A Texas federal court determined that, pursuant to the parties’ contract, the dispute was not arbitrable because the plain language of the arbitration clause expressly excluded suits that involved requests for injunctive relief, despite the incorporation of the AAA Rules. The clause stated as follows:
This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Pelton & Crane), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association.
Defendants argued that, “under the plain language of the clause, disputes about arbitrability do not fall within the carve-out and thus, belong to the arbitrator.” Plaintiff, on the other hand, argued that “the structure of the specific carve-out at issue here leads to the natural reading that the AAA Rules only apply to the category of cases that are subject to binding arbitration under the Dealer Agreement – namely, those outside of the contract’s express carve-out.”
The District Court held that the arguments for arbitrability were “wholly without merit” based on the plain language of the arbitration clause itself and thus fell squarely within the “wholly groundless” exception created by Douglas v. Regions Bank, 757 F. 3d 460 (5th Cir. 2014). On appeal, the Fifth Circuit Court of Appeals affirmed, stating that, “[t]he mere fact that the arbitration clause allows [Plaintiff] to avoid arbitration by adding a claim for injunctive relief does not change the clause’s plain meaning.”
Archer and White Sales, Inc. v. Henry Schein, Inc., et al., No. 16-41674 (5th Cir. Dec. 21, 2017).
This post written by Nora A. Valenza-Frost.
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