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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-12863
________________________
D.C. Docket No. 5:12-cv-00266-WTH-TRL
U.S. NUTRACEUTICALS, LLC,
a Florida limited liability corporation,
d.b.a. Valensa International,
Plaintiff-Appellee,
versus
CYANOTECH CORPORATION,
a Nevada corporation,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Middle District of Florida
_______________________
(October 30, 2014)
Before WILSON, WILLIAM PRYOR and ROSENBAUM, Circuit Judges.
WILLIAM PRYOR, Circuit Judge:
We must decide in this appeal whether a district court erred when it denied a
motion to compel arbitration even though the parties expressly stated that the rules
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of the American Arbitration Association governed their arbitration agreement.
Cyanotech Corporation, a company that develops natural products made with
microalgae, moved to compel arbitration after Valensa, its competitor, sued
Cyanotech for tortious interference with contract and breach of a confidentiality
agreement. Cyanotech argued that Valensa had to arbitrate, not litigate, those
allegations based on arbitration provisions contained in two contracts between the
parties. But the district court denied that motion. Because the parties clearly and
unmistakably incorporated the rules of the Association into their arbitration
provisions, the district court erred when it refused to allow an arbitrator to decide
whether their dispute is arbitrable under one of the parties’ contracts. See Terminix
Int’l Co. v. Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1332 (11th Cir. 2005). We
reverse and remand for the district court to compel arbitration.
I. BACKGROUND
Valensa and Cyanotech entered into two contracts, in which they agreed that
Cyanotech would sell a species of algae called Haematococcus pluvialis to
Valensa. Valensa used that algae to extract an antioxidant compound, astaxanthin,
which is a central ingredient of its nutritional supplements. On November 2, 2007,
the two entered into the first contract, which was effective through November 2,
2010. Then on November 1, 2010, they entered into the second contract, which
was effective through December 31, 2012.
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Both contracts contained nearly identical confidentiality provisions that
forbade either party from disclosing confidential and proprietary information
without the other party’s consent. But the confidentiality provision in the 2010
contract added an additional provision, which allowed a party to litigate any breach
of the confidentiality agreement:
Each Party to this Agreement recognizes that disclosure of the other
Party’s confidential and proprietary information may cause irreparable
damage to the non-disclosing Party. Unauthorized disclosure of a
Party’s confidential information shall constitute a material breach of
this Agreement and is cause for termination of the Agreement by the
non-disclosing Party. The non-disclosing Party may seek all remedies
available by law, including injunctive relief, and may pursue any such
action in a court of competent jurisdiction . . . .
Both contracts also contained arbitration provisions that required the
arbitration of certain disputes under the rules of the Association, but these
arbitration provisions differed in one significant respect. The arbitration provision
in the 2007 contract mandated the arbitration of any dispute that arose under that
contract:
The parties agree to resolve any dispute, controversy or claim that
arises hereunder through good faith discussions and written
correspondence, each in good faith attempting to understand the
other’s position and to resolve the matter amicably. If thereafter, a
party at its sole discretion determines that any such dispute cannot
thus be resolved, such dispute shall be subject to binding arbitration in
Los Angeles, CA under the auspices and rules of the American
Arbitration Association by a single arbitrator.
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But the arbitration provision in the 2010 contract contained a carve-out for any
dispute that related to the breach of confidentiality provision:
The Parties agree to resolve any dispute, controversy or claim that
arises hereunder through good faith discussions and written
correspondence, each in good faith attempting to understand the
other’s position and to resolve the matter amicably. If thereafter, a
Party at its sole discretion determines that any such dispute cannot be
so resolved, the dispute, other than a dispute relating to breach of the
confidentiality provision of this Agreement, shall be subject to final
and binding, arbitration by a single arbitrator in the State of
Washington under the auspices and rules of the American Arbitration
Association.
At some point after Cyanotech and Valensa executed the first contract, but
before executing the second, Valensa initiated another lucrative business
relationship with a third company, Mercola. In October 2010, the chief executive
officer of Valensa and a principal of Mercola appeared together in YouTube videos
that discussed nutritional supplements. That same month, Valensa and Mercola
announced a licensing and supply agreement for a health product containing
astaxanthin. Valensa then began supplying Mercola with a different astaxanthin
product containing another ingredient, perilla, in March 2011.
Cyanotech also had dealings with Mercola. In September 2010, the Vice
President of Sales and Marketing at Cyanotech sent an email to Mercola discussing
its microalgae products, including astaxanthin. He offered to supply astaxanthin to
Mercola and sent “a care package with samples and literature” to Mercola.
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In February 2012, Mercola informed Valensa that it planned to end its
relationship with Valensa and would instead purchase the astaxanthin product
directly from Cyanotech. Mercola explained that Cyanotech offered lower prices,
and Valensa now contends that Cyanotech approached Mercola and offered
Mercola discounted prices if it purchased directly from Cyanotech. Valensa sent a
letter to Cyanotech and requested that Cyanotech cease any business dealings with
Mercola. When Cyanotech failed to do so, Valensa sued Cyanotech in federal
court.
Valensa’s complaint alleged two causes of action against Cyanotech:
tortious interference with its business relationship with Mercola and breach of the
confidentiality agreement in the 2010 contract. The complaint alleged that
Cyanotech interfered with the Valensa-Mercola relationship by coaxing Mercola to
buy directly from Cyanotech after Cyanotech revealed confidential information
that it had learned during its dealings with Valensa. Although the complaint
alleged that Cyanotech and Valensa had a business relationship beginning in 2007,
it referenced only the 2010 contract and not the 2007 contract.
Cyanotech moved to compel arbitration, but the district court denied that
motion. Cyanotech filed a reply brief supporting its motion to compel arbitration,
in which Cyanotech cited our precedent in Terminix International Co. But in its
order denying the motion to compel arbitration, the district court failed to
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acknowledge that precedent and reasoned that the carve-out in the 2010 arbitration
provision exempted Valensa from arbitrating its dispute.
II. STANDARD OF REVIEW
We review de novo the denial of a motion to compel arbitration by a district
court. Bess v. Check Express, 294 F.3d 1298, 1302 (11th Cir. 2002).
