Wolff v. Tomahawk Manufacturing

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

JAMES B. WOLFF, Case No. 3:21-cv-880-SI

Plaintiff, OPINION AND ORDER

v.

TOMAHAWK MANUFACTURING,

Defendant.

Michael J. Morris, BENNETT HARTMAN LLP, 210 SW Morrison St., Suite 500, Portland, OR

97204. Of Attorney for Plaintiff James B. Wolff.

Aaron J. Porter and Michael G. Jacobs, HART WAGNER LLP, 1000 SW Broadway, Portland, OR

97205; Thomas C. Koessl and Ashleigh A. Stochel, L&G LAW GROUP LLP, Chicago, IL 60610.

Of Attorneys for Defendant Tomahawk Manufacturing.

Michael H. Simon, District Judge.

James B. Wolff (Wolff) brings this lawsuit alleging multiple claims against Tomahawk

Manufacturing (Tomahawk). At issue is Wolff’s claim for injunctive relief (Count One) to enjoin

Tomahawk’s alleged continuing breach of the parties’ 2010 Confidentiality Agreement (the 2010

NDA). Tomahawk moves the Court to dismiss Count One pursuant to Rule 12(b)(1) of the

Federal Rules of Civil Procedure for lack of subject matter jurisdiction, or in the alternative,

moves to stay this claim and compel Wolff to arbitrate pursuant to the arbitration provision

contained in a subsequent contract. For the reasons discussed below, Tomahawk’s motion and

alternative motion are DENIED.1

STANDARDS

A. Motion to Dismiss Based on Lack of Subject Matter Jurisdiction

Federal courts are courts of limited jurisdiction. Gunn v. Minton, 568 U.S. 251, 256

(2013) (quotation marks omitted). As such, a court is to presume “that a cause lies outside this

limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting

jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations

omitted); see also Robinson v. United States, 586 F.3d 683, 685 (9th Cir. 2009); Safe Air for

Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A motion to dismiss under

Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of “subject-matter jurisdiction,

because it involves a court’s power to hear a case, can never be forfeited or waived.” United

States v. Cotton, 535 U.S. 625, 630 (2002). An objection that a particular court lacks subject

matter jurisdiction may be raised by any party, or by the court on its own initiative, at any time.

Arbaugh v. Y&H Corp., 546 U.S. 500, 506 (2006); Fed. R. Civ. P. 12(b)(1). The Court must

dismiss any case over which it lacks subject matter jurisdiction. Fed. R. Civ. P. 12(h)(3); see also

Pistor v. Garcia, 791 F.3d 1104, 1111 (9th Cir. 2015) (noting that when a court lacks subject-

matter jurisdiction, meaning it lacks the statutory or constitutional power to adjudicate a case, the

court must dismiss the complaint, even sua sponte if necessary).

A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction may be either

“facial” or “factual.” See Safe Air for Everyone, 373 F.3d at 1039. A facial attack on subject

1 Notwithstanding Tomahawk’s request for oral argument, the Court does not believe that

oral argument would assist in resolving the pending motion and alternative motion.

See LR 7-1(d)(1).

matter jurisdiction is based on the assertion that the allegations contained in the complaint are

insufficient to invoke federal jurisdiction. Id. “A jurisdictional challenge is factual where ‘the

challenger disputes the truth of the allegations that, by themselves, would otherwise invoke

federal jurisdiction.’” Pride v. Correa, 719 F.3d 1130, 1133 n.6 (9th Cir. 2013) (quoting Safe Air

for Everyone, 373 F.3d at 1039)). When a defendant factually challenges the plaintiff’s assertion

of jurisdiction, a court does not presume the truthfulness of the plaintiff’s allegations and may

consider evidence extrinsic to the complaint. See Terenkian v. Republic of Iraq, 694 F.3d 1122,

1131 (9th Cir. 2012); Robinson, 586 F.3d at 685; Safe Air for Everyone, 373 F.3d at 1039. A

factual challenge “can attack the substance of a complaint’s jurisdictional allegations despite

their formal sufficiency.” Dreier v. United States, 106 F.3d 844, 847 (9th Cir. 1996) (citation and

quotation marks omitted).

B. Motion to Compel Arbitration

The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-15, applies to all contracts involving

interstate commerce and specifies that “written agreements to arbitrate controversies arising out

of an existing contract ‘shall be valid, irrevocable, and enforceable, save upon such grounds as

exist at law or in equity for the revocation of any contract.’” Dean Witter Reynolds, Inc. v.

Byrd, 470 U.S. 213, 218 (1985) (quoting 9 U.S.C. § 2). The text of the FAA “leaves no place for

the exercise of discretion by a district court,” but instead “mandates that district courts shall

direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been

signed.” Id. at 218 (citing 9 U.S.C. §§ 3-4) (emphasis in original). The district court must limit

itself “to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether

the agreement encompasses the dispute at issue.” Chiron Corp. v. Ortho Diagnostic Sys.,

Inc., 207 F.3d 1126, 1130 (9th Cir. 2000).

