United States District Court, W.D. Pennsylvania
November 21, 2005.
DEACERO, S.A. de C.V., Plaintiff,
CORE FURNACE SYSTEMS CORP., f/k/a TECHINT TECHNOLOGIES INC., Defendant.
The opinion of the court was delivered by: DONETTA AMBROSE, District Judge
MEMORANDUM AND ORDER
For the reasons that follow, the Defendant's Motion to Dismiss
will be granted and this case dismissed with prejudice.
The Plaintiff ("DeAcero") is a Mexican company that makes steel
products, and the Defendant ("Core") is a Pennsylvania company
that, among other things, provides engineering and equipment
installation services. See generally Compl. (Doc. 1) at ¶¶
2-5.*fn1 In July 2000, the parties entered into a letter
agreement establishing a two-phase project for improving
DeAcero's mill in Saltillo Coahuillo, Mexico ("the Mill"). See
generally id. at ¶¶ 2, 4, 6. Phase one contemplated Core's generation of "a set of engineering drawings" for improvements to
be made on the Mill's furnace. See id. at ¶ 6. Phase two "was
an option offered to DeAcero to purchase the balance of
engineering works and the equipment and services" described in
Core's proposal. See id.
Core completed, and was paid for, the engineering drawings
addressed in phase one. See id. at ¶ 8. Dissatisfied with the
work product, however, DeAcero declined Core's offer regarding
phase two. See id. Instead, the company retained the services
of Danieli & C. Officine Meccaniche S.p.A. ("Danieli"). See id.
at ¶¶ 5, 8. Although Danieli purportedly "developed its own
engineering drawings and methods," Core has asserted that
DeAcero/Danieli misappropriated trade secrets and/or technology
in connection with the project. See generally id. at ¶¶ 8, 9,
What has followed is an onslaught of legal actions in a variety
of tribunals around the globe. See generally, e.g., id. at ¶ 11
(discussing Core's August 2003 claim with Federal District
Attorney in Mexico, alleging misappropriation of trade secrets);
id. at ¶ 12 (Core's September 2003 action in Mexican Institute
of Industrial Property, for infringement of Mexican patents);
id. at ¶ 13 (Core's initiation of arbitration proceedings in
Pittsburgh, Pennsylvania in October 2003); and id. at ¶ 16
(DeAcero and Danieli's December 2003 claims before Italy's Court of Trieste). The only proceeding relevant for the
purposes of this discussion, however, is the arbitration in
Pittsburgh ("the Arbitration Proceedings" or "the Arbitration").
See generally id. at ¶ 13.
As referenced above, Core initiated the Arbitration on October
31, 2003. See id.; see also Ex. 2 to Doc. 22 (Core's "Demand
for Arbitration" under American Arbitration Association's
Construction Industry Arbitration Rules). On December 10, 2003,
DeAcero filed an "Answering Statement" asserting, among other
The contract for the preliminary engineering services
[i.e., phase one as described above], does not
contain an arbitration provision. The arbitration
provision cited by [Core] . . . is taken from the
proposal that was associated with the second offer
[i.e., phase two], but that offer was never
accepted by DeAcero. Therefore, there is no agreement
to arbitrate. Nevertheless, DeAcero will arbitrate
this dispute with [Core] as a submission under Rule 5
of the Arbitration Rules and Procedures, but
reserves the right to object to jurisdiction in
See DeAcero's Answering Statement (Ex. 3 to Doc. 22) at 3
(footnote omitted, emphasis added).*fn2
The Answering Statement was signed on behalf of DeAcero by its
counsel. See id. at 6.
On September 29, 2004, and after engaging in substantial
advocacy in the Arbitration Proceedings,*fn3 DeAcero filed
an Amended Answering Statement that omitted its prior agreement
to arbitrate. See Ex. 17 to Doc. 22 at 3; see also Compl. at
¶ 14. The same day, DeAcero filed a motion to dismiss for lack of
jurisdiction, arguing among other things that it never agreed to
arbitrate. See Ex. 18 to Doc. 22 (filed under seal) at ¶¶ 10-11
(arguing same). In an Order dated November 19, 2004, the
arbitrators denied DeAcero's motion to dismiss. See Ex. 19 to
Doc. 22.*fn4 Over eight months later DeAcero filed this lawsuit, again
disclaiming its agreement to arbitrate and seeking to compel the
litigation of Core's claims in federal court. See generally
Compl. In a pending Motion to Stay the Arbitration, DeAcero
summarizes its position:
DeAcero seeks a determination from the Court that . . .
