Clause Requiring Arbitration of “Any Controversy”

Clause Requiring Arbitration of “Any Controversy”

Broad Enough To Encompass Claims Pre-dating the Agreement or Having Nothing to Do the Agreement Containing the Arbitration Provision

By Louis M. Solomon

Nanosolutions, LLC, et al. (Nano) v. Prajza, et al., Civil Action No. 10-1741 (EGS) (D.D.C. June 2011) [enhanced version available to subscribers], grants a motion to stay litigation in favor of pending arbitration.  The rationale bears on international litigation disputes generally in the several respects.

Nano is a biotech company that develops "technology involving tissue-like nano-encapsulation delivery sytems, providing instant delivery of payloads into the bloodstream".  Prajza is a citizen of Canada.  His Agreement in Principle (AIP) with Nano refers to prior dealings between the parties and contains a mandatory arbitration provision of extraordinary breadth: 

"Conflicts between the parties shall be resolved through the [Canadian] Arbitration Act, Ontario, held in the City of Toronto". 

The Court ruled:

First, the standard to be applied on a motion to stay proceedings or to compel arbitration "is the same standard used in resolving summary judgment motions" under Fed. R. Civ. P. 56(a) [enhanced version ]. 

Second, the Court rejected the defense of fraud in the inducement of the AIP as being grounds to halt the arbitration; since the arbitration clause itself, specifically was not alleged to have been procured by fraud, the question of fraud in the inducement was one for arbitrator, not the Court, to decide.

Third, given the breadth of the arbitration clause, the District Court ruled that any controversy between the parties, whether or not it related to the AIP, needed to be arbitrated.  That is, the "any controversy" language was broad enough to require arbitration of disputes having nothing to do with the agreement in which the arbitration clause appeared - indeed claims predating the agreement containing the broad arbitration agreement would also be swept in to the great arbitration maw.

Fourth, even though the parties to the AIP agreed in another agreement to be bound to "all the terms and conditions of" a wholly separate agreement that did not contain an arbitration provision, the Court was not going to read "all the terms and conditions" of that other agreement (without the arbitration clause) to trump the clear language of the AIP that every controversy between these parties was to arbitrated.

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