Under the FAA, “any doubts concerning the scope of arbitrable issues should be resolved

in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25

(1983). However, the “liberal federal policy regarding the scope of arbitrable issues is

inapposite” to the question whether a particular party agreed to the arbitration agreement. Comer

v. Micor, Inc., 436 F.3d 1098, 1104 n.11 (9th Cir. 2006). The validity of an arbitration agreement

remains “a matter of contract and a party cannot be required to submit to arbitration any dispute

which he has not agreed so to submit.” AT & T Technologies, Inc. v. Commc’ns Workers of

Am., 475 U.S. 643, 648 (1986). Because arbitration is fundamentally “a matter of contract,” the

FAA “places arbitration agreements on an equal footing with other contracts and requires courts

to enforce them according to their terms.” Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67

(2010) (citations omitted). Courts also should generally “apply ordinary state-law principles that

govern the formation of contracts” to determine whether the parties agreed to arbitrate. First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).

Unless there is “clear and unmistakable evidence” that the parties agreed that an

arbitrator should decide issues of arbitrability, “before referring a dispute to an arbitrator, the

court determines whether a valid arbitration agreement exists.” Henry Schein, Inc. v. Archer &

White Sales, Inc., 139 S. Ct. 524, 530 (2019); see also First Options of Chicago, 514 U.S. at 944

(noting that the Supreme Court has “added an important qualification, applicable when courts

decide whether a party has agreed that arbitrators should decide arbitrability: Courts should not

assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable

evidence that they did so”); Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925

F.2d 1136, 1140-41 (9th Cir. 1991) (stating that a court, not an arbitrator must decide “the

threshold issue of the existence of an agreement to arbitrate”). In deciding whether an agreement

to arbitrate exists, a court should apply a summary-judgment-style standard. “Only when there is

no genuine issue of fact concerning the formation of the agreement” should the court decide as a

matter of law that an agreement to arbitrate exists. Three Valleys, 925 F.2d at 1141 (quoting Par-

Knit Mills, Inc. v. Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)).

The district court should give the party opposing a motion to compel arbitration “the

benefit of all reasonable doubts and inferences that may arise.” Id. The party seeking to compel

arbitration bears “the burden of proving the existence of an agreement to arbitrate by a

preponderance of the evidence.” Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 565 (9th

Cir. 2014). When “the making of the arbitration agreement” is at issue, “the court shall proceed

summarily to the trial thereof.” 9 U.S.C. § 4. “The court shall hear and determine such issue” if

the party alleged to be in violation of the agreement does not demand a jury trial. Id.

BACKGROUND

Tomahawk manufactures processing equipment, parts, and tooling and also provides

related service support for the meat forming industry. Tournour Decl., at ¶ 4 (ECF 35). Wolff

and Tomahawk met when Wolff worked for an employer that used machines and equipment

supplied by Tomahawk. Wolff Decl., at ¶¶ 1-2 (ECF 29). Wolff invented and developed various

technologies related to the functioning and production of machines used in the meat forming and

processing industry. Am. Compl. ¶ 2 (ECF 15). In 2010, Wolff and Tomahawk began

discussions about a prospective licensing agreement between the parties for Wolff’s

technologies. Am. Compl. ¶ 4. Wolff, in his individual capacity, and Tomahawk entered into

the 2010 NDA on November 2, 2010. Wolff Decl., at Ex. 1.

In November 2011, the parties formed multiple business entities in anticipation of the

business venture. Wolff formed Spherical IP, LLC (Spherical) and Spherical Innovations, LLC

(Spherical Innovations). Id. at ¶ 7. The purpose of Spherical was to receive the revenues

generated by Wolff’s “Fiber Oriented Technology” (FOT), which is technology that causes a

realignment of the meat fibers, resulting in a better meat patty. Id. at ¶¶ 6-8. Eight days later,

Tomahawk organized Formtec, LLC (Formtec) to apply for, obtain, and exploit patents for the

use of FOT in the meat-forming industry. Id. at ¶ 7. In December 2011, the parties entered into a

series of Confidentiality Agreements between the various business entities: Spherical and

Formtec, Spherical and Spherical Innovations, and Spherical Innovations and Tomahawk

executed agreements. Id. The substantive provisions of these Confidentiality Agreements

(the 2011 NDAs) used identical language to the 2010 NDA (collectively, Signed NDAs).

Tournour Decl., at ¶ 17.

The Signed NDAs defined “confidential information” as

all information provided by the Disclosing Party to the Receiving

Party related to business programs, products, applications, systems,

components, technologies and business topics including but not

limited to written, oral, audio tapes, video tapes, computer discs,

machines, prototypes, designs, specifications, articles of

manufacture, drawings, human or machine readable documents.

Wolff Decl., at Ex. 1. The Signed NDAs also stated that confidential information “shall not

include any of the following”: information in the public domain at the time of disclosure,

information in Tomahawk’s possession and not acquired from Wolff, and information

Tomahawk acquired from a third party. Id.

On September 11, 2012, Formtec and Spherical signed an agreement relating to FOT

(FOT Agreement). Wolff Decl. ¶ 8; ECF 25-2. The FOT Agreement elaborates on the rights and

responsibilities of Formtec and Spherical and establishes payment terms for revenues generated

by Formtec’s FOT patents. ECF 25-2. The FOT Agreement also contains confidentiality and

governing law and venue clauses. See id. at 3-4. The confidentiality clause states

This Agreement and all terms and conditions in this Agreement

shall be kept confidential by both parties for the term of this

Agreement. The parties have signed several NDAs for all work

relating to the Technology [FOT]. These NDAs shall be a principle

[sic] part of this Agreement, and shall be binding upon the Parties.

