Opinion
IP 02-0028-C-T/K.
May 10, 2002
ENTRY ON PENDING MOTIONS
This Entry is a matter of public record and is being made available to the public on the court's web site, but it is not intended for commercial publication either electronically or in paper form. Although the ruling or rulings in this Entry will govern the case presently before this court, this court does not consider the discussion in this Entry to be sufficiently novel or instructive to justify commercial publication or the subsequent citation of it in other proceedings.
This cause comes before the court on the Motion Of Defendants To Dismiss Or In The Alternative To Stay Proceedings And Compel Arbitration; Plaintiff's Verified Application For Preliminary Injunction; and Defendants' Motion To Dismiss Plaintiff's Motion For Preliminary Injunction. The court held oral argument on these motions on April 3, 2002, and now rules as follows.
I. Background
Plaintiff Timothy K. Poole, forty-two years of age, is a resident of Marion County, Indiana. He has spent more than twenty years in the communications/electrical construction industry where he has sold, marketed and installed electrical/electronic cable and equipment for telephone, computer and other electronic applications. In 1991 Poole and a partner formed an electronic cable sales and installation company known as Universal Connection, Incorporated ("UCI"). Through 1997, UCI steadily grew into a company employing a significant number of cable installers, clerical staff and salaried personnel, with gross revenues exceeding four million dollars annually. In 1998, Poole became the sole and exclusive owner of UCI. Through the end of 2000, UCI performed installations primarily in the following counties: Marion, Boone, Hamilton, Johnson, Morgan, Hancock and Hendricks, with the majority of the business performed in Marion County.
Defendant DataCom-Link, Inc. ("DataCom"), headquartered in and operated out of Indianapolis, Indiana, was a competitor of UCI. Defendant Black Box Corporation ("Black Box") is a Delaware corporation with its shares publicly traded on the NASDAQ exchange. On November 12, 1999, Black Box announced its acquisition of DataCom. The merger with DataCom made Black Box a major competitor with UCI in the Indianapolis area.
In late 2000 and early 2001, Poole and Black Box negotiated a merger of UCI with Black Box. By letter dated January 30, 2001, Black Box offered Poole employment as Director of Network Services for Black Box Network Services — Indiana Operations, beginning immediately after the closing transaction merging UCI and Black Box. The letter contained an outline of the compensation and other benefits that were offered to Poole, including a base salary of $75,000, an annual performance bonus of $15,000, insurance, company car and cell phone, a 401K retirement savings plan, paid vacation, paid holidays, paid personal days, and continuing education and training. The letter referenced a non-competition agreement that Poole was to sign at closing.
The formal acquisition of UCI by Black Box occurred on January 31, 2001, in a telephone and facsimile closing. The terms of the merger transaction were memorialized in a Merger Agreement by and among Poole, UCI, DataCom and Black Box, dated January 31, 2001 (the "Merger Agreement"). Under the terms of the Merger Agreement, Poole was to be an officer of DataCom, Director of Network Services. (Merger Agreement, § 1.6.) The parties agreed in section 2.3 of the Merger Agreement that:
In connection with the consummation of these transactions, the Shareholder [Poole] will have executed a noncompetition agreement in the form of Exhibit B hereto (the "Noncompetition Agreement"). The consideration to be paid to the Shareholder to execute, deliver and perform their (sic) obligations under the Noncompetition Agreement is included as part of the Merger Consideration issued by Black Box to the Shareholder on the Closing Date.
(Id., § 2.3.) The Merger Agreement made Poole's execution and delivery to Black Box of the Noncompetition Agreement a condition precedent to the obligations of Black Box and DataCom under the Merger Agreement. (Id., § 5.3(f).)
The Merger Agreement contains a mandatory arbitration provision, section 8.3, which states in relevant part:
Except with respect to any party electing to bring an action for specific performance of this Agreement (which action will be commenced and settled in a court of competent jurisdiction), any controversy or claim arising out of or relating to this Agreement, or the breach thereof, will be settled by arbitration in Pittsburgh, Pennsylvania, in accordance with the Commercial Arbitration Rules of the American Arbitration Association. . . .
(Merger Agreement, § 8.3.) The agreement contains an integration provision, section 8.9, which provides in relevant part:
This Agreement along with the Schedules and Exhibits attached hereto and the documents delivered in connection herewith is an integrated document, contains the entire agreement between the parties, [and] wholly cancels, terminates and supersedes any and all previous and/or contemporaneous oral agreements, negotiations, commitments and writing of the parties with respect to the subject matter.