[the] `trade secrets' alleged by Core [in the
Arbitration are], in fact, not . . . trade secret[s]
. . . but [were] disclosed or made possible by
publication in an issued patent or patent
application. Core's claims . . . are therefore
actually claims of patent infringement masked as
claims for misappropriation of trade secrets and
breach of contract.
See DeAcero's Mem. (Doc. 5) at 17; see also generally
DeAcero's Opp'n Br. (Doc. 52) at 1 ("[i]t is hornbook
intellectual property law that information disclosed in a patent
is no longer and can never thereafter be a `trade secret'").
DeAcero prays that the District Court shut down the arbitration
proceedings and enter judgment in its favor on Core's "supposed
trade secret alleg[ations]." See generally Compl. at final
Wherefore clause, para. A.
The first problem with DeAcero's position, in this court's
mind, is one of jurisdiction. See generally Liberty Mut. Ins.
Co. v. Ward Trucking Corp., 48 F.3d 742, 750 (3d Cir. 1995)
("federal courts have an ever-present obligation to satisfy
themselves of their subject matter jurisdiction") (citations omitted). Simply stated, the company has identified no basis for
the court's exercise of federal question jurisdiction.*fn5
All the Complaint says regarding jurisdiction is as follows:
The subject matter of Core's claims in the
Arbitration . . . is dependent upon Core owning . . .
`trade secrets'. . . . However, under United States
Patent Law, . . . Core did not own or control rights
in any trade secrets . . . because [they] were
effectively or fully disclosed in [Core]'s . . .
Because the alleged trade secrets . . . have been
disclosed in [U.S. p]atents, such trade secrets to
the extent they ever existed were extinguished with
the publication of the [patent] applications. . . .
Core's claims in the Arbitration are, therefore,
actually claims of patent infringement masked as
claims for misappropriation of trade secrets and
breach of contract. Properly pled, these claims
arise under the United States Patent Act. . . . This
Court therefore has original jurisdiction under [said
See id. at ¶¶ 21-22 (emphasis added).
As just seen, DeAcero's purported "federal question" seeks to
recast Core's state law claims for trade secret misappropriation
and breach of contract as federal patent law claims, and then
compel their resolution here. If any authority for this approach
exists, it is identified in neither DeAcero's pleadings nor its voluminous legal briefing.
What the Complaint does make clear, however, is DeAcero's
understanding that it seeks declaratory relief. See, e.g., id.
at various "Wherefore" clauses (seeking "declarations"). Under
the law, the Declaratory Judgment Act ("the DJA") allows "a party
[that] traditionally would be a defendant [to] bring a preemptive
suit in federal court, thus accelerating the claim against it."
See Discover Bank v. Vaden, 396 F.3d 366, 371 (4th Cir.
2005). Even had DeAcero invoked the DJA, however, it is far from
clear that such an action would be appropriate where, as here,
the substance of the underlying suit already is being litigated
in arbitration. Compare id. (under DJA, putative defendant
files "preemptive suit" and federal court "hypothesize[s]
what a well-pleaded complaint . . . would look like") (emphasis
added) with discussions supra (indicating that actual claims
for misappropriation of trade secrets and breach of contract have
been brought in Arbitration Proceedings); cf. also 22A Am. Jur.
2d Declaratory Judgments § 123 (Aug. 2005) ("[d]eclaratory
judgment may be denied where the question involved is already the
subject of a pending arbitration proceeding") (citation omitted).
Even assuming DeAcero had or could support its unorthodox
jurisdictional approach, moreover, the law recognizes that "if,
but for the availability of the declaratory judgment procedure, the federal claim would arise only as a defense to a state
created action, jurisdiction is lacking." See id. (citations
and internal quotations omitted, emphasis added). Undoubtedly,
DeAcero raises federal patent law as part of its defense to state
law claims, and the above rule therefore counsels against the
exercise of jurisdiction. See id. At the very least, DeAcero's
theory hinges upon legal and factual presuppositions that render
jurisdiction inappropriate under the well-pleaded complaint rule.