Such confidentiality provisions shall survive the termination of this

Agreement[.]

Id. at 3. The governing law and venue clause selects Wisconsin law to govern construction and

interpretation of the FOT Agreement and states, “[b]oth Parties have agreed that any legal

dispute regarding this Agreement shall be resolved via Binding Arbitration under the rules of the

American Arbitration Association.” Id. at 4.

During the next few years, the working relationship between Wolff and Tomahawk took

various forms. Tomahawk retained Wolff as a consultant starting in 2008. Wolff Decl., at ¶ 3.

Wolff consulted for Tomahawk until Tomahawk formally employed Wolff as R&D Engineering

Support in 2017. Id. ¶ 10. Wolff’s employment with Tomahawk was terminated in March 2021.

Id. Two months later, Wolff demanded that Tomahawk return Wolff’s confidential information,

and alleges that Tomahawk refused to do so. Id.

Wolff sued in state court, alleging multiple claims against Tomahawk. Tomahawk

removed this case to federal court shortly thereafter. Wolff’s lawsuit alleges a breach of the 2010

NDA, whistleblower retaliation in violation of Oregon Revised Statutes (ORS) § 659A.199, and

disability discrimination in violation of ORS § 659A.112. See Am. Compl. (ECF 15). Formtec,

in response to the initiation of Wolff’s suit, made a Commercial Demand for Arbitration with the

American Arbitration Association in Wisconsin against Spherical for a breach of the FOT

Agreement. See ECF 25-3. Spherical alleged counterclaims against Formtec in its arbitration

answering statement. See ECF 25-4.

Before the Court is Tomahawk’s Motion to Dismiss Count One of Wolff’s Amended

Complaint for lack of subject matter jurisdiction. Alternatively, Tomahawk moves to stay this

claim and compel Wolff to arbitrate Count One.

DISCUSSION

Tomahawk argues that the 2010 NDA that Wolff seeks to enforce was integrated into the

later FOT Agreement, which contains an arbitration provision. Tomahawk argues that a motion

to compel arbitration is appropriately raised pursuant to Rule 12(b)(1) of the Federal Rules of

Civil Procedure for lack of subject matter jurisdiction. Alternatively, Tomahawk asserts that

because the FOT Agreement incorporates the Signed NDAs, the pending dispute regarding the

use of confidential information is properly resolved in arbitration under the FOT Agreement’s

arbitration provision. The Court addresses each of these arguments below.

A. Motion to Dismiss Based on Lack of Subject Matter Jurisdiction

Tomahawk asserts that a motion to dismiss under Rule 12(b)(1) is the appropriate method

to compel arbitration. In support of this contention, Tomahawk cites Riso, Inc. v. Witt Co., 2014

WL 3371731, at *4 (D. Or. July 9, 2014) (citing Geographic Expeditions, Inc. v. Estate of

Lhotka, 599 F.3d 1102, 1104 (9th Cir. 2010)). In Riso, Inc., U.S. District Court Judge Marco A.

Hernández explained that the FAA removes the court’s subject matter jurisdiction to hear the

claim when there is a valid, enforceable arbitration clause. Id. Thus, Judge Hernández found that

the motion to dismiss under Rule 12(b)(1) was in effect a petition within the meaning of § 4 of

the FAA. Id.

Some federal courts have allowed a motion to compel arbitration based on a valid and

enforceable agreement to arbitrate to be brought under Rule 12(b)(1), asserting a lack of subject

matter jurisdiction. The Court declines to apply this approach. As noted, if a federal court lacks

subject matter jurisdiction, such a defect can never be waived. United States v. Cotton, 535 U.S.

at 630. Yet, it is not uncommon, or at least not unthinkable, that parties to a mandatory

arbitration agreement mutually decide to waive arbitration and pursue resolution of their dispute

in federal court, assuming that either federal question or diversity jurisdiction otherwise exists.

There is also a significant and consistent body of case law holding that if a party, whether a

plaintiff or a defendant, continues in a lawsuit long enough and takes advantage of the procedural

benefits of civil litigation, that party may be found to have waived its right to stay or dismiss the

lawsuit in favor of arbitration, despite the existence of a valid and binding agreement to arbitrate.

See, e.g., Martin v. Yasuda, 829 F.3d 1118, 1126 (9th Cir. 2016) (holding that the party seeking

arbitration had waived the right to arbitrate after spending seventeen months litigating the case);

Van Ness Townhouses v. Mar Indus. Corp., 862 F.2d 754, 759 (9th Cir. 1988) (holding that a

party had waived its right to arbitrate when it answered complaints, moved to dismiss the action,

and did not assert in its pleadings a right to arbitrate). If, however, the existence of an agreement

to arbitrate divested a federal court of subject matter jurisdiction, these holdings would not be

possible.

The Court also considers the situation of two parties who have a binding agreement to

arbitrate. If, despite their agreement to arbitrate, they participated in a lawsuit to its final

conclusion at trial, the losing party might appeal and, on appeal, argue that the lower court’s

adverse judgment should be reversed and vacated based on a lack of subject matter jurisdiction.

See Arbaugh, 546 U.S. at 506 (holding that an objection that a particular court lacks subject

matter jurisdiction may be raised by any party, or by the court on its own initiative, at any time).

