Bridgetown Trucking, Inc. v. Acatech Solutions, Inc.
Docket: Case No. 3:16-cv-00236-SI
Court: District Court, D. Oregon; June 16, 2016; Federal District Court
Bridgetown Trucking, Inc. (BTI) filed a lawsuit against Acatech Solutions, Inc. and unnamed Doe Defendants under the Computer Fraud and Abuse Act (CFAA), alleging unauthorized access to a computer for the purpose of obtaining protected information. BTI's claims include a direct violation of the CFAA by Acatech and a conspiracy to violate the CFAA by the Doe Defendants. Acatech moved to dismiss the claims, seeking alternatives to transfer the case to California or stay the proceedings.
The court determined that the dispute is governed by a binding arbitration agreement between BTI and Acatech, which is enforceable under the Federal Arbitration Act (FAA). The FAA mandates that written arbitration agreements are valid and enforceable, creating a presumption in favor of arbitration when such clauses exist in contracts. The court's role is limited to verifying the existence of a valid arbitration agreement and whether it covers the dispute at hand. Given that both conditions were met, the court granted Acatech's motion to dismiss, directing the parties to arbitration.
In a federal civil lawsuit, the Court examines the dispute from the perspectives of both BTI and Acatech, focusing on the allegations in BTI's Complaint and supporting declarations. For the purpose of a motion to compel arbitration, the Court may consider documents outside of the pleadings, as established in Xinhua Holdings Ltd. v. Elec. Recyclers Int’l, Inc. Given that the case is dismissed in favor of arbitration, the Court refrains from commenting on the merits of the dispute and resolves factual disputes in favor of BTI.
BTI, an Oregon corporation based in Portland, provides trucking and warehouse fulfillment services. It coordinates deliveries for customers upon receiving electronic notifications when end-users place orders. Acatech, a California corporation, owns the 'Warehouse 2000 System,' software for managing orders and warehouse inventory. In August 2014, BTI and Acatech entered into a contract granting BTI a non-exclusive license to use the software and requiring Acatech to provide necessary system support, excluding equipment repair or replacement. Acatech is also responsible for establishing a Trouble-Reporting procedure. The Agreement mandates binding arbitration for any claims arising from it, to be conducted in California per the commercial arbitration rules of the American Arbitration Association, and specifies that no legal proceedings may commence until arbitration is resolved. Additionally, the Agreement is governed by California law.
On February 1, 2015, the Software was installed on BTI’s computer system, with Acatech retaining remote access for support and updates. On August 8, 2015, Acatech accessed the system to perform an update. However, on October 1, 2015, the Software ceased functioning, resulting in errors when BTI’s customers attempted to place orders. BTI notified Acatech of the failure, but Acatech allegedly demanded $30,000 for repairs, leading BTI to pay $10,000 initially and $20,000 in two later installments. Acatech repaired the Software on October 4, 2015.
In November 2015, BTI discovered that Acatech had inserted a "time bomb" code into the Software, causing it to malfunction on October 1. A second "time bomb," set to activate on February 5, 2016, was also found, allegedly inserted during Acatech’s repair session. This prompted BTI to forgo business opportunities with a significant new customer due to concerns about the Software’s reliability.
On February 4, 2016, Acatech demanded payment of $134,029.38 from BTI for overdue invoices, which BTI disputed. The next day, the second "time bomb" triggered, causing another Software failure, although by this time, BTI had transitioned to alternative software for order fulfillment.
From Acatech's perspective, BTI had been consistently late on payments and had stopped paying invoices after August 2015, leading Acatech to claim BTI was in material breach of their agreement, with approximately $63,869.36 owed. Acatech stated it disabled the Software on October 1, 2015, due to this breach but later agreed to restore it upon BTI’s proposal of a payment plan, which BTI failed to fully adhere to afterward.
Acatech asserts that BTI breached their Agreement by failing to provide documentation of customer billings and not bringing its account current by December 31, 2015. Consequently, Acatech notified BTI on January 5, 2016, of its intent to terminate the Agreement on February 5, 2016, due to BTI's non-payment and breach. Acatech disabled the Software on the termination date. BTI filed a Complaint on February 8, 2016, prompting Acatech to demand arbitration for the claims presented, including its own breach of contract claims against BTI. While BTI agreed to arbitrate Acatech's claims, it refused to submit its own CFAA claims to arbitration.
The legal question before the Court is whether the arbitration agreement covers BTI's specific dispute, with both parties acknowledging the existence of a valid agreement to arbitrate. The Ninth Circuit's guidance emphasizes interpreting arbitration agreements in light of state law while favoring arbitration. The Agreement specifies that California law governs its interpretation.
Acatech argues that the arbitration clause includes both BTI's claims, whereas BTI contends that its claims should not be arbitrated for three reasons: 1) California law prohibits waiving a judicial forum for civil CFAA claims, as the CFAA's civil remedy aims to uphold law enforcement and deterrence; 2) arbitration would undermine BTI's reasonable expectations under the Agreement; and 3) BTI's claims cannot be arbitrated because they involve a conspiracy against non-signatory Doe Defendants. BTI cites the California Supreme Court's decision in Iskanian, which highlights that certain statutory rights cannot be waived due to public policy considerations, particularly referencing Civil Code sections 1668 and 3513.
