Faithful readers of Arbitration Commentaries will be familiar with several principles that are repeated in the cases discussed in this space. One, mentioned in last week’s post concerning the DC Circuit’s vacatur of a investment arbitration award, is that US courts generally find “clear and unmistakable evidence” of an agreement to arbitrate “arbitrability” issues when the parties select rules, like the UNCITRAL Rules, that confer power on arbitrators to decide objections to their jurisdiction. Another principle, mentioned for example in a post in November 2011 concerning a Second Circuit decision involving American Express, is that the Federal Arbitration Act does not provide judicial power to enjoin a pending or contemplated arbitration.
So, you might suppose, this writer would rail against a new federal district court decision from Oakland, California, in which the Court (i) held that there was not sufficient evidence of an agreement to arbitrate arbitrability even though the parties had adopted the UNCITRAL Rules for use in an ICDR-administered arbitration, and (ii) that it would enjoin the foreign arbitration claimant from proceeding with its ICDR arbitration on claims the Court had determined to be non-arbitrable. (Oracle America, Inc. v. Myriad Group AG, 2012 WL 14364 (N.D. Cal. Jan. 17, 2012)).
But I believe this decision is entirely correct. The case is worthy of discussion here to highlight the special circumstances that justify the result, and to show that this decision is entirely consistent with US arbitration law as we have come to understand it.
This was a dispute between Oracle, as successor to Sun Microsystems, and one of Sun’s software licensees in Europe. The agreement between licensor Sun and licensee Myriad provided for ICDR-administered arbitration under the UNCITRAL Rules for all disputes arising under the agreement, except that “any dispute” concerning the parties’ intellectual property rights, or compliance with the separate license of a “technology compatibility kit,” could be brought before a competent court, whose jurisdiction in that event would be exclusive.
Acting upon the carve-out of judicial jurisdiction for IP disputes, Oracle brought a trademark and copyright infringement action in the federal court, and added pendent claims for breach of contract. Myriad responded by filing an ICDR arbitration embracing all of Oracle’s claims in the federal court action.
The Court, rejecting the position that the arbitrability issues were for the arbitrators to decide, held that the explicit contractual exclusion of IP claims from the arbitration clause prevented the adoption of the UNCITRAL Rules from being “clear and unmistakable evidence” that the parties intended the arbitrators to decide arbitrability issues. Whereas the parties had provided for the filing of certain claims in court, the Court reasoned, they should be presumed have to have intended that the Court resolve any challenge to its own jurisdiction unless the parties expressly assigned such issues to arbitrators. This is a point not very prominent in the jurisprudence of “clear and unmistakable evidence, but the point has been made in several cases, in different ways. Some of the cases say that adoption of UNCITRAL or similar rules, providing arbitral power to decide jurisdiction issues, are “clear and unmistakable evidence” absent other contradictory factors. Other cases have said, more directly, that at least where there is a broad arbitration clause assigning “all disputes” to arbitration, reference to such arbitration rules provides the needed “clear and unmistakable evidence.” In line with those cases, here we had what was not an unqualifiedly broad arbitration clause, but instead a clause that had a very broad carve-out of non-arbitrable IP disputes over which judicial jurisdiction, when invoked, would be exclusive.
On the question of enjoining the arbitration claimant Myriad from proceeding before the ICDR on the IP claims (the contract claims, the Court agreed, were arbitrable), neither party appears to have raised the question of the source of the Court’s power to enjoin Myriad. The Court, in granting the injunction as requested by Oracle, addressed the issue according to 9th Circuit law on foreign antisuit injunctions, without finding that it made any difference that the proceeding affected by the injunction was an arbitration. That this approach is essentially correct follows logically from the correctness or the Court’s position on who decides arbitrability. Once the Court had properly asserted jurisdiction over certain of the claims, by having had its subject matter jurisdiction properly invoked and then by denying the motion to compel arbitration as to the IP claims, the Court had inherent power to issue an antisuit injunction to protect its prospective judgment on the merits against collateral attack in any other forum. Thus, in contrast to the situation where a motion to enjoin arbitration is the only relief sought and the FAA is invoked for that purpose, and in contrast to cases where relief to stay an arbitration is sought by a respondent, by cross-motion, in an FAA Section 4 petition to compel arbitration, here the Court was seized of the merits of the non-arbitrable claims.
I have written in other commentaries that this is precisely the route that should be taken to enjoining an improper arbitration if such relief is desired — and that the ability of the party objecting to arbitration to obtain injunctive relief by invoking the Court’s jurisdiction to hear the merits obviates the need to find an implied injunctive remedy under the FAA. Earlier case law had suggested that the power to enjoin an improper arbitration is a “necessary correlative” (or words to that effect) of the power under the FAA to compel an improper arbitration. But the available of an injunction under the Court’s inherent powers, once its jurisdiction over the merits is invoked, proves there is no such necessity. That is precisely what occurred here, and the FAA properly did not factor in the equation of whether the Court could or should grant the injunction.
An interesting question raised by the foregoing: What should the arbitral tribunal do if the Claimant, in defiance of the injunction, insists on proceeding with what the Court has ruled to be non-arbitrable claims? I would venture this answer: that whereas the injunction runs against the party and not against the ICDR or the tribunal, a motion in the arbitration to stay proceedings on the non-arbitrable claims should not be granted. Such a stay would also be at odds with the parties’ agreement that the arbitrators have power to determine objections to their own jurisdiction. But it seems fair to say that there may be cases – and the Oracle case is one of them – where the arbitrators’ power to decide jurisdiction issues is concurrent with the power of a competent court. Nothing in the UNCITRAL Rule conferring competence over jurisdiction issues on arbitrators requires that the arbitrators decide such questions de novo if the tribunal finds that the issues have been addressed in another forum that also had jurisdiction to decide. The situation invites resolution of the jurisdiction objection, in an interim award, on the basis of collateral estoppel.