One response to this possibility would be to say that litigating a dispute in court notwithstanding

an agreement to arbitrate is an implicit “termination” of the agreement. But if the mere existence

of an agreement to arbitrate divests a federal court of subject matter jurisdiction, then such an

implicit termination of the agreement would appear to violate the rule that a court’s lack of

subject matter jurisdiction can never be waived.

Although the Ninth Circuit has not yet expressly ruled on whether a motion to dismiss

based on a binding arbitration clause is subject to a motion brought under Rule 12(b)(1),2 other

circuits have addressed this issue. See Baker v. Iron Workers Loc. 25 Vacation Pay Fund, 999

F.3d 394, 400 (6th Cir. 2021) (“Because an arbitration agreement presents a reason to dismiss

under 12(b)(6), not under 12(b)(1), the court should have dismissed the case for failure to state a

claim.”); Dylan 140 LLC v. Figueroa as Tr. of Bldg. Serv. 32BJ Health Fund, 982 F.3d 851, 855

(2d Cir. 2020) (rejecting argument under rule 12(b)(1) because “the court did have federal

question jurisdiction”); City of Benkelman, NE v. Baseline Eng’g Corp., 867 F.3d 875, 881 (8th

Cir. 2017) (holding that a binding arbitration clause does not strip federal courts of jurisdiction

and concluding that the district court erred in construing motion to enforce arbitration clause as a

Rule 12(b)(1) challenge to subject matter jurisdiction); Auto. Mech. Local 701 v. Vanguard Car

Rental, 502 F.3d 740, 743 (7th Cir. 2007) (“Enforcement of a forum selection clause (including

an arbitration clause) is not jurisdictional. . . .”); but see Gilbert v. Donahoe, 751 F.3d 303, 306

(5th Cir. 2014) (“[A] district court lacks subject matter jurisdiction over a case and should

dismiss it pursuant to Federal Rule of Civil Procedure 12(b)(1) when the parties’ dispute is

subject to binding arbitration.”). Additionally, district courts, including this Court, have

questioned whether the issue of arbitrability of claims is jurisdictional. See Dodo Int’l Inc. v.

Parker, 2021 WL 4060402, at *5 (W.D. Wash. Sept. 7, 2021) (“Donion seeks dismissal for lack

2 In its motion, Tomahawk refers to Riso, Inc., which cites Geographic Expeditions, Inc.,

for the proposition that a motion to compel arbitration is appropriately raised in a motion

pursuant to Rule 12(b)(1). In Geographic Expeditions, however, the Ninth Circuit reversed the

district court’s dismissal for lack of subject matter jurisdiction and held that an arbitration

agreement’s liability cap, which was less than $75,000, did not preclude diversity jurisdiction.

559 F.3d at 1107-08. The Court is not persuaded that Geographic Expeditions answers the

question before the Court: whether a motion pursuant to Rule 12(b)(1) is the appropriate

mechanism to compel arbitration as to Count One of Wolff’s Amended Complaint.

of subject matter jurisdiction based on an arbitration clause in his engagement letter with

Plaintiffs. Rule 12(b)(1) is not the way to enforce such a clause.” (citation omitted)); Pinkerton

Tobacco Co., LP v. The Art Factory AB, 2021 WL 541441, at *4 (C.D. Cal. Jan. 28, 2021) (“To

begin, it is not clear that the Rule 12(b)(1) motion, which seeks dismissal on the basis of an

arbitration clause, is procedurally proper.”); Munger v. Cascade Steel Rolling Mills, Inc., 332 F.

Supp. 3d 1280, 1286-88 (D. Or. 2018) (“Without further direction from the Ninth Circuit, I join

the Seventh and Eighth Circuits and hold that enforcement of an arbitration clause is not

jurisdictional and thus not properly the subject of a motion to dismiss under Rule 12(b)(1).”);

Minn. Supply Co. v. Mitsubishi Caterpillar Forklift Am., Inc., 822 F. Supp. 2d 896, 904-05 n.10

(D. Minn. 2011) (“To dismiss a federal action for lack of subject matter jurisdiction because the

dispute is subject to a binding arbitration agreement mistakenly assumes that an arbitrable

dispute, by definition, falls outside the realm of federal jurisdiction. Moreover, the fact that the

parties have contractually agreed to resolve any particular dispute by arbitration says nothing

about whether that dispute would satisfy federal question, diversity or any other basis of subject

matter jurisdiction.” (emphasis in original)). Without further direction from the Ninth Circuit, the

Court continues to hold enforcement of an arbitration clause is not jurisdictional and thus not

properly the subject of a motion to dismiss under Rule 12(b)(1).

If two parties enter into a binding agreement to arbitrate and then one party begins a

federal lawsuit in breach of that agreement, the other party must have some procedural vehicle

available to dismiss or stay the litigation. Just as the proper vehicle is not a motion to dismiss for

lack of subject matter jurisdiction, it also is not a motion to dismiss for improper venue under

Rule 12(b)(3). See Munger, 332 F. Supp. 3d at 1287-88. In Atlantic Marine Construction

Company v. U.S. District Court for the Western District of Texas, the Supreme Court stated:

“Rule 12(b)(3) allow[s] dismissal only when venue is ‘wrong’ or ‘improper.’ Whether venue is

‘wrong’ or ‘improper’ depends exclusively on whether the court in which the case was brought

satisfies the requirements of federal venue laws, and those provisions say nothing about a forum-

selection clause.” 571 U.S. 49, 55 (2013). As the Eighth Circuit concluded based on Atlantic

Marine, “to the extent an arbitration provision is like a forum-selection clause, the motion

seeking to compel arbitration is not properly construed under Rule 12(b)(3).” City of

Benkelman, 867 F.3d at 880.

