T3 ENTERPRISES, INC., an Idaho corporation, Plaintiff-Respondent,
SAFEGUARD BUSINESS SYSTEMS, INC., a Delaware corporation, Defendant-Appellant, and THURSTON ENTERPRISES, INC., an Idaho corporation, Plaintiff, and SAFEGUARD ACQUISITIONS, INC., et al., Defendants.
from the District Court of the Fourth Judicial District,
State of Idaho, Ada County. Hon. Steven Hippler, District
court order denying motion to vacate and modify, affirmed.
Troxell Ennis & Hawley LLP, Boise, and Weil, Gotschal
& Manges LLP, Dallas, TX, for appellant. Paul R. Genender
Pursley LLP, Boise and Mulcahy LLP, Irvine, CA, for
respondent. James M. Mulcahy argued.
BURDICK, CHIEF JUSTICE.
action arises out of Ada County and involves a
distributorship agreement (the Distributor Agreement) between
Appellant Safeguard Business Systems (SBS) and Respondent T3
Enterprises (T3). In 2006, T3 entered into the Distributor
Agreement with SBS. In 2014, T3 filed suit alleging SBS had
breached the Distributor Agreement by failing to prevent
other SBS distributors from selling to T3's customers and
for paying commissions to the interfering distributors rather
than to T3. The Distributor Agreement between SBS and T3
contained an arbitration clause indicating disputes must be
resolved in a Dallas, Texas based arbitration procedure. The
Distributor Agreement also contained a forum selection clause
indicating that the Federal Arbitration Act (FAA) and Texas
law would apply to any disputes between the parties. Pursuant
to this agreement, SBS moved the district court to compel
arbitration in Dallas. The district court determined the
parties must submit to arbitration, but that the Dallas forum
selection clause was unenforceable, and arbitration was to
take place in Idaho. The Arbitration Panel (the Panel) found
for T3 and the district court confirmed the award in the
amount of $4, 362, 041.95. The district court denied
SBS's motion to vacate or modify the award. SBS timely
appealed, and we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
engaged in the distribution of Safeguard brand products
(e.g., checks, envelopes, and business forms) and services
(e.g., W-2 processing and drop shipping) through a nationwide
network of distributors. In 2006, after working eleven years
for Roger Thurston, another SBS distributor, Dawn Teply
formed T3 and started her own distributorship with SBS. T3
purchased the exclusive rights to commissions on all sales
made to 2, 000 of Thurston's customers. The purchase was
approved by SBS which transferred the "Protected
Customers" to T3. Around this same time, on July 28,
2006, T3 entered into the Distributor Agreement with SBS.
Pursuant to the agreement, T3 obtained the rights, services,
and SBS support that is given to SBS distributors. This
included customer protection contractual rights and SBS's
enforcement of commission protection and commission rotation.
This meant T3 was entitled to all commissions sold to its
2013, Safeguard Acquisitions (a holding company) was funded
by SBS's parent company, Deluxe, to acquire independent
non-SBS distributor businesses that operated in the same
market as SBS. Following the acquisitions, SBS operated the
acquired businesses until a qualified buyer could be found to
purchase the commission rights on those accounts. Two of the
businesses SBS acquired were Form Systems, Inc., (DocuSource)
and Idaho Business Forms (IBF). Both DocuSource and IBF were
direct competitors of T3 in the same geographic market in
Idaho and selling a line of products that directly competed
with T3's sale of Safeguard products. Thus, T3 had a high
volume of cross-over clients with DocuSource and IBF.
2015, SBS entered into a Distributor Agreement with KMMR, (a
staffing company to IBF), giving it customer protection
rights for the same Protected Customers it had given T3 years
earlier. This resulted in customer confusion as to whom they
were supposed to order from and pay. SBS's general
counsel, Michael Dunlap, was tasked with managing the
conflict resulting from the overlap in Protected Customers.
In this role, Dunlap sent several email communications to
various parties. In 2013 and 2014, Teply attempted,
unsuccessfully, to get information from Mr. Dunlap and SBS
for T3 about the cross-over accounts.
August 2014, T3 filed suit in Idaho alleging SBS breached its
Distributor Agreement by failing to prevent other SBS
distributors from selling to T3's customers and for
paying commissions to the interfering distributors rather
than to T3. The Distributor Agreement contained an
arbitration clause stating that:
EXCEPT AS OTHERWISE PROVIDED IN SUBPARAGRAPH (A) [(ADDRESSING
SBS'S INTERNAL DISPUTE RESOLUTION PROCEDURES)], ALL
CONTROVERSIES, DISPUTES OR CLAIMS ARISING BETWEEN U.S. . . .
