Biochron, Inc. v. Blue Roots, LLC

529 P.3d 464

• Court: Court of Appeals of Washington
• Decided: May 25, 2023
• Docket: 38834-4
• Status: Published

Opinion

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FILED MAY 25, 2023 In the Office of the Clerk of Court WA State Court of Appeals, Division III

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION THREE

BIOCHRON, INC., a Washington ) No. 38834-4-III corporation, KEVIN RUDEEN, an ) individual, BART BENNETT, an ) individual, JOHN GILLINGHAM, an ) individual, ) ) Respondents, ) PUBLISHED OPINION ) v. ) ) BLUE ROOTS, LLC, a Washington ) limited liability company, ) ) Appellant. )

LAWRENCE-BERREY, J. — Blue Roots initially filed a demand for arbitration, but

Biochron filed this action to enjoin that arbitration from proceeding. Blue Roots

promptly moved the trial court to compel arbitration, but the court denied the motion on

the basis that the agreement containing the arbitration clause was unenforceable. The

parties participated in litigation for over one year. Biochron moved for partial summary

judgment, and Blue Roots renewed its motion to compel arbitration. The trial court

granted Biochron’s motion, denied Blue Roots’s renewed motion to compel, and entered

a CR 54(b) order certifying finality. Blue Roots appealed. For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

No. 38834-4-III Biochron, Inc. v. Blue Roots, LLC

We conclude that the trial court erred in denying Blue Roots’s renewed motion to

compel arbitration because the enforceability of a contract containing an agreement to

arbitrate is a question for the arbitrator, not the court. In general, a court may only decide

whether the agreement to arbitrate exists in a record and whether the arbitration clause

can be fairly read to encompass the scope of the dispute. Here, we decide both questions

in favor of arbitration.

We further conclude that Biochron is unable to meet its heavy burden of showing

that Blue Roots waived its right to arbitrate. Blue Roots filed a demand for arbitration

and twice moved the trial court to compel arbitration. These actions are consistent with a

desire to arbitrate.

Also, ordering arbitration will not prejudice Biochron. The trial court entered two

partial summary judgment orders during the course of litigation. Blue Roots has waived

any challenge to the first ruling, and the second ruling was erroneous—the grant of partial

summary judgment dismissing Blue Roots’s misappropriation of trade secrets claim.

Because we would have reversed the trial court’s second ruling, Biochron is not

prejudiced by Blue Roots’s delay in renewing its motion to compel arbitration. That is,

it would have had to litigate the trade secrets claim in one forum or the other.

2 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

We reverse the trial court’s order denying Blue Roots’s renewed motion to compel

arbitration.

FACTS

This appeal stems from a failed effort by Blue Roots LLC to purchase the assets of

Biochron, Inc. Blue Roots and Biochron are both licensed commercial cannabis

producers located in Spokane County. We set forth the facts in the light most favorable

to Blue Roots to the extent they relate to its misappropriation of trade secrets claim,

which the trial court dismissed by partial summary judgment.

Memorandum of understanding

On May 21, 2019, the parties executed a memorandum of understanding (MOU),

which we attach as an appendix to this opinion. The MOU outlined the terms of the sale

of all of Biochron’s assets, including its license with the Washington State Liquor and

Cannabis Board,1 to Blue Roots. The MOU stated it was “a commitment by the Parties to

complete a transaction as defined in this Agreement and memorialize the terms and

conditions in a definitive asset purchase agreement (the “APA”) and any related

1 Biochron states that the MOU did not agree to transfer Biochron’s license. To the contrary, while the MOU states the purchased assets will not include an interest in the business entity that holds Biochron’s license—i.e., Biochron itself—it expressly provides for the transfer of the license after 10 years of payments.

3 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

transactions necessary to execute the APA and achieve the Parties’ objectives.” Clerk’s

Papers (CP) at 49. Biochron, Inc., and its individual principals, Bart Bennett, Kevin

Rudeen, and John Gillingham, collectively acted as the sellers. The MOU anticipated that

the transaction would close on June 1, 2019. It listed a condition precedent: that the

parties would obtain legal analysis of the transaction to ensure it would comply with

Liquor and Cannabis Board regulations.

The MOU provided that Blue Roots would purchase 100 percent of Biochron’s

assets except any interest in the Biochron business entity itself. The assets were to “be

carefully defined in the APA,” but included Biochron’s real property, business assets,

intellectual property, and “grow” plant material in any form. CP at 49, 52. In exchange,

Blue Roots would pay Biochron 10 percent of its monthly net profits for 10 years,

beginning six months after the execution of the asset purchase agreement and would

employ Biochron’s president, Mr. Bennett, as a manager in Blue Roots for a salary of

$5,000 per month.

The MOU included a section entitled “Dispute Resolution.” CP at 51 (some

capitalization omitted). The section provided:

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The Parties will resolve any discrepancy of interpretation on an amicable basis and with the utmost good will and cooperation. In the event of any irresolvable disagreement between the parties, the parties agree to submit to arbitration via the AMERICAN ARBITRATION ASSOCIATION, to be conducted in the City of Spokane, Washington.

CP at 51.

Allan Holms, managing member of Blue Roots, signed on behalf of the company.

Mr. Bennett signed on behalf of Biochron. By signing, each represented they had

“sufficient authority to enter into this MOU on behalf of the identified party and bind

such party to the terms herein.” CP at 51.

