Clarus Medical, LLC v. Inspectrum Inc.

Background

Clarus Medical, LLC and Inspectrum Inc. entered into a July 2023 Collaboration Agreement concerning the development, marketing, and sale of a software product. The agreement assigned Clarus responsibility for commercialization, sales, and marketing, while Inspectrum was responsible for developing the product into a saleable format.

The agreement contained two dispute-resolution sections. Section 5.6 covered disputes about the calculation, allocation, or distribution of revenue and required the parties first to use an independent auditor whose decision would be final and binding. Section 13 broadly required arbitration of disputes relating to interpreting the agreement or failing to comply with its obligations, after written notice, good-faith negotiations, and nonbinding mediation. Section 13 generally allowed court proceedings only to preserve a limitations period or seek emergency injunctive relief.

After the business relationship deteriorated, Clarus sued Inspectrum in state court. Clarus alleged that Inspectrum refused to transfer certain project materials unless Clarus paid alleged outstanding invoices and refused to provide financial information needed for a financial reconciliation. Clarus alleged that Inspectrum owed it nearly $70,000, while Inspectrum provided documents indicating that Clarus owed Inspectrum approximately $72,000. Clarus asserted claims seeking a declaration that Section 5.6 applied, specific performance of that section’s audit procedure, and contract-based attorney fees and costs.

Inspectrum removed the action to federal court and asserted counterclaims. Its counterclaims alleged that Clarus failed to perform commercialization, marketing, and sales obligations; that Inspectrum incurred costs performing Clarus’s tasks; and that Clarus improperly continued developing the product, used information from patents created under the agreement, filed patent applications without notice, and disclosed confidential information and trade secrets. Inspectrum asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, intentional misrepresentation, and tortious interference with prospective economic advantage.

Court’s Analysis

The court applied the Federal Arbitration Act, which generally requires enforcement of valid written arbitration agreements covering the dispute. The court stated that its role was to determine whether a valid arbitration agreement existed and whether it covered the parties’ disputes. It treated the motion under the standard used for summary judgment because it considered material outside the pleadings.

The court denied Clarus’s request to require Inspectrum to comply with Section 5.6. First, the requested order would effectively grant the final relief sought in Clarus’s claims for a declaration and specific performance at the beginning of the case. Second, the court concluded that an arbitrator, rather than the court, should decide whether Section 5.6 applied to the invoicing and documentation dispute. The court determined that this question concerned interpretation of the agreement and therefore fell within Section 13’s arbitration requirement.

The court then addressed Clarus’s request to compel arbitration of all remaining issues. It found that Section 13 was a valid arbitration agreement and that its broad language covered Clarus’s third claim and Inspectrum’s counterclaims. The court also considered Inspectrum’s argument that Clarus waived arbitration by filing the lawsuit. Although Clarus knew of its arbitration right and acted inconsistently with that right by filing arbitrable claims in court, the court found that Clarus’s conduct was not substantial enough to constitute waiver because Clarus promptly moved to compel arbitration and the record did not show the type of lengthy delay, extensive motion practice, or discovery that supported waiver in other cases.

Disposition

The court ordered that Clarus’s motion to compel arbitration and compliance with contractual dispute-resolution provisions was GRANTED in part and DENIED in part. The request to compel Inspectrum’s compliance with Section 5.6 was DENIED. The request to compel Inspectrum to arbitrate was GRANTED, and all claims of all parties were referred to arbitration under Section 13.

The proceedings were STAYED pending arbitration. The parties were ordered to provide the court with a joint letter every 90 days reporting on the status of arbitration.