Similarly, a motion to dismiss under Rule 12(b)(6) for failure to state a claim does not

appear to be a particularly viable solution. See Munger, 332 F. Supp. 3d at 1288. A plaintiff who

brings a federal lawsuit, invoking either federal question or diversity jurisdiction,

notwithstanding a binding agreement to arbitrate is unlikely to include, incorporate, or even refer

to the arbitration clause. If the document containing an agreement to arbitrate is not otherwise

incorporated into the complaint,3 then the defendant who seeks to rely on the arbitration

agreement must present that agreement as a matter outside the pleadings. In that event, however,

a motion to dismiss would be improper and, if the outside material is not stricken, “the motion

must be treated as one for summary judgment under Rule 56.” Fed. R. Civ. P. 12(d).

The usual method to enforce an arbitration agreement subject to the FAA is a motion to

compel arbitration under the FAA. See 9 U.S.C. § 4 (“A party aggrieved by the alleged failure,

neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition

any United States district court which, save for such agreement, would have jurisdiction under

3 There may be circumstances, such as in a diversity case alleging breach of contract,

when the plaintiff’s reference to the contract will be sufficient to incorporate the entire

agreement without converting the motion to dismiss to a motion for summary judgment, even if

the plaintiff did not attach it to its complaint. See Fed. R. Civ. P. 10(c) (“A copy of a written

instrument that is an exhibit to a pleading is a part of the pleading for all purposes”); see

generally Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998-1005 (9th Cir. 2018).

title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the

controversy between the parties, for an order directing that such arbitration proceed in the

manner provided for in such agreement.”). Although generally this involves a motion to stay the

federal court case under § 3 of the FAA and compel arbitration, “[t]here is a growing trend

among courts favoring dismissal of a case when all of the claims contained therein are subject to

arbitration—resulting in ‘a judicially-created exception to the general rule which indicates

district courts may, in their discretion, dismiss an action rather than stay it where it is clear the

entire controversy between the parties will be resolved by arbitration.’” Johnson v. Orkin,

LLC, 928 F. Supp. 2d 989, 1008 (N.D. Ill. 2013), aff’d, 556 F. App’x 543 (7th Cir. 2014)

(quoting Green v. SuperShuttle Int’l, Inc., 653 F.3d 766, 769-70 (8th Cir. 2011)).

Additionally, a motion for summary judgment under Rule 56 remains as a vehicle to

enforce a valid and binding arbitration clause. When a party files such a motion, a court can

determine whether there are any genuine disputes of material fact sufficient to question the

binding and enforceable nature of the agreement to arbitrate. In light of the Court’s authority

under Rules 16, 26, and 56 to control the nature, extent, and timing of discovery and other

motion practice in civil litigation, the Court can effectively and efficiently resolve by summary

judgment a dispute over whether to enforce a purportedly binding agreement to arbitrate.

Considering a motion to enforce an arbitration agreement under Rule 56 also is consistent

with analyzing a motion to compel arbitration under the FAA. Under the FAA, “the district

court’s order to arbitrate is in effect a summary disposition of the issue of whether or not there

had been a meeting of the minds on the agreement to arbitrate,” and thus consideration of a

motion to compel arbitration according to the “standard used by district courts in resolving

summary judgment motions pursuant to Fed. R. Civ. P. 56(c) . . . is appropriate.” Par-Knit Mills,

Inc. v. Stockbridge Fabrics Co., Ltd., 636 F.2d 51, 54 & n. 9 (3d Cir. 1980). Therefore, even

when “styled as a motion to dismiss, in a motion to stay proceedings and/or compel arbitration,

the appropriate standard of review for the district court is the same standard used in resolving

summary judgment motions pursuant to Fed. R. Civ. P. 56(c).” Brown v. Dorsey & Whitney,

LLP., 267 F. Supp. 2d 61, 67 (D.D.C. 2003) (quoting Technetronics v. Leybold-Geaeus

GmbH, 1993 WL 197028, at *2 (E.D. Pa. 1993)).

Until either the Ninth Circuit or the Supreme Court addresses this issue further, or until

there is an amendment to the rules, this approach seems best, at least to this Court. Accordingly,

the Court denies Tomahawk’s motion to dismiss for lack of subject matter jurisdiction.4

B. Motion to Compel Arbitration

In the alternative, Tomahawk moves the Court to compel Wolff to arbitrate Count One.

Tomahawk contends that this claim arises out of the FOT Agreement because the FOT

Agreement incorporates by reference the earlier NDAs. Wolff disputes that the 2010 NDA was

incorporated by reference into the FOT Agreement and alleges Count One arises out of the 2010

NDA, which has no arbitration provision. Resolution of these issues requires interpretating and

construing the FOT Agreement and the Signed NDAs. All contracts specify that Wisconsin law

governs the interpretation of the contracts. Thus, the Court will apply Wisconsin substantive law

for its interpretation of the contracts and in its determination of the arbitrability of Count One.

