IQ Products Company v. WD-40 Company, 2017 U.S. App. LEXIS 17744

Background

IQ Products manufactured WD-40 products under a 1996 Manufacturing and License and Product Purchase Agreement containing an arbitration clause (and an integration clause) that included a handwritten limitation defining “Product” as WD-40 based on a propane/butane formulation.
WD-40 later switched to a carbon-dioxide propellant and IQ continued manufacturing under the parties’ ongoing relationship; no new written agreement was executed until negotiations in 2011–2012, which ultimately failed and led to termination.
IQ sued WD-40 in 2012 for >$40 million alleging breach and tort claims tied to the parties’ post-1996 dealings (including the CO2 product).
WD-40 moved to compel arbitration under the 1996 Agreement; the district court compelled arbitration of arbitrability, and an arbitration panel found the claims arbitrable and awarded in favor of WD-40.
IQ moved to vacate the award under 9 U.S.C. § 10(a)(4) arguing the arbitrators exceeded their authority by deciding a non-arbitrable dispute; the district court denied vacatur and confirmed the award.
The Fifth Circuit affirmed: it concluded the delegation to the arbitrator was not challenged on appeal, and IQ’s claim that arbitrability was “wholly groundless” failed because there was a plausible argument the 1996 Agreement (or its extension) covered the CO2 products.

Issues and Key Positions

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the parties delegated the gateway issue of arbitrability to the arbitrator	The arbitration clause should not be read to delegate arbitrability of disputes about products not covered by the 1996 Agreement	The arbitration clause (and parties’ conduct) shows delegation of arbitrability to the arbitrator	Delegation was conceded below and not challenged on appeal; court treated delegation as valid
Whether the assertion of arbitrability was "wholly groundless" (Douglas second prong)	The arbitration clause, limited by the handwritten definition and negotiating correspondence, covers only propane/butane products, so CO2 claims are not arbitrable	Subsequent conduct and correspondence show the parties continued under the 1996 Agreement after transition to CO2, so arbitrability is plausible	Not wholly groundless; competing plausible interpretations exist, so arbitrability must be decided by arbitrators
Whether the arbitrators exceeded their authority (vacatur under 9 U.S.C. § 10(a)(4))	Arbitrators lacked power because the dispute fell outside the arbitration clause’s scope	Arbitrators acted within delegated authority after finding arbitrability	Arbitrators acted within their authority; vacatur denied and award confirmed
Whether the district court erred in compelling arbitration	Court should have decided arbitrability itself because the clause didn’t clearly cover CO2 products	The clause and conduct demonstrate intent to arbitrate disputes "arising out of or related to" the 1996 Agreement	Affirmed: court properly compelled arbitration after applying Douglas framework and finding arbitrability not wholly groundless

Key Cases Cited

Janvey v. Alguire, 847 F.3d 231 (5th Cir. 2017) (standard of review for motions to compel arbitration)
Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199 (5th Cir. 2016) (framework for determining delegation and arbitrability)
Douglas v. Regions Bank, 757 F.3d 460 (5th Cir. 2014) (two-step test requiring clear delegation and that arbitrability not be wholly groundless)
First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995) (clear-and-unmistakable standard for delegating arbitrability)
Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (5th Cir. 2012) (standard of review for confirming arbitration awards)
Agere Sys., Inc. v. Samsung Elecs. Co., 560 F.3d 337 (5th Cir. 2009) (discussion of arbitrability analysis and the wholly groundless concept)
AT&T Techs., Inc. v. Commc’ns Workers, 475 U.S. 643 (1986) (arbitration policy and who decides arbitrability)