Brenco Enters., Inc. v. Bitesquad.Com, LLC
297 F. Supp. 3d 608
E.D. Va.2018Background
- Brenco, a Virginia catering company, sold its catering business to Bite Squad for $750,000; payment was evidenced by a Promissory Note attached as an exhibit to an Asset Purchase Agreement (the Agreement).
- The Agreement contained broad arbitration language requiring disputes "arising under" the Agreement or ancillary agreements to be submitted to binding arbitration under the AAA Commercial Arbitration Rules, while preserving court access for injunctive or mandatory relief.
- The Agreement included indemnification and set-off provisions allowing Bite Squad to seek indemnity from Brenco for breaches and to set off unpaid obligations against the Promissory Note.
- After key Brenco personnel defected to a competitor, Bite Squad sought indemnification and announced intent to offset losses against the Note; negotiations failed.
- Brenco sued in court seeking damages and specific performance under the Note and declaratory relief that Bite Squad could not set off the Note or obtain indemnification absent adjudication; Bite Squad moved to stay and compel arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides arbitrability? | Court should decide whether dispute is arbitrable (judicial determination of contract scope). | Arbitrator should decide because Agreement incorporates AAA Rules delegating arbitrability. | Held for Bite Squad: incorporation of AAA Rules + broad clause is "clear and unmistakable" delegation to arbitrator. |
| Does the arbitration clause cover disputes about the Promissory Note? | Note claims are separate; note-holder can sue on the Note in court. | Note is an exhibit to and part of the Agreement; disputes "arise under" the Agreement and fall within arbitration clause. | Held for Bite Squad: Note is part of the Agreement; disputes over it are arbitrable. |
| Do declaratory relief claims fall within the court-carved exception for injunctive/mandatory relief? | Counts framed as declaratory relief require court resolution and are excepted from arbitration. | Declaratory claims are disguised contract interpretation/breach claims and are subject to arbitration. | Held for Bite Squad: declaratory claims are essentially breach/interpretation claims and are arbitrable. |
| Should this litigation be stayed pending arbitration? | Brenco opposed stay, sought court resolution. | Bite Squad sought a stay to compel arbitration per the Agreement. | Held: Case stayed and arbitration compelled; parties to notify court upon arbitration resolution. |
Key Cases Cited
- Peabody Holding Co., LLC v. United Mine Workers of Am., 665 F.3d 96 (4th Cir. 2012) (arbitrability is generally for courts; interprets limits of broad clauses)
- AT&T Technologies, Inc. v. Communications Workers of Am., 475 U.S. 643 (1986) (arbitrability ordinarily a judicial question absent clear delegation)
- Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (5th Cir. 2012) (incorporation of AAA Rules can constitute clear and unmistakable delegation of arbitrability)
- Contec Corp. v. Remote Solution Co., Ltd., 398 F.3d 205 (2d Cir. 2005) (incorporation of AAA Rules shows intent to arbitrate arbitrability)
- Terminix Int'l Co. v. Palmer Ranch Ltd. Partnership, 432 F.3d 1327 (11th Cir. 2005) (same: AAA Rules incorporation delegates arbitrability)
- Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (district courts have discretion to stay litigation pending arbitration)