Cyanotech Says Trade Secrets Dispute Should Be Arbitrated

Law360, Miami (July 09, 2014, 8:08 PM ET) — Microalgae products maker Cyanotech Corp. on Wednesday asked the Eleventh Circuit to reverse a decision denying its motion to compel arbitration in a dispute brought by U.S. Nutraceuticals LLC alleging that Cyanotech breached an agreement by stealing confidential information…


Cyanotech’s attorney Elliot Kula of Kula & Samson LLP told an appellate panel that under the contract with U.S. Nutraceuticals, which does business as Valensa International, the arbitrator should have determined the arbitrability of the dispute, not the district court.

“The district court constrained itself by not looking at the whole record,” Kula said. “ It limited itself to only the complaint.”

Kula argued that the Eleventh Circuit’s 2005 decision in Terminix International Co. LP v. Ranch Ltd. Partnership, in which the court upheld an arbitration provision stating that American Arbitration Association rules would govern the dispute, controlled the issues in the instant case.

In Terminix, the appeals court said that because the arbitration clause said that arbitration would be done in accordance with AAA rules, which gives the arbitrator the power to rule on his or her own jurisdiction, then the parties had clearly agreed that the arbitrator should decide on the validity of the clause itself.

But Robert Thielhelm Jr. of Baker & Hostetler LLP, who is representing Valensa, said that “Terminix shouldn’t be applied without any thought or reason.

“There is objective evidence before the court about whether they agreed to arbitrate arbitrability,” Thielhelm said. “I don’t think the issues before this court were before the Terminix court.”

At issue are arbitration provisions in two agreements between the companies under which Cyanotech provided a biomass product named Haematococcus pluvialis to Valensa for use in its nutritional supplements, according to court documents.

The first contract was signed in November 2007 and was valid until November 2010. That deal contained both a confidentiality provision as well as an arbitration clause providing for the arbitration of any dispute, controversy or claim that arose under the contract.

The two companies signed another agreement in November 2010 that ran until December 2012 and carved out from the arbitration requirement all disputes relating to breach of the confidentiality provision, according to court documents.

In September 2010, a Cyanotech principal emailed someone at Mercola Group, providing detailed information on Cyanotech’s ability to supply Mercola with a biomass called astaxanthin, according to court documents.

Valensa said that it began selling astaxanthin to Mercola in March 2011 and continued until February 2012, when Mercola advised that it would begin buying the biomass directly from Cyanotech, according to court documents.

Valensa sued Cyanotech for tortious interference with a business relationship, alleging that Cyanotech had breached the agreements by using information it learned from its relationship with Valensa to court and begin supplying products to Valensa’s client, according to court documents.

In June 2013, a judge in the Middle District of Florida denied Cyanotech’s motion to compel arbitration and its motion to dismiss the suit.

U.S. Nutraceuticals is represented by Robert W. Thielhelm Jr., James Vincent Etscorn and Joe Lee Fore Jr. of Baker & Hostetler LLP.

Cyanotech is represented by Elliot B. Kula, Daniel M. Samson and W. Aaron Daniel of Kula & Samson LLP and John A. Boudet of Roetzel & Andress LPA.

The case is U.S. Nutraceuticals LLC v. Cyanotech Corp., case number 13-12863, in the U.S. Court of Appeal for the Eleventh Circuit.


View original article at: Cyanotech Says Trade Secrets Dispute Should Be Arbitrated

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