III. DISCUSSION
We agree with Cyanotech that the district court should have sent this dispute
to arbitration for an arbitrator to decide the question of arbitrability. “[A]rbitrators
derive their authority to resolve disputes only because the parties have agreed in
advance to submit their grievances to arbitration.” AT & T Tech., Inc. v. Commc’ns
Workers of Am., 475 U.S. 643, 648–49, 106 S. Ct. 1415, 1418 (1986).
“[A]rbitration is a matter of contract,” United Steelworkers of Am. v. Warrior &
Gulf Nav. Co., 363 U.S. 574, 582, 80 S. Ct. 1347, 1353 (1960), and ordinarily, “the
question of arbitrability . . . is undeniably an issue for judicial determination[ ]
[u]nless the parties clearly and unmistakably provide otherwise . . . .” AT & T
Tech., Inc., 475 U.S. at 649, 106 S. Ct. at 1418. But when parties incorporate the
rules of the Association into their contract, they “clearly and unmistakably agree[]
that the arbitrator should decide whether the arbitration clause [applies].” Terminix
Int’l Co., 432 F.3d at 1332.
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Valensa attempts to distinguish our decision in Terminix by arguing that the
arbitration clause in that appeal was a broad provision requiring arbitration of all
disputes “arising out of or relating to” the contract, id. at 1329 n.1, and here the
2010 arbitration clause contains a carve-out provision for disputes about the breach
of the confidentiality provision. Valensa contends that because the arbitration
clause in the 2010 contract clearly exempts any claim about breach of
confidentiality from arbitration, we would thwart the intent of the parties if we
hold that, under Terminix, an arbitrator—and not a court—must decide whether
such a claim is arbitrable. We disagree.
Terminix is dispositive. When the parties incorporated into the 2007 contract
the rules of the Association, they clearly and unmistakably contracted to submit
questions of arbitrability to an arbitrator. Id. at 1332. And here, it cannot be “said
with positive assurance that the arbitration clause is not susceptible of an
interpretation that covers” this dispute. AT & T Tech., Inc., 475 U.S. at 650, 106 S.
Ct. at 1419 (quoting Warrior & Gulf Nav. Co., 363 U.S. at 582–83, 80 S. Ct. at
1353). That is, Cyanotech presented evidence that the alleged wrongdoing began as
early as September 2010, during the term of the 2007 contract and not the 2010
contract, which means that the arbitration clause is “susceptible of an interpretation
that covers” the dispute. When the district court announced that Valensa could not
rely on anything that occurred during the term of the 2007 contract it recognized
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that the arbitration clause in the 2007 contract is “susceptible of an interpretation
that covers” the dispute. But the district court cannot weigh the evidence to decide
which contract governs the dispute or recast the allegations of fact in the complaint
to implicate only the 2010 contract.
We need not address in this appeal whether a carve-out provision in a broad
arbitration clause removes certain claims from an arbitrator’s jurisdiction because
Cyanotech did not move to compel arbitration solely under the 2010 contract,
which contained the carve-out provision. Cyanotech raises a factual dispute—
which contract governs—and the resolution of that question likely determines
whether the allegations of Valensa are arbitrable. So here, we need not decide
whether the adoption of the Association rules clearly and unmistakably invites an
arbitrator to decide questions of arbitrabilility when a contract has a carve-out
provision.
When we rule on motions to compel arbitration, we look to “the facts
alleged in the . . . complaint.” Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204,
1208 (11th Cir. 2011). But we may ignore the “legal labels” that Valensa assigns to
the allegations, Indus. Risk Ins. v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d
1434, 1448 n.21 (11th Cir. 1998), and we are not limited by the way Valensa
“couche[s] [its allegations] in various terms and theories of action.” Gregory v.
Electro-Mech. Corp., 83 F.3d 382, 384 (11th Cir. 1996). We look for the “true
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thrust” of the complaint even if, “[o]n its face[,] . . . [the complaint] would appear
to arise from the [2010] contract.” Ivax Corp. v. B. Braun Am., Inc., 286 F.3d 1309,
1322 (11th Cir. 2002) (first alteration in original) (citation omitted).
Valensa’s complaint alleges causes of action based on the 2010 contract, but
its reliance on only the 2010 contract is a legal label. The allegations of fact are the
same whether Valensa labels the causes of action as violations of the 2007 contract
or the 2010 contract. Although the complaint does not mention the 2007 contract,
the facts alleged in the complaint—its “true thrust”—implicate both the 2007 and
2010 contracts. See Ivax Corp., 286 F.3d at 1322. For that reason, the 2007
contract is “susceptible of an interpretation that covers” the dispute. AT & T Tech.,
Inc., 475 U.S. at 650, 106 S. Ct. at 1419.
Both parties agree that, should we conclude Terminix is dispositive of this
appeal, we must send their dispute to arbitration in the State of Washington in
accordance with the 2010 contract. See Princess Cruise Lines, 657 F.3d at 1208
(relying on the allegations in the complaint to decide whether a district court erred
when it denied a motion to compel arbitration). We do not send their dispute to the
State of Washington “simply because [the parties] referenced [the rules of the
Association] somewhere in the [2010 contract].” See Dissenting Op. at 24. Instead,
we send the dispute to the State of Washington because the parties agree that, if we
compel arbitration, we should do so as prescribed in the 2010 contract. We remand
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for the district court to compel arbitration as prescribed in the 2010 contract, and
that arbitrator will determine whether the 2007 or 2010 contract governs this
dispute.
IV. CONCLUSION
We REVERSE the denial of the motion to compel arbitration and REMAND to
the district court to compel arbitration in the State of Washington.
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WILSON, Circuit Judge, dissenting:
Arbitration is a matter of contract. First Options of Chi., Inc. v. Kaplan, 514
U.S. 938, 943, 115 S. Ct. 1920, 1924 (1995). Disputes about arbitrability itself are
governed by the same general rule. Id. The Supreme Court has clarified, however,
that “[t]he question whether the parties have submitted a particular dispute to
arbitration, i.e., the ‘question of arbitrability,’ is an issue for judicial determination
unless the parties clearly and unmistakably provide otherwise.” Howsam v. Dean
Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S. Ct. 588, 591 (2002) (emphasis
added) (internal quotation marks omitted). The parties here did not agree to
arbitrate the arbitrability of the dispute underlying this appeal, and they certainly
did not do so “clearly and unmistakably.” They also did not agree to arbitrate
disputes regarding which of their agreements controls. Because the Majority is
compelling arbitration of a dispute the parties did not agree to arbitrate, I
respectfully dissent.
