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Gray Holdco, Inc. v. Cassady

November 10, 2010

GRAY HOLDCO, INC. PLAINTIFF,
v.
RANDY CASSADY, ET AL., DEFENDANTS



The opinion of the court was delivered by: Mitchell, M.J.

MEMORANDUM OPINION

Presently before the Court are two motions: Defendant, Randy Cassady ("Cassady"), seeks to enjoin arbitration (Docket No. 73) and Plaintiff, Gray Holdco, Inc. ("Gray") requests to stay the current proceedings pending arbitration (Docket No. 76). As resolution of one dictates resolution of the other, the Court will decide the motions together.

I. Factual and Procedural History

On November 13, 2009, Gray filed an action against Cassady and RWLS, LLC ("RWLS") requesting money damages and injunctive relief. According to the complaint, Cassady, a former Gray employee, breached the terms of a New Hire Plan Option Agreement (the "Option Agreement") by soliciting current and prospective clients and employees of Gray, by misappropriating and using confidential and proprietary information belonging to Gray, and, by engaging in a business in direct competition with Gray both during his employment and after his termination.

On the same date it lodged its complaint, Gray filed a motion for a preliminary injunction seeking to enjoin Cassady and RWLS from conducting business that Gray contended violated the restrictive covenants contained in the Option Agreement. The parties engaged in expedited discovery involving depositions of eight individuals, written discovery requests, interrogatories, and requests for admission.

On January 12-13, 2010, this Court conducted a hearing on the motion, concluded that Gray did not meet its burden entitling it to relief under Fed. R. Civ. P. 65, and denied the motion for a preliminary injunction (Docket No. 37).

On March 2, 2010, the parties filed a Rule 26(f) Report and a proposed discovery plan. A few days later, on March 9, 2010, the Court conducted a status conference where deadlines were set for mediation and for filing motions for judgment on the pleadings. In accordance with these deadlines, Cassady and RWLS filed Fed. R. Civ. P. 12 (c) Motions for Judgment on the Pleadings (Docket Nos. 49, 52 respectively) and the parties participated in an ultimately unsuccessful mediation.

On June 8, 2010, another status conference was conducted that established discovery deadlines and on June 30, 2010, the Court denied the Defendants‟ Motions for Judgment on the Pleadings.*fn1 Other than a change in counsel for the Plaintiff, there was no significant activity in the case until a September 9, 2010 status conference when Gray‟s new counsel requested and was granted an extension of the discovery schedule.

On September 17, 2010, Gray filed a Demand for Arbitration against Cassady with the American Arbitration Association ("AAA") located in Delaware. The demand was based on an arbitration clause included in the Option Agreement executed by Cassady.*fn2

On September 21, 2010, Cassady filed a Motion to Enjoin the Arbitration and for Sanctions under 28 U.S.C. § 1927. The following day, Gray filed a Motion to Stay the Proceedings as to Cassady Pending the Outcome of the Arbitration.

II. Discussion

Although there are two separate motions before the Court, they pose the same essential question: is arbitration appropriate in this case? Cassady contends that that Gray has waived its right to arbitrate by participating in substantial litigation and discovery in this Court and by acting inconsistently with the right to arbitrate. Gray counters that the agreement to arbitrate is enforceable and that Cassady cannot demonstrate the necessary prejudice to justify a waiver of arbitration. The issue of whether a party has waived its right to arbitrate is for the court to decide. Zimmer v. CooperNeff Advisors, Inc., 523 F.3d 224, 231 (3d Cir. 2008).

There appears to be no disagreement that Cassady and Gray are parties to a contract which facially includes an agreement to arbitrate. Section 13 of the Option Agreement delineates the Parties‟ covenant to arbitrate disputes arising from a breach of the agreement:

SECTION 13. ARBITRATION. Any dispute or controversy between [Gray] and a Participant, arising out of or relating to a breach of [the Option Agreement] shall be settled by arbitration in Wilmington, Delaware administered by the [AAA]... and judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. The arbitrator shall have the authority to award any remedy or relief that a court of competent jurisdiction could order or grant, including, without limitation, the issuance of an injunction. However, either party may, without inconsistency with this arbitration provision, apply to any court having jurisdiction over such ...


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