Joint operations

The asset purchase agreement was not completed by June 1, 2019. However, in

June, Biochron turned over its assets and keys to its facility, and Blue Roots began

overhauling Biochron’s facility to meet its standards for growing cannabis. Also in June,

Blue Roots opened a new bank account for joint operating expenses. In July, Blue Roots

began paying Mr. Bennett a salary as agreed in the MOU. Blue Roots also paid for the

expansion of Biochron’s facility and required that Biochron’s remaining operations be

modified to meet Blue Roots’s standards. When the expansion was complete, Blue Roots

delivered its mother plants to be propagated at Biochron’s facility.

5 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

An attorney and an accountant experienced in the cannabis industry reviewed the

MOU and determined it should be modified to stay within the guidelines of the Liquor

and Cannabis Board. They recommended the parties adopt a product purchase and option

agreement. Thereafter, Blue Roots and Biochron began negotiations for a product

purchase and option agreement.

In late September or early October 2019, the parties agreed to the terms of a joint

venture, although they did not sign any document memorializing the agreement. The

terms of the joint venture agreement “would mirror the original MOU” with three

changes. CP at 633. The changes were: (1) the agreement would be a product purchase

agreement (rather than a purchase of all of Biochron’s assets), and Blue Roots would

purchase all of Biochron’s product; (2) Blue Roots would pay Biochron its monthly

operating expenses and, beginning December 1, 2019, Blue Roots would additionally pay

Biochron 10 percent of Blue Roots’s net profit from the previous month’s sale of

Biochron’s product; and (3) Blue Roots would assume the responsibility of managing the

grow operations and the costs of production. In January 2020, Blue Roots began making

the payments as outlined in the proposed joint venture agreement and those payments

continued through April 2020.

6 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

In February, Blue Roots e-mailed Biochron an “Intellectual Property Policy And

Non-Disclosure Agreement” and directed Biochron to have each employee sign it.

CP at 656 (some capitalization omitted). The agreement required Biochron employees

not to disclose the “innovative processes and products, including unique strains of

cannabis plants” used by Biochron. CP at 656 (boldface omitted). It further stated that

the products and strains were the property of the “Company,” which the agreement

defined as Biochron. CP at 656-57.2 One week later, Biochron confirmed that all of its

employees signed the agreement and that a signed agreement was in each employee’s file.

In April, the parties’ business relationship began to sour. Biochron, which had

previously been negotiating on its own behalf, retained counsel to continue the

negotiations of the product purchase agreement. By May, that agreement had been

divided into two separate documents: a product purchase agreement and an asset purchase

and sale agreement. The parties ultimately could not agree on the pricing for Blue

Roots’s purchase of Biochron’s cannabis harvest, and Biochron began selling its cannabis

2 At the time, Biochron was growing Blue Roots’s strains according to Blue Roots’s processes. Viewing the evidence and all reasonable inferences in favor of Blue Roots, because it was Blue Roots who required Biochron’s employees to sign the agreement, a reasonable trier of fact could find that both Blue Roots and Biochron understood and intended for the agreement to protect Blue Roots’s strains and processes, not Biochron’s.

7 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

harvest to third parties. Thereafter, the parties’ relationship completely broke down and

the acquisition fell through. On June 16, Blue Roots declared an impasse.

Because Blue Roots anticipated it would soon own Biochron’s entire business, it

had disclosed proprietary information to Biochron, including its mother plants and grow

processes. After negotiations ceased, Blue Roots demanded that Biochron return Blue

Roots’s cannabis plants and cease using Blue Roots’s grow processes. Biochron refused

to do so.

Trial court enjoins Blue Roots’s arbitration demand

Blue Roots filed an arbitration demand in August against Biochron and its

individual owners, Bart Bennett, Kevin Rudeen, and John Gillingham. On September 18,

Biochron filed this case in Spokane County Superior Court, requesting injunctive relief

from Blue Roots’s arbitration demand and damages. It also moved for a temporary

restraining order and preliminarily injunction preventing Blue Roots from pursuing

On October 9, Blue Roots moved to compel arbitration. It later opposed

Biochron’s motion for a preliminary injunction. Blue Roots argued that under

Washington law, a challenge to the MOU as a whole, rather than the arbitration clause

8 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

itself, was a question for the arbitrator to decide, and the arbitration clause itself covered

any irresolvable disagreement.

At oral argument on the motions, Biochron argued the MOU was an unenforceable

agreement to agree. The court questioned whether the arbitration clause would be

enforceable even if the MOU was not. Blue Roots noted that termination or failure of a

contract typically does not terminate an arbitration agreement contained therein. The

court disagreed.

On October 27, the court entered a written order granting Biochron’s motion for a

preliminary injunction in which it concluded in part:

1. Challenges to the very existence of a contract, as opposed to its validity, must be decided by the court. 2. The MOU is not a contract. 3. The MOU is an unenforceable agreement to agree.

CP at 467. The court denied Blue Roots’s motion to compel arbitration.

Continued litigation

Blue Roots did not seek appellate review of the orders. It instead filed an answer

to Biochron’s complaint and asserted counterclaims against it, including claims for trade

secret misappropriation. On December 31, Blue Roots moved for a preliminary

injunction to protect its purported trade secrets and order return of certain cannabis plants.

On January 8, 2021, Biochron moved for partial summary judgment to dismiss

9 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

Biochron’s owners in their individual capacities. For reasons that are not apparent in our

record, the court did not rule on either motion for more than one year. During the interim,

a trial date was set for April 25, 2022.