I. Background
In the operative complaint underlying this appeal, Appellee (Valensa)
alleged that Appellant (Cyanotech) (1) breached the confidentiality provision of a
2010 agreement between the two parties (2010 Agreement), and (2) used
confidential information, in violation of the 2010 Agreement’s confidentiality
provision, to tortiously interfere with Valensa’s business relationship with a third
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party. Cyanotech filed a motion to compel arbitration, and while the 2010
Agreement does have an arbitration provision, it also has a carve-out from the
arbitration provision for disputes relating to the confidentiality provision of the
2010 Agreement.1 Because Valensa’s complaint limited the scope of this dispute
such that it only relates to breach of the confidentiality provision of the 2010
Agreement, the district court concluded that the 2010 Agreement controls, that the
dispute fits within the carve-out, and that arbitration therefore could not be
compelled.
Cyanotech claims that the district court erred in resolving this dispute
pursuant to the 2010 Agreement rather than the parties’ 2007 Agreement, in ruling
on the issue of arbitrability rather than submitting that issue to arbitration, and in
concluding that the underlying dispute is not arbitrable. These are all matters of
contract, see First Options, 514 U.S. at 943, 115 S. Ct. at 1924, so we must begin
by determining which of the parties’ agreements controls.
II. The 2010 Agreement Controls
1
The arbitration provision states:
If [after attempting in good faith to resolve any dispute between the Parties
amicably], a Party . . . determines that any such dispute cannot be so resolved, the
dispute, other than a dispute relating to breach of the confidentiality provision of
this Agreement, shall be subject to final and binding arbitration by a single
arbitrator . . . under the auspices and rules of the American Arbitration
Association [AAA].
(Emphasis added).
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Cyanotech argues that this dispute should be governed by the parties’ 2007
Agreement because much of the conduct about which Valensa has reason to
complain occurred prior to the 2010 Agreement’s effective date. The 2007
Agreement has an arbitration provision similar to the arbitration provision in the
2010 Agreement, except that it has no carve-out. If the 2007 Agreement controls,
the dispute would obviously not fall in the 2010 Agreement’s carve-out, and we
would likely have to reverse the district court’s denial of Cyanotech’s motion
because the carve-out was the only basis for that decision.2
Cyanotech is incorrect, however. In determining which agreement controls
for purposes of ruling on a motion to compel arbitration, we “consider . . . the facts
alleged in the . . . complaint.” Doe v. Princess Cruise Lines, Ltd., 657 F.3d 1204,
1208 (internal quotation marks omitted). And the complaint alleges that
Cyanotech engaged in wrongful conduct in breach of the 2010 Agreement.
Valensa did not allege a breach of the 2007 Agreement at all and cannot recover
for such a breach, so based on the complaint, the district court had no choice but to
consider the terms of the 2010 Agreement only.
Assuming it is true, as Cyanotech argues, that much of the conduct about
which Valensa has reason to complain actually occurred during the term of the
2
I use the qualifier “likely” to note the possibility, asserted by Valensa, that at least some
portions of this dispute do not arise under either of the parties’ agreements. I need not address
Valensa’s assertion here.
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2007 Agreement, the substance of the complaint would not change in any way. If
Cyanotech successfully proves that, contrary to Valensa’s complaint, the allegedly
wrongful conduct occurred during the term of the 2007 Agreement, then
Cyanotech will have disproved Valensa’s allegations concerning breach of the
2010 Agreement, giving Cyanotech a victory on the merits. But Cyanotech will
not have proved anything about the contents of Valensa’s complaint. In other
words, whether the conduct in question implicates the 2010 Agreement rather than
the 2007 Agreement is, as a consequence of Valensa’s complaint, a point that
Valensa must prove in order to prevail on the merits. We may question whether
Valensa’s decision to give Cyanotech an additional defense—i.e., the defense that
its conduct, even if wrongful, occurred prior to the 2010 Agreement’s effective
date—was wise from a strategic perspective, but because Valensa is the proverbial
master of its complaint, making that choice was entirely its prerogative. Valensa’s
decision cannot be undone, nor its complaint rewritten to include allegations
Valensa did not mention, either by this court or by Cyanotech in a motion to
compel arbitration.
The Majority’s confusion on this issue is manifest in its statement that
“Cyanotech did not move to compel arbitration solely under the 2010 contract.”
Maj. Op. at 8 (emphasis added). Princess Cruise Lines unambiguously states that,
when ruling on motions to compel arbitration, we “consider . . . the facts alleged in
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the . . . complaint,” not the arguments made in the motion to compel arbitration by
the defendant as the Majority would have it. 657 F.3d at 1208 (emphasis added)
(internal quotation marks omitted).3 Again, by writing its complaint to preclude
recovery for breaches of the 2007 Agreement, Valensa may have significantly
hindered its ability to succeed on the merits. But that was Valensa’s choice to
make.
3
The Majority sidesteps this hiccup by purporting to look to the “true thrust” of the
complaint, which, according to the Majority, is a breach of the 2007 Agreement because “the
facts alleged in the complaint . . . implicate both the 2007 and 2010 contracts.” Maj. Op. at 8–9.
The Majority cites our own precedent to support this point. See Ivax Corp. v. B. Braun of Am.,
Inc., 286 F.3d 1309 (11th Cir. 2002); Indus. Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH,
141 F.3d 1434 (11th Cir. 1998); Gregory v. Electro-Mech. Corp., 83 F.3d 382 (11th Cir. 1996).
However, those cases do not support the Majority’s conclusion, and one directly contradicts it.
