Perry Street Software, Inc. v. Jedi Technologies, Inc.

Background

Perry Street Software, Inc. makes mobile applications, including SCRUFF and Jack’d. Jedi Technologies, Inc. holds a patent that Jedi alleged SCRUFF infringed. After Jedi’s lawyer, Brian Haan, sent Perry a letter accusing SCRUFF of infringement, Perry brought this case seeking a declaration that SCRUFF did not infringe the patent.

Perry later argued that the parties’ dispute had to be arbitrated under the arbitration clause in SCRUFF’s Terms of Service. Perry’s theory was that Haan had downloaded and used SCRUFF, agreed to the Terms of Service, and thereby bound Jedi as his client. Jedi did not dispute that Haan had signed up for and viewed SCRUFF, but argued that Haan had acted as a lawyer conducting a required pre-lawsuit investigation and had not been authorized to bind Jedi.

The court had previously granted Jedi’s request to stop the arbitration temporarily while the parties developed the record about what Haan did and why he did it. Haan then submitted a sworn declaration and sat for a deposition.

Motion to Compel Arbitration

The court explained that whether parties agreed to arbitrate is for the court to decide. Arbitration is based on contract, so a party cannot be required to arbitrate unless it agreed to do so. The court applied a standard similar to the summary-judgment standard, considering the admissible evidence and asking whether a material factual dispute remained about the existence of an arbitration agreement.

The court held that Haan’s use of SCRUFF did not, by itself, bind Jedi to Perry’s Terms of Service. Because Jedi itself had not signed up for SCRUFF, Perry needed evidence that Jedi had authorized Haan to accept the specific arbitration clause on Jedi’s behalf.

Haan stated in his declaration that Jedi had not authorized him to agree to the Terms of Service and that he had not assented on Jedi’s behalf. He also stated that he used his personal phone, personal email address, and photograph. His deposition supported his account that he had signed up for SCRUFF as part of his individual professional obligations to investigate a possible patent claim under Rule 11, which requires reasonable factual and legal investigation before filing certain court papers. Nothing in the deposition showed that Jedi had specifically authorized him to accept the arbitration clause.

Applying New York law, the court required clear, explicit, and unequivocal evidence that the parties agreed to arbitrate. Where an agent is alleged to have bound a principal, the principal must have given the agent clear actual or apparent authority to accept the specific agreement. The court found no such evidence and denied Perry’s motion to compel arbitration.

Motion for Additional Discovery

Perry also asked the court to require Jedi to disclose whether its principal had signed up for any of Perry’s apps. Perry argued that this information could show that Jedi had agreed to one of Perry’s arbitration clauses.

The court denied the request. Perry had never alleged that Jedi’s principal had signed up for Perry’s apps, and Perry’s only stated theory for requiring arbitration was that Haan had bound Jedi. After Haan stated that he acted for his professional obligations and without Jedi’s authorization to accept arbitration, the court found no basis to expand discovery.

Disposition

Chief Judge Colleen McMahon denied Perry’s motion to compel arbitration and denied Perry’s motion for additional discovery. The Clerk was directed to remove both motions from the list of open motions.