Supply Basket, Inc. et al v. Global Equipment Company, Inc.
Filing
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ORDER granting Defendant's 3 Motion to Compel Arbitration. Defendant's 3 Motion to Dismiss is DENIED. These proceedings are STAYED until the arbitrator resolves the underlying arbitration. Signed by Judge Richard W. Story on 6/4/2014. (cem)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
SUPPLY BASKET, INC.,
KATHERINE LINDBERG,
MICHAEL BARKER, &
MELINDA HARTLEY,
Plaintiffs,
v.
GLOBAL EQUIPMENT
COMPANY, INC. d/b/a/ Global
Industrial Equipment, a subsidiary
of Systemax, Inc.,
Defendant.
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CIVIL ACTION NO.
1:13-CV-3220-RWS
ORDER
This case is before the Court on Defendant’s Motion to Dismiss and
Compel Arbitration [3]. After considering the record and the Parties’ written
submissions, the Court enters the following Order.
Background1
The relevant facts are largely undisputed. The individual Plaintiffs are
former employees of the Defendant. As a condition of their employment, each
1
Unless otherwise indicated, all facts included in this section are alleged in
Plaintiffs’ Complaint filed in the Superior Court of Gwinnett County, Georgia and
attached to Notice of Removal [1].
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Plaintiff executed Confidentiality / Non-Solicitation / Assignment Agreements
(“Agreements”). Each Agreement contains non-compete and non-disclosure
covenants, and choice-of-law and arbitration clauses. The Agreements read, in
pertinent part:
In the event of any claim of breach or dispute
regarding this Agreement, the Company may, in its
sole discretion, submit such claim of breach or dispute
to arbitration with the American Arbitration
Association pursuant to its voluntary labor rules,
which shall be binding on the parties hereto.
([1-1] at 16, 18, 20 of 46.)
The individual Plaintiffs all separated from Defendant on or before May
20, 2013, and established Plaintiff Supply Basket, Inc., which began operating
on May 23, 2013. In June and July of 2013, the Parties’ counsel exchanged
letters concerning the Plaintiffs’ new employment and the applicability of the
non-disclosure and non-compete obligations, if any, under the Agreements. On
September 26, 2013, the Defendant filed a demand for arbitration with the
American Arbitration Association (“AAA”) against the individual Plaintiffs.
Also on September 26, the Defendant filed a petition for temporary restraining
order in aid of arbitration in New York State Court.
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On September 27, 2013, the Plaintiffs filed a motion for emergency
injunctive relief in the Superior Court of Gwinnett County, Georgia. The
Plaintiffs’ suit seeks to prevent the Defendant from pursuing litigation or
arbitration outside of Georgia to enforce the Agreements’ covenants. The
Georgia state court denied the Plaintiffs’ request for injunctive relief. The
Defendant then removed the action to this Court based on diversity jurisdiction.
On October 8, 2014, the Plaintiffs filed an Emergency Motion for
Preliminary Injunctive Relief with this Court [2]. The Court held a hearing on
the motion on October 21, 2013, and subsequently denied the motion [9]. The
Defendant then filed its Motion to Dismiss and Compel Arbitration [3], which
is now before the Court.
Discussion
I.
Delegation of the Determination of Arbitrability to the Arbitrator
The Federal Arbitration Act (“FAA”) expresses a “liberal federal policy
favoring arbitration[,] . . . guaranteeing the enforcement of private contractual
arrangements.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 625 (1985). Giving effect to that policy “requires that [courts]
rigorously enforce agreements to arbitrate.” Id. (quoting Dean Witter Reynolds,
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Inc. v. Byrd, 470 U.S. 213, 221 (1985)). The “threshold question” of “whether
[a party] was bound to arbitrate, as well as what issues it must arbitrate, is a
matter to be determined by the Court on the basis of the contract entered into by
the parties.” AT&T Techs., Inc. v. Commc’n Workers of Am., 475 U.S. 643,
649 (1986) (quoting John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 5467 (1964)). Under the FAA, “as a matter of federal law, any doubts concerning
the scope of arbitrable issues should be resolved in favor of arbitration.” Moses
H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-5 (1983).
The default rule is that courts should resolve the question of arbitrability.
Regal Lager, Inc. v. The Baby Club of Am., Inc., No. 1:06-CV-092-JEC, 2006
WL 3388435, at *3 (N.D. Ga. Nov. 21, 2006). However, the parties “may agree
to submit the arbitrability question itself to arbitration.” First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995). In First Options, the
Supreme Court held that “[c]ourts should not assume that the parties agreed to
arbitrate arbitrability unless there is clear and unmistakable evidence that they
did so.” Id. at 944 (internal quotations and citations omitted).
The Plaintiffs do not dispute that determination of arbitrability may be
delegated to an arbitrator. Instead, they argue that the terms of the arbitration
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clause in the Agreements they executed are not sufficient to provide “the
necessary clear and unmistakable evidence that the Plaintiffs intended for
arbitrability to be decided by the arbitrator.” ([11] at 4 of 16.) In support of
their contention, they first argue that “the Agreement does not specifically say
that arbitrability will be decided by the arbitrator.” (Id. at 4-5 of 16). This
argument is unpersuasive.
The Eleventh Circuit and the majority of other Circuits that have
considered this issue have held that explicit delegation is not necessary; rather,
incorporation of arbitration rules that empower an arbitrator to decide the issue
of arbitrability is sufficient. See Terminix Int’l Co. v. Palmer Ranch Ltd., 432
F.3d 1327, 1332-3 (11th Cir. 2005).2 In Terminix, the Eleventh Circuit
2
See also Oracle Am., Inc. V. Myriad Group A.G., 724 F.3d 1069, 1074-5 (9th
Cir. 2013) (holding incorporation of UNCITRAL rules is “clear and unmistakable
evidence that the parties agreed the arbitrator would decide arbitrability”); Republic of
Arg. v. BG Group PLC, 665 F.3d 1363, 1371 (D.C. Cir. 2012) (holding that
incorporation of UNCITRAL rules provided clear and unmistakable evidence of the
parties’ intent to arbitrate arbitrability); Petrefac, Inc. v. DynMcDermott Petroleum
Operations Co., 687 F.3d 671, 675 (5th Cir. 2012) (stating “[w]e agree with most of
our sister circuits that the express adoption of [AAA] rules presents clear and
unmistakable evidence that the parties agreed to arbitrate arbitrability”); Fallo v. HighTech Inst., 559 F.3d 874, 878 (8th Cir. 2009) (stating “the arbitration provision’s
incorporation of the AAA Rules . . . constitutes clear and unmistakable expression of
the parties’ intent to leave the question of arbitrability to the arbitrator”); Qualcomm
Inc. v. Nokia Corp., 466 F.3d 1366, 1373 (Fed. Cir. 2006) (concluding that the
agreement at issue “which incorporates the AAA Rules . . . clearly and unmistakably
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considered whether an arbitration clause stating “arbitration shall be conducted
in accordance with the Commercial Arbitration Rules then in force of the
American Arbitration Association” delegated the question of arbitrability to the
arbitrator. Terminix, 432 F.3d at 1332. The relevant AAA rules stated, “the
arbitrator shall have the power to rule on his or her own jurisdiction, including
any objections with respect to the existence, scope or validity of the arbitration
agreement.” Id. (quoting Am. Arbitration Ass’n, Commercial Arbitration Rule
8(a)). The Eleventh Circuit held that “[b]y incorporating the AAA Rules . . .
into their agreement, the parties clearly and unmistakably agreed that the
arbitrator should decide whether the arbitration clause is valid.” Id.
Incorporation of AAA rules generally, without identifying any particular
subject-specific rules (e.g. Labor, Commercial, Employment), has also been
found sufficient to provide clear and unmistakable evidence of intent to
shows the parties’ intent to delegate the issue of determining arbitrability to an
arbitrator”); Contec Corp. V. Remote Solution, Co., Ltd., 398 F.3d 205, 208 (2d Cir.
2005) (stating “when . . . parties explicitly incorporate rules that empower an
arbitrator to decide issues of arbitrability, the incorporation serves as clear and
unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator”);
Apollo Computer, Inc. V. Berg, 886 F.2d 469, 472-3 (1st Cir. 1989) (Holding that
incorporation of ICC rules providing for delegation of arbitrability was sufficient); but
see Riley Mfg. Co.,Inc. v. Anchor Class Container Corp., 157 F.3d 775, 780 (10th Cir.
1998) (stating that an arbitration clause incorporating the AAA rules did not provide
clear and unmistakable evidence of the parties’ intent to arbitrate arbitrability).
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delegate the determination of arbitrability to the arbitrator. Regal Lager, 2006
WL 3388435, at *3. The agreement in Regal Lager provided that “any dispute
or litigation arising out of or relating to this Agreement” would be subject to
arbitration “under the Rules of the American Arbitration Association.” Id. at *
4. Judge Carnes found that the parties’ agreement effectively incorporated Rule
7(a) of the AAA Commercial Arbitration Rules, which gives the arbitrator
power to determine the validity of the arbitration clause. Id.
The contract at issue in First Options, on the other hand, did not reference
any specific arbitration body or rules. There, the arbitration clause provided
that, “any controversy” arising out of the party’s “business or this agreement . .
. shall be submitted to and determined by arbitration.” Kaplan v. First Options
of Chicago, 19 F.3d 1503, 1506 (3d Cir. 1994). The Supreme Court found that
the language in the arbitration clause was insufficient evidence of the parties’
intent to submit arbitrabiltiy to the arbitrator. First Options, 514 U.S. at 946.
