to stay this case pending arbitration. (Doc. 144.) On March 11, 2021, this court stayed the case pending arbitration, denied a motion to dismiss filed by DAG USA, and denied without prejudice a motion filed by SmartSky seeking a preliminary injunction because arbitration was rapidly approaching. (Doc. 149.) On January 22, 2021, the Tribunal issued Procedural Order 11, which set forth an expedited discovery process for the arbitration. (Doc. 166-1 at ¶ 53.) Discovery resulted in the exchange of "hundreds of thousands of pages of documents" and more than ten depositions, including those of expert witnesses. (Doc. 166 at 5.)

The Tribunal scheduled the final arbitration hearing to begin on May 10, 2021. (Doc. 166-1 at ¶ 77.) However, by as late as April 14, the Defendants had not paid their share of deposits to the AAA for the costs of the arbitration. (Id. at ¶ 70.) SmartSky advanced the costs and moved to strike or dismiss Wireless Systems’ counterclaims with prejudice because of nonpayment. (Id. ) In response, Wireless Systems withdrew all counterclaims against SmartSky. (Id. at ¶ 72.) The Tribunal then issued Procedural Order 24 directing Wireless Systems to advise the Tribunal whether the withdrawal of its counterclaims was with or without prejudice. (Id. at ¶ 74; Doc. 166-4.)

Somewhat confusingly, Wireless Systems advised the Tribunal that withdrawal of its counterclaims "was not with or without prejudice."¹ (Doc. 166-1 at ¶ 75.) This prompted the Tribunal to issue Procedural Order 25, which declared that, because the Teaming Agreement did not contemplate "serial or overlapping arbitrations," Wireless Systems’ "withdrawal of its counterclaims was thus effectively with prejudice." (Doc. 166-4 at ¶ 7.) The Tribunal stated plainly, "[t]his arbitration, as [Wireless Systems] itself argued at the start of these proceedings, is the sole mechanism for deciding such disputes." (Id. )

Arbitration then proceeded as scheduled. Between May 10 and May 21, 2021, the parties participated in in-person arbitration in Charlotte, North Carolina, presenting over ten days of evidence, 348 exhibits and thirteen witnesses, including four experts. (Doc. 166 at 6; Doc. 166-1 at ¶ 77-79.) At the close of arbitration on May 21, the Tribunal entered an order "temporarily restraining Respondents and each of them from the conduct set forth in the Proposed Interim Injunction Order" filed by SmartSky. (Id. at ¶ 81.) On June 7, 2021, the Tribunal advised that the May 21 Order would remain in effect until it was superseded by the Final Award. (Id. at ¶ 83.) In the following months, all parties submitted post-hearing briefing, exhibits, applications for attorneys’ fees and costs, and responses to those applications. (Id. at ¶ 87, 88-89.)

On October 1, 2021, the Tribunal issued the Final Award denying in part and granting in part SmartSky's claims. (Doc. 166-1 at ¶ 347.) The Final Award is 81 single-spaced pages consisting of 427 findings of fact and conclusions of law. On SmartSky's claim for breach of contract, the Tribunal awarded SmartSky $10,000,000 against Wireless Systems. (Id. at ¶ 276.) The Tribunal awarded the following relief against all Defendants jointly and severally:

1. $1,963,676.59 for legal fees and expenses

2. $525,215.45 for AAA arbitration costs

3. $60,000 in sanctions for violating interim Orders of the Tribunal

(Id. at ¶¶ 353-424, 427(B)-(C).) The Tribunal ordered these sums to be paid on or before fifteen (15) business days from the date of the Final Award, or by October 22, 2021. (Id. at ¶ 427(C)(2).) The Tribunal also ordered that within the same time period, the Defendants "ensure that the Federal Communications Commission ("FCC") expeditiously transfers control of any and all FCC certification grants with grantee code 2AWXX" to SmartSky and "destroy all ‘Confidential Information’ of SmartSky Networks, LLC, ‘SSN IP,’ and ‘Developed IP’ (as those terms are defined in the Teaming Agreement ...) currently in their possession ... and provide written certification" to SmartSky that the material was destroyed. (Id. at ¶ 427(A)(3).)

In addition, the Tribunal awarded a permanent injunction against the Defendants, enjoining them and any "entities acting in concert or participation with them" as well as any successors or assigns from:

a. making, causing to be made, developing, certifying or attempting to certify with any government agency, using, copying, modifying, marketing, promoting, offering to sell, selling, or distributing any or all "Product" or "Developed IP" (as those terms

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