On January 26, 2022, the trial court denied Blue Roots’s motion for a preliminary

injunction. It granted in part Biochron’s motion for partial summary judgment,

dismissing Blue Roots’s counterclaims against John Gillingham in their entirety, and its

counterclaims against Bart Bennett and Kevin Rudeen, except for the claims of

misappropriation of trade secrets, unfair competition, and conversion.

On January 28, Blue Roots filed a motion to continue the trial date and associated

deadlines. Biochron opposed the continuance. On February 11, Biochron filed a second

motion for partial summary judgment, seeking to dismiss Blue Roots’s misappropriation

of trade secrets counterclaim.

Three days later, Blue Roots filed a renewed motion to compel arbitration.

It argued the MOU was an enforceable contract with open terms and was further

enforceable based on the parties’ course of conduct. Alternatively, it argued the

arbitration agreement was severable, and it had not waived its right to arbitrate by

participating in litigation.

10 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

In response to Biochron’s motion for partial summary judgment, Blue Roots

argued that the parties’ course of conduct created a partnership and associated fiduciary

duties, including the duty of confidentiality. Supported by expert declarations, it argued

that its cannabis cultivars and grow processes were proprietary information. It further

argued that because of the existence of fiduciary duties between the parties, its disclosures

to Biochron were made with reasonable efforts to maintain its secrecy.

The trial court considered Biochron’s partial summary judgment motion and Blue

Roots’s renewed motion to compel arbitration at the same hearing. The court granted

Biochron’s motion on the sole basis that Blue Roots had failed to take reasonable efforts

to protect the confidentiality of its purported trade secrets. It denied Blue Roots’s

renewed motion to compel arbitration because it believed Blue Roots had not provided a

sufficient reason for the court to overturn the first judge’s ruling.

The trial court later granted CR 54(b) certification of the second partial summary

judgment order and stayed litigation of Blue Roots’s remaining claims. Blue Roots then

appealed the partial summary judgment order and the order denying its renewed motion to

compel arbitration.

11 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

ANALYSIS

A. MOTION TO COMPEL ARBITRATION

Blue Roots argues the trial court erred in denying its renewed motion to compel

arbitration. We agree.

We review a trial court’s determination of the arbitrability of a dispute de novo.

Satomi Owners Ass’n v. Satomi, LLC, 167 Wn.2d 781, 797, 225 P.3d 213 (2009). “‘The

party opposing arbitration bears the burden of showing that the agreement is not

enforceable.’” Id. (quoting Zuver v. Airtouch Commc’ns, Inc., 153 Wn.2d 293, 302, 103

P.3d 753 (2004).

Biochron advances three arguments why this matter should not be submitted to

arbitration: (1) there was no enforceable agreement to arbitrate because the MOU is

unenforceable, (2) the claims made by Blue Roots are outside the scope of the arbitration

provision, and (3) Blue Roots waived arbitration by participating in litigation. We discuss

each argument in turn.

1. The trial court erred when it inquired about the enforceability of the MOU

The trial court concluded that to reach the arbitration clause, it first needed to

determine if the MOU was enforceable. This was error.

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Where the party opposing arbitration does not bring a discrete challenge to the

arbitration provision, but instead challenges the agreement as a whole, that challenge is

for the arbitrator to decide. Townsend v. Quadrant Corp., 173 Wn.2d 451, 459-60, 268

P.3d 917 (2012) (lead opinion of Alexander, J.) (citing McKee v. AT&T Corp., 164 Wn.2d

372, 191 P.3d 845 (2008); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 126

S. Ct. 1204, 163 L. Ed. 2d 1038 (2006); Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

388 U.S. 395, 87 S. Ct. 1801, 18 L. Ed. 2d 1270 (1967)), 464 n.4 (concurring/

dissenting, Stephens, J.).

Here, Biochron argued to the trial court that the agreement was an unenforceable

agreement to agree. Thus, its challenge was to the MOU itself, it was not a discrete

challenge to the arbitration provision. The trial court erred by overstepping its limited

authority when it inquired into the enforceability of the MOU.3

3 We note that in its demand for arbitration, Blue Roots requested specific performance of the MOU. However, Blue Roots also sought additional relief on other theories, including breach of oral agreement/course of conduct, misappropriation of trade secrets, unjust enrichment, civil conspiracy, promissory estoppel, and an injunction. These additional theories are not dependent on an enforceable written contract. Nor, as explained later, is the arbitration provision limited to resolving a claimed breach of the MOU’s written terms.

13 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

2. The scope of the arbitration provision covers this dispute

The court, not the arbitrator, decides if a claim or controversy is subject to an

agreement to arbitrate. RCW 7.04A.060(4). Biochron suggests that the arbitration clause

covers only disagreements about a “discrepancy of interpretation” of the MOU. CP at 33.

While that is a plausible interpretation, Washington’s public policy favoring arbitration

requires that we order arbitration “[i]f we can fairly say that the parties’ arbitration

agreement covers the dispute.” Davis v. Gen. Dynamics Land Sys., 152 Wn. App. 715,

718, 217 P.3d 1191 (2009); cf. Townsend v. Quadrant Corp., 153 Wn. App. 870, 887, 224

P.3d 818 (2009), aff’d, 173 Wn.2d 451 (requiring arbitration unless the agreement to

arbitrate “cannot be interpreted to cover a particular dispute”).

Here, the arbitration provision expressly covers “any irresolvable disagreement

between the parties.” CP at 51 (emphasis added). Given the context of the provision

within the MOU (and the parties’ later performance of the purported joint venture

agreement that would incorporate the nonconflicting terms of the MOU), we conclude

that the scope of the arbitration provision fairly includes any disagreement between the

parties as they worked toward consummating a final business agreement. This certainly

includes the causes of action asserted in Blue Roots’s demand for arbitration.

