375 F. Supp. 3d 898
E.D. Tenn.2019Background
- Jacobs Field Services (Jacobs) performed engineering services under an Engineering Services Agreement (ESA) for Wacker Polysilicon (Wacker) on a ~$2 billion plant; the ESA incorporates AAA Construction Industry Arbitration Rules and contains an express litigation carve-out for requests for equitable/injunctive relief or specific performance.
- Wacker issued a Statement of Claim and filed an AAA arbitration demand totaling ~$134.3 million, which included an $18.58 million pass‑through claim asserted on behalf of non‑party Baker and a separate $~2.4–3.4 million "Baker‑Related Markup."
- Jacobs filed a verified complaint in Tennessee chancery court seeking (1) a declaration that the Baker pass‑through claim is not subject to arbitration and (2) a stay or excision of that portion of the arbitration.
- Wacker removed to federal court based on diversity jurisdiction; Jacobs moved to remand arguing the amount in controversy is insufficient.
- Wacker moved to dismiss, arguing the ESA (by incorporation of the AAA Rules) clearly and unmistakably delegates gateway arbitrability questions to the arbitrator; Wacker sought dismissal rather than a stay.
- The district court denied remand (finding the amount in controversy satisfied from either party’s perspective) and granted Wacker’s motion to dismiss, holding delegation to the arbitrator was clear and unmistakable and the arbitrator must decide arbitrability; the action was dismissed (not stayed).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal diversity jurisdiction exists (amount in controversy) | Amount in controversy is zero or speculative because Jacobs seeks only a declaratory ruling on arbitrability/venue; must be measured from defendant’s perspective and Wacker has no interest in the Baker claim | The value of the object of the litigation is the underlying arbitration (or at least the $18.5M Baker pass‑through or the $~2.4–3.4M Baker‑related markup); removing party satisfied burden | Denied remand — amount in controversy exceeds $75,000 viewed from either party (Baker pass‑through ≈ $18.5M; Baker‑related markup > $75K) |
| Proper viewpoint for amount‑in‑controversy in declaratory actions preventing arbitration | Court should measure from defendant’s (removing party’s) perspective and treat venue/value as speculative | Either‑viewpoint or plaintiff’s viewpoint (value to plaintiff of avoiding arbitration) can be used; here both exceed threshold | Court did not pick a single rule but found threshold satisfied under both perspectives |
| Whether arbitrability gateway is for court or arbitrator (delegation) | Jacobs: Baker is non‑party and has no agