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Court Allows Former Executives To Enforce Arbitration Agreement Regarding Trade Secrets, Breach Of Corporate Fiduciary Duty, And Computer Information Theft

Marcellino & Tyson
Marcellino & Tyson June 30th, 2023

hero court allows executives to invoke arbitration against former employer

By Bryan Tyson

In Banq, Inc. v. Scott Purcell, et al., Banq, a financial services company dealing with cryptocurrencies and NFTs, sued three former executives, alleging that they stole trade secrets, breached their corporate fiduciary duties, and inappropriately accessed information on computer systems, including under the Computer Fraud and Abuse Act and federal Defend Trade Secrets Act. The three former executives are alleged to have left Banq and, with the alleged stolen trade secrets and other information, set up new companies to compete with Banq. In an interesting twist, the former executives moved to compel arbitration regarding these claims based on arbitration agreements in their employment agreements.

Banq sued the three executives and two corporate defendants (the new companies set up by the former executives) in the United States District Court. In its decision compelling arbitration of the entire case, the court addressed two issues: (1) did the former executives waive arbitration by engaging in some activity in the district court rather than immediately moving to compel arbitration, and (2) could Banq be compelled to arbitrate its claims against the new corporate entities, even though there was not an arbitration agreement between Banq and those entities (as they were set up after the employment agreements were entered into by the executives).

First, the court found that although the former executives and new corporate defendants has engaged in some use of the court prior to requesting arbitration—including participating in an initial attorneys’ conference, answering early discovery, opposing discovery requests, and filing a motion to dismiss—the court found that such actions did not evidence an intent to waive the arbitration provisions in the employment agreements.

Second, the court found that Banq could be forced to arbitrate its claims against the new corporate defendants, even though those entities had not signed an arbitration agreement with Banq. The court determined that because the claims against the new corporate defendants were intertwined with the claims against the individual former executives, all claims had to be resolved in the arbitral forum. For executives, there are three take-aways from the court’s ruling:

  • Before getting into any dispute, executives would be wise to look at their employment agreement or arbitration agreement (if it’s a stand-alone agreement) and see if they agreed to arbitrate employment disputes and what disputes might be covered by that provision. Knowing ahead of time how any potential problems are going to be resolved—be that through mediation, arbitration, the court system, or some combination—is an important fact to know.


  • Does invoking the arbitration agreement help the overall strategy? In some cases it might (as the individual and new corporate defendants apparently thought in Banq), while in others not invoking it might yield a better result or provide a better forum.


  • Should the executive immediately invoke the arbitration agreement or engage in some activity in the trial court first? As noted in the Banq decision, some pre-trial activity (such as filing a motion to dismiss) may not waive the right to arbitrate. However, engaging in court activity should be done with caution, given that the opposing party may try to claim that the right to arbitrate has been waived.


  • It’s not only important what you’re fighting over, but also where you’re fighting that can make a difference in the outcome of a case. The Banq case provides executives with a reminder that they should consider an arbitral forum where available for their overall litigation strategy.