(Id., § 8.9.) The next section of the agreement provides in relevant part that:
Any and all Schedules, Exhibits, statements, reports, certificates or other documents or instruments referred to in or attached to this Agreement, including the "Background" portion of this Agreement, are incorporated by reference as though fully set forth at the point referred to in this Agreement.
(Id., § 8.10.) The Merger Agreement contains a choice of law provision which states that it "will be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania, without regard to any jurisdiction's conflicts or choice of law provisions." (Id., § 8.4.)
As contemplated by the Merger Agreement, Poole entered into a Non-Competition Agreement with Black Box. That agreement, dated January 31, 2001, contains the following restrictive covenant:
1. For a period of five (5) years immediately following the termination of the Shareholder's employment by DataCom, the Buyer or the Shareholder (the "Termination"), the Shareholder will not anywhere in the United States, engage in, provide consulting services to, be employed by, or have any interest in (whether as a proprietor, partner, director, officer, employee or stockholder): (i) any corporation, general or limited partnership, association, limited liability company, trust or other entity or organization other than the Buyer or an Affiliate of the Buyer (each a "Person"), which principally competes with the Business or that has a division, department or group which principally competes with the Business; or (ii) any Customer. . . .
(Non-Competition Agreement, § A.1.) "Business" was defined as "designing, selling, installing and/or maintaining structured cabling systems, which include cables, connectors, switches, modems, and other networking devices." (Id. at 1.) "Customer" was defined as "a customer of the Company [UCI] who has purchased goods and services from the Company [UCI] (or any successor to the Company [UCI]) during the twelve (12) month period ending with the month immediately preceding the date of Termination [of Poole's employment with DataCom]." (Id., ¶ A.4.) Under the terms of the agreement:
if any durational or geographic restriction or restriction on business activities covered under this Agreement shall be found by any court of competent jurisdiction to be overly broad, and thus illegal or unenforceable, the Shareholder and the Buyer intend that such court will enforce this Agreement in any less broad manner the court may find appropriate by construing such overly broad provisions to cover only that duration, geographic area or activities which may be enforceable.
(Id., § D.)
The fourth "Whereas" clause of the Non-Competition Agreement states that Poole "will be the Vice President of DataCom immediately following the Merger [of UCI with and into DataCom.]" (Non-Competition Agreement at 1.) The fifth "Whereas" clause and paragraph B.3 of the Non-Competition Agreement state that Poole's execution and delivery to Black Box of the non-competition agreement was a condition of Black Box's and DataCom's obligations to consummate the transactions under the Merger Agreement.
The Non-Competition Agreement contains two provisions under the heading "Equitable Relief; Fees and Expenses":
1. . . . [T]he Buyer . . . shall have the right to obtain such preliminary, temporary or permanent mandatory or restraining injunctions, orders or decrees as may be necessary to protect the Buyer . . . against, or on account of, any breach by the Shareholder of the provisions of Section A of this Agreement without the proof of any actual damage caused to the Buyer. . . . Such right to equitable relief is in addition to all other legal remedies the Buyer . . . may have to protect its rights.
2. Each party shall bear its own attorneys' fees and expenses in any suit or proceeding initiated in connection with this Agreement; provided, however, that the Buyer shall bear the Shareholder's reasonable attorneys' fees and expenses for defending any suit or proceeding brought by the Buyer to enforce this Agreement, if a court of competent jurisdiction determines that all claims brought by the Buyer in such suit or proceeding are frivolous and without merit. . . .
(Non-Competition Agreement, § C.) The agreement contains a choice of law provision which states that it "shall be governed by and shall be construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to the conflicts or choice of law provisions of any jurisdiction." (Id., § G.)
On November 20, 2001, Poole by his counsel sent a letter to Black Box requesting that Black Box acknowledge that the Non-Competition Agreement was unenforceable as against Poole. The letter advised that Poole intended in the near future to become engaged in telecommunications-business activities in the Indianapolis area. Black Box responded by letter, dated December 17, 2001, in which it stated in pertinent part that it would "vigorously prosecute" any violation of the Non-Competition Agreement.
