Private Jet Serv v. Marquette Univ.

2015 DNH 096

• Court: District Court, D. New Hampshire
• Decided: May 12, 2015
• Docket: 14-cv-436-PB
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Private Jet Services Group, Inc.

v. Civil No. 14-cv-436-PB Opinion No. 2015 DNH 096 Marquette University

MEMORANDUM AND ORDER

Private Jet Services Group, Inc. (“PJS”) has sued Marquette

University for breaching a two-year air charter contract.

Marquette, relying on an arbitration clause in an escrow

agreement executed in connection with the air charter contract,

moves to stay the action and compel arbitration under the

Federal Arbitration Act (the “FAA”), 9 U.S.C. §§ 1-16. PJS

responds by arguing that its claim against Marquette is not

subject to arbitration because the claim arises from the air

charter contract, which does not contain an arbitration clause.

As I explain below, Marquette’s motion turns on whether a

delegation clause in the escrow agreement, which leaves gateway

arbitrability questions to the arbitrator, bars this court from

resolving the arbitrability question. I. BACKGROUND

PJS, a New Hampshire corporation, is a broker of private

air charter services. It serves clients that include

professional and college sports teams, various performing acts,

and businesses. Marquette, a private research university in

Wisconsin, has a men’s basketball team that competes in the NCAA

Division I Big East Conference.

On August 21, 2013, PJS and Marquette entered into a two-

year air charter contract, the “Air Services Agreement,” under

which PJS agreed to provide the Marquette men’s basketball team

with air transportation to its away games during the 2013-2014

and 2014-2015 seasons. In exchange, Marquette agreed to pay PJS

$890,795 for the 2013-2014 season and $1,022,705 for the 2014-

2015 season. The Air Services Agreement also required Marquette

to deposit $1,067,390 into an escrow account before each of the

two seasons to cover its required payment for that season.

To facilitate the escrow payments required by the Air

Services Agreement, PJS, Marquette, and a third-party escrow

agent entered into an “Escrow Agreement” on August 22, 2013.

The Escrow Agreement provides for various matters related to the

management of the escrow account, including the establishment of

the account, the duties owed by the escrow agent to PJS and 2 Marquette, and the compensation owed to the escrow agent for its

services.

The Air Services Agreement does not contain an arbitration

clause but the Escrow Agreement provides in Article 15.1 that:

Any controversy or claim arising out of or relating to this [Escrow Agreement], or the breach hereof . . . shall be settled by arbitration in accordance with commercial rules of the American Arbitration Association (“AAA”).

Doc. No. 14-4 at 8. The Escrow Agreement also contains a

delegation clause in Article 15.8, which states that:

Any dispute regarding the applicability of this Article [15] to a particular claim or controversy shall be arbitrated as provided in this Article [15].

Id. at 9.

The deadline for Marquette to escrow its payment for the

2014-2015 basketball season fell on September 1, 2014.

Marquette did not meet the deadline. Instead, on September 2,

2014, it informed PJS by letter that it had “made other

arrangements for its men’s basketball air charter services

during the 2014-2015 academic year” and was therefore

terminating the agreement. Doc. No. 1 at 3. PJS responded by

bringing a breach of contract action in this Court. Doc. No. 1.

Marquette then moved to stay the action and compel arbitration

in February 2015. Doc. No. 14. 3 II. DISCUSSION

“[A] gateway dispute about whether the parties are bound

by a given arbitration clause raises a question of arbitrability

. . . .” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84

(2002) (internal quotation omitted). Ordinarily, gateway

arbitrability questions are “issue[s] for judicial

determination.” AT&T Techs. v. Commc’ns Workers of Am., 475

U.S. 643, 649 (1986). Thus, “[u]nless the parties clearly and

unmistakably provide otherwise, the [threshold] question of

whether the parties agreed to arbitrate is to be decided by the

court, not the arbitrator.” Id. It follows, however, that

parties to an arbitration agreement may, if they so choose,

agree to delegate gateway arbitrability questions to an

arbitrator rather than to a court. Rent-A-Center, W., Inc. v.

Jackson, 561 U.S. 63, 68-69 (2010); Awuah v. Coverall N. Am.,

Inc., 703 F.3d 36, 41 (1st Cir. 2012). Such an agreement, often

called a “delegation clause,” “is simply an additional,

antecedent [arbitration] agreement the party seeking arbitration

asks the federal court to enforce, and the FAA operates on this

additional arbitration agreement just as it does on any other.”

Rent-A-Center, 561 U.S. at 70. Thus, “federal courts can 4 enforce [a delegation clause] by staying federal litigation

under § 3 [of the FAA] and compelling arbitration.” Id.

PJS does not challenge the validity of the delegation

clause in Article 15.8 of the Escrow Agreement.1 See Rent-A-

Center, 561 U.S. at 71-72 (“[U]nless [a party] challenge[s] the

delegation provision specifically, we must treat it as valid

under [the FAA] . . . .”). Instead, it argues that the

delegation clause has no bearing on the case because its claim

against Marquette concerns only the separate Air Services

Agreement, which does not contain an arbitration clause. In

other words, it argues that Marquette’s reliance on the

delegation clause improperly “attempt[s] to insert an

arbitration clause from one [unrelated] agreement into another“

1 As with any other arbitration agreement, a litigant can resist the enforcement of a delegation clause by challenging the validity of the provision itself. Rent-A-Center, 561 U.S. at 71. Thus, a litigant can argue that a delegation clause asserted to compel arbitration is unenforceable because it is unconscionable, for example, or because it originated from duress or fraud in the inducement. See id.; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967). PJS, however, makes no argument that attacks the validity of the delegation clause itself. It therefore implicitly recognizes the delegation clause as an enforceable agreement to arbitrate, rather than litigate, the arbitrability of claims between the parties under Article 15.1 of the Escrow Agreement. See Rent-A- Center, 561 U.S. at 72.