Because Wisconsin arbitration statutes are patterned after the FAA, Wisconsin courts

may consider federal court interpretations of the federal statutes on arbitration as an aid in the

resolution of interpretation of the Wisconsin Arbitration Act. Riley v. Extendicare Health

Facilities, Inc., 345 Wis. 2d 804, 816, n.4 (Wis. Ct. App. 2012). “Arbitration agreements are a

4 Because Tomahawk moves in the alternative to compel arbitration, the Court does not

convert Tomahawk’s motion to dismiss to a motion for summary judgment.

matter of contract.” Midwest Neurosciences Assoc., LLC v. Great Lakes Neurosurgical Assoc.,

LLC, 384 Wis. 2d 669, 694 (2018). “[A]s such, no party can be required to submit to arbitration

any dispute to which he or she has not agreed.” Cirilli v. Country Ins. & Fin. Services, 322

Wis. 2d 238, 249 (Wis. Ct. App. 2009). Under Wisconsin law, when determining whether a

dispute is arbitrable a “court’s function is limited to a determination of whether: (1) there is a

construction of the arbitration clause that would cover the grievance on its face and (2) whether

any other provision of the contract specifically excludes it.” Id. at 250. “A court should order

arbitration ‘only where the court is satisfied that neither the formation of the parties’ arbitration

agreement nor . . . its enforceability or applicability to the dispute is in issue.” Midwest

Neurosciences Assoc., 384 Wis. 2d at 695-96 (quoting Granite Rock Co. v. Int’l Bhd. of

Teamsters, 561 U.S. 287, 299 (2010) (emphasis in original)).

1. Incorporation by Reference

The parties agree that the FOT Agreement contains a valid arbitration clause and that

the 2010 NDA does not. The parties, however, dispute whether the FOT Agreement is the sole

agreement that governs the parties’ contractual relationship. Wolff alleges in Count One that

Tomahawk breached and continues to breach the terms of the 2010 NDA, and Tomahawk asserts

that this claim must be arbitrated because the 2010 NDA was incorporated into the later FOT

Agreement. Tomahawk relies heavily on the argument that the FOT Agreement’s confidentiality

clause incorporated by reference the Signed NDAs into the FOT Agreement. Wolff responds that

the FOT Agreement’s confidentiality clause instead recognizes the continuing operation of the

Signed NDAs, and argues that if the NDAs were truly “superseded”5 they would not “be binding

upon the Parties” and would not survive termination of the FOT Agreement.

5 The parties dispute the correct characterization of Tomahawk’s argument. Tomahawk

characterizes the signed NDAs as “integrated” into the FOT Agreement and at other times states

The FOT Agreement’s confidentiality clause states:

This Agreement and all terms and conditions in this Agreement

shall be kept confidential by both parties for the term of this

Agreement. The parties have signed several NDAs for all work

relating to the Technology [FOT]. These NDAs shall be a principle

[sic] part of this Agreement, and shall be binding upon the Parties.

Such confidentiality provisions shall survive the termination of this

Agreement[.]

ECF 25-2, at 3.

“The great majority of states, including Wisconsin, have accepted the doctrine of

incorporation by reference.” In re Brandenburg’s Estate, 13 Wis. 2d 217, 226 (1961). Under an

incorporation by reference theory, mere reference to another contract or document is not

sufficient to incorporate its terms into a contract. Gupta v. Morgan Stanley Smith Barney,

LLC, 934 F.3d 705, 715 (7th Cir. 2019). There must be an express intent to incorporate. Id.

Terms incorporated by reference within the contract (but which the contract does not define) do

not create an ambiguity. Matthews v. Wis. Energy Corp. Inc., 534 F.3d 547, 554 (7th Cir. 2008).

Instead, so long as the extrinsic terms are clearly identifiable, the parties agree to abide by those

terms just as they agree to the other terms in the contract. Id.

that the Signed NDAs were “incorporate[d]” into the FOT Agreement. See ECF 25, at 2, 6.

Wolff contends that Tomahawk “confuses the concepts of integration and supersession.”

ECF 28, at 9. Tomahawk, in its reply brief, argues that it is Wolff that “blends the concepts of

‘integration’ and ‘supersession.’” ECF 34, at 3 n.1. Tomahawk states that the “FOT Agreement

does not supersede the prior confidentiality agreements. Rather, the FOT Agreement, 2010

Confidentiality Agreement, and 2011 Confidentiality Agreements are integrated into one single

agreement governing the relationships of the parties with respect to the FOT.” Id. Thus, the

Court analyzes the contracts under a theory of incorporation-by-reference. Despite Tomahawk’s

denial, for its theory that the FOT Agreement serves as the single agreement for all entities and

persons involved in the relationship governed by the all the various agreements, including the

nonsignatories of the FOT Agreement, the FOT Agreement would have had to have superseded,

or replaced, all of the Signed NDAs. Tomahawk, however, does not provide evidence or

argument for such a contention.

The FOT Agreement is clear that its signers intended to incorporate “several NDAs” into

the confidentiality provision. This intention is evidenced by the FOT Agreement’s mandatory

phrasing that the Signed NDAs “shall be a principle [sic] part of this Agreement, and shall be

binding upon the Parties.” ECF 25-2, at 3 (emphasis added); see Ready v. GGNSC Holdings,

LLC, 2013 WL 12182387, at *2 (Wis. Ct. App. May 9, 2013) (concluding the use of mandatory

language as “shall” and “exclusively” demonstrates the parties’ intent). Although the Signed

NDAs were not defined in the FOT Agreement (as Wolff points out), the FOT Agreement clearly

identifies the documents that were to be incorporated. Further, each party had access to, and

knowledge of, the terms in the Signed NDAs. Thus, the Court determines that there is the

requisite intent to incorporate the Signed NDAs into the FOT Agreement.