14 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

3. Whether Blue Roots waived its right to arbitrate depends on whether Biochron is prejudiced by Blue Roots’s delay in renewing its motion to compel arbitration

Biochron argues that even if the arbitration clause is enforceable, Blue Roots has

waived its right to arbitrate.

“We review de novo whether a party has waived the right to arbitration.”

Jeoung Lee v. Evergreen Hosp. Med. Ctr., 195 Wn.2d 699, 705, 464 P.3d 209 (2020).

To determine if a party has waived its right to arbitration, we consider three factors:

“‘(1) knowledge of an existing right to compel arbitration, (2) acts inconsistent with that

right, and (3) prejudice.’” Id. (internal quotation marks omitted) (quoting Adler v. Fred

Lind Manor, 153 Wn.2d 331, 362, 103 P.3d 773 (2004)). The parties do not dispute that

Blue Roots knew of its right to compel arbitration; we thus confine our discussion to the

second and third factors.

1. Acts inconsistent with right to arbitrate

“Whether a party has waived its right [to arbitration] by its conduct depends on the

particular facts of the case and is not susceptible to bright line rules.” Berman v. Tierra

Real Est. Grp., LLC, 23 Wn. App. 2d 387, 400, 515 P.3d 1004 (2022). To show a party

has acted inconsistent with its right to arbitrate, the opposing party must show “that as

events unfolded, the party’s conduct reached a point where it was inconsistent with any

15 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

other intention but to forgo the right to arbitrate.” River House Dev., Inc. v. Integrus

Architecture, PS, 167 Wn. App. 221, 238, 272 P.3d 289 (2012). The party asserting

waiver “has a ‘heavy burden of proof.’” Id. at 237 (quoting Steele v. Lundgren, 85 Wn.

App. 845, 852, 935 P.2d 671 (1997)).

The trial court originally denied Blue Roots’s motion to compel arbitration because

it concluded the MOU was an unenforceable contract and therefore there was no valid

agreement to arbitrate. Blue Roots then, together with Biochron, engaged in discovery.

But we have previously held that engaging in discovery is not inconsistent with

arbitration, in which discovery is also available. See Lake Wash. Sch. Dist. No. 414 v.

Mobile Modules Nw., Inc., 28 Wn. App. 59, 64, 621 P.2d 791 (1980); RCW 7.04A.170.

We turn now to discuss cases that analyze whether a party seeking arbitration has

acted inconsistent with an intent to arbitrate.

In Lee, an employee filed a putative class action lawsuit against her former

employer, alleging it failed to provide rest and meal breaks in accordance with

Washington law. 195 Wn.2d at 700-01. As an affirmative defense, the employer asserted

that the employee had failed to exhaust the grievance and arbitration process under her

collective bargaining agreement, but it did not move to compel arbitration until the

employee filed her second amended complaint, nearly one year after she filed her initial

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complaint. Id. at 703-04. In the meantime, the employer had unsuccessfully opposed

class certification, sought dismissal of the case, engaged in discovery, and opposed the

employee’s motion to continue trial on the basis it was prepared for trial, all without

moving to compel arbitration. Id. at 703. The trial court denied the motion to compel

arbitration in part because the parties had been litigating the same issues for months, and

the employer had not previously sought to enforce its right to arbitration. Id. at 704.

Our Supreme Court affirmed, noting that while the employer listed arbitration in

its answer, it participated in discovery and litigation and did not move to compel

arbitration “until the third iteration of the complaint even though the complaint had

almost identical claims throughout.” Id. at 708. The court also pointed to the fact that

when the employee moved to continue trial, the employer opposed the continuance

because it was ready to go to trial. Id. In addition to the employer acting inconsistently

with its right to arbitrate, arbitration would severely prejudice the employee because she

had spent a large amount of money on the litigation and it would give the employer the

opportunity to relitigate class certification, an issue on which it had lost. Id.

In River House, a developer sent a demand letter to an architect stating its intent to

pursue arbitration regarding a contract dispute, but subsequently filed a complaint in

superior court due to concerns about the statute of limitations. 167 Wn. App. at 225-26.

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In a joint case status report, the developer agreed to eliminate language that arbitration

would be pursued, although it retained language about mediation. Id. at 227. During

discovery, the developer failed to mention arbitration but extensively discussed its trial

strategy. Id. at 228. Approximately nine months after it filed its complaint, the developer

moved to stay the lawsuit and compel arbitration. Id. at 228-29. The trial court denied

the motions, concluding the developer had waived its right to arbitrate. Id. at 229.

We affirmed, noting that despite the developer’s “equivocation early in the

process,” it chose to file a lawsuit instead of a demand for arbitration. Id. at 238. When it

moved to compel arbitration, it had been participating in the lawsuit for months without

making mention of arbitration. Id. at 238-39. We concluded that the developer’s conduct

was inconsistent with any other intention but to forgo arbitration such that it had waived

its contractual right. Id. at 239.

By contrast, in Townsend, two families sued their home builder and its parent

companies. 173 Wn.2d at 454. The builder moved to stay the proceedings and compel

arbitration per its contracts with the families, while the parent companies moved for

summary judgment on the basis they had no connection to the plaintiffs or their houses.

