Opinion ID: 1035393
Heading Depth: 4
Heading Rank: 3

Heading: Incorporation of the American Arbitration

Text: Association Rules Virtually every circuit to have considered the issue has determined that incorporation of the American Arbitration Association’s (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. See Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012); Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009); Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1373 (Fed. Cir. 2006); Terminix Int’l Co. v. Palmer Ranch LP, 432 F.3d 1327, 1332 (11th Cir. 2005); Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005). Only one circuit has concluded otherwise. See Riley Mfg. Co. v. Anchor Glass Container Corp., 157 F.3d 775, 777 & n.1, 780 (10th Cir. 1998). The AAA rules contain a jurisdictional provision similar to Article 21(1) of the 1976 UNCITRAL rules and almost identical to Article 23(1) of the 2010 UNCITRAL 12 ORACLE AMERICA , INC. V . MYRIAD GROUP A.G. rules.1 The Second and D.C. Circuits’ conclusions with respect to incorporation of the UNCITRAL rules are consistent with the majority view regarding the effect of incorporating the AAA rules into an agreement. We see no reason to deviate from the prevailing view that incorporation of the UNCITRAL arbitration rules is clear and unmistakable evidence that the parties agreed the arbitrator would decide arbitrability. We hold that as long as an arbitration agreement is between sophisticated parties to commercial contracts, those parties shall be expected to understand that incorporation of the UNCITRAL rules delegates questions of arbitrability to the arbitrator.2 B. Whether the Parties Intended a Court Would Decide Arbitrability or Whether the Parties’ Intent is Ambiguous Oracle advances several arguments in support of its position that the parties to this case intended for a court to decide arbitrability or that the parties’ intent is at least ambiguous. We address each in turn. 1 Commercial Arbitration Rule 7(a) provides that “[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.” AAA Commercial Arbitration Rule 7(a). 2 W e express no view as to the effect of incorporating arbitration rules into consumer contracts. ORACLE AMERICA , INC. V . MYRIAD GROUP A.G. 13 1. Article 23(3) of the 2010 UNCITRAL rules does not create an ambiguity. Oracle argues that Article 23(3) of the 2010 UNCITRAL rules renders the effect of the 2010 rules ambiguous. Article 23(3) states, “[t]he arbitral tribunal may continue the arbitral proceedings and make an award, notwithstanding any pending challenge to its jurisdiction before a court.” UNCITRAL Arbitration Rules art. 23, para. 3, G.A. Res. 65/22, U.N. Doc. A/RES/65/22 (Jan. 10, 2011). From this, Oracle argues that courts and arbitrators have concurrent authority to decide the arbitrator’s jurisdiction. But even if the 2010 UNCITRAL rules apply, they do not, of themselves, create a path to challenging the arbitrator’s jurisdiction in federal court. Article 23(3) assumes such a path. See U.N. Comm’n on Int’l Trade Law, Report of the Working Group on Arbitration and Conciliation on the Work of its Forty-Fifth Session ¶¶ 99–101 (Vienna, Sept. 11–15, 2006) (“It was noted that a number of national laws provided parties with an irrevocable right to seek recourse from the courts.”). By contrast, “the central . . . purpose of the [Federal Arbitration Act] is to ensure that private agreements to arbitrate are enforced according to their terms.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1773 (2010) (internal quotation marks omitted). The UNCITRAL rules clearly and unmistakably delegate questions of arbitrability to an arbitrator—it is immaterial to the outcome of this dispute that the 2010 UNCITRAL rules also contemplate that in some countries the arbitrator’s jurisdiction may be simultaneously challenged in court. 14 ORACLE AMERICA , INC. V . MYRIAD GROUP A.G. 2. The carve-out clause in the parties’ agreement does not negate incorporation of the UNCITRAL rules. Oracle also argues that a carve-out provision in the parties’ arbitration clause expresses their intent that a court would decide arbitrability. The arbitration clause states that any claim arising out of the Source License shall be settled by arbitration. But the carve-out clause states “that either party may bring any action, in a court of competent jurisdiction (which jurisdiction shall be exclusive), with respect to any dispute relating to such party’s Intellectual Property Rights or with respect to [Myriad’s] compliance with the TCK license.” Oracle maintains that whether a court or an arbitrator will determine the arbitrability of intellectual property claims or claims arising out of the TCK License are “disputes relating to” those claims, and therefore concludes that the district court had exclusive jurisdiction to decide the arbitrability of those claims. Enforcement of Myriad’s intellectual property rights is restricted by the Source License. And the TCK License