In U.S. Nutraceuticals, LLC v. Cyanotech Corp., Case No. 13-12863 (decided October 30, 2014), the Eleventh Circuit addressed the issue of whether a court or an arbitrator must decide the question whether a particular dispute is subject to arbitration. The Eleventh Circuit’s reasoning in that case strongly endorses the view that the arbitrator must decide that issue.

U.S. Nutraceuticals (also known as Valensa) were parties to two contracts with Cyanotech, one made in 2007 and a second made in 2010. The 2007 contract had a broad arbitration clause. The 2010 contract had a very similar arbitration clause; however, the 2010 arbitration clause included a limitation that stated that a court could resolve disputes about the misuse of confidential or proprietary information.

Valensa filed a complaint that alleged a number of claims including the misuse of confidential information. Cyanotech sought to have the dispute sent to arbitration. The District Court rejected that claim, but the Eleventh Circuit reversed it.

Although Valensa referenced only the 2010 contract in its complaint, the Court noted that it included allegations of wrongdoing that occurred before the 2010 contract was made. The majority held that when the arbitration clause embodied the rules of the American Arbitration Association, and the dispute was not unambiguously excluded from the arbitration clause, the arbitrator had to decide whether or not the dispute was arbitrable. Because the allegations of wrongdoing in the complaint were not unambiguously exclusively under the 2010 contract, an arbitrator needed to decide whether or not the dispute was arbitrable.

This decision is a strong endorsement of arbitration. If parties what to reserve some disputes for the courts, there need to do so with the utmost clarity.

The opinion is available at http://media.ca11.uscourts.gov/opinions/pub/files/201312863.pdf

For more information on this topic, contact your Appellate Counsel at Smith, Gambrell & Russell, LLP.