Industrial Risk Insurers and Gregory instruct courts to look beyond the legal theories
enumerated in the complaint and determine what kind of claim was alleged in the complaint
based on the facts alleged. See 141 F.3d at 1448 n.21 (“focus[ing] on factual allegations in [the]
complaint rather than legal causes of action asserted” to determine whether a complaint alleges
an arbitrable contract claim or a non-arbitrable tort or breach-of-warranty claim); 83 F.3d at 384
(“Whether a claim falls within the scope of an arbitration agreement turns on the factual
allegations in the complaint rather than the legal causes of action asserted. Sweet Dreams
Unlimited, Inc. v. Dial-A-Mattress Int’l, Ltd., 1 F.3d 639, 643 (7th Cir. 1993) (‘a party may not
avoid a contractual arbitration clause merely by casting its complaint in tort’ [(internal quotation
marks omitted)]).”). Ivax holds that, for purposes of determining on what conduct a plaintiff
bases its claim, we should look to the complaint, rather than take a party’s arguments on appeal
at face value. See 286 F.3d at 1321 (“[W]e believe that Ivax’s contention that its lawsuit centers
on Braun’s failure to maintain its books and records properly is belied by the complaint itself,
which is more accurately viewed as a disagreement with Braun’s ACOI calculation.”).
In other words, we look to the factual allegations in the complaint and determine, based
on those allegations, under what legal theory the complaint purports to proceed and to what
conduct it objects. Valensa alleged that the 2010 Agreement—and only the 2010 Agreement—
was breached. The question of “which contract governs” “raises a factual dispute.” Maj. Op. at
8. Therefore, if we were to faithfully apply precedent, we would credit the complaint’s factual
allegation that only the 2010 Agreement governs the controversy here over Cyanotech’s
assertions to the contrary. See Ivax, 286 F.3d at 1321. In any event, it is perfectly clear that the
“thrust” of Valensa’s complaint is a breach of the 2010 Agreement. That is necessarily so
because Valensa is formally estopped from recovering for anything else.
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Moreover, the district court astutely recognized that Valensa may later regret
its decision to disclaim any ability to recover for a breach of the 2007 Agreement
and try to argue that it can recover for such a breach, after all. To fix Valensa’s
argument regarding the content of its complaint and to ensure that Cyanotech
would not be prejudiced by potential gamesmanship (e.g., Valensa taking one
position to avoid arbitration, then contradicting that position to prevail on the
merits), the court announced that Valensa’s arguments in response to Cyanotech’s
motion to compel arbitration would function as “an estoppel in pais against any
future claim, contention, or argument that Cyanotech engaged in any actionable
wrongful conduct not involving a breach of the confidentiality provision of the
2010 Agreement, or any actionable wrongful conduct that occurred” before the
2010 Agreement’s effective date. Thus, even if the terms of the original complaint
could have been read to permit recovery for conduct arising under the 2007
Agreement, any ambiguity permitting that reading has been definitively eliminated.
For purposes of this case, the complaint now only permits recovery for conduct
arising under the 2010 Agreement.
It is also important to recall that Valensa, as the plaintiff, always retained the
ability to seek leave to redraft its complaint, and the court retained discretion to
grant any such request. See Fed. R. Civ. P. 15(a)(2). Thus, when the court
interpreted Valensa’s complaint to preclude recovery for conduct that arose under
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the 2007 Agreement—by announcing the estoppel in pais—Valensa could have
sought to amend its complaint if it wanted to be able to recover for conduct that
arose under the 2007Agreement, or it could have objected before the district court
and cross-appealed that ruling, if necessary. That Valensa acquiesced in the
district court’s decision to definitively interpret the complaint to preclude recovery
for conduct arising under the 2007 Agreement confirms that the district court read
Valensa’s complaint exactly as Valensa intended.
Despite this overwhelming evidence that the 2010 Agreement controls, the
Majority appears to rely on the 2007 Agreement’s arbitration provision to resolve
this case. I note that the Majority is not perfectly clear on whether it relied on the
2007 or 2010 Agreement, and indeed, it is internally inconsistent on this point. 4
To the extent that the Majority opinion compels arbitration based on the terms of
the 2007 Agreement, it does so in violation of Princess Cruise Lines and based on
4
The Majority ultimately declines to decide which agreement controls and sends that
question to arbitration, Maj. Op. at 9–10, but for preliminary purposes of ruling on the motion to
compel arbitration, the Majority necessarily rests its decision on one agreement or the other (or
on the conclusion that both agreements compel arbitration) because “arbitration is simply a
matter of contract,” First Options, 514 U.S. at 943, 115 S. Ct. at 1924. If there is no agreement,
there can be no agreement to arbitrate. By compelling arbitration, then, the Majority is
necessarily making a decision that one agreement controls for purposes of ruling on this motion.
The Majority takes contradictory positions on which agreement that is. The Majority’s
discussion of AT&T Technologies relies on the 2007 Agreement. But the Majority’s conclusion
that “[w]e remand for the district court to compel arbitration as prescribed in the 2010
Agreement,” Maj. Op. at 9 (emphasis added), clearly rests on the 2010 Agreement. To the extent
that the Majority relies on the 2010 Agreement, I agree that that agreement controls, but as I will
discuss in Part III, I disagree that arbitration of arbitrability can be compelled based on that
agreement. To the extent that the Majority relies on the 2007 Agreement, I disagree that that
agreement controls at all, as will be discussed in the remainder of this Part of my dissent.
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a misapplication of AT&T Technologies, Inc. v. Communications Workers of
America, 475 U.S. 643, 650, 106 S. Ct. 1415, 1419 (1986).
The Majority explained that “Cyanotech presented evidence that the alleged
wrongdoing began . . . during the term of the 2007 contract and not the 2010
contract, which means that the arbitration clause is ‘susceptible of an interpretation
that covers’ the dispute.” Maj. Op. at 7 (quoting AT&T Techs., 475 U.S. at 650,
106 S. Ct. at 1419). As the preceding quotation shows, the Majority relies on
AT&T Technologies’s articulation of the Supreme Court’s well-established
presumption in favor of arbitration to hold that we must apply the 2007 Agreement
(rather than the 2010 Agreement) unless it may “be said with positive assurance
that the [2007 Agreement’s] arbitration clause is” inapplicable. Maj. Op. at 7–8.