On December 31, 2001, Plaintiff filed suit in state court alleging that Defendants unlawfully induced him to enter into the agreement to sell his company by providing misleading financial data and that Black Box breached the terms of the Non-Competition Agreement by failing to promote him to the position of Vice President and failing to give him certain other benefits. Plaintiff alleges that the Non-Competition Agreement is at best ambiguous in that it can be read in two different ways: (1) as prohibiting him from competing with the cable business, or (2) as prohibiting him from competing against Black Box. He also alleges that the Agreement provides that the restrictive covenants would not apply if Black Box terminated his employment for reasons other than "cause," that Black Box terminated his employment for reasons other than "cause," and, therefore, his obligations under the Non-Competition Agreement are excused by failure of a condition precedent. Plaintiff seeks a preliminary and permanent injunction prohibiting Defendants from interfering with his employment and business activities based on the Non-Competition Agreement, a declaratory judgment that the Non-Competition Agreement is unenforceable against him, and an award of damages for an alleged breach of contract.
On December 31, 2001, a state court judge issued a Temporary Restraining Order against Defendants and set a hearing on Plaintiff's complaint for preliminary injunction for January 9, 2002. On January 7, Defendants filed their Notice Of Removal, removing this action to this court. On January 8, Plaintiff filed his motion for an extension of the temporary restraining order and motion to remand. After hearing argument, the court denied the motion to remand. The court on January 11 entered an interim order on preliminary injunction, restraining Black Box from interfering with Plaintiff's employment or business activities under the purported basis of a violation of the Non-Competition Agreement until either party serves a fifteen day written notice on the other. Defendants' Motion To Dismiss Or In The Alternative To Stay Proceedings and Compel Arbitration was filed on January 16. On March 14, Defendants filed their fifteen day notice of their intention to terminate the interim preliminary injunction order, and Plaintiff moved for a hearing on his motion for preliminary injunction. On March 26, Defendants filed their Motion To Dismiss Plaintiff's Motion For Preliminary Injunction. Oral argument on the pending motions was held on April 3.
Poole currently is providing services to Technology Dynamics, a business located in Indianapolis, Indiana. Technology Dynamics represented in a letter to Poole's attorneys, dated March 27, 2002, that it is "a professional services company primarily engaging in the design of audio/visual and telecommunications systems" (Stipulated Ex. 33) and is an "independent consulting firm" that offers no installation services. (Id.) A letter, dated March 12, 2002, to Poole from the President of Technology Dynamics stated that Poole's responsibilities at Technology Dynamics would be related to production on existing projects and included the following: perform site visits and interviews, generate and edit drawings and written specifications needed to define the scope of the project, products and methods required. The letter indicated that Poole's responsibilities were not to include project management, business development or business management.
II. Motion To Dismiss Or Stay Proceedings And Compel Arbitration
Defendants move, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure and the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 1-16, to dismiss the Plaintiff's Complaint on the ground that all of his claims are subject to mutually agreed upon binding arbitration, or in the alternative, for an order staying this action until such arbitration has been had in accordance with the parties' agreement and compelling Plaintiff to submit his claims to arbitration. Defendants contend that Plaintiff's claims are subject to arbitration because they arise out of and relate to the Merger Agreement and, thus, are covered by the arbitration provision in § 8.3 of that agreement. This is so, they argue, because Plaintiff's claims relate to the terms and conditions of the Non-Competition Agreement which was incorporated into the Merger Agreement, and because the Non-Competition Agreement was part of the consideration provided by Plaintiff to Defendants for the merger. Plaintiff opposes the motion, arguing that the Merger Agreement's arbitration provision does not cover the Non-Competition Agreement because the two are separate agreements.
The FAA provides that: "A written provision in any . . . contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . or the refusal to perform the whole or any part thereof . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. Federal policy favors arbitration, see Belom v. Nat'l Futures Ass'n, No. 01-3684, 284 F.3d 795, 799 (7th Cir. 2002) (affirming district court's dismissal of employee's suit for injunctive and declaratory relief excluding him from arbitration for failure to state a claim); AGCO Corp. v. Anglin, 216 F.3d 589, 593 (7th Cir. 2000) ("the Federal Arbitration Act embodies a clear federal policy favoring arbitration agreements") (citation omitted); "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." ATT Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986); see also S+L+H S.p.A. v. Miller-St. Nazianz, Inc., 988 F.2d 1518, 1524 (7th Cir. 1993). Any doubts as to arbitrability of a dispute are to be resolved in favor of arbitration. ATT Tech., 475 U.S. at 650; Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Yet, arbitration agreements "must not be so broadly construed as to encompass claims that were not intended to be arbitrated under the original contract." AGCO, 216 F.3d at 593; see also E.E.O.C. v. Waffle House, Inc., ___ U.S. ___, 122 S.Ct. 754, 764 (2002). Thus, the court must determine whether Poole and Black Box intended disputes under the Non-Competition Agreement to be arbitrated.
