USE IT OR LOSE IT! Enforce Your Arbitration Agreement or Waive Your Right To Arbitrate Your Trade Secret Misappropriation Claims

Earlier this month, a federal court in the Middle District of Tennessee denied an employer’s motion to compel arbitration, finding that it waived its right to arbitration by engaging in litigation.

Plaintiff AFS Logistics, LLC (“AFS”) brought suit against its former employees, Christopher Cochran and Alessandro Rustioni, and their company, FreightWise, under the Tennessee Uniform Trade Secrets Act.  AFS, a shipping company, alleges that its former employees used the company’s trade secret information to solicit one of AFS’s major clients to break its contract with AFS in favor of FreightWise.  Specifically, AFS alleges that its former employees used AFS’s confidential and proprietary sales methodology, client database and pricing formulas, all of which allegedly derive independent economic value, are not readily ascertainable, and are reasonably guarded from disclosure.

Ten days after the district court dismissed seven of eight of AFS’s causes of action, AFS filed its motion to compel arbitration, claiming that the employment contracts Cochran and Rustioni signed included arbitration clauses that covered the alleged trade secret misappropriation.  In denying the motion, the court noted that AFS failed to raise the issue of arbitration in its pleadings and amended pleadings, participated in case management and scheduling, engaged in extensive discovery, made attempts to settle the case, and sought various forms of relief in litigation.  The Court noted, “[t]here is no other reasonable interpretation of plaintiff’s untimely demand for arbitration than as a deliberate tactic to test the judicial waters but then, when those waters did not flow the direction plaintiff intended, to change routes in hopes of finding a different current.”

So what does AFS’ failed arbitration bid tell us?

Key Lessons for Plaintiff-Employers:

1. Review all relevant employment agreements and contracts prior to initiating litigation to determine whether the trade secret misappropriation at issue is covered by any applicable arbitration agreement;


2. If attempting to enforce an arbitration agreement while also engaged in litigation, carefully consider the level of participation in the litigation; and


3. Consider reserving rights to and/or mentioning intent to arbitrate in pleadings and motions.