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The court can decide the issue of the arbitrability of claims that may fall within a carve-out provision of an arbitration agreement, a Delaware state court held.
In Nutzz.com v. Vertrue Inc., No. Civ.A. 1231-N, Civ.A. 1719-N, 2006 WL 2220971 (Del. Ch. July 25, 2006), Nutzz and Vertrue disputed over the alleged breach of a Confidentiality provision in their agreement.
The parties’ agreement contained an arbitration clause, which included a carve-out provision that allowed the parties to bring claims for injunctive relief or claims arising under the Confidentiality provision in court. Nutzz brought its claims for breach of the Confidentiality provision in court, but was denied a preliminary injunction.
Nutzz then attempted to bring the same claims in arbitration, and Vertrue sought a court order precluding arbitration. The issue became whether the claims arising under the Confidentiality provision could be brought before an arbitrator.
Initially, the Court had to decide whether the court or an arbitrator should decide this issue. Generally, “the question of arbitrability[] is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” James & Jackson, LLC v. Willie Gary, LLC, 2006 WL 659300, at *1 (Del. Mar. 14, 2006).
The parties’ agreement specifically said that issues of arbitrability would be submitted to the arbitrator. The Court determined that “the Agreement shows that the parties clearly and unmistakably intended to submit questions of substantive arbitrability that fall outside the scope of the carve-out to the arbitrator.”
In looking at the agreement as a whole, Court held that questions of the arbitrability of issues falling within the carve-out provision – including arbitrability and the scope of the carve-out provision – could reasonably be read as excluded from arbitration. Therefore, the Court determined that it could determine the arbitrability of the claims brought by Nutzz because those claims arguably fell within the carve-out provision.
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