AND YOU . . . ARISING OUT OF OR RELATED TO: (1) THIS
AGREEMENT OR ANY PROVISION THEREOF OR ANY RELATED AGREEMENT;
(2) THE RELATIONSHIP OF THE PARTIES HERETO; (3) THE VALIDITY
OF THIS AGREEMENT OR ANY RELATED AGREEMENT, OR ANY PROVISION
THEREOF; OR (4) ANY SPECIFICATION, STANDARD OR OPERATING
PROCEDURE RELATING TO THE ESTABLISHMENT OR OPERATION OF THE
SAFEGUARD BUSINESS SHALL BE SUBMITTED FOR ARBITRATION TO BE
ADMINISTERED BY THE DALLAS, TEXAS OFFICE OF THE AMERICAN
ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDINGS SHALL BE CONDUCTED IN DALLAS, TEXAS
AND, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, SHALL BE
CONDUCTED IN ACCORDANCE WITH THE THEN CURRENT COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION . .
Distributor Agreement also contained a forum selection clause
This Agreement shall become effective when executed and
accepted by us in Texas. All matters relating to arbitration
will be governed by the Federal Arbitration Act . . . .
Except to the extent governed by the Federal Arbitration Act,
. . . or other federal law, this Agreement, the
distributorship and the relationship between you and
Safeguard will be governed and construed under and in
accordance with the laws of Texas, except that the provisions
of the Texas Deceptive Trade Practices Act (and the
regulations thereunder) will not apply unless its
jurisdictional requirements are met independently without
reference to this subsection.[
moved to compel arbitration of T3's claims against it in
Dallas, Texas. SBS also moved to stay proceedings pending the
outcome of the arbitration proceeding. T3 initially conceded
it was bound to arbitrate but sought to sever the forum
provision from the arbitration clause. Later, T3 contended
the invalid forum selection provision rendered the entire
arbitration clause void. The district court determined that
it had jurisdiction to consider the validity of the forum
selection clause, that Texas law was applicable, and that
under Texas law the forum selection clause was unenforceable.
Thus, the court ordered the parties to arbitrate in Idaho and
denied SBS's motion to stay proceedings. The district
court also granted T3's motion to compel the Dunlap
emails and ordered SBS to produce the documents. The Panel
found for T3, and in a supplemental award, awarded T3 over
$4.3 million in damages which included attorney fees. The
district court confirmed the award and denied SBS's
motion to vacate or modify the award. SBS timely appealed.
ISSUES ON APPEAL
1. Whether the district court had jurisdiction to consider
T3's challenge to forum.
2. Whether the district court erred in ordering the parties
to arbitrate in Idaho as opposed to Dallas.
3. Whether the district court abused its discretion in
overruling SBS's claims of attorney-client privilege.
4. Whether the district court erred in denying SBS's
motion to vacate based on the arbitration panel exceeding its
powers under the FAA.
5. Whether T3 is entitled to attorney fees and costs on
STANDARD OF REVIEW
ruling on a motion to compel arbitration, the district court
applies the same standard as if ruling on a motion for
summary judgment." Wattenbarger v. A.G. Edwards
& Sons, Inc., 150 Idaho 308, 317, 246 P.3d 961, 970
(2010). As a result, "[a]rbitrability is a question of
law to be decided by the court." Id. at 315,
246 P.3d at 968 (quoting Mason v. State Farm Mut. Auto.
Ins. Co., 145 Idaho 197, 200, 177 P.3d 944, 947 (2007)).
This Court "exercise[s] free review over questions of
arbitrability and may draw [its] own conclusions from the
evidence presented." Id. "Whether the
district court had subject matter jurisdiction is a question
of law over which this Court exercises free review."
H.F.L.P., LLC v. City of Twin Falls, 157 Idaho 672,
678, 339 P.3d 557, 563 (2014).
courts have broad discretion over the admission of evidence
at trial, including . . . determining whether or not to grant
a motion to compel." Kirk v. Ford Motor Co.,
141 Idaho 697, 700, 116 P.3d 27, 30 (2005). "Such
decisions will only be reversed when there has been a clear
abuse of discretion." Id. at 701, 116 P.3d at
31. When this Court reviews whether a trial court has abused
its discretion, the four-part inquiry is "[w]hether the
trial court: (1) correctly perceived the issue as one of
discretion; (2) acted within the outer boundaries of its
discretion; (3) acted consistently with the legal standards
applicable to the specific choices available to it; and (4)
reached its decision by the exercise of reason."