In other words, the Majority held that because a colorable argument can be made
that either agreement controls, and because the 2007 Agreement would clearly
compel arbitration, we must therefore resolve all doubts about which agreement
controls in favor of the agreement that compels arbitration—the 2007 Agreement.
This conclusion will sow confusion in our case law because it rests on a
complete misapplication of AT&T Technologies’s presumption in favor of
arbitration. That presumption only applies when interpreting an arbitration
provision, for example when defining the scope of such a provision. The
presumption does not apply when determining which of two competing agreements
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controls. Indeed, the inapplicability of AT&T Technologies is contained in the
very passage from that case cited by the Majority. The Majority writes that “the
arbitration clause [in the 2007 Agreement] is ‘susceptible of an interpretation that
covers’ the dispute.” Maj. Op. at 7 (emphasis added). That the 2007 Agreement’s
arbitration clause is broad enough to cover disputes like the ones raised by Valensa
does not answer the question of whether the 2007 Agreement controls in the first
place. Instead of asking how broad the 2007 Agreement’s arbitration provision is
(which triggers AT&T Technologies’s presumption), the Majority should be asking
whether Valensa’s underlying complaint implicated the 2007 Agreement at all.
And we have very recently held that when asking question like which agreement
controls in a particular situation, AT&T Technologies’s presumption in favor of
arbitration does not apply. See Dasher v. RBC Bank (USA), 745 F.3d 1111, 1115
(11th Cir. 2014) (holding that where the parties disagree about whether a prior
agreement containing an arbitration clause has been superseded, “[t]he FAA’s
presumption is inapplicable in this situation, as courts are to apply the presumption
of arbitrability only where a validly formed and enforceable arbitration agreement
is ambiguous about whether it covers the dispute at hand” (internal quotation
marks omitted)). In other words, we must determine which agreement controls
before we can possibly construe any ambiguity in the controlling agreement’s
arbitration provision in favor of arbitration.
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The Majority clearly does not believe the relevant question here (i.e., the
question of which agreement controls) to be interpretive, and thus by its own
framing of the question, it should not be relying on AT&T Technologies’s
interpretive rule. The Majority wrote that “Cyanotech raises a factual dispute—
which contract governs.” Maj. Op. at 8 (emphasis added). So the Majority applied
precedent that is only relevant when answering an interpretative question to resolve
what it believed to be a factual dispute. Really, the Majority is wrong to
characterize this either as an interpretive or factual dispute; it is instead a question
concerning the content of the complaint, which Princess Cruise Lines directs us to
consider when ruling on a motion to compel arbitration. But the important point is
that the question of which agreement controls has nothing to do with interpreting
an ambiguous arbitration clause. Therefore, AT&T Technologies’s command to
interpret arbitration clauses broadly is inapplicable. See Dasher, 745 F.3d at 1115.
As a final note, even if AT&T Technolgies applied, the Majority’s
conclusion would still be incorrect. Because the district court has estopped
Valensa from recovering for damages caused by conduct that would implicate the
2007 Agreement, it may indeed be “said with positive assurance” that the 2007
Agreement’s arbitration clause does not cover this dispute because it may be said
with positive assurance that the 2007 Agreement does not and cannot control at all.
AT&T Techs., 475 U.S. at 650, 106 S. Ct. at 1419.
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The district court correctly concluded that the 2010 Agreement controls and
looked to that agreement’s terms to determine whether arbitration should be
compelled. The Majority’s reliance on AT&T Technologies to look to the 2007
Agreement’s terms is misplaced. Because the Majority apparently compels
arbitration pursuant to the terms of the 2007 Agreement, I respectfully dissent.
III. The District Court Properly Denied the Motion to Compel Arbitration
Based on the Terms of the 2010 Agreement
Much as the Majority opinion seems to rely on the possibility that the 2007
Agreement controls, the Majority also explicitly compels arbitration based on the
2010 Agreement. See Maj. Op. at 9 (“We remand for the district court to compel
arbitration as prescribed in the 2010 contract . . . .” (emphasis added)).5 This
portion of the Majority’s opinion, unlike the portion that relies on the 2007
Agreement, is at least correct about which agreement controls. But the Majority
appears to agree with Cyanotech’s contention that even if the 2010 Agreement
controls, the district court still erred in ruling on the issue of arbitrability rather
5
Save for the Majority’s last statement, all indications are that the Majority is compelling
arbitration based on the 2007 Agreement’s terms. In addition to arguing that the events in
question occurred under the 2007 Agreement, see Maj. Op. at 7–8—an argument that is pointless
unless it is there to suggest that the 2007 Agreement’s terms might control—the Majority also
stated that we need not address “whether a carve-out provision in a broad arbitration clause
removes certain claims from” arbitration. Maj. Op. at 8. Implicitly, the reason we need not
address that issue is because the 2007 Agreement, an agreement that has no carve-out, controls.
But by asserting that the 2010 Agreement prescribes arbitration of arbitrability in this case, see
Maj. Op. at 9–10, the Majority has in fact addressed that question. And it has concluded that a
carve-out has no impact on questions of arbitrability. That conclusion is flawed in several ways,
as this Part of my dissent explains.
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than submitting that issue to arbitration. In other words, in submitting this case to
arbitration pursuant to the 2010 Agreement, the Majority concludes that the 2010
Agreement’s terms require arbitration of the issue of arbitrability. I disagree.
A. The District Court Properly Reached the Question of Arbitrability
As with all matters of arbitration, whether arbitrability itself must be
arbitrated is a matter of contract. First Options, 514 U.S. at 943, 115 S. Ct. at
1924. But the “question whether the parties have submitted a particular dispute to
arbitration, i.e., the ‘question of arbitrability,’ is an issue for judicial determination
unless the parties clearly and unmistakably provide[d] otherwise.” Howsam, 537
U.S. at 83, 123 S. Ct. at 591 (emphasis added) (internal quotation marks omitted).
Nothing in the 2010 Agreement clearly and unmistakably commits the question of
the arbitrability of this dispute to an arbitrator.
