Strong Policy In Favor Of Arbitration Yields To Court’s Independent Review Of What Parties Intended By Their Contractual Language.
In Backflip Software, Inc. v. Cisco Systems, Inc., No. H040382 (6th Dist. Dec. 3, 2014) (Bamattre-Manoukian, Elia, Mihara) (unpublished), the Court concludes, based on its independent review of contractual language, the trial court did not err in denying Cisco’s petition to compel arbitration and stay proceedings.
Backflip and Cisco entered into a software license and escrow agreement, whereby Backflip’s software was to be released to Cisco upon the occurrence of certain events, one of which was Backflip’s discontinuing its software maintenance/support. If the release event occurred, Cisco could send a notice to escrow, Backflip could send a counter-notice if it disagreed, and the parties could arbitrate the dispute.
After giving notice Backflip would stop responding to maintenance requests from Cisco, a former Backflip CEO “authorized” release of the software from escrow to Cisco. Escrow closed, and the software was released to Cisco. Backflip, however, contended Cisco should have known action by Backflip’s former CEO was not authorized, resulting in Cisco’s misappropriation of the software.
The Court of Appeal agreed with the trial court and with Backflip that the scope of the parties’ arbitration agreement, as set forth in the license and escrow agreements, only “encompassed a dispute regarding the release of Backflip’s escrow materials while those materials remained in the possession of the escrow agent.” The parties contemplated arbitration would occur before the software was released from escrow. Thus, the arbitration clause became irrelevant here, once the software was released.
The Court distinguishes cases in which the arbitration requirement continues, as cases where the arbitration clause was broader than here or explicitly survives termination of an agreement.