is part of the Source License. Thus, by definition, the claims excepted from arbitration by the carve-out clause are claims “arising out of or relating to” the Source License. Oracle’s argument conflates the scope of the arbitration clause, i.e., which claims fall within the carve-out provision, with the question of who decides arbitrability. The decision that a claim relates to intellectual property rights or compliance with the TCK License constitutes an arbitrability determination, which the parties have clearly and unmistakably delegated to the arbitrator by incorporating the UNCITRAL rules. ORACLE AMERICA , INC. V . MYRIAD GROUP A.G. 15 Oracle cites a Sixth Circuit case in support of its position. In Turi v. Main St. Adoption Servs., LLP, 633 F.3d 496, 511 (6th Cir. 2011), the Sixth Circuit held that even though an arbitration clause incorporated the AAA rules, the arbitration clause was so narrow that questions of arbitrability did not need to be decided by the arbitrator. The arbitration clause in Turi only contemplated arbitration of “claim[s] regarding fees” in excess of $5,000, id. at 506, but the plaintiffs in Turi also asserted claims for fraud, conspiracy, misrepresentation, intentional and negligent infliction of emotional distress, and RICO violations, id. at 500. The court stated that “even where the parties expressly delegate to the arbitrator the authority to decide the arbitrability of the claims related to the parties’ arbitration agreement, this delegation applies only to claims that are at least arguably covered by the agreement.” Id. at 511. Turi did not involve a carve-out clause. It involved an extremely narrow arbitration provision interpreted in the context of a host of unrelated claims. Here, the excepted claims are by definition related to arbitrable claims because they all relate to the Source License. For this reason alone, Turi is distinguishable. Nor are we persuaded by the reasoning of Turi because as discussed above, when a tribunal decides that a claim falls within the scope of a carve-out provision, it necessarily decides arbitrability. Turi’s reasoning collapses two separate questions into one. Oracle also relies on a case from the Delaware Supreme Court, James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76 (Del. 2006). There, the parties’ arbitration agreement stated, “[a]ny controversy or claim arising out of or relating to this Agreement . . . shall be settled by arbitration,” but the agreement also allowed LLC members to pursue injunctive 16 ORACLE AMERICA , INC. V . MYRIAD GROUP A.G. relief and specific performance in court. Id. at 79–80. The Delaware Supreme Court held that “[s]ince th[e] arbitration clause [did] not generally refer all controversies to arbitration, the federal majority rule does not apply, and something other than the incorporation of the AAA rules would be needed to establish that the parties intended to submit arbitrability questions to an arbitrator.” Id. at 81. In fact, the parties’ agreement in James & Jackson did generally refer all controversies to arbitration, only excepting claims for injunctive relief and specific performance. Id. at 79–80. It is clear that the James & Jackson court relied on the arbitration agreement’s carve-out provision to decide that questions of arbitrability would be decided by the court. James & Jackson nominally supports Oracle’s position, but the decision’s suggestion that the federal majority rule only applies when an arbitration agreement lacks a carve-out provision does not follow from the cases the court cited, see id. at 80 n.9,3 and we know of no other authority supporting this proposition. 3. The Source License does not modify the UNCITRAL rules’ jurisdictional provisions. Finally, Oracle argues that the parties’ arbitration clause modified the UNCITRAL rules such that arbitrability must be determined by the court. The arbitration clause in the Source License states that arbitration is to be administered “in accordance with the [UNCITRAL] rules . . . in effect at the time of arbitration as modified herein.” The paragraph after the arbitration clause sets out specific rules regarding 3 The court cited, among others, Terminix Int’l, 432 F.3d at 1329, and Contec Corp., 398 F.3d at 208. ORACLE AMERICA , INC. V . MYRIAD GROUP A.G. 17 arbitration proceedings that differ from the UNCITRAL rules, but none of the modifications concern questions of arbitrability. Similarly, Oracle maintains that vesting courts with “exclusive” authority to adjudicate claims relating to the parties’ intellectual property rights and claims relating to Myriad’s compliance with the TCK License constitutes modification of the UNCITRAL rules. Oracle argues that this modification requires that a court determine arbitrability. We disagree. This argument merely recasts Oracle’s contention that the carve-out provision evidences the parties’ intention for a court to decide the arbitrability of claims that fall within it. It is foreclosed by the discussion above.