In his brief opposing the motion to dismiss, Plaintiff argues that Pennsylvania law rather than the FAA governs the Non-Competition Agreement because that agreement does not contain an arbitration provision and, even if it did, there are grounds for revoking an arbitration provision. As discussed below, neither position is persuasive.
Defendants are correct that the FAA applies, even though the Non-Competition Agreement contains a choice of law provision stating that Pennsylvania law governs. "Notwithstanding the parties' choice of law provision in their contract calling for application of Illinois law, and irrespective of the fact that this is a diversity case, federal arbitration law governs the analysis of arbitration provisions in any contract evidencing a transaction in interstate commerce." N. Ill. Gas Co. v. Airco Indus. Gases, 676 F.2d 270, 274-75 (7th Cir. 1982) (dicta). As Judge Hamilton of this court recently observed: "contractual choice-of-law provisions selecting a state's law to govern a contract generally will not preclude application of the FAA in favor of state law governing arbitration unless the parties have made abundantly clear their intent to avoid the FAA." Furgason v. McKenzie Check Advance of Ind. Inc., IP00-121-C-H/G, 2001 WL 238129, at *3 (S.D.Ind. Jan. 3, 2001). The parties to the Merger Agreement have not made it abundantly clear that they intended to avoid application of the FAA. In addition, 9 U.S.C. § 2, which requires that the underlying transaction involve commerce is satisfied-both the Merger Agreement and the Non-Competition Agreement involve interstate commerce. Poole does not argue to the contrary.
Furthermore, the Pennsylvania law upon which Plaintiff relies and the law under the FAA are remarkably similar. Even if the court were to find Pennsylvania law applicable (it does not), the legal principles would be the same: Pennsylvania law favors arbitration, applies the "positive assurance" test, and instructs courts to ascertain and give effect to the intentions of the parties. See Ross Bros. Constr. Co. v. Int'l Steel Servs., Inc., 283 F.3d 867, 875 (7th Cir. 2002) (applying Pennsylvania law); Highmark, Inc. v. Hosp. Serv. Ass'n of N.E. Pa., 785 A.2d 93, 97 (Pa.Super.Ct. 2001); Midomo Co. v. Presbyterian Hous. Dev. Co., 739 A.2d 180, 190 (Pa.Super.Ct. 1999). The court finds that the FAA applies; even if it did not and Pennsylvania law were applicable, there would be no material difference.
Applying the FAA, the court concludes that the parties intended that any disputes under the Non-Competition Agreement be arbitrated. The Seventh Circuit's decision in Sweet Dreams Unlimited v. Dial-A-Mattress International, 1 F.3d 639 (7th Cir. 1993), is instructive. The court examined an arbitration clause providing for arbitration of "[a]ny disputes arising out of the agreement." Id. at 641. The court held that the language "`arising out of' reaches all disputes having their origins or genesis in the contract, whether or not they implicate interpretation or interpretation of the contract per se." Id. at 642 (emphasis in original). The court said that "any dispute between contracting parties that is in any way connected with their contract could be said to `arise out of' their agreement and thus [should] be subject to arbitration under a provision employing this language." Id. The arbitration clause at issue in Prima Paint Corp. v. Flood and Conklin Manufacturing Co., 388 U.S. 395 (1967), upon which Sweet Dreams Unlimited relied, was even broader. The clause in Prima Paint provided that "[a]ny controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration. . . ." Id. at 398 (emphasis added).
The arbitration provision in § 8.3 of the Merger Agreement provides that "any controversy or claim arising out of or relating to this Agreement, or the breach thereof, will be settled by arbitration[.]" Thus, the provision is identical in all relevant respects to the arbitration clause at issue in Prima Paint and broader than the arbitration clause at issue in Sweet Dreams Unlimited, which the Seventh Circuit held reaches all disputes having their origins or genesis in the contract. Thus, the arbitration provision in § 8.3 reaches all disputes with origins or genesis in the Merger Agreement. And, moreover, following Sweet Dreams Unlimited, "any dispute" between Black Box and Poole "that is in any way connected with" the Merger Agreement "could be said to `arise out of'" the Merger Agreement and be subject to arbitration.