Here, the Agreements state that “[i]n the event of any claim of breach or
dispute regarding this Agreement, the Company may, in its sole discretion,
submit such claim . . . to arbitration with the [AAA] pursuant to its voluntary
labor rules.” ([1-1] at 16, 18, 20 of 46.) The Plaintiffs argue that the “specific
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reference to [‘voluntary labor rules’] that do not and did not exist or were
certainly not in effect at the time the Agreement was signed . . . demonstrates
that the parties did not at all focus on this arbitration provision, much less
whether arbitrability would be decided by an arbitrator or the Court.” ([11] at 4
of 16.) Further, they argue, that reference to the “voluntary labor rules,”
“creates a patent ambiguity in the Agreement which must be construed against
the drafter who is seeking arbitration.” (Id.)
The Court has reviewed the AAA rules in effect at the time the Plaintiffs
executed their Agreements (1999, 2000, and 2006).3 All of the various sets of
rules, including those designated “Labor Rules,” include the following
provision or some equivalent thereof: “The parties shall be deemed to have
made these rules a part of their arbitration agreement whenever . . . they have
provided for arbitration by the American Arbitration Association or under its
rules. These rules and any amendment thereof shall apply in the form obtaining
when the arbitration is initiated.”4 (emphasis added). Today, all of the AAA
3
(See [1-1] at 16, 18, 20 of 46) (Plaintiff Lindberg’s Agreement dated Mar. 8,
1999, Plaintiff Barker’s Agreement dated Dec. 18, 2000, and Plaintiff Hartley’s
Agreement dated Dec. 4, 2006).
4
Labor Arbitration Rules (Including Expedited Labor Arbitration Rules), R. 1
(Jan. 1, 1996); Commercial Dispute Resolution Procedures (Including Mediation and
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rules include a jurisdictional rule stating, “[t]he arbitrator shall have the power
to rule on his or her own jurisdiction, including any objections with respect to
the existence, scope, or validity of the arbitration agreement.”5
In other words, by agreeing to arbitration by the AAA – under any set of
AAA rules in place at the time the Agreements were executed or today – the
Plaintiffs agreed to arbitrate the issue of arbitrability. The Court finds that its
specific reference to arbitration by the AAA brings this arbitration clause within
the scope of Terminix and Regal Lager, and distinguishes it from the arbitration
clause at issue in First Options, which made no reference to the AAA or any
Arbitration Rules), R-1 (Jan. 1, 1999) and (Sept. 1, 2000); National Rules for the
Resolution of Employment Disputes (Including Mediation and Arbitration Rules), R.
1 (Jan. 1, 1999), available at
https://web.archive.org/web/20000619010525/http://www.adr.org/ (accessed by
searching for “adr.org” in the Internet Archive Index and accessing the version of the
page archived on June 19, 2000); see also Labor Arbitration Rules (Including
Expedited Labor Arbitration Rules), R. 1 (July 1, 2005); Commercial Dispute
Resolution Procedures (Including Mediation and Arbitration Rules), R-1(a) (Sept. 15,
2005); Employment Arbitration Rules and Mediation Procedures, R. 1 (July 1, 2006),
available at https://web.archive.org/web/20000619010525/http://www.adr.org/
(accessed by searching for “adr.org” in the Internet Archive Index and accessing the
version of the page archived on Jan. 27, 2007).
5
See Labor Arbitration Rules (Including Expedited Labor Arbitration Rules),
R. 3 (July 1, 2013); Employment Arbitration Rules and Mediation Procedures, R. 6(a)
(Nov. 1, 2009); Commercial Arbitration Rules and Mediation Procedures (Including
Procedures for Large, Complex Commercial Disputes), R-7 (Oct. 1, 2013), available
at https://www.adr.org/aaa/faces/rules/searchrules? (last visited May 30, 2014).
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other arbitration body.6 Based on the foregoing, the Defendant’s Motion to
Compel Arbitration is GRANTED.
II.
Stay or Dismissal of the Case
The FAA states that when “any suit or proceeding [is] brought in [a
district court] upon any issue referable to arbitration under an agreement,” the
Court shall “stay the trial of the action until such arbitration has been had in
accordance with the terms of the agreement.” 9 U.S.C. § 3; see also Dean
Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985). Accordingly, the
Court must STAY the underlying action.
Conclusion
For the aforementioned reasons, Defendant’s Motion to Compel
Arbitration is GRANTED. Defendant’s Motion to Dismiss is DENIED. These
6
The Plaintiffs make additional arguments regarding alleged ambiguity in the
Agreements’ arbitration clause. (See [11] at 13 of 16.) However, having found that
the clause’s reference to arbitration by the AAA evinces the Parties’ clear intent to
arbitrate according to current AAA rules, the Court’s conclusion that the Parties
delegated the question of arbitrability to the arbitrator is unchanged by these
arguments.
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proceedings are STAYED until the arbitrator resolves the underlying
arbitration.
SO ORDERED, this 4th day of June, 2014.
________________________________
RICHARD W. STORY
United States District Judge
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