Epic Games, Inc. v. Murphy-Johnson
785 S.E.2d 137
N.C. Ct. App.2016Background
- Timothy F. Murphy-Johnson (software developer) sold his company and software to Epic Games in 2005 and signed multiple agreements, including an Employment Agreement containing a broad arbitration clause and a choice-of-law clause (North Carolina).
- The arbitration clause required mandatory arbitration of “any disputes between Employee and Epic in any way concerning his employment, this Agreement or this Agreement’s enforcement,” but excluded a separate Confidentiality/Intellectual Property Agreement.
- Epic narrowed the Employment Agreement’s "for cause" termination language after negotiation; Epic terminated Johnson for cause in March 2006, before his stock options fully vested.
- In March 2014 Johnson filed an AAA demand asserting breach of contract, breach of the covenant of good faith and fair dealing, and breach of fiduciary duty, seeking declarations and monetary relief including stock value and voiding IP assignments.
- Epic sought judicial relief to enjoin arbitration of five categories of claims (fiduciary duty, stock value under Stock Option Agreement, declarations voiding IP assignments by Johnson and by Artificial Studios, and lost profits of Artificial Studios). The trial court granted the partial injunction; Johnson appealed.
Issues
| Issue | Plaintiff's Argument (Epic) | Defendant's Argument (Johnson) | Held |
|---|---|---|---|
| Whether the trial court properly enjoined certain claims from arbitration | Epic: Some claims (fiduciary duty, stock under Stock Option Agreement, declarations voiding IP assignments, lost profits) are outside the Employment Agreement’s arbitration clause and thus not arbitrable | Johnson: The arbitration clause delegates arbitrability questions to the arbitrator and is broad enough to cover these disputes | Reversed — delegation clause and incorporation of AAA rules show parties agreed that arbitrator decides substantive arbitrability; trial court lacked authority to enjoin those claims |
| Whether the threshold choice between FAA and state RUAA required remand | Epic: relied on RUAA in trial court | Johnson: argued FAA might apply (commerce) making different law applicable | Court: choice-of-law was unnecessary to resolve because both FAA and RUAA treat arbitrability as contractual and the same conclusion follows; no remand required on that ground |
| Standard of review for arbitrability determination | Epic: n/a (factual position not central) | Johnson: appellate court reviews arbitrability de novo | Court: confirmed de novo review of arbitrability and that clear contractual delegation is dispositive |
Key Cases Cited
- Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468 (1989) (arbitration is strictly a matter of contract and parties may agree on procedural terms)
- Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (doubts about scope of arbitrability resolved in favor of arbitration)
- Fontana v. S.E. Anesthesiology Consultants, P.A., 221 N.C. App. 582 (2012) (determine arbitrability by examining agreement language; apply plain meaning when clause is unambiguous)
- Johnston County v. R.N. Rouse & Co., 331 N.C. 88 (1992) (public policy requires resolving doubts about arbitrable scope in favor of arbitration)
- Bailey v. Ford Motor Co. is discussed in opinion but not included here because it lacks an official reporter citation provided in the opinion record (court applied the principle that incorporation of an arbitral body’s rules can be clear evidence of delegation)