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A state court in California held that the state's strong public policy in favor of arbitration requires that exclusionary clauses in arbitration agreements be narrowly construed so as to give broad effect to the arbitration clause.
In Clarus Systems, Inc. v. Variphy, Inc., No. A115360, 2007 WL 576149 (Cal. Ct. App. Feb. 26, 2007), Clarus sued Variphy, a company founded by two former Clarus employees, for violations of a non-disclosure agreement. When Variphy petitioned the court to compel arbitration of the dispute, Clarus argued that an exclusionary clause made the arbitration agreement inapplicable to this dispute.
This Court held that the exclusionary clause in the agreement did not prevent arbitration of this dispute. Noting that California's strong policy favoring arbitration requires courts to construe exclusions to arbitration agreements narrowly, the Court interpreted this exclusionary clause to only apply to preliminary injunctions.
Additionally, the Court noted that to read the exclusionary clause as Clarus advocated would effectively allow Clarus an open door to court, while slamming it in the face of Clarus' employees and making the entire agreement unconscionable.
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