BTI contends that Cal. Civ. Code § 1668 prevents the enforcement of the arbitration clause in this case, arguing that the CFAA’s provisions for civil suits and compensatory damages were primarily intended for law enforcement and deterrent purposes. The California Supreme Court's ruling in Iskanian examined whether arbitration agreements that waive representative actions under the Private Attorneys General Act (PAGA) are prohibited under § 1668. Under PAGA, an aggrieved employee can file a civil action on behalf of themselves and other employees to recover civil penalties for Labor Code violations, with 75% of recovered penalties going to the Labor and Workforce Development Agency and 25% to the employees. The court noted that PAGA was designed to enhance the enforcement capabilities of the Labor and Workforce Development Agency by allowing employees to act as its representatives. Therefore, waiving the right to bring a PAGA action undermines a key enforcement mechanism for the Labor Code, leading the court to conclude that arbitration agreements for PAGA claims are against public policy and unenforceable under § 1668. The court further clarified that this prohibition does not conflict with the Federal Arbitration Act (FAA), as the FAA’s purpose is to facilitate the resolution of private disputes, while PAGA actions involve a dispute between employees and the state agency. BTI argues that § 1668 similarly prohibits waiving civil claims under the CFAA, citing legislative history indicating that the civil remedy was created to bolster law enforcement efforts and deter computer crimes, as articulated in the 1990 Senate Judiciary Committee Report and statements from Senators regarding the goals of enhancing deterrence and improving computer security practices.
BTI's argument regarding the distinction between civil claims under the Computer Fraud and Abuse Act (CFAA) and PAGA representative actions is rejected by the Court. The CFAA permits plaintiffs to seek compensatory damages and equitable relief, while PAGA allows for civil penalties primarily retained by the California Labor and Workforce Development Agency. The legislative history of the CFAA does not support BTI's claim that it was designed as a law enforcement tool; instead, the Iskanian court described PAGA actions as critical for enforcing the California Labor Code, functioning similarly to qui tam actions. The Iskanian ruling indicated that arbitration agreements for PAGA claims indirectly exempt employers from legal accountability, thereby making them unenforceable under section 1668.
BTI further contends that Congress intended to prevent waiving a judicial forum for CFAA claims, which could override the Federal Arbitration Act (FAA) mandate to enforce arbitration agreements for statutory claims. While the FAA can be overridden by a clear congressional command, BTI must prove this intent. The Court finds no supporting case law or authority from any jurisdiction indicating that Congress intended to prohibit arbitration of CFAA claims. In fact, various district courts have enforced arbitration agreements concerning CFAA claims under general arbitration agreements, with one court explicitly stating that there is no evidence of congressional intent to make CFAA claims nonarbitrable.
The legislative history of the Computer Fraud and Abuse Act (CFAA) does not indicate any intent by Congress to prohibit arbitration, a silence interpreted as significant. BTI argues that enforcing its arbitration agreement for CFAA claims would undermine the statute's deterrent objectives, which are emphasized in its legislative history. However, the Supreme Court's decision in Shearson/American Express, Inc. v. McMahon established that the absence of a clear Congressional intent to preclude arbitration exists even in statutes with treble damages, like RICO. The Court dismissed arguments that overlapping civil and criminal provisions create an irreconcilable conflict with arbitration, referencing Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. The Shearson Court noted that the existence of both civil and criminal liabilities does not negate the validity of a civil action. Additionally, the Court rejected the notion that public interest in RICO’s criminal enforcement should prevent arbitration, concluding that the legislative intent prioritized compensatory over policing functions. Ultimately, it determined there is no inherent conflict between arbitration and civil RICO claims, which parallels the findings regarding CFAA claims.
BTI contends that the Shearson case is not applicable here, emphasizing that the Civil Enforcement provision of the CFAA is intended to support law enforcement and deter cybercrime. However, while acknowledging the CFAA's deterrent aims, the Court finds no clear indication in the legislative history that its primary function is policing. The Court notes that civil damages under the CFAA are not trebled, unlike those under RICO and federal antitrust laws, and highlights Supreme Court precedent that does not suggest Congress intended to preclude arbitration for civil CFAA claims. Consequently, the Court concludes that BTI has failed to demonstrate an inherent conflict between arbitration and the CFAA's purposes.
Regarding BTI's position that arbitration would undermine its reasonable expectations under the Agreement, BTI argues that it did not agree to arbitrate Acatech’s alleged criminal actions under the CFAA. Citing contract law principles aimed at protecting reasonable expectations and referencing California's section 1668 on liability exemptions, BTI draws an analogy to a hypothetical situation involving coercion. However, the Court finds BTI lacks supporting case law for this analogy, asserting that requiring arbitration does not exempt Acatech from liability. The arbitrator retains authority to hold defendants accountable, and the Agreement stipulates that arbitral awards are enforceable in court, reinforcing that disputes must be resolved through arbitration before any legal proceedings can be initiated.