The 2010 Agreement contains a broad arbitration provision with a carve-out,
stating that disputes between the parties “other than a dispute relating to breach of
the confidentiality provision of this Agreement shall be subject to final and binding
arbitration by a single arbitrator . . . under the auspices and rules of the American
Arbitration Association [AAA].” (Emphasis added). The district court concluded
that the allegations in Valensa’s complaint fall in this carve-out, and therefore, the
district court denied the motion to compel arbitration.
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To the extent that the Majority relies on the 2010 Agreement to conclude
that the parties clearly and unmistakably agreed to arbitrate questions of
arbitrability, it apparently does so based on the 2010 Agreement’s reference to
AAA Rules. See Maj. Op. at 7 (explaining that Terminix International Co. v.
Palmer Ranch Ltd. P’ship, 432 F.3d 1327, 1332 (11th Cir. 2005), is dispositive).
AAA Rule 7(a), in turn, states: “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 or to the arbitrability of any claim or
counterclaim.” So, the Majority apparently reasons, because AAA Rule 7(a) gives
arbitrators the authority to decide the issue of arbitrability, and because AAA Rules
were referenced somewhere in the 2010 Agreement, arbitrability here should have
been decided by an arbitrator pursuant to AAA Rule 7(a).
I disagree with this conclusion for one simple reason: by merely referencing
AAA Rules in the 2010 Agreement, the parties did not thereby clearly and
unmistakably agree that AAA Rule 7(a) would govern all disputes. Accordingly,
there is no reason to enforce AAA Rule 7(a) in all situations. Instead, we should
only apply AAA Rule 7(a) when the parties agreed, clearly and unmistakably, that
AAA Rules in general would apply.
To be clear, I agree with the Majority that if parties agree that a dispute will
be resolved by AAA Rules, then they are bound by AAA Rule 7(a), and thus are
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bound to arbitrate arbitrability. This was exactly what we held in Terminix, 432
F.3d at 1332 (citing AAA Rule 8(a), now Rule 7(a)). Terminix thus articulated the
rather obvious proposition that parties can be bound to resolve disputes pursuant to
AAA Rule 7(a) when they explicitly agreed to resolve disputes pursuant to all
AAA Rules. But Terminix clearly did not hold that parties can be bound by AAA
Rule 7(a) simply because they referenced AAA Rules somewhere in the operative
agreement.
Here, we must address the threshold question of whether the parties agreed
to resolve this dispute pursuant to AAA Rules at all, and only after concluding that
they did so agree can we apply Terminix. At oral argument, Judge Pryor asked,
“How is there a preliminary question to arbitrability itself?” The answer is, we
must preliminarily determine if the parties formed an agreement concerning the
arbitrability of the instant dispute, and if they did, we must determine what that
agreement entails. In Terminix, this court held that the parties did form such an
agreement, and that agreement entailed following AAA Rules including Rule 7(a)
in resolving all disputes between the parties, necessarily including the particular
dispute at issue in that case. 432 F.3d at 1332 (“[T]he parties have agreed that the
arbitrator will answer this question by providing (in all three of the arbitration
clauses at issue) that ‘arbitration shall be conducted in accordance with’ . . . AAA
Rule [7](a) . . . .”).
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The court necessarily determined for itself that the parties agreed to resolve
their disputes—all of them—pursuant to AAA Rules, including Rule 7(a), before it
applied AAA Rule 7(a). That the court in Terminix did not dwell on the question
of whether AAA Rules governed the particular dispute at issue in that case should
be no surprise because, by clearly agreeing to resolve all disputes pursuant to AAA
Rules, the parties had obviously agreed to resolve their particular underlying
dispute pursuant to AAA Rules, and thus, AAA Rule 7(a). 6 The parties executed
twenty different contracts, each containing one of three variations of an arbitration
clause that stated “any controversy [or all matters in dispute] . . . shall be
exclusively” resolved in accordance with AAA Rules.7
6
While the court did not dwell on the question, the court did specifically point out that
“the parties have agreed that the arbitrator will answer this question . . . in all three of the
arbitration clauses at issue,” Terminix, 432 F.3d at 1332 (emphasis added), suggesting that it
was important that the parties’ agreement extended to all disputes.
7
Each of the parties’ twenty separate contracts contained one of the following arbitration
agreements:
ARBITRATION. The Purchaser and Terminix agree that any controversy or
claim between them arising out of or relating to this agreement shall be settled
exclusively by arbitration. Such arbitration shall be conducted in accordance with
the Commercial Arbitration Rules then in force of the American Arbitration
Association. . . .
ARBITRATION. The Purchaser (including anyone claiming through Purchaser)
and Terminix agree that all matters in dispute between them . . . shall be settled
exclusively by arbitration. Such arbitration shall be conducted in accordance with
the Commercial Arbitration Rules then in force of the American Arbitration
Association. . . .
ARBITRATION. THE PURCHASER AND TERMINIX AGREE THAT ALL
MATTERS IN DISPUTE BETWEEN THEM, . . . SHALL BE SETTLED
EXCLUSIVELY BY ARBITRATION. Such arbitration shall be conducted in
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Thus, in Terminix, the threshold question of whether the parties formed an
agreement with regard to who would decide arbitrability in the particular dispute at
issue in that case was incredibly easy to answer. That the question was easy to
answer in that case does not suggest that it will be easy to answer in all cases,
however. Nor does this suggest that we need not answer the question. Indeed, by
virtue of holding that the parties must arbitrate arbitrability because they agreed to
resolve their particular dispute by AAA Rules, see Terminix, 432 F.3d at 1332
(stating that “we are able to avoid the usual process [of deciding arbitrability] for a
different reason: the parties have agreed that the arbitrator will answer this
question by providing” for arbitration pursuant to AAA Rules, necessarily
including Rule 7(a) (emphasis added)), the court itself had necessarily concluded
that the parties agreed to resolve their dispute pursuant to AAA Rules. In other
words, before proceeding to determine the consequences of agreeing to resolve a
dispute by AAA Rules—i.e., that AAA Rule 7(a) applied, giving the issue of
arbitrability to the arbitrator—the court had necessarily determined that the parties
had agreed to resolve their dispute pursuant to AAA Rules in the first place.
