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E. Hedinger AG v. Brainwave Science, LLC

United States District Court, D. Delaware

February 13, 2019

E. HEDINGER AG and HEDINGER MIDDLE EAST DWC LLC, Plaintiffs,
v.
BRAINWAVE SCIENCE, LLC, BRAINWAVE SCIENCE INC., and KRISHNA IKA, Defendants.

          James D. Taylor, Jr., Saul Ewing Arnstein & Lehr LLP, Wilmington, DE; Robert MHale, R | McHale Law, Boston, MA - attorneys for Plaintiff

          David A. Dorey, Craig N. Haring, Blank Rome LLP, Wilmington, DE; Jason A. Synderman, John Wixted, Huaou Yan, Blank Rome, LLP, Philadelphia, PA - attorneys for Defendants February 13, 2019 Wilmington, Delaware

          MEMORANDUM OPINION

          NOREIKA, U.S. DISTRICT JUDGE

         Before the Court is the “Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6)” (D.I. 11) filed by Defendants Brainwave Science, LLC, Brainwave Science, Inc., and Krishna Ika (collectively “Defendants” or “Brainwave”). Defendants allege that the Complaint (D.I. 1) filed by Plaintiffs E. Hedinger AG and Hedinger Middle East DWC LLC (collectively “Plaintiffs” or “Hedinger”) fails to state a claim upon which relief may be granted “because the parties' partnership agreement requires that any dispute arising from or relating to that agreement be arbitrated” and because of asserted substantive deficiencies in each count (D.I. 12 at 1, 5-9). Although the motion itself seeks dismissal based on the arbitration clause, in its papers, Defendants assert that “this Court should compel arbitration pursuant to 9 U.S.C. § 202 and dismiss the Complaint.” (D.I. 12 at 6). Thus, this Court treats Defendants' motion as a motion to compel arbitration as well as to dismiss. For the reasons set forth below, the Court will grant Defendants' motion to dismiss based on the arbitration clause[1] and compel arbitration of the disputes between the parties.

         I. BACKGROUND

         A. Facts

         In February of 2016, Plaintiffs “entered into a written contract (the ‘Partnership Agreement') with [Defendant Brainwave Science, LLC] to be the exclusive dealer of a brain fingerprinting technology of which [Brainwave Science, LLC] held itself out to be the lawful owner (‘BWS Technology').” (D.I. 1 ¶ 12). The Partnership Agreement included the following provisions that are relevant to the motion (D.I. 1, Ex. A):

3) Term and Termination
The agreement shall come into force on date of execution. The initial term of this Agreement shall be for a period of three years, commencing on the date of execution and renews automatically until and unless terminated by either parties through written termination notice of 90 days. Upon the date of the termination of the agreement, all legal obligations, rights and duties arising out of this agreement shall terminate.
* * *
19) Applicable Law, Jurisdictional Matters
D. The Parties shall exercise their best efforts to resolve by negotiation any and all disputes, controversies or differences between them arising out of or relating to this Agreement. All disputes, controversies or differences between the parties that are not settled by negotiation shall be submitted to International Arbitrary Commission in New York City, U.S.A. The arbitration shall be conducted in English in accordance with International Arbitration rules rules (sic) in effect at the time of applying for arbitration and shall be presided by a panel of three arbitrators, which each party choosing one and the International Court providing the third. The arbitral award is final and binding upon to (sic) both parties.

         The Partnership Agreement was executed by Hedinger on February 29, 2016 and by Brainwave on March 1, 2016. (Id.). Just over a year later, on March 16, 2017, Brainwave sent a “[n]otice of termination of current agreement between Brainwave Science (BWS) and E. Hedinger AG” stating that Plaintiffs “shall no longer be a partner/reseller/distributor for [BWS] Brain Fingerprinting or any other products.” (D.I. 1, Ex. D). In the termination notice, Brainwave stated: “[a]s per section 3 ‘Term and Termination' of the Partnership agreement, please accept this letter as the official 90-day notification specified in our contract” and noted its decision to terminate was based on “a change in business strategy.” (Id.).

         B. Procedural History

         Prior to initiating this case, on March 28, 2017, Plaintiffs filed a Verified Complaint and Jury Demand in Massachusetts Superior Court.[2] The Defendants moved to dismiss, arguing that “the Partnership Agreement clearly provides that any dispute ‘arising out of or relating to' the agreement must be arbitrated, and any non-arbitrable disputes must be brought before a Delaware court.” (D.I. 12 at 4). During the August 29, 2017 argument on that motion, the following discussion transpired:

The Court : All right. And then the parties are arguing over whether the arbitration clause is enforceable because it mentions a nonexistent entity perhaps.
Mr. Salinger: Well, not so much the arbitration clause, because I think the defendant would certainly be ...

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