CAFC says Equitable Estoppel Cannot Compel Arbitration in Waymo v. Uber

Waymo LLC v. Uber Techs., Inc., No. 2017-2130, (Fed. Cir. Sep. 13, 2017) (Before Newman, Wallach, and Stoll, J.) (Opinion for the court, Newman, J.)

Uber Technologies, Inc. and Ottomotto LLC (“Uber”), appealed the district court’s order, denying Uber’s motion to compel arbitration of pending litigation with Waymo, LLC (“Waymo”). Levandowski, a former employee of Waymo, was an Intervenor in this case. Uber sought to compel arbitration on the basis of Waymo’s arbitration agreement with Levandowski, not because of any arbitration agreement with Waymo.

Waymo contended Levandowski, while working at Waymo, downloaded 14,000 highly confidential and proprietary Waymo documents and later used them for the benefit of Ottomotto and Uber. As a result, Waymo alleged Uber violated the California Uniform Trade Secrets Act, the Federal Defend Trade Secrets Act, the California Business and Professional Code, in addition to claims of patent infringement. Waymo referenced Levandowski’s two employment agreements to demonstrate that Waymo had taken reasonable measures to safeguard its trade secrets. Uber attempted to utilize the employment agreements to assert equitable estoppel against Waymo, by arguing that Waymo relied on the agreements to assert its trade secret claims while simultaneously seeking to avoid arbitration clauses of those agreements.

The Court held, under California law, that an arbitration agreement is a contract. The Court has rarely compelled arbitration against non-signatories to a contract based on equitable estoppel. California applies the two-prong Kramer test, to determine if equitable estoppel compels the enforcement of an arbitration clause against a non-signatory. Kramer v. Toyota Motor Corp., 705 F.3d 1122 (9th Cir. 2013). Equitable estoppel under the Kramer test applies: 1) when a signatory must rely on the terms of the written agreement in asserting its claims against the non-signatory or the claims are intimately founded in and intertwined with the underlying contract; and 2) when the signatory alleges substantially interdependent and concerted misconduct by the non-signatory and another signatory and the allegations of interdependent misconduct are founded in or intimately connected with the obligations of the underlying agreement.

Applying the first prong, the Court held that Waymo did not rely on the employment agreements to prove its claims of wrong-doing by Uber. Instead, Waymo merely referenced the employment agreements as evidence to show it took reasonable measures to safeguard its trade secrets.

Under the second prong, the Court focused on two elements: 1) the relationship between the underlying agreement and the issues in dispute; and 2) the relationship between the signatory and non-signatory to the arbitration agreement. The Court agreed with Waymo that it did not assert that Uber conspired with Levandowski to breach the employment agreements. Because no relationship existed between Waymo’s claims and concerted misconduct between Uber and Levandowski, Uber failed to satisfy the second prong of Kramer. Accordingly, the Court affirmed the lower court’s denial of the motion to compel arbitration.

Referencing an employment agreement to establish proper safeguarding of plaintiff’s intellectual property rights (its own conduct), and not as a basis for asserting claims against the defendant (another party’s conduct), is insufficient to establish equitable estoppel by a non-signatory/party who is seeking to enforce a clause of the agreement, e.g. arbitration. For equitable estoppel to apply, a relationship is necessary between the asserted claims and the alleged misconduct.

[Troutman-Ad]

[Troutman-About]