Id. After the superior court denied the motions and consolidated the suit with those of

two more families, the builder and its parent companies again moved to compel

18 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

arbitration. Id. at 454-55. The superior court again denied the motion, concluding there

were issues of fact as to whether the families’ contracts with the builder were enforceable.

Id.

After concluding that the enforceability of the contract was an issue for the

arbitrator because the families challenged the contracts as a whole rather than the

arbitration clause, as discussed above, our Supreme Court found that the parent

companies had not waived their right to arbitrate by first moving for summary judgment.

Id. at 462. They had promptly moved to compel arbitration after their motion for

summary judgment, which did not evince an intent to waive arbitration. Id. at 463.

Here, unlike in Lee and River House, Blue Roots did not equivocate or delay in

asserting its right to arbitrate. It filed a demand for arbitration before any litigation

commenced. When Biochron filed this suit to enjoin arbitration, Blue Roots promptly

asserted its right to arbitrate. When that was unsuccessful, Blue Roots mostly played

defense to Biochron’s two partial summary judgment motions and its motion to compel

discovery. The only affirmative motions Blue Roots filed were an unsuccessful motion to

return its property and purported trade secrets, and a later motion to continue the trial date

and associated deadlines. As in Townsend, this mostly defensive posture is not

inconsistent with an intent to arbitrate the dispute.

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Biochron complains that Blue Roots did not appeal the initial denial of its motion

to compel arbitration and extensively participated in discovery. We agree that the order

was immediately appealable under RAP 2.2(a)(3), see Verbeek Props., LLC v. GreenCo

Env’t, Inc., 159 Wn. App. 82, 86, 246 P.3d 205 (2010), and acknowledge that early

appellate intervention would have curtailed the litigation below. But it is not enough that

Blue Roots failed to exhaust a potential remedy, Biochron must show that Blue Roots’s

actions were inconsistent with any other intention but to forgo the right to arbitrate. River

House, 167 Wn. App. at 238. We conclude that Biochron does not show that Blue

Roots’s actions evince that intention.

2. Prejudice

Biochron argues it will be prejudiced if the matter is sent to arbitration because,

like the plaintiff in Lee, it has incurred substantial attorney fees and costs during

litigation. We are not convinced. “‘Incurring legal expenses inherent in litigation,

without more, is insufficient evidence of prejudice to justify a finding of waiver.’” Wiese

v. CACH, LLC, 189 Wn. App. 466, 481, 358 P.3d 1213 (2015) (quoting PPG Indus., Inc.

v. Webster Auto Parts Inc., 128 F.3d 103, 107 (2d Cir. 1997)). Further, unlike the

plaintiff in Lee, Biochron was on notice that Blue Roots sought to arbitrate their dispute

before Biochron incurred these expenses; indeed, Biochron filed this suit to enjoin Blue

20 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

Roots from proceeding with its arbitration demand. To the extent Biochron incurred

additional expenses due to Blue Roots’s delay in reasserting its right to arbitration,

Biochron fails to show that expense was due to Blue Roots’s conduct instead of its own

offensive litigation, including two motions for partial summary judgment.

Biochron’s strongest argument for waiver is that Blue Roots failed to renew its

motion to compel arbitration until after Biochron filed its second partial summary

judgment motion, which sought to have Blue Roots’s misappropriation of trade secrets

claim dismissed. Indeed, Biochron succeeded in this motion. And if we reverse the trial

court and send this dispute to arbitration, all of the trial court’s previous rulings are

arguably void for lack of authority. See Lee, 195 Wn.2d at 708 (“[A]n effective attempt

to use arbitration to relitigate a motion that was lost on the merits can support a finding of

substantive prejudice.”).

In this case, the trial court made two significant rulings. The first dismissed all of

Blue Roots’s counterclaims against Mr. Gillingham and some of its counterclaims against

Mr. Bennett and Mr. Rudeen. But during oral argument before this panel, Blue Roots

said it was not seeking to overturn that ruling. Wash. Court of Appeals oral argument,

Biochron, Inc. v. Blue Roots, LLC, No. 38834-4-III (Apr. 26, 2023), at 3 min., 2 sec.

through 3 min., 41 sec. (on file with court).

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The second ruling dismissed Blue Roots’s misappropriation of trade secrets claim.

Blue Roots challenges this ruling in this appeal. If Blue Roots prevails in this challenge,

Biochron will not have suffered prejudice because of Blue Roots’s delay. In other words,

Biochron will have to litigate the misappropriation of trade secrets claim either in court or

in arbitration. To determine whether Biochron was prejudiced by Blue Roots’s delay, it

therefore is necessary for us to decide if the trial court erred in summarily dismissing Blue

Roots’s misappropriation of trade secrets claim.

B. TRADE SECRETS

Blue Roots contends the trial court erred in dismissing its misappropriation of

trade secrets claim. We agree.

We review a summary judgment de novo, “engag[ing] in the same inquiry as the

trial court.” Clements v. Travelers Indem. Co., 121 Wn.2d 243, 249, 850 P.2d 1298

(1993). A party moving for summary judgment must show there is no genuine issue of

material fact and that they are entitled to judgment as a matter of law. CR 56(c). A

material fact is one on which the outcome of the litigation depends. Clements, 121 Wn.2d

at 249. In deciding a motion for summary judgment, the court views all facts and

reasonable inferences therefrom in the light most favorable to the nonmoving party. Id.

22 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

1. Trial court’s failure to consider evidence

As a preliminary matter, Blue Roots contends the trial court erred by not

considering earlier-filed declarations it cited and referenced in its response to Biochron’s

second partial summary judgment. We first provide some context for this issue.