See Board of Regents v. Nippon Tel. & Tel. Corp.,
414 F.3d 1358, 1365 (Fed. Cir. 2005) (rejecting argument that state law
claims "[arose] under" federal patent law, including assertion
that plaintiff's "trade secret claims were extinguished when it
filed [a] patent application"; while Supreme Court has
"distinguished between protection afforded inventors under
federal patent laws and state trade secret laws and held that
states [can]not provide trade secret protection that conflict[s]
with the federal patent scheme," it did not hold "that patent
laws preempt a patentee's right to recover under theories
sounding in either contract or tort for misappropriation of
property protected under state law at the time of its
In the end, DeAcero's desire to litigate Core's claims in
federal court must yield to Core's intentions as "the master of
[its underlying] claim[s]." See Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 12-13 (U.S. 2003).*fn6 For this and
all of the other reasons stated above, DeAcero's allegations are
insufficient and the court lacks subject matter jurisdiction.
Even if DeAcero could establish jurisdiction, its claims would
get no further. Under the law, the company has waived its
objections to moving forward with the Arbitration.
The court in Mays v. Lanier Worldwide, Inc. succinctly
summarizes the standards relied upon herein:
[C]ourts have uniformly held that to the extent a
party is entitled to challenge the validity of an
agreement to arbitrate, the time to raise that issue
is before the matter goes to arbitration, not
after. . . . Otherwise, a party could hold back,
await the outcome of the arbitration, and then
blithely render it null simply by challenging the
validity of the proceedings. . . . Thus, . . . the failure to challenge arbitrability
in a timely fashion and subsequent participation in
the arbitration proceedings will result in the waiver
of the right to object to the fact of the
See id., 115 F. Supp.2d 1330, 1340 (M.D. Ala. 2000) (citations
and internal quotations omitted).
The legal principles just cited strongly support a finding of
waiver here. Core initiated the Arbitration on October 31, 2003.
See discussion supra. Less than two months later, DeAcero
agreed in its signed Answering Statement to "arbitrate this
dispute . . . as a submission under Rule 5 of the Arbitration
Rules and Procedures." See id.*fn7 Then, after engaging in
nine months of advocacy in the Arbitration, DeAcero decided it no
longer wanted to arbitrate. In November 2004, the arbitrators
denied DeAcero's challenge to arbitrability, and the company
waited yet another eight months before seeking relief here. See
discussions supra. After twenty months of arbitration, including the selection of
arbitrators,*fn8 DeAcero's litigation of two unsuccessful
motions to dismiss, and its participation in substantial
discovery efforts, the company asks the court to nullify these
efforts and exert jurisdiction over Core's claims. DeAcero is too
late, and it has through its conduct waived any objections to the
Arbitration. See discussions supra.
In the undersigned's opinion, the facts and circumstances
discussed above present a compelling case of waiver. Thus, the
court sees little utility in comparing and contrasting this case
with the fact-intensive analyses of the other courts that have
found or declined to find a waiver. It generally bears noting,
though, that the lack of a final decision by the arbitrators is
immaterial. See, e.g., Nghiem, 25 F.3d at 1440 ("even though
[the objector] attempted to deny the arbitrator's authority
before a decision was issued, [i]t would be unreasonable and
unjust to allow [him] to challenge the legitimacy of the
arbitration process, in which he had voluntarily participated
over a period of several months") (citation and internal
quotations omitted, some alterations in original). This is
particularly true here, where the parties have expended significant time and energy litigating relatively complex issues
in a seemingly high-stakes dispute.
Finally, the only case cited by DeAcero that meaningfully
addresses waiver concluded that the litigant there had failed to
engage the arbitration process in any meaningful way. See
DeAcero's Opp'n Br. (Doc. 52) at 22-23 (citing In re Miller,
Inc., 1998 WL 193213, *3 (S.D.N.Y. Apr. 21, 1998), aff'd,
173 F.3d 844 (2d Cir. Mar. 9, 1999) (table), cert. denied,
528 U.S. 821 (1999)); see also Miller at *3 ("minimal participation,
amounting for the most part to efforts to postpone or delay
arbitration, does not mean that the [objector] waived its
right[s]") (citation and internal quotations omitted). And though
DeAcero attempts to paint its participation in the same light,
the company's contentions ring hollow. Compare Compl. at ¶ 17
("the Arbitration is still procedurally in its early stages and
very few activities have taken place") with discussions supra
(discussing substantial litigation efforts taken during twenty
months between filing of Arbitration and this lawsuit).
For all of the reasons stated above, the court enters the
following: II. ORDER
AND NOW, on this 21st day of Nov., 2005, IT IS HEREBY
ORDERED that Core's Motion to Dismiss (Doc. 22) is GRANTED,
all remaining Motions and requests are DENIED AS MOOT, and
DeAcero's lawsuit is DISMISSED WITH PREJUDICE.
The Clerk is directed to mark this case closed.
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