Defendants contend that Plaintiff's causes of action arise out of the Merger Agreement for several reasons. First, the Non-Competition Agreement was specifically incorporated into and made part of the Merger Agreement. Second, Plaintiff's delivery of the Non-Competition Agreement was a condition precedent to the closing of the merger. And, finally, the instant dispute over the Non-Competition Agreement had its genesis with the Merger Agreement-but for the merger and Merger Agreement, the parties would not have entered into the Non-Competition Agreement. The court agrees that all of these reasons support the conclusion that Plaintiff's claims in the instant case arise out of the Merger Agreement.
Section 8.9 of the Merger Agreement states that the Merger Agreement and the schedules, exhibits and documents delivered in connection therewith are an integrated document, and section 8.10 specifically incorporates into the Merger Agreement all exhibits and other documents or instruments referred to in the Merger Agreement. Though the Merger Agreement does not incorporate the Non-Competition Agreement by name, the latter agreement is among those documents referred to in the Merger Agreement. Thus, under section 8.10, the Non-Competition Agreement is incorporated into the Merger Agreement. Plaintiff's argument that the Merger merely incorporates the "form" of the Non-Competition Agreement rather than the Non-Competition Agreement itself is unavailing. Poole did not execute Exhibit B to the Merger Agreement, but he did execute the Non-Competition Agreement designated as item #5 in the Closing list of documents, and section 2.3 refers to the noncompetition agreement to be executed by him. Thus, the Non-Competition Agreement executed by Poole, which is the subject of his claims in this case, is incorporated into the Merger Agreement.
In addition, as Defendants argue, "but for" the merger and Merger Agreement, the Non-Competition Agreement would not exist. It would be pointless to agree not to compete if the competitive business was not being absorbed into the Defendants'. Also, the delivery by Poole of the Non-Competition Agreement was a condition precedent to the closing of the merger and consideration given Defendants for the merger and Merger Agreement. And, as noted, the arbitration provision in the instant case is broader than that in Sweet Dreams Unlimited. Even if Plaintiff's claims did not arise out of the Merger Agreement, at the very least, the claims "relate to" the Merger Agreement. The court concludes that the "arising out of or relating to" language in section 8.3 of the Merger Agreement arguably covers disputes under the Non-Competition Agreement and, therefore, this action is subject to arbitration. See Sweet Dreams Unlimited, 1 F.3d at 642-43.
Plaintiff advances several arguments as to why his claims under the Non-Competition Agreement are not arbitrable, but none are persuasive. He first relies on paragraph C of the Non-Competition Agreement. Paragraph C.1 of the Non-Competition Agreement allows Black Box to seek equitable relief because it "could not be reasonably or adequately compensated by damages in an action at law" and states that its right to equitable relief "is in addition to all other legal remedies [Black Box] may have to protect its rights." (emphasis added). Use of the permissive word "may" suggests that this language is not in conflict with the arbitration provision. Plaintiff argues that paragraph C.2 negates an implication of arbitration as it states that "Each party shall bear its own attorneys' fees and expenses in any suit or proceeding initiated in connection with this Agreement[.]" This language, Plaintiff says, anticipates that there may be a suit or proceeding as opposed to arbitration. He is correct — that is what paragraph C.1 provides for, but it is one sided, running only in favor of Black Box.
Plaintiff also relies on paragraph D of the Non-Competition Agreement which references the right of a "court of competent jurisdiction" to modify any overly broad restrictions in the agreement. Defendants argue that this phrase is generic and intended to include arbitrators as well as state and federal courts. The court is not persuaded by this argument. A better argument, though, is that, regardless of arbitrability, a court has authority to modify overly broad provisions by granting equitable relief such as an injunction. See IDS Life Ins. Co. v. SunAmerica, Inc., 103 F.3d 524, 527 (7th Cir. 1997) (under the FAA, a court may enter a preliminary injunction even though the case is arbitrable); Gateway E. Ry. v. Terminal R.R. Ass'n, 35 F.3d 1134, 1141 (7th Cir. 1994) (same); but cf. Peabody Coalsales Co. v. Tampa Elec. Co., 36 F.3d 46, 47 (8th Cir. 1994). Thus, arbitrability is not inconsistent with the retention of the ability to obtain equitable judicial relief in certain circumstances.
