Turing Video Technology, Inc. v. AGI7 Inc.

Background

Turing alleged that AGI7 misappropriated Turing’s trade secrets under federal and California law and violated section 17200 of the California Business and Professions Code. The complaint focused substantially on alleged conduct by Song Cao, who had been Turing’s chief executive officer and board chairman until Turing terminated his employment and removed him from the board on July 28, 2023. Cao later formed AGI7.

Turing and Cao signed a mutual release on August 30, 2023. The release included Cao’s representations about his use of Turing’s intellectual property and his retention and handling of a laptop from Turing. It also contained an arbitration clause requiring arbitration of disputes related to the agreement, except for claims seeking injunctive relief arising from a breach of obligations to protect Turing’s intellectual property or proprietary information. AGI7 was not a party to the release.

AGI7 moved to compel arbitration and to stay the case while arbitration proceeded. The parties agreed that the release contained a valid arbitration agreement between Turing and Cao and that the agreement covered all claims in the case except Turing’s request for injunctive relief. The dispute was whether AGI7, as a nonsignatory, could enforce the arbitration agreement and whether the entire case should be stayed.

Motion to Compel Arbitration

The court applied California law. Under the doctrine of equitable estoppel, a nonsignatory may enforce an arbitration clause when the plaintiff’s claims are closely connected to the contract containing the clause, or when the plaintiff alleges coordinated and interdependent misconduct by the nonsignatory and a signatory that is closely connected to the contract’s obligations.

The court found that both bases applied. First, it held that Turing’s claims were “intimately founded in and intertwined with” the mutual release. Turing alleged that Cao used a laptop and his knowledge of Turing’s systems to transfer or obtain Turing’s source code for AGI7. Because the release governed Cao’s obligations concerning Turing’s intellectual property and the laptop, the court concluded that AGI7’s potential liability turned on Cao’s obligations under the release and his alleged breach of them. The court also considered AGI7’s reliance on the release as a defense, including its argument that the release limited Cao’s obligations concerning Turing’s intellectual property.

Second, the court found that Turing alleged substantially interdependent and coordinated misconduct by AGI7 and Cao. Turing alleged that Cao acted at AGI7’s direction and for AGI7’s benefit and that AGI7 knowingly misappropriated trade secrets through Cao’s conduct. The court rejected Turing’s argument that this theory could not apply because Turing sued only AGI7 and not Cao. The court stated that the test focuses on the substance of the alleged misconduct, not on whether the signatory was named as a defendant.

The court therefore granted AGI7’s motion to compel arbitration. The court did not decide the merits of Turing’s trade-secret or unfair-business-practice claims; it decided that those claims must be arbitrated under the circumstances presented.

Motion to Stay

The court stated that claims and issues subject to arbitration must be stayed under 9 U.S.C. § 3. Turing’s merits claims and request for damages were referable to arbitration. Its request for injunctive relief was not covered by the arbitration agreement, so the court considered whether to continue litigating that request while arbitration proceeded.

The court granted the motion to stay the action in its entirety until arbitration concluded. It reasoned that the arbitrator would decide liability and damages, and those decisions could resolve the dispute or simplify the court’s later consideration of injunctive relief. A complete stay would also avoid duplicative litigation in two forums. The court found that Turing had not identified imminent, nonspeculative harm sufficient to outweigh those efficiency considerations.

Disposition

The court granted the motion to compel arbitration as to all claims except Turing’s request for injunctive relief. It also granted the motion to stay this action in its entirety until arbitration concludes. The parties were ordered to file an initial joint arbitration status report by September 10, 2025, followed by updated reports every six months.