In its memorandum response to Biochron’s motion, Blue Roots cited declarations

it filed early in the litigation. But it did not provide a bench copy of those declarations.

The court stated it did not review those documents because it believed they were not

appropriately provided as required by local rule. The local rule is Spokane County Local

Civil Rule (LCR) 40(b)(12)(D): “Any documents previously filed and cited for review by

the court, shall be provided as bench copies.” LCR 56(c)(2)(G), relating specifically to

dispositive motions, instructs that practitioners should comply with LCR 40(b)(12)

regarding bench copies. LCR 56(c)(3) instructs that a failure to comply with the rule is

governed by LCR 40(b)(6). LCR 40(b)(6) in turn provides that “[i]n the event a party

fails to comply with LCR 40 or LCR 56, including . . . providing bench copies, . . . the

court shall have the discretion to not consider the document or citation, strike the

document, strike the hearing, continue the hearing, and/or impose terms or sanctions.”

Thus, under the local rules, the trial court had the authority not to consider Blue Roots’s

improperly presented evidence.

23 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

Although the court had the authority not to consider the evidence, on summary

judgment,

the decision to exclude evidence that would affect a party’s ability to present its case amounts to a severe sanction. And before imposing a severe sanction, the court must consider the three Burnet[4] factors on the record: whether a lesser sanction would probably suffice, whether the violation was willful or deliberate, and whether the violation substantially prejudiced the opposing party.

Keck v. Collins, 184 Wn.2d 358, 368-69, 357 P.3d 1080 (2015) (citation omitted).

The trial court did not consider any of the Burnet factors on the record before

deciding to disregard Blue Roots’s evidence. It therefore erred in refusing to consider

Blue Roots’s previously filed evidence that was not provided as bench copies. In our de

novo review of Biochron’s motion for partial summary judgment, we will consider all

evidence incorporated by reference by Blue Roots in its response.

2. Summary judgment dismissing misappropriation of trade secrets claim

Blue Roots claims Biochron misappropriated its trade secrets, namely, its cannabis

cultivars and grow processes, and argues there are genuine issues of material fact

precluding summary judgment on its claims. We agree.

4 Burnet v. Spokane Ambulance, 131 Wn.2d 484, 933 P.2d 1036 (1997).

24 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

Under the Uniform Trade Secrets Act (UTSA), chapter 19.108 RCW, a “trade

secret” is information that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

RCW 19.108.010(4). “We review interpretation of the UTSA de novo as a question of

law, while we review whether specific information satisfies the statute’s definition of a

‘trade secret’ in any given case as a question of fact.” Lyft, Inc. v. City of Seattle, 190

Wn.2d 769, 781, 418 P.3d 102 (2018). “‘[W]hen reasonable minds could reach but one

conclusion, questions of fact may be determined as a matter of law.’” Money Mailer, LLC

v. Brewer, 194 Wn.2d 111, 130, 449 P.3d 258 (2019) (internal quotation marks omitted)

(alteration in original) (quoting Harvey v. County of Snohomish, 157 Wn.2d 33, 43, 134

P.3d 216 (2006)).

a. Independent economic value

The trial court acknowledged there were genuine issues of material fact as to

whether Blue Roots’s claimed trade secrets derived independent economic value from not

being known to or readily ascertainable by others. We agree.

25 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

Blue Roots introduced evidence that it engages in phenohunting, where it takes

commonly available seeds, all with different genetic makeup, grows them into genetically

unique plants, and then selects and propagates those plants with the most desirable

phenotypical traits, a time- and resource-intensive process. It also introduced evidence

that its grow processes use publicly available procedures and materials in novel and

unique ways to maximize production.

Biochron advances several unconvincing arguments for why Blue Roots’s cultivars

do not constitute trade secrets. First, it argues that Blue Roots’s cultivars are not

protectible because Blue Roots does not breed plants. But Blue Roots’s experts explain

that each seed has a unique genetic makeup; thus, no other grower has seeds—and

eventually plants—with exactly the same genotype as those grown by Blue Roots.

Biochron next argues that phenohunting is not a proprietary process. But Blue

Roots does not argue the process is a trade secret; it argues the cultivars are a trade secret.

Finally, Biochron argues that the plants cannot be trade secrets because marijuana

reproduces sexually. That may be relevant were Blue Roots claiming a trade secret in

marijuana seeds, but it is not. It claims that its mother plants, grown from seed, selected

through phenohunting, and used to asexually propagate genetically identical clones, are

trade secrets. Such information is protectible as a trade secret. See 35 U.S.C. § 161

26 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

(“Whoever invents or discovers and asexually reproduces any distinct and new variety of

plant . . . may obtain a patent therefor.”).

Biochron also argues that Blue Roots’s growing procedures are not proprietary

because they are publicly available. However, publicly available information can still

constitute a trade secret when it is not readily ascertainable.5 See Boeing Co. v. Sierracin

Corp., 108 Wn.2d 38, 50, 738 P.2d 665 (1987) (“[T]rade secrets frequently contain

elements that by themselves may be in the public domain but together qualify as trade

secrets.”). Biochron’s expert states that Blue Roots uses off-the-shelf nutrients and soil,

but Blue Roots’s expert states that the specific combination of nutrients, timing of

application, and application rates are different than those recommend by the manufacturer

or used by other commercial cannabis operations with which he is familiar. Similarly,

Biochron’s expert points to the fact that trellising plants is common, while Blue Roots’s

expert describes Blue Roots’s trellising technique as novel and unique to Blue Roots. We

agree with the trial court, the parties’ competing expert reports present genuine issues of

material fact as to whether Blue Roots’s purported trade secrets derived independent

5 Indeed, Biochron’s own briefing suggests that Blue Roots’s grow process is not readily ascertainable. Biochron assembles various Internet sources to illustrate that the information is publicly available, but in doing so, picks and chooses discrete processes from four unrelated sources, one of which is about bed bugs rather than cannabis.

