Abstract
A company, bound by an arbitration agreement, filed a lawsuit against a new competitor for violating conflict of interest and confidentiality provisions of a consulting agreement. The court found that the company's lawsuit did not waive its right to arbitration because the lawsuit sought an injunction in aid of arbitration, and not money damages.
Background
Polpharma, a pharmaceutical manufacturer, supplies pharmaceutical ingredients to Rubicon. In 2013, Polpharma and Kartha entered into a consulting services agreement, in which Kartha agreed to perform consulting services to Polpharma. The consulting agreement included an arbitration provision that provided:
Any dispute, controversy, or claim arising out of, or in relation to, this contract, including the validity, invalidity, breach, or termination thereof and [that] cannot be solved by both Parties using their best efforts, shall be resolved by arbitration in accordance with the Swiss Rules of International Arbitration of the Swiss Chambers' Arbitration Institution.
Rubicon claimed that during consultation, Kartha stole Rubicon's trade secrets and it filed suit against Kartha, alleging trade secret misappropriation. Polpharma filed its own case against Kartha for violating the consulting agreement. Polpharma subsequently instituted an arbitration in Switzerland on the same issues.
The court cases were subsequently consolidated, and the parties then filed competing motions before the court: Polpharma seeking a motion to compel Kartha's participation in arbitration, and Kartha seeking a motion to enjoin Polpharma from pursuing arbitration.
The Rubicon Decision
It is undisputed that the parties entered into an arbitration agreement to resolve "[a]ny dispute, controversy, or claim arising out of, or in relation to, this contract." Kartha, however, argued that Polpharma waived its right to seek arbitration because it first filed the action in the district court before initiating arbitration in Switzerland. The district court rejected this argument.
The court first noted that the Federal Arbitration Act obligated the court to honor and enforce agreements to arbitrate. While Polpharma did file the district court action almost two months before submitting its notice of arbitration, Polpharma's complaint sought only a preliminary injunction that would maintain the status quo pending resolution of the arbitration.
Moreover, the Swiss Chambers' Arbitration Institution specifically provides that "[b]y submitting their dispute to arbitration under these Rules, the parties do not waive any right that the may have under the applicable laws to submit a request for interim measures to a judicial authority." Accordingly, the district court found that Polpharma's seeking of a preliminary injunction was an interim measure, designed to preserve the status quo and prevent irreparably injury pending resolution of the dispute.
Strategy and Conclusion
Courts give arbitration agreements considerable deference and recognize that arbitration is favored in modern dispute resolution.
Further Information
The Rubicon decision can be found here.
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