To be faithful to Terminix, then, before applying its holding that AAA Rule
7(a) governs whenever AAA Rules govern, we must first determine if the parties
accordance with the Commercial Arbitration Rules then in force of the American
Arbitration Association. . . .
Br. for Appellant, at *7–9, 2004 WL 4986251, Terminix, 432 F.3d 1327.
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agreed to resolve the instant dispute pursuant to AAA Rules. 8 Further, we can
only apply Terminix’s holding if the parties clearly and unmistakably agreed to
apply AAA Rules when resolving a particular dispute. Without such a
requirement, our holding would essentially function as an end run around the
Supreme Court’s rule in Howsam that arbitrability is to be decided by an arbitrator
only if the parties clearly and unmistakably provided for that result. See 537 U.S.
at 83, 123 S. Ct. at 591. For example, if parties unclearly, vaguely, or ambiguously
agreed that a dispute would be resolved by AAA Rules, yet we applied AAA Rule
7(a) based on a broad reading of Terminix, then an arbitrator would decide
arbitrability even though the parties did not even clearly or unmistakably agree to
apply AAA Rules in general, let alone AAA Rule 7(a) specifically. Such a holding
would imply that a vague agreement to a general proposition somehow constitutes
a clear and unmistakable agreement to the specific components of that general
proposition. The notion is nonsensical, it is not at all what Terminix requires, and
it is inconsistent with Supreme Court precedent announced in Howsam and First
Options.
If anything, however, the Majority’s holding that Terminix is dispositive
even though the 2010 Agreement controls is even less faithful to Howsam. Far
8
I emphasize that the parties must have agreed to be bound by AAA Rules with regard to
this dispute because, as the Supreme Court has explained, arbitration “is a way to resolve those
disputes—but only those disputes—that the parties have agreed to submit to arbitration.” First
Options, 514 U.S. at 943, 115 S. Ct. 1924 (emphasis added). Questions of arbitration are thus
dispute-specific.
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from requiring a clear and unmistakable agreement that their agreement will be
resolved pursuant to AAA Rules, the Majority applies AAA Rule 7(a) without
requiring any agreement, clear and unmistakable or otherwise, stating that the
instant dispute will be resolved pursuant to AAA Rules. That is because the 2010
Agreement’s carve-out not only precludes arbitration of disputes relating to breach
of the confidentiality provision, it also precludes application of AAA Rules in
resolving disputes relating to breach of the confidentiality provision. 9 Thus,
according to the terms of the 2010 Agreement, if a dispute fits in the carve-out,
AAA Rules do not apply. Yet the Majority applies those rules—actually, only one
of them, Rule 7(a)—any way.
Terminix does not compel this result, and Howsam precludes it. Consistent
with Howsam, in Terminix, the parties agreed clearly and unmistakably that AAA
Rules would apply, so it only made sense to apply AAA Rule 7(a). Instead of
applying AAA Rule 7(a) only where AAA Rules were clearly agreed to by the
parties, the Majority applies AAA Rule 7(a) whenever the parties have referenced
AAA Rules somewhere in their agreement. That rule apparently holds true even if
the parties made those rules specifically inapplicable in a particular situation, as
the parties did here. Such a rule is entirely inconsistent with Howsam’s
9
The 2010 Agreement states that disputes “other than a dispute relating to breach of the
confidentiality provision of this Agreement, shall be subject to final and binding arbitration by a
single arbitrator . . . under the auspices and rules of the American Arbitration Association
[AAA].” Thus, when a dispute falls in the carve-out, there is simply no invitation in this contract
to apply AAA Rules, including, of course, AAA Rule 7(a).
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requirement that agreements to arbitrate arbitrability must be clear and
unmistakable.
At oral argument, Judge Pryor pressed for a meaningful distinction between
Terminix and this case. Here it is: in Terminix, the parties clearly and
unmistakably agreed to be bound by AAA Rules in resolving their dispute, but
here, the parties did not clearly and unmistakably agree to be bound by AAA Rules
in resolving this dispute. Accordingly, unlike in Terminix, here there is no basis
for applying AAA Rule 7(a). To be sure, the parties here referenced AAA Rules,
but they did so only in the course of explaining that those rules would only apply
in resolving disputes other than disputes like the one at issue here. The distinction
between compelling arbitration pursuant to the parties’ agreement, as in Terminix,
as opposed to compelling arbitration against the terms of the parties’ agreement, as
the Majority is doing here, is outcome determinative under Supreme Court
precedent. See Howsam, 537 U.S. at 83, 123 S. Ct. at 591; First Options, 514 U.S.
at 943, 115 S. Ct. at 1924.
The flaw in the Majority’s analysis is revealed by one likely outcome of
today’s holding. The Majority has held that an arbitrator should decide which
agreement controls. If the arbitrator abides by Princess Cruise Lines and reads the
terms of Valensa’s complaint, she should conclude that the 2010 Agreement
controls. The arbitrator should then conclude, after reading the 2010 Agreement
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and comparing it to the complaint, that the dispute here “relat[es] to breach of the
confidentiality provision.” If the arbitrator reaches that decision, as she should,
then the arbitrator will decide that the dispute is not arbitrable because it fits in the
2010 Agreement’s carve-out, and this dispute will end up right back in court.
Aside from wasting time, that will definitively prove that the Majority compelled
arbitration when the parties did not agree to arbitration. This is so because the
arbitrator’s conclusion that the dispute fits in the 2010 Agreement’s carve-out
eliminates any contractual basis for compelling arbitration or applying AAA Rules.
In short, if the arbitrator correctly applies the law in resolving this case, the
arbitrator’s decision will prove that the Majority’s decision directly violated
Supreme Court precedent in Howsam, 537 U.S. at 83, 123 S. Ct. at 591.