27 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

economic value from not being known to or readily ascertainable by others.

b. Reasonable efforts to protect confidentiality

The trial court found that the dispositive question on summary judgment was

whether Blue Roots had made reasonable efforts to protect the confidentiality of its trade

secrets. It resolved this question by noting that even if there was a partnership, there was

no fiduciary requirement to protect the alleged trade secrets because “if something is

disclosed, it’s not a trade secret.” Rep. of Proc. (Mar. 11, 2022) at 42. This

oversimplified statement does not accurately reflect Washington law.

There is no requirement for absolute secrecy under the UTSA. Precision

Moulding & Frame, Inc. v. Simpson Door Co., 77 Wn. App. 20, 28, 888 P.2d 1239

(1995); see also Machen, Inc. v. Aircraft Design, Inc., 65 Wn. App. 319, 329, 828 P.2d 73

(1992), overruled on other grounds by Waterjet Tech., Inc. v. Flow Int’l Corp., 140

Wn.2d 313, 996 P.2d 598 (2000). “‘[R]easonable use of a trade secret including

controlled disclosure to employees and licensees is consistent with the requirement of

relative secrecy.’” Machen, 65 Wn. App. at 327 (quoting UTSA § 1, cmt., 14 U.L.A.

438, 439 (1990)). The trial court erred by concluding that because Blue Roots had

disclosed its alleged trade secrets to Biochron, it could not claim them as trade secrets.

28 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

Blue Roots argues that the parties’ joint operations formed a partnership; thus, by

virtue of Biochron’s fiduciary duties, Blue Roots made reasonable efforts to maintain the

confidentiality of its trade secrets when it disclosed them in the context of their business

arrangement. We agree that, viewing the facts in the light most favorable to Blue Roots,

a reasonable mind could conclude that their disclosure of trade secrets was made with

efforts that were reasonable under the circumstances to maintain its secrecy. Importantly,

a trier of fact could find that Blue Roots’s (albeit late) requirement for Biochron’s

employees to sign an intellectual property and nondisclosure agreement combined with

Biochron’s willingness, evinced a mutual understanding that Blue Roots’s processes and

marijuana strains were proprietary and protected.

In addition, Biochron may have had a fiduciary duty not to disclose Blue Roots’s

trade secrets. Under the “Revised Uniform Partnership Act” (RUPA), chapter 25.05

RCW, “the association of two or more persons to carry on as co-owners a business for

profit forms a partnership, whether or not the persons intend to form a partnership.”

RCW 25.05.055(1). RUPA also modifies the common law duties partners owe each other

and the partnership, limiting them to the duty of loyalty and the duty of care, as defined

by the statute. RCW 25.05.165(1). The duty of loyalty includes the duty “[t]o account to

the partnership and hold as trustee for it any property, profit, or benefit derived by the

29 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

partner in the conduct . . . of the partnership business or derived from a use by the partner

of partnership property.” RCW 25.05.165(2)(a).

Even if no partnership was formed, the record suggests that Biochron was acting

as Blue Roots’s agent during their business relationship. “An agency relationship arises

when one party acts at the instance of, and under the direction and control of, another.”

Cascade Auto Glass, Inc. v. Progressive Cas. Ins. Co., 135 Wn. App. 760, 765, 145 P.3d

1253 (2006). Blue Roots provided evidence that Biochron began using Blue Roots’s

grow processes and marijuana strains at Blue Roots’s instance and under Blue Roots’s

direction and control, which Biochron does not dispute. An agent has a duty not to use or

disclose its principal’s trade secrets even after the termination of the agency relationship.

Ed Nowogroski Ins., Inc. v. Rucker, 137 Wn.2d 427, 437, 971 P.2d 936 (1999); see also

RESTATEMENT (THIRD) OF AGENCY § 8.05 (“An agent has a duty . . . not to use property

of the principal [and] not to use or communicate confidential information of the principal

for the agent’s own purposes . . . .”).

Blue Roots introduced evidence that it relied on its business relationship with

Biochron to maintain the secrecy of its alleged trade secrets. Blue Roots’s lead grower

stated in a declaration: “When we thought we had acquired Biochron, we shared the Blue

Roots Standard Operating Procedures with certain Biochron representatives via a

30 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

password-protected Google drive.” CP at 609. One of Blue Roots’s owners similarly

declared that Blue Roots’s delivery of its mother plants to Biochron

were not one-off purchases by Biochron. They were entirely dependent on the overall deal that the companies reached with one another and had been operating under for several months. Access and use of the mother plants was entirely dependent on the parties’ overall deal, which included Biochron’s obligation to use Blue Roots[’s] proprietary grow methods and then sell the harvested products exclusively to Blue Roots.

CP at 642. This is the sort of controlled disclosure that can constitute reasonable efforts

to maintain the secrecy of trade secrets. See Machen, 65 Wn. App. at 327. Whether it did

under these circumstances is a question of fact that cannot be resolved on summary

judgment.

