Federal District Court Compels Arbitration in Torbit vs. Datanyze, Despite the Company’s Non-signatory Status
Thursday, February, 28, 2013
Ilya Semin, the founder of the software development firm Datanyze, won a motion to compel arbitration in a lawsuit filed against him and his company by Trobit, Inc., a company for which he formerly worked. This decision came as a surprise for many considering the fact that Datanyze, as a company, was not a signatory to the original arbitration agreement that had been signed by Semin before the inception of Datanyze. However, the California court indeed ruled to enforce the arbitration agreement for both defendants under the doctrine of equitable estoppel.
Semin was the original signatory to the arbitration agreement when he was employed by Torbit. The employment contract he signed also contained a proprietary information non-disclosure provision, along with a commitment not to compete against Torbit while he was in their employment. The specific wording on the arbitration clause in the employment contract was that arbitration would be mandated for “any dispute or claim relating to or arising out of the employment relationship.”
The dispute that prompted the lawsuit by Torbit concerns actions taken by Semin before he founded Datanyze. According to the lawsuit, Semin allegedly used Torbit’s network before resigning his position with them and moving on to begin his own company. During this time, according to Torbit’s claims, Semin downloaded Torbit’s trade secrets onto his personal computer and proceeded to use them to create his own company as a competitor of Torbit’s using the information he gleaned from the download.
Following the resignation and alleged trade secret theft, Torbit filed a lawsuit in federal court against Semin and his company, Datanyze. The suit alleged that Semin had violated the Computer Fraud and Abuse Act and that Semin’s company was guilty of trade secret misappropriation. Semin, both on his own behalf and on behalf of Datanyze, moved to compel arbitration due to the arbitration clause he had signed. However, since Datanyze was not a signatory to the agreement, Torbit objected to arbitration.
A federal District Court in the Northern district of California overruled Torbit’s objection and granted Semin’s motion to compel arbitration. The case is Torbit, Inc. v. Datanyze, Inc., Case No. 5:12-CV-05889-EJD (N.D. Cal., Feb. 13, 2013).
While he was employed with Torbit, Semin was responsible for assisting with developing technology which Torbit claims was part of its “most valuable trade secret and one of its top competitive advantages.” In its move to compel arbitration, the court showed that the alleged CFAA violation and common law accusations were fully arbitrable.