Plaintiff argues that the Non-Competition Agreement treats the Merger Agreement as a separate agreement because both agreements have their own notice and amendment requirements and choice of law provisions, and the first and fifth "Whereas" clauses of the Non-Competition Agreement treat these agreements as separate agreements. He also argues that the Merger Agreement treats the Non-Competition Agreement as a separate agreement in the definition of "Agreement" and with its reference to the "Agreement" and separate reference to the Exhibits to the Agreement and other documents to be signed at closing, see, e.g., §§ 2.3, 5.3(f), 7.1(a)(i), 8.1, 8.9, and 8.10. At best, all the language cited by Plaintiff creates an insignificant ambiguity which pales in comparison to the clear language in section 8.10 of the Merger Agreement stating that any and all documents referred to in that agreement are incorporated by reference into the agreement. Despite the provisions in the two agreements upon which Plaintiff relies, given that the Merger Agreement incorporates the Non-Competition Agreement and the mandatory arbitration provision in section 8.3, it cannot be said "with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute." ATT Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 650 (1986).
Plaintiff argues that Defendants' alleged first material breach of the Non-Competition Agreement excuses him from any obligation to arbitrate matters under that agreement. The issues of whether or not Black Box first breached the Non-Competition Agreement and whether the alleged breach was material are both matters to be determined at arbitration. And, an alleged breach does not negate the right (or obligation) to arbitrate. See, e.g., Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 410 (2nd Cir. 1959). If Plaintiff is arguing that he was fraudulently induced to enter into the Merger Agreement or the Non-Competition Agreement, or both, in an effort to avoid arbitration, this argument is insufficient to carry the day for him. Prima Paint holds that a claim of fraud in the inducement of a contract does not preclude arbitration as long as there is no claim that the arbitration provision itself was fraudulently induced, Prima Paint Corp. v. Flood Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967), and Plaintiff has not claimed that arbitration provision was fraudulently induced.
Plaintiff argues Defendants waived their right to arbitration, but the circumstances of this case do not support a finding of waiver by Defendants. A delay of at most two months in asserting the arbitration provision cannot be considered waiver, particularly where no court case had been filed during the time Plaintiff alleges Black Box waived its right to arbitration. Prior to the filing of this suit, the assertions of the Plaintiff about whether his conduct violated the Non-Competition Agreement was nothing more than bold words. To this day, the Plaintiff maintains through his counsel, that his work is not competitive. Within sixteen days of the commencement of this action Defendants filed their motion to dismiss, arguing that this action was subject to arbitration. Such a quick assertion of the arbitration right cannot be considered waiver of such right.
Accordingly, the court concludes that Plaintiff's claims asserted in the instant case are subject to arbitration. Thus, pursuant to the FAA, the court should stay this action until arbitration has been had in accordance with the terms of the arbitration provision of the Merger Agreement, and enter an order compelling Plaintiff to arbitrate his claims against Defendants. 9 U.S.C. § 3, 4.
III. Motion for Preliminary Injunction
Plaintiff seeks a preliminary injunction prohibiting Defendants from interfering with his employment and business activities based on the Non-Competition Agreement. Though the court has concluded that this action should be stayed pending arbitration, it has the authority to consider Plaintiff's motion for preliminary injunction. See IDS Life Ins. Co. v. SunAmerica, Inc., 103 F.3d 524, 527 (7th Cir. 1997); Gateway E. Ry. v. Terminal R.R. Ass'n, 35 F.3d 1134, 1141 (7th Cir. 1994); but cf. Peabody Coalsales Co. v. Tampa Elec. Co., 36 F.3d 46, 47 (8th Cir. 1994). The Seventh Circuit has explained:
The issuance of a stay pending arbitration should not deprive a litigant of the right to seek such protection as he may need against irreparable injury before he can — if he can — request such relief from the arbitral panel. So the fact that the preliminary injunction proceedings are continuing in the district court is not inconsistent with the grant of a stay of all other proceedings in the district court, pending arbitration.
IDS Life Ins. Co., 103 F.3d at 527.