Claims under the civil provision of the CFAA are categorized as private actions for compensatory damages, unlike representative claims under the PAGA which are qui tam actions. Consequently, section 1668 does not apply when assessing whether arbitration of BTI’s CFAA claims aligns with the parties' expectations. The arbitration clause in the Agreement is broad, stating that any controversy or claim connected to the Agreement shall be resolved through binding arbitration. Relevant case law supports this broad interpretation of arbitration clauses, indicating that any disputes with a significant relationship to the contract are arbitrable. In the case of Simula, Inc. v. Autoliv, the Ninth Circuit determined that the phrase "arising in connection with" encompasses all disputes originating from the contract.
In a similar vein, the case of Torbit, Inc. v. Datanyze, involved an employment agreement with a comparable arbitration clause, where the court ruled that claims about unauthorized computer activity were arbitrable as they related to the agreement. BTI contends that Torbit is distinguishable since the Agreement does not expressly prohibit the alleged conduct; however, Acatech argues that BTI's claims are indeed related to the Agreement governing the Software's use. The Court concurs, noting that resolving this matter may hinge on interpreting the Agreement and principles of California contract law, particularly regarding Acatech's alleged "self-help" actions in response to a customer’s breach due to non-payment.
BTI claims that Acatech improperly accessed its computer system to sabotage its software, resulting in the software ceasing to accept orders. Instead of providing immediate support, Acatech allegedly demanded $30,000 for assistance. Additionally, BTI states that prior to a second failure of the software, Acatech sent a letter demanding payment of $134,029.38, which Acatech asserts is owed under their agreement, a claim BTI disputes. The agreement contains a broad arbitration clause covering all claims related to it. The court emphasizes a strong federal policy favoring arbitration, indicating that BTI’s claims under the Computer Fraud and Abuse Act (CFAA) are within the scope of this arbitration clause.
BTI argues that its conspiracy claim under 18 U.S.C. 1030(b) should exempt it from arbitration, particularly concerning alleged conspirators who are not parties to the agreement. However, BTI does not provide sufficient reasoning as to why this would also exempt its claim against Acatech. Generally, arbitration is determined by contract, and a party cannot be forced to arbitrate claims it has not agreed to submit. However, nonsignatories may be bound by the agreement through established contract principles such as agency and estoppel. California law aligns with this, allowing for arbitration under certain conditions, including when a nonsignatory is a third-party beneficiary or has a preexisting relationship with a party to the arbitration agreement.
BTI invokes Moss v. McLucas to argue against being compelled to arbitrate claims involving non-signatory alleged conspirators. The Moss court determined that a defendant accused of conspiracy with signatories cannot enforce an arbitration agreement if not a party to it. It clarified that a defendant could enforce such an agreement only if acting as an agent of a signatory. BTI does not allege that the defendant is an agent of McLucas but rather a co-conspirator, and no authority supports a third party's right to compel arbitration under these circumstances.
Conversely, the Moss ruling allowed a non-signatory employee of a signatory to compel arbitration based on the employer's agreement. BTI's situation differs because it claims the Doe Defendants are agents of Acatech, identifying them as Acatech employees or affiliates. BTI's conspiracy claim involves these Doe Defendants acting under Acatech's authority, which, per California law, implies they are subject to the arbitration agreement.
The California Court of Appeals has established that unknown Doe defendants who are agents of named defendants (who are parties to an arbitration agreement) can be compelled to arbitrate. BTI fails to provide a compelling reason for a different outcome, leading the court to conclude that an agency relationship exists between Acatech and the Doe Defendants, necessitating arbitration for BTI’s claims against the Doe Defendants.
Regarding procedural options, while the Federal Arbitration Act allows courts to stay actions pending arbitration, it permits dismissal when all issues are arbitrable, as established in Sparling v. Hoffman Constr. Co.
The district court dismissed the plaintiffs' claims, determining that the arbitration clause was sufficiently broad to encompass all claims, necessitating arbitration as per the Federal Arbitration Act (FAA), 9 U.S.C. § 3. The court granted Defendant Aeatech Solution, Inc.'s motion to dismiss, indicating that both of BTI's claims are subject to arbitration. The ruling allows for the use of fictitious names for defendants in federal question cases, provided the complaint explains the unavailability of the defendants' real names. Additionally, the document defines a "qui tam action" as one enabling private individuals to sue for penalties benefiting the government or public institutions.
Under the Racketeer Influenced and Corrupt Organizations (RICO) Act, individuals injured by violations can seek triple damages and attorney fees. Acatech contended that BTI’s conspiracy claim against Doe Defendants falls under the arbitration clause via equitable estoppel. The Ninth Circuit's interpretation of California law on equitable estoppel allows a signatory to enforce arbitration against a nonsignatory under specific circumstances. Here, Acatech, as a signatory, sought to enforce the clause for the Doe Defendants, leading the court to compel arbitration without addressing Acatech's other arguments regarding jurisdiction or venue. The court's dismissal emphasizes that if a case is subject to arbitration, it must be resolved through that process, in accordance with the FAA.
