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Tannatt v. Varonis Systems, Inc.

United States District Court, D. Massachusetts

February 21, 2019



          Judith Gail Dein United States Magistrate Judge.


         The plaintiff, Dana Tannatt, brought this action against his former employer Varonis Systems, Inc. (“Varonis”) over the validity of his employment agreement. The plaintiff's suit was originally filed in state court, but Varonis removed the action to this court on the basis of diversity jurisdiction. (See Docket No. 1). As alleged in the Complaint, Tannatt seeks a declaratory judgment, pursuant to Mass. Gen. Laws ch. 231A, that his employment agreemen is no longer in effect, is void, and/or is unenforceable, or, in the alternative, that Varonis is barred from enforcing any restrictive covenants contained within the employment agreemen The Complaint also seeks an order to enjoin arbitration proceedings that Varonis has initiated New York.

         This matter is before the court on “Defendant Varonis Systems, Inc.'s Motion to Dismiss and Compel Arbitration.” (See Docket No. 6). As discussed herein, the defendant has established that a valid arbitration provision exists which delegates the threshold issue of arbitrability to an arbitrator. Therefore, the defendant's motion to dismiss and compel arbitration is ALLOWED IN PART and DENIED IN PART. Specifically, the motion is ALLOWED as to a determination on the threshold issue of arbitrability and the case is stayed pending the arbitrator's decision on arbitrability. The motion is otherwise DENIED.


         This court summarizes the facts as alleged in the plaintiff's complaint. Varonis is a Delaware corporation with its principal place of business in New York. (Docket No. 1-1 (“Complaint”) ¶ 2). The company does business in Massachusetts but does not maintain any offices in the state. (See id. ¶ 5). Varonis hired Tannatt in 2011 as a sales engineer. (Id. ¶ 4). Tannatt worked out of his home in North Andover. (Id. ¶ 5). As a condition of his employment, Tannatt signed a document called “Varonis Systems, Inc. At-Will Employment, Confidential Information, Invention Assignment and Arbitration Agreement” (“Agreement”) on or about December 13, 2011. (Id. ¶ 6; Docket No. 1-1, Ex. A). The Agreement includes restrictive covenants not to compete with Varonis or solicit any of its customers for a period of 12 months following the termination of Tannatt's employment with Varonis. (See Complaint ¶ 7). The Agreement also states that the plaintiff agrees to arbitrate “any and all controversies, claims, or disputes . . . arising out of, relating to, or resulting from [Tannatt's] employment with [Varonis] . . . .” (Agreement at 9). Under the Agreement, any such arbitration is to be administered by Judicial Arbitration & Mediation Services, Inc. (“JAMS”) in New York, pursuant to New York law[1]and JAMS's “Employment Arbitration Rules & Procedures” (“JAMS Rules”). (Id.). Further, the Agreement provides that “arbitration shall be the sole, exclusive, and final remedy for any dispute between [Tannatt] and [Varonis].” (Id. at 10). The Agreement does provide, however, that “any party may also petition the court for injunctive relief where either party alleges or claims a violation of the at-will employment, confidential information, invention assignment, and arbitration agreement between [Tannatt] and [Varonis] or any other agreement regarding trade secrets, confidential information, noncompetition or nonsolicitation.” (Id.).[2]

         In 2015, Tannatt was promoted to the position of manager of sales engineering. (Complaint ¶ 11). As part of his promotion, he took on additional responsibilities, received a salary increase, and performed far less sales engineering work himself. (Id.). Approximately one year later, Tannatt was told to choose between working exclusively as a manager or focusing entirely on sales engineering work. (Id. ¶ 12). He chose the latter option and resigned his management position. (Id.). As a result, his duties reverted to those he had prior to his promotion, but his salary remained the same. (Id.). In January 2018, Tannatt was reassigned to a new sales representative, which caused his sales production numbers to drop. (Id. ¶¶ 13, 14). At no point did Tannatt sign a new employment agreement or restrictive covenant in connection with these changes to his job responsibilities. (See id. ¶¶ 11-13). However, the Agreement does state that “[a]ny subsequent change or changes in [Tannatt's] duties, salary, or compensation will not affect the validity or scope of this Agreement.” (Agreement at 11).

         In July 2018, Tannatt resigned from Varonis and began a new job with SailPoint Technologies, Inc. (“Sailpoint”). (Complaint ¶ 15). Varonis sent a letter to the plaintiff which asserted that SailPoint was a competitor and sought to enforce the non-competition provision of the Agreement. (Id. ¶ 17). Tannatt refused to resign from SailPoint. (Id. ¶ 18). Pursuant to the Agreement's arbitration provision, Varonis submitted a demand for arbitration to JAMS in New York, alleging two counts of breach of contract. (Id. ¶ 18; see Docket No. 1-2 at 15-16).

         In response, Tannatt filed this declaratory judgment action. He contends not only that the Agreement is entirely unenforceable due to substantial changes in his employment since he signed the contract, but also that arbitration in New York would preclude him from effectively defending against claims by Varonis.

         Additional facts will be provided below where appropriate.

         III. ANALYSIS

         The Federal Arbitration Act (FAA) applies to any “written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract . . . .” 9 U.S.C. § 2. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 113, 121 S.Ct. 1302, 1308, 149 L.Ed.2d 234 (2001) (holding that employment contracts are within the scope of § 2 of the FAA). Under the FAA, a court must determine whether a valid arbitration agreement exists before referring the dispute to an arbitrator. Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524, 530 (2019). This inquiry is separate and severable from the issue of whether the contract as a whole - or other provisions contained therein - is valid. See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444-46, 126 S.Ct. 1204, 1208-09, 163 L.Ed.2d 1038 (2006).

         Right to Pursue a Declaratory Judgment Action

         As an initial matter, the plaintiff contends that the FAA does not eclipse his right to bring, and pursue to conclusion, a declaratory judgment action separate and apart from the arbitration proceedings. The plaintiff is mistaken. Section 2 of the FAA embodies “a national policy favoring arbitration, ” and with its passage, Congress “withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” Southland Corp. v. Keating, 465 U.S. 1, 10, 104 S.Ct. 852, 858, 79 L.Ed.2d 1 (1984). In other words, bringing a claim via a declaratory judgment action does not allow a litigant to evade the FAA if the underlying dispute falls within the reach of the arbitration provision. See Aeronaves de Mexico, S. A. v. Triangle Aviation Servs., Inc., 389 F.Supp. 1388, 1391 (S.D.N.Y. 1974), aff'd,515 F.2d 504 (2d Cir. 1975) (“Where ...

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