A preliminary injunction has as its purpose the minimization of the hardship to the parties pending resolution of their lawsuit or arbitration. Kiel v. City of Kenosha, 236 F.3d 814, 816 n. 4 (7th Cir. 2000). The standards for obtaining a preliminary injunction are well-established:
A party seeking to obtain a preliminary injunction must demonstrate: (1) its case has some likelihood of success on the merits; (2) that no adequate remedy at law exists; and (3) it will suffer irreparable harm if the injunction is not granted. If the court is satisfied that these three conditions have been met, then it must consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable harm the moving party will suffer if relief is denied. Finally, the court must consider the public interest (non-parties) in denying or granting the injunction. The court then weighs all of these factors . . . when it decides whether to grant the injunction.
Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 895 (7th Cir. 2001) (citations omitted). Under what as been described as the "sliding scale approach," the more likely the plaintiff will succeed on the merits, the less the balance of irreparable harms need favor his position." Id.
Even assuming that Plaintiff can demonstrate that his claims have some likelihood of success on the merits and that no adequate remedy at law exists, no injunction should be issued because he cannot demonstrate irreparable harm. Plaintiff's position is that the work he currently is performing for Technology Dynamics is not in violation of his Non-Competition Agreement. He argues, however, that Black Box disagrees and believes it is in violation of the agreement. He also argues that if an injunction is not issued, then he likely will find potential employers reluctant to hire him, and prospective customers afraid to use his services, which would render him unemployable for the five year duration of the restrictive covenants of the Non-Competition Agreement. The fact that Poole presently is working cuts against these arguments. At oral argument, Poole suggested that the irreparable harm was that he lost his business because Black Box ran it into the ground. Even assuming that Poole was somehow harmed by how Black Box ran the business it bought from him, that harm would be compensable with money damages, and is an appropriate subject for arbitration.
The harm that Poole asserts is potential rather than actual. There has been no suggestion that Poole currently is suffering any harm, let alone irreparable harm. Poole argued that the irreparable harm arises when Black Box interferes with his employment, accuses him of violating the Non-Competition Agreement, thus injuring his reputation, or brings litigation to enforce the Non-Competition Agreement. Poole also claimed that irreparable harm comes when Black Box informs others in the industry that it has a Non-Competition Agreement with Poole, harasses them, tells them not to deal with Poole or Technology Dynamics, or threatens to sue them if they do. But there has been no suggestion that at this time Black Box has done any of these things. Whether it will do so in the future is pure conjecture.
The sliding scale approach does not relieve the party seeking a preliminary injunction from the burden of showing some irreparable harm if an injunction is not issued. Instead, the more likely that the party will prevail on the merits, the less the balance of irreparable harms need favor him. See Ty, Inc., 237 F.3d at 895. Poole has not offered anything to demonstrate that he will suffer irreparable harm if an injunction is not issued. Therefore, the court finds that his motion for preliminary injunction should be DENIED. Given this ruling, the court finds that Defendants' Motion To Dismiss Plaintiff's Motion For Preliminary Injunction should be DENIED AS MOOT.
The court notes that on the date of the hearing on the motion for preliminary injunction, counsel for the Plaintiff represented that witnesses were available to present testimony in support of the motion but for expediency, the presentation would be limited to stipulated exhibits and argument. It is impossible to know what that evidence would have shown because it was not presented. The court indicated that the testimonial evidence could be presented if it felt that evidence beyond that contained in the stipulated exhibits is necessary to a determination of the preliminary injunction issues. As should be clear from this ruling, the court finds the motion lacking in merit. This does not mean that the court will treat the Plaintiff's decision not to present testimonial evidence as a waiver. However, unless that deferred evidence would clearly demonstrate irreparable harm and the other requirements necessary for the extraordinary relief of a preliminary injunction, the Plaintiff would be well advised to focus on how to prevail in the arbitration rather than attempting to present the deferred evidence to obtain equitable relief here.
IV. Conclusion
For the foregoing reasons, the Motion Of Defendants To Dismiss Or In The Alternative To Stay Proceedings And Compel Arbitration is GRANTED, Plaintiff's Motion For Preliminary Injunction is DENIED, and Defendants' Motion To Dismiss Plaintiff's Motion For Preliminary Injunction is DENIED AS MOOT. All proceedings in this action are STAYED pending arbitration in accordance with the terms of the parties' arbitration provision in section 8.3 of the Merger Agreement, and Plaintiff is ORDERED to attend arbitration and present any and all claims he may have under the Merger Agreement or Non-Competition Agreement or both.
An appropriate order will be entered to effectuate the rulings in this entry.
ALL OF WHICH IS ORDERED.