Lunneborg v. My Fun Life, 163 Idaho 856, 863, 421
P.3d 187, 194 (2018).
scope of review for awards made pursuant to the [FAA] . . .
parallels the review of arbitrations governed by Idaho's
Uniform Arbitration Act[.]" Barbee v. WMA Sec.,
Inc., 143 Idaho 391, 396 n.4, 146 P.3d 657, 662 n.4
(2006); see also Hecla Min. Co. v. Bunker Hill Co.,
101 Idaho 557, 561 n.3, 617 P.2d 861, 865 n.3 (1980)
("We note that our view of the proper scope of judicial
review of commercial arbitrator's awards does not vary
significantly depending upon which act applies.").
"When reviewing a district court's decision to
vacate or modify an award of an arbitration panel this Court
employs virtually the same standard of review as that of the
district court when ruling on the petition." Moore
v. Omnicare, Inc., 141 Idaho 809, 814, 118 P.3d 141, 146
(2005). "Judicial review of arbitrators' decisions
is 'limited to an examination of the award to discern if
any of the grounds for relief stated in the [FAA]
exist.'" Barbee, 143 Idaho at 396, 146 P.3d
at 662 (quoting Bingham Cnty. Comm'n v. Interstate
Elec. Co., 105 Idaho 36, 42, 665 P.2d 1046, 1052
(1983)). Pursuant to the FAA, when a party moves to confirm
an arbitration award, a "court must grant such an order
unless the award is vacated, modified, or corrected as
prescribed in sections 10 and 11 of this title." 9
U.S.C. § 9. This includes, among other things,
"when arbitrators exceeded their powers . . . ." 9
U.S.C. § 10(a)(4).
The district court had jurisdiction to consider the
enforceability of the forum selection clause.
moved to compel arbitration of T3's claims against it in
Dallas, Texas. T3 challenged the forum selection clause
arguing it was unconscionable and unenforceable under Idaho
Code section 29-110. T3 argued that whether a forum selection
clause is enforceable is a substantive matter for the court
to decide, while SBS argued it is a procedural matter for the
arbitrator to decide. The district court determined the
matter was substantive and ordered the parties to arbitrate
T3's claims against SBS in accordance with the
Distributor Agreement, but determined the Dallas forum
selection clause was unenforceable and severable. Thus, the
court ordered the parties to arbitrate in Idaho. The initial
issue is whether the district court had jurisdiction to
consider whether the Dallas forum selection clause was
enforceable. For the reasons discussed below, the district
court had jurisdiction to consider the enforceability of the
forum selection clause.
applies to arbitrations involving commerce and provides that:
A written provision in . . . a contract evidencing a
transaction involving commerce to settle by arbitration a
controversy thereafter arising out of such contract . . .
shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of
9 U.S.C. § 2. Thus, "the FAA places arbitration
agreements on an equal footing with other contracts" and
therefore "requires courts to enforce them according to
their terms . . . ." Rent-A-Ctr., W., Inc., v.
Jackson, 561 U.S. 63, 67 (2010). And, "[l]ike other
contracts, [arbitration agreements] may be invalidated by
'generally applicable contract defenses, such as fraud,
duress, or unconscionability.'" Id. at 68
(quoting Doctor's Assocs., Inc. v. Casarotto,
517 U.S. 681, 687 (1996)). Pursuant to Section 4 of the FAA,
a court must order the parties to proceed with arbitration if
the making of the arbitration agreement is not at issue. 9
U.S.C. § 4.
this Court and the United States Supreme Court have said,
arbitrability is a question of law for the court to decide.
Wattenbarger, 150 Idaho at 315, 246 P.3d at 968;
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,
83 (2002). However, procedural questions related to
arbitrability are not for the Court to decide, but rather are
for an arbitrator to decide. Storey Const. Inc. v.
Hanks, 148 Idaho 401, 412, 224 P.3d 468, 479 (2009)
(decision on rehearing). Thus, whether the district court had
jurisdiction to consider the enforceability of the Dallas