Case of the Day: American Graphics Institute v. Noble Desktop NYC

The case of the day is American Graphics Institute, LLC v. Noble Desktop NYC, LLC (D. Mass. 2023). Noble was a consultant to AGI. The claim was that Noble had taken advantage of its position to learn about AGI’s “internal sales, marketing, promotional tactics, technical processes, and strategies,” to gain “access to AGI’s copyrighted works and branding efforts.” AGI claimed that Noble expanded into a competing business and infringed its trademarks.

Noble’s contract with AGI had an arbitration agreement that provided:

Each of the parties hereto agrees that it will attempt to settle any dispute, claim or controversy arising under, out of, in connection with or relating in any way to this Agreement … through non-binding mediation administered by an established, neutral mediation service with experience in joint venture disputes. Any such dispute, claim or controversy that cannot be resolved by the parties through non-binding mediation within 60 days of notification to all the parties of the commencement of the dispute resolution procedures of this Section will then be resolved solely and exclusively by binding arbitration conducted in accordance with the then effective Commercial Arbitration Rules of the American Arbitration Association by a sole arbitrator with experience in joint venture disputes and the provisions of this Section. …

When AGI sued for trademark and copyright infringement, Noble moved to compel arbitration.

AGI had some arguments that the claims were not within the scope of the agreement to arbitrate. But the real issue in the case was whether Noble’s assertion that the claim was arbitrable should mean that it was up to an arbitrator, not the judge, to decide the question of arbitrability. The arbitration agreement provided for arbitration under the AAA Commercial Rules, which provide:

The 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 or to the arbitrability of any claim or counterclaim.

The rule is that in general, questions of arbitrability are for the court, not the arbitrator. But when the parties have clearly and unmistakably delegated such questions to the arbitrator, then they are for the arbitrator, not the court. Today’s case is the latest in a series of cases that, correctly in my view, hold that adoption of the AAA Rules is clear and unmistakable evidence of the parties’ intent to delegate questions of arbitrability to the arbitrator. While the Supreme Court has never said so, the First Circuit and other circuits have.

Of course there are limits to the rule. For instance, if the party resisting arbitration denies ever signing the arbitration agreement, that question has to be decided by a court, for obvious reasons: arbitration requires consent, and there is a difference between saying “I agreed to arbitrate, but this particular dispute is not within the scope of my agreement,” and “I never agreed to arbitrate, period.” There may also be an exception when the argument for arbitrability is frivolous. But in general, parties that adopt the AAA Rules or similar rules want an arbitrator to decide questions such as whether a particular dispute is within the scope of their agreement.

The rule’s strength is particularly striking in light of the Supreme Court’s recent decision that when a court denies a motion to compel arbitration, the disappointed party has a right to a stay while an interlocutory appeal is pending. Even if the judge thinks that an arbitrator would likely conclude that a dispute is not arbitrable, it’s still a fundamental mistake to decide that question rather than to send it to the arbitrator for decision.

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