Delaware Federal Court Must Abide By The Parties Decision To Delegate The Arbitrability Of The Dispute To The Arbitrator Even If The Arbitration Agreement Is Irrelevant To The Dispute

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The topic of whether an arbitrator or a court should decide the question of arbitrability has been the subject of long-standing debate among international scholars and practitioners.  In First Options of Chicago Inc. v. Kaplan, the Supreme Court stated the general rule that “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clear and unmistakabl[e]’ evidence that they did so.”  514 U.S. 938. But what constitutes clear and unmistakable evidence of the intent to arbitrate arbitrability?

The U.S. District Court for the District of Delaware recently provided an example of an arbitration clause that contains such “clear and unmistakable” evidence to delegate questions of arbitrability to an arbitrator. In Nidec Corporation v. Seagate Technology LLC, Civ. Action No. 21-52 (D. Del. July 20, 2021), Nidec Corporation (“Nidec”) brought a patent infringement action against Seagate Technology LLC (“Seagate”) and other defendants.  Seagate, relying on the arbitration clause in the parties’ agreement, moved to compel arbitration.  Seagate argued that the arbitration clause requires the Court to delegate to an arbitrator the decision whether the agreement applies to the claims at issue.  Seagate relied on the following language in the agreement:

If the parties are unable to resolve any dispute, controversy or claim arising out of or relating to this Agreement, including the formation, interpretation, breach or termination thereof, whether the dispute, controversy or claim asserted is able to be arbitrated … then either party will have the option to request that the dispute be finally determined by arbitration in accordance with the JAMS International Arbitration Rules.

Nidec argued that it only agreed to arbitrate disputes that arise under the agreement and Seagate should not be allowed to compel arbitration by declaring that each dispute between the parties is a dispute arising out of or relating to the agreement.    

The Court granted Seagate’s motion to compel arbitration.  The Court found that “[t]he question whether the claims arise out of or relate to the [] Agreement has been delegated to the arbitrator” and “[t]he parties agreed to resolve any disputes regarding whether the claim asserted is able to be arbitrated in arbitration.”  The Court concluded that since there is a dispute between the parties about whether the claims asserted in this case can be arbitrated pursuant to the agreement,  “the dispute is within the scope of the arbitration clause and must be delegated to an arbitrator.”  The Court further noted that it does not matter whether the agreement is completely irrelevant to the patent infringement claims raised in the action. Per the clear language of the agreement, that is not an issue that the Court is “permitted to resolve.”

Nidec Court relied on the Supreme Court’s holding in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524 (2019), which provided that if the parties’ clearly and unmistakably agreed to delegate the decision of arbitrability to the arbitrator, the court must abide by that decision “even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.”

A broad delegation clause in Nidec ensured that an arbitrator will decide the arbitrability of the dispute.  At the same time, under the Supreme Court precedent cited in Nidec, a party could strategically use a broad delegation clause to initially compel arbitration in matters to which the arbitration agreement does not apply.  This could potentially delay the ultimate litigation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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