The Majority’s fundamental disregard for the contractual nature of
arbitration agreements, see First Options, 514 U.S. at 943, 115 S. Ct. at 1924, is
tellingly revealed by an exchange at oral argument. In explaining how the
Majority’s view will put parties like Valensa in a difficult position—they want
many disputes to go to arbitration, but they also want a carve-out such that certain
disputes never go to arbitration—counsel explained that the carve-out was intended
to avoid the exact outcome the Majority is forcing on the parties today. Judge
Pryor offered a solution: “Don’t sign an arbitration agreement that references the
[AAA]’s Rules, and you don’t have that problem.” This more or less gives away
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the Majority’s position: parties do not have the option to expressly limit the
applicability of AAA Rule 7(a). Even if parties state in unmistakably clear
language that AAA Rules are only applicable in resolving some disputes and are
not applicable in resolving others, the Majority holds that courts are to entirely
rewrite those limiting words. If the parties’ agreement says, AAA Rules apply
when resolving disputes involving X, Y, and Z, but not when resolving disputes
involving A, B, and C, the Majority holds that we must rewrite that agreement to
say, AAA Rules apply when resolving disputes involving X, Y, and Z, but not
when resolving disputes involving A, B, and C, except that AAA Rule 7(a) always
applies even if a dispute involves A, B, or C. This is another distinction between
this case and Terminix. To apply AAA Rule 7(a), the Majority has to rewrite the
terms of the parties’ agreement; to apply AAA Rule 7(a) in Terminix, the court
simply applied the clear and unmistakable terms the parties wrote for themselves.
At best, this holding ignores Howsam’s “clear and unmistakable”
requirement by requiring arbitration of arbitrability in cases where intent to
arbitrate arbitrability is ambiguous. In many ways, this holding does more and
flips Howsman’s requirement on its head by essentially requiring parties who
reference AAA Rules anywhere in their contract to clearly and unmistakably state
that Rule 7(a) will not govern a particular dispute—otherwise, we will apply it
even where other AAA Rules are clearly not intended to apply. Worst of all,
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today’s holding suggests that even clearly and unmistakably stating that AAA
Rules do not apply in certain situations will not be enough for us to conclude that
AAA Rule 7(a) does not apply in those situations.
Instead of allowing parties to agree to the particular arrangement regarding
arbitration that suits them, we are taking one option off the table. If parties want
some disputes to be governed by AAA Rules and others to be resolved in court,
then parties, after today, are powerless to dictate for themselves who decides the
issue of arbitrability. To be sure, the parties can avoid the latter consequence by
refraining from even referencing AAA Rules, but even assuming we had authority
to limit their options, which we do not based on Supreme Court precedent, why
should we? Parties have many reasons for wanting to reference AAA Rules in
agreements: AAA is trusted to make sound rules, saving parties the hassle of
negotiating rules of arbitration for themselves; sophisticated parties are often
familiar with AAA Rules; cross-referencing AAA Rules simplifies contracts; the
list goes on. Parties may want those benefits in some situations without having
those rules (or one of those rules in particular) applied blindly to all of their
disputes. By explaining that arbitration is a matter of contract, the Supreme Court
has explained that parties are free to agree to arbitration on terms of their choosing.
By explaining that parties cannot avoid application of AAA Rule 7(a) to all of their
disputes by any means other than refraining from referencing AAA Rules
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anywhere in their agreement, the Majority is explaining that, at least on this issue,
arbitration is not a matter of contract at all.
B. The District Court Correctly Concluded that the Dispute “Relates to
Breach of the Confidentiality Provision” of the 2010 Agreement
Having established that the district court properly declined to send the
question of arbitrability—i.e., whether Valensa’s claims fall in the carve-out of the
2010 Agreement’s arbitration provision—to arbitration, I next address whether the
district court answered that question correctly when it concluded that the claims do
indeed fit within the carve-out. Valensa’s first claim is for breach of the
confidentiality provision itself, so there can be no doubt that it falls in the 2010
Agreement’s carve-out for claims “relating to breach of the confidentiality
provision.”
Valensa’s second claim is for tortious interference carried out through use of
allegedly confidential information. This, too, falls in the carve-out because it
clearly “relates to” a breach of the confidentiality provision, as it is entirely
premised on such a breach. Had the parties intended the carve-out to apply only to
actual claims for breach of the confidentiality provision, they would not have used
the term “relating to,” which expands the scope of the carve-out. 10
10
For example, had the parties agreed that “any dispute, other than a dispute that the
confidentiality provision of this Agreement was breached, shall be subject to arbitration under
AAA rules,” Valensa’s first claim would fall under the carve-out but its second would not. By
using the words “relating to breach of the confidentiality provision,” however, the parties
expanded the carve-out’s applicability to include Valensa’s second claim and claims like it.
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For what it is worth, this is an example of a situation in which AT&T
Technologies’s presumption actually applies because here, the district court had to
determine whether the scope of the 2010 Agreement’s arbitration provision was
broad enough to cover this dispute. Accordingly, this is a relatively close question.
Ultimately, however, I do not believe the district court erred when it concluded that
the words “relating to” are not susceptible of an interpretation that is limited only
to claims “for breach of” a particular provision. The former phrase is necessarily
broader than the latter, and if any claims other than claims directly asserting breach
of the confidentiality provision are included in the 2010 Agreement’s carve-out,
Valensa’s claims are. 11
IV. Conclusion
Ultimately, the Majority is wrong for compelling arbitration, regardless of
which agreement it relied on in reaching its decision—though for different reasons.
To the extent that the Majority relied on the 2007 Agreement, it should not have
done so at all because that agreement’s terms are not implicated by Valensa’s
complaint, particularly in light of the fact that Valensa is estopped from recovering
for damages caused by conduct that predates the 2010 Agreement. To the extent
11
Further, Valensa makes a compelling argument that its tortious interference claim does
not “arise under” the 2010 Agreement at all. Thus, Valensa argues, even if the dispute did not fit
in the carve-out, it would still not be arbitrable given that the 2010 Agreement’s arbitration
provision only covers disputes that “arise under” the agreement. I need not analyze this
argument, as I would affirm based on the foregoing, but this argument provides a potential
alternative basis for reaching the same conclusion.
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that the Majority relied on the 2010 Agreement, it relied on the correct agreement
but then misapplied Terminix in violation of Howsam. In short, the 2010
Agreement clearly controls, and arbitration of arbitrability is not clearly and
unmistakably agreed to by the terms of that agreement. Thus, the district court
properly reached the question of arbitrability. I dissent because the Majority is
compelling arbitration of a question that the parties quite simply did not agree to
arbitrate.
35