Wolff cites Rosenblum v. Travelbyus.com Ltd., 299 F.3d 657, 664-65 (7th Cir. 2002), for

the proposition that an agreement that references other documents may “simply assure[] the

continuing vitality of those documents” without incorporating the referenced documents. The

agreements in Rosenblum, however, are distinguishable in several respects from the agreements

here. First, the court in Rosenblum characterized the two agreements as “necessary, but self-

contained” components of a comprehensive transaction. Id. The court clarified it that was clear

when looking at the two contracts, “[o]ne contract may be fully performed while the other is

breached.” Id. Here, the FOT Agreement necessarily is breached if there is a breach of the

Signed NDAs, because of the binding nature of the Signed NDAs as incorporated by reference

into the FOT Agreement. Second, the court in Rosenblum supported its conclusion that the

agreements were “self-contained” by explaining that “both contracts are complete on their own.

There are no terms missing from either contract that must be filled in with borrowed terms from

the other.” Id. (Emphasis added). Here, the FOT Agreement expressly leaves terms missing that

must be supplied by the terms of the Signed NDAs. The contracts before the Court are factually

distinct from those discussed in Rosenblum, and the distinctions support a finding that the

references to the Signed NDAs in the FOT Agreement were intended to incorporate the Signed

NDAs into the FOT Agreement.

A determination that the FOT Agreement incorporated by reference the Signed NDAs

into the terms of its confidentiality provision, however, does not end the inquiry into whether

Wolff may be compelled to arbitrate his claim of a breach of the 2010 NDA. Tomahawk argues

that because the Signed NDAs were incorporated into the FOT Agreement, the NDAs ceased to

have independent legal effect. The Court does not agree with Tomahawk’s assessment.

Tomahawk’s argument assumes that incorporating the Signed NDAs into the terms of the

FOT Agreement’s confidentiality clause results in a modification of the terms of the Signed

NDAs for the parties to those agreements. Wisconsin law does not support this reading of the

doctrine of incorporation by reference. See Home Bank v. Becker, 48 Wis.2d 1, 9 (1970) (“The

phrase ‘incorporated by reference’ has the legal effect of making the document so referred to

part of the principal document so that both are to be read together as one.” (emphasis added)).

Standing alone, a later contract’s incorporation by reference of the terms of an earlier contract or

document does not strip the earlier contract of its independent legal effect or otherwise alter the

terms of the earlier contract, absent an express statement to that effect. It merely means that the

earlier contract or its specific terms that have been incorporated are also part of the later contract.

This is particularly true when the contracts involve different contracting parties.

2. The Effect of the FOT Agreement’s Merger Clause

Tomahawk argues that the parties intended for a single agreement, the FOT Agreement,

to govern the relationship of the parties, as demonstrated by the merger clause contained in the

FOT Agreement. The merger clause states: “All of the terms, covenants and conditions of this

Agreement between the Parties relating to the obligations of the Parties and the relationship of

the Parties are set forth in this Agreement and there are no other warranties, obligations,

covenants, or understandings between the Parties.” ECF 25-2, at 5.

A contract that represents the final and complete expression of the parties’ agreement is

considered fully integrated. See Town Bank v. City Real Estate Dev., LLC, 330 Wis. 2d 340, 358

(2010). A fully integrated contract implicates the parol evidence rule and bars the introduction of

prior agreements between the parties as evidence of the parties’ intent:

When the parties to a contract embody their agreement in writing

and intend the writing to be the final expression of their agreement,

the terms of the writing may not be varied or contradicted by

evidence of any prior written or oral agreement in the absence of

fraud, duress, or mutual mistake.

Id. at 357-58 (quoting In re Spring Valley Meats, Inc., 94 Wis.2d 600, 607 (1980)). Extrinsic

evidence, however, “is admissible to show whether the parties intended to assent to the writing

as the final and complete (or partial) statement of their agreement.” Fed. Dep. Ins. Corp. v. First

Mortg. Invs., 76 Wis. 2d 151, 158 (1977).

Here, the FOT Agreement’s merger clause provides strong evidence that the signers to

that agreement’s intended to have the FOT Agreement govern the entirety of their relationship.

Other text contained in the FOT Agreement, however, supports an alternative reading that

undermines the merger clause’s effect and makes the plain language of portions of the FOT

Agreement ambiguous. The FOT Agreement’s confidentiality clause states: “The parties have

signed several NDAs for all work relating to the [FOT]. These NDAs shall be a principle [sic]

part of this Agreement, and shall be binding upon the Parties. Such confidentiality provisions

shall survive the termination of this Agreement.” ECF 25-2, at 3. This clause arguably

contradicts the plain language of the merger clause, which asserts that there are no other

warranties, obligations, covenants or understandings between the parties.

In cases where the contract is incomplete and only part of the agreement is contained in

the language of the contract, Wisconsin courts recognize the doctrine of partial integration. Fed.