5 and compel arbitration of a claim that has nothing to do with

the Escrow Agreement. Doc. No. 15-1 at 6 n.7. This argument,

although powerful on its merits, overlooks the fact that

Marquette does maintain that PJS’ claim “relat[es] to” the

Escrow Agreement, Doc. No. 14-4 at 8, and therefore requires

arbitration under the arbitration clause in Article 15.1 of the

Escrow Agreement. Thus, PJS and Marquette have a “dispute” over

whether PJS’ claim falls within the scope of the Escrow

Agreement’s arbitration clause. See id. at 9. Where, as here,

parties to an arbitration agreement that is subject to a broad

delegation clause disagree about whether their agreement covers

a particular claim, an arbitrator ordinarily must resolve the

gateway arbitrability dispute. See Rent-A-Center, 561 U.S. at

68-70; Momot v. Mastro, 652 F.3d 982, 988 (9th Cir. 2011).

In extreme cases, a delegation clause that requires all

arbitrability disputes to be resolved by an arbitrator can be

abused if a party invokes the delegation clause to shield an

obviously bogus arbitrability dispute from judicial review. A

handful of federal courts have attempted to address this

potential problem. Most prominently, the Fifth and Federal

Circuits have refused to enforce even a broad and valid

delegation clause if the underlying claim of arbitrability is 6 wholly groundless – that is, if the claim to be arbitrated bears

no plausible relation to the asserted arbitration agreement.2

See Douglas v. Regions Bank, 757 F.3d 460, 464 (5th Cir. 2014);

Qualcomm Inc. v. Nokia Corp., 466 F.3d 1366, 1373-74 (Fed. Cir.

2006). Neither the Supreme Court nor the First Circuit,

however, has adopted the wholly groundless rule. Nor has the

rule met with widespread acceptance in other federal courts – no

other circuit has adopted it, and only a small number of

district courts have done so. See, e.g., Bernal v. Sw. & Pac.

Specialty Fin., Inc., No. C 12-05797 SBA, 2014 WL 1868787, at *3

(N.D. Cal. May 7, 2014); Jones v. Regions Bank, 719 F. Supp. 2d

711, 716-17 (S.D. Miss. 2010). And it remains unclear whether

the Supreme Court would approve the rule in light of its

previous cases addressing the enforceability of delegation

clauses. See Douglas, 757 F.3d at 468 (Dennis, J., dissenting).

In any event, I need not determine whether the wholly

groundless rule would be adopted in this circuit because this

2 The Fifth Circuit justifies the wholly groundless rule by concluding that even when parties unmistakably delegate all arbitrability disputes to the arbitrator, they “obviously” could not intend to delegate arbitrability disputes that are wholly groundless. Douglas, 757 F.3d at 464. Thus, the court reasons, a court does not contravene the parties’ expressed intentions by declining to enforce a delegation clause based on a wholly groundless claim of arbitrability. Id. 7 case is quite different from the extreme cases in which other

courts have applied the rule. The Escrow Agreement, which

contains both the arbitration and delegation clauses,

establishes the escrow account that Marquette was to use to make

the payments required by the Air Services Agreement. The Escrow

Agreement also expressly refers to the Air Services Agreement as

an “attached” document. See Doc. No. 14-4 at 2. Furthermore,

the parties made the two agreements within one day of each

other. Finally, the Air Services Agreement does not contain an

integration clause specifying that the parties intended it to

function as a complete agreement separate from the Escrow

Agreement. These facts suggest some commonality between the two

agreements that, although sparse, could conceivably support an

argument that PJS’ claim that Marquette breached the Air

Services Agreement is arbitrable because it "relate[s] to" the

Escrow Agreement. Id. at 8. Comparing this case to those where

courts have declined to enforce delegation clauses on the basis

of wholly groundless claims of arbitrability, I cannot say that

Marquette’s arbitrability claim is wholly groundless. See,

e.g., Douglas, 757 F.3d at 464.

Under the circumstances presented here, any more searching

inquiry into whether the claim at issue falls within the scope 8 of the arbitration clause would verge on deciding a request to

enforce an arbitration agreement based on the merits of the

underlying dispute, which both the FAA and Supreme Court

precedent forbid. See AT&T Techs., 475 U.S. at 649 (“[I]n

deciding whether the parties have agreed to submit a particular

grievance to arbitration, a court is not to rule on the

potential merits of the underlying claims.”); Qualcomm, 466 F.3d

at 1374 (“[A]ny inquiry beyond a ‘wholly groundless’ test would

invade the province of the arbitrator . . . .”). The actual

arbitrability of PJS’ claim is a separate question that the

delegation clause reserves for the arbitrator. See Rent-A-

Center, 561 U.S. at 72. Because the delegation clause plainly

requires the parties to arbitrate any dispute over

arbitrability, and because the parties do not question the

clause’s validity, the FAA requires my analysis to end here.

See 9 U.S.C. §§ 2-4.

III. CONCLUSION

Marquette’s motion to stay this action and compel

arbitration (Doc. No. 14) is granted. The case shall be stayed

and the clerk shall administratively close the case, subject to

reopening at the request of either party, as appropriate, 9 following arbitration.

SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

May 12, 2015

cc: Clara Ann Dietel, Esq. Steven M. Gordon, Esq. Garry R. Lane, Esq. Dustin M. Lee, Esq. John B. Tuffnell, Esq.