Biochron relies on Pacific Title, Inc. v. Pioneer National Title Insurance Co.,

33 Wn. App. 874, 658 P.2d 684 (1983), to argue that Blue Roots cannot claim a trade

secret in information it disclosed to Biochron without telling Biochron the information

was confidential. Pacific Title is not helpful to Biochron.

In Pacific Title, both parties were title insurance companies. Id. at 875. They

entered into a 10-year contract in which Pacific acted as the agent of Pioneer, issuing title

insurance policies in Pioneer’s name and retaining 87.5 percent of the premiums

collected. Id. at 875-76. Pacific sent Pioneer copies of each policy it issued in Pioneer’s

name, which Pioneer later provided to a subsequent agent after its contract with Pacific

31 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

ended. Id. at 876. Pacific sued for conversion and misappropriation of the title

information it produced, and the trial court dismissed the complaint. Id. at 875.

We affirmed, noting that

[a]lthough an agent may not use or disclose confidential information obtained during the course of his employment for the principal, a principal may use information developed by the agent during the agency in the scope of work to which the agency relates and for which the principal has paid the agent.

Id. at 879 (citations omitted). Because the title information had been “transmitted

pursuant to contract in circumstances where the originator knows or should know that the

recipient has a legitimate business use for the information,” we required Pacific to show it

had “secure[d] confidentiality by express or implied provision of the contract.” Id. We

reasoned that in such a situation, an “originator of information cannot claim a property

right in it as against one to whom he has disclosed it without bringing to the latter’s

attention his expectation that the information will be held in confidence and not used in

competition.” Id. Because the parties did not address their rights to the information

under the contract, Pacific did not have an exclusive right to it. Id. at 880.

Pacific Title is not analogous to these facts. Biochron was not the principal of

Blue Roots and thus did not have the right to use information developed by Blue Roots, as

Pioneer did for Pacific.

32 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

c. Misappropriation

Biochron asserts that Blue Roots has no evidence that Blue Roots is currently

using its grow processes. But Blue Roots did present evidence that Biochron continued

using Blue Roots’s grow processes after ending their business relationship. Biochron

further argues that it legitimately purchased Blue Roots’s mother plants. But Blue Roots

presented evidence that the purchase was made in the context of the parties’ business

relationship, evidenced by their sale at significantly below market value in order to

comply with Washington regulations that transferred cannabis plants must have a

recorded sale price. Again, this competing evidence creates a genuine issue of fact

precluding summary judgment.

Because we conclude that the trial court erred in dismissing Blue Roots’s

misappropriation of trade secrets claim, Biochron is not prejudiced by arbitrating the

claims that survived the first partial summary judgment order in arbitration rather than

court.

CONCLUSION

The trial court erred in denying Blue Roots’s renewed motion to compel

arbitration. Blue Roots did not waive its right to arbitrate because its conduct was not

inconsistent with an intent to arbitrate its claims.

33 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

Biochron is not prejudiced by arbitration being ordered. Biochron would have had

to litigate the same claims in trial court as it now must litigate in arbitration.

We remand with directions for the trial court to compel arbitration. The order to

compel should state that Blue Roots may not assert claims that were dismissed by the trial

court’s first order granting partial summary judgment.

________________________________ Lawrence-Berrey, J.

I CONCUR:

__________________________________ Pennell, J.

34 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

APPENDIX

35 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

36 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

37 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

38 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

No. 38834-4-III

FEARING, C.J. (concurring) — I write separately because the majority opinion

conflates the concepts of waiver and estoppel rather than analyzing each separately.

Waiver is the intentional and voluntary relinquishment of a known right. In re of Estate

of Petelle, 23 Wn. App. 2d 203, 212, 515 P.3d 548 (2022). Estoppel entails justifiable

reliance on an adversary’s conduct in such a manner as to change one’s position for the

worse. Saunders v. Lloyd’s of London, 113 Wn.2d 330, 340, 779 P.2d 249 (1989);

Buchanan v. Switzerland General Insurance Co., 76 Wn.2d 100, 108, 455 P.2d 344

(1969). Waiver and estoppel are distinct concepts with differing elements. Schuster v.

Prestige Senior Management, LLC, 193 Wn. App. 616, 631, 376 P.3d 412 (2016).

Strictly defined, waiver describes the act, or the consequences of the act, of one party

only, while estoppel exists when the conduct of one party has induced the other party to

take a position that would result in harm if the first party’s act were repudiated. Pitts v.

American Security Life Insurance Co., 931 F.2d 351, 357 (5th Cir. 1991). Estoppel

involves some element of reliance or prejudice on the part of the party asserting estoppel.

Pitts v. American Security Life Insurance Co., 931 F.2d 351, 357 (5th Cir. 1991). Waiver For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. No. 38834-4-III (concurrence) Bichron, Inc. v. Blue Roots, LLC

requires no reliance. Schuster v. Prestige Senior Management, LLC, 193 Wn. App. 616,

632 (2016).

Biochron, Inc. only contends that Blue Roots, LLC waived the right to arbitration.

Therefore, I would not examine whether Biochron relied on conduct or statements of

Blue Roots or whether Biochron suffered any prejudice. I agree with the majority’s

astute analysis and implied ruling that Blue Roots never intentionally relinquished the

right to arbitration.

I do not blame the majority author for conflating the concepts of waiver and

estoppel. For some unknown and odd reason, all Washington decisions, if not also all

foreign decisions, meld the two concepts in the context of arbitration. Schuster v.

Prestige Senior Management, LLC, 193 Wn. App. 616, 632-34 (2016).

______________________________ Fearing, C.J.