Dep. Ins. Corp., 76 Wis. 2d at 157. When “a writing is shown to be only a partial integration of

the agreement reached by the parties, it is proper to consider parol evidence which establishes the

full agreement, subject to the limitation that such parol evidence does not conflict with the part

that has been integrated in writing.” Id. (quoting Morn v. Schalk, 14 Wis. 2d 307, 314 (1961)).

Even assuming full integration, however, a finding that the FOT Agreement is fully

integrated does not answer whether Tomahawk properly may compel Wolff to arbitrate this

dispute. The parties to the FOT Agreement are Formtec and Spherical. Wolff is not a party to the

FOT Agreement. Thus, the Court next considers whether the arbitration clause in the FOT

Agreement, even assuming that it is a fully integrated final agreement between Formtec and

Spherical, can bind Wolff, a nonsignatory to that agreement.

3. Binding a Nonsignatory to the Arbitration Clause

“[B]ecause arbitration agreements are contracts, a ‘party cannot be required to submit to

arbitration any dispute which he has not agreed so to submit.” A.D. v. Credit One Bank,

N.A., 885 F.3d 1054, 1060 (7th Cir. 2018) (quoting Scheurer v. Fromm Family Foods LLC, 863

F.3d 748, 751 (7th Cir. 2017)). An arbitration agreement may be enforced against a nonsignatory

if the party seeking to compel arbitration can show that an exception to this general rule applies.

Id. “Traditional principles of state law allow a contract to be enforced by or against nonparties to

the contract through assumption, piercing the corporate veil, alter ego, incorporation by

reference, third-party beneficiary theories, waiver and estoppel.” Arthur Andersen LLP v.

Carlisle, 556 U.S. 624, 631 (2009). Wisconsin courts have recognized that contractual

obligations extend to nonsignatories under a variety of common law principles. See, e.g.,

Winnebago Homes, Inc. v. Sheldon, 29 Wis. 2d 692, 699 (1966) (recognizing the third-party

beneficiary theory); Dunn v. Pertzsch Constr. Co., 38 Wis. 2d 433, 436 (1968) (recognizing

estoppel). “Wisconsin courts have had little opportunity, however, to apply contract and agency

principles to the enforcement of arbitration agreements by or against nonsignatories.” Mayer v.

Soik, 2021 WL 3073073, at *6 (Wis. Ct. App. July 21, 2021). As noted, though, Wisconsin

courts look to federal cases as persuasive authority in the resolution of a motion to compel

arbitration. Riley, 345 Wis. 2d at 816, n.4.

Even if, as Tomahawk argues, the FOT Agreement is fully integrated and incorporates all

Signed NDAs, Tomahawk must still put forth a theory for holding Wolff, a nonsignatory in his

personal capacity, to the arbitration clause contained in the FOT Agreement. Relatedly, because

the FOT Agreement is signed by Robert Tournour as President of Formtec, Tomahawk must also

justify the Court compelling enforcement by a nonsignatory to the arbitration clause. Tomahawk

asserts only one argument in its briefing—incorporation by reference.

A contract need not contain an explicit arbitration clause if it validly incorporates by

reference an arbitration clause in another document. R.J. O’Brien & Assocs., Inc. v. Pipkin, 64

F.3d 257, 260 (7th Cir. 1995). “A nonsignatory may compel arbitration against a party to an

arbitration agreement when that party has entered into a separate contractual relationship with

the nonsignatory which incorporates the existing arbitration clause.” Thomson-CSF, S.A. v.

American Arbitration Ass’n, 64 F.3d 773, 777 (2d Cir. 1995).

None of these elements apply in this case. Tomahawk does not assert that the arbitration

clause of the FOT Agreement has been incorporated by reference into any agreement, let alone

one between Tomahawk and Wolff. Nor does Tomahawk assert any agreement between it and

Wolff that Tomahawk is attempting to enforce. Instead, Tomahawk is attempting to enforce an

agreement between two other parties, Formtec and Spherical. Thus, incorporation by reference of

the FOT Agreement’s arbitration clause does not provide a basis on which Tomahawk can

enforce the arbitration clause against Wolff.

Tomahawk does not argue theories of agency, alter ego, or piercing the corporate veil.

Instead, Tomahawk simply says in describing the factual background that, on information and

belief, Wolff is the sole member of Spherical. Such an “‘ownership theory’ [does] not itself

confer a right upon [Tomahawk] to enforce the agreement’s arbitration provision” against Wolff.

See Dr. Robert L. Meinders, D.C., Ltd. v. UnitedHealthcare, Inc., 800 F.3d 853, 857 (7th

Cir. 2015); Zurich Am. Ins. Co. v. Watts Indus., 417 F.3d 682, 687-88 (7th Cir. 2005) (“Rather

than explicitly arguing that principles of agency or veil piercing are applicable, Zurich alludes

vaguely to the fact that Jones was a wholly owned subsidiary of Watts, and thus should not be

permitted to avoid arbitration. . . . A corporate relationship is generally not enough to bind a

nonsignatory to an arbitration agreement.” (footnote and citation omitted)).

CONCLUSION

The Court DENIES Tomahawk’s Motion to Dismiss Count I of the Amended Complaint

for Lack of Subject Matter Jurisdiction or, in the Alternative, Motion to Compel Arbitration,

ECF 25.

IT IS SO ORDERED.

DATED this 8th day of February, 2022.

/s/ Michael H. Simon

Michael H. Simon

United States District Judge