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Ungava Technologies Inc. v. Innerspec Technologies, Inc.

United States District Court, W.D. Virginia, Lynchburg Division

May 31, 2017

Ungava Technologies Inc, Plaintiff/Counterclaim Defendant,
Innerspec Technologies, Inc, Defendant/Counterclaim Plaintiff.



          This diversity case involves a contract dispute about delays to the design phase of a product. The issue now before the Court is whether the contract requires arbitration.

         Plaintiff Ungava alleges that Defendant Innerspec “improperly terminated the Contract and has wrongly demanded that Ungava submit to arbitration.” (Complaint ¶ 2). Ungava contends termination is improper for its (admitted) design and engineering delays, and that arbitration cannot occur regarding such delays until the parties engage in a contractual, pre-arbitration dispute resolution procedure. (Id.). So Ungava seeks to enjoin arbitration.

         Innerspec's counterclaim alleges Ungava breached the contract by failing to: (1) use its “best efforts” to complete the product design; (2) give priority to its work for Innerspec, and; (3) provide notice of known delays. (Counterclaim ¶¶ 4-7). Innerspec asks Ungava be compelled to participate in arbitration, and it requests a declaration that it properly terminated the contract. (Id. ¶ 10; dkt. 7).

         The Court holds that the contract plainly provides for arbitration of this case. Accordingly, the motion to enjoin arbitration will be denied and the motion to compel it will be granted.


         The parties entered into an agreement whereby Ungava would design and engineer for Innerspec two products relating to pulsar technology. (Dkt. 1-1 (hereinafter “Contract”), §§ 1.1- 1.2). Ungava agreed to use its “best efforts” to produce the first batch of “Product #2” by the second quarter of 2015. (Contract § 1.5). Under Section 7, the contract terminates after seven years, or “can be terminated” prior to seven years upon the occurrence of one of four events which are not presently relevant. (Contract §§ 7.1-7.2).

         Section 9 of the contract addresses dispute resolution, and reads in relevant part as follows:

The parties agree that any dispute, conflict or claim arising under this Agreement, in particular concerning its formation, existence, validity, effects, interpretation, implementation, violation, resolution or annulment, shall be finally resolved by means of arbitration using a panel of three people. Two will be nominated by UNGAVA and INNERSPEC respectively. The third person will be an industry expert agreed upon by both parties. The decision of the arbitration panel shall be by majority of the panel and shall be final as to the matters resolved and fully enforceable in a court of law. The parties shall share any expenses incurred for the resolution of the dispute.

(Contract § 9.1 (emphasis added)).

         Section 1 addresses the “Design & Engineering” phase of the contract. Importantly, Section 1.7 reads:

INNERSPEC understands that UNGAVA will be doing a best effort [sic] to execute the design, engineering and prototyping with the understanding that INNERSPEC will have priority over other work received after INNERSPEC's purchase order. Any delays on the above mentioned scheduled with the plans to remedy them will be provided to INNERSPEC as soon as the delay is known. If the delay is foreseen to be longer than 4 months, INNERSPEC and UNGAVA will meet to find a solution agreeable to both parties. If an agreement cannot be found, a panel of 3 people as per Section 9 will convene to assess the situation and determine the course of action.

(emphasis added).


         Ungava admits it experienced delays in producing a prototype of Product #2, but says it timely notified Innerspec of the delays. (Complaint ¶¶ 19-20). Ungava avers that, rather than follow the dispute resolution mechanism in § 1.7 for design delays, Innerspec “continued to request that Ungava proceed with the development and prototyping of Product #2.” (Id. ¶ 21). Although Ungava “was close” to completing a prototype in September 2016, Innerspec gave notice that “the Contract is cancelled and terminated.” (Id. ¶ 22). On October 13, 2016, Ungava told Innerspec of its view that Innerspec could not unilaterally terminate the contract based on a delay during the design phase, but instead had to follow the dispute resolution procedure in § 1.7. (Id. ¶ 23). Innerspec responded by demanding arbitration pursuant to § 9.1. (Id. ¶ 24). Extensive correspondence between the parties and through counsel was unavailing. (Id. ¶ 25).


         Innerspec claims Ungava breached the Contract by failing: to use its best efforts to execute the design, engineering and prototyping; to give priority to work for Innerspec; and, to provide notice of delays. (Countercomplaint ¶¶ 4-7). Innerspec alleges that, pursuant to § 1.7, the parties “conferred and agreed” to resolve the delay problems by April 1, 2015. (Id. ¶ 7). This, according to Innerspec, “exhausted the procedures” in Section 1.7, so “there was never any further need or requirement to submit any unresolved dispute to a panel of three persons to solve the delay issue.” (Id.). Nevertheless, based on Ungava's failures of performance, Innerspec terminated the agreement in September 2016. (Id. ¶ 8). Innerspec contends that “Ungava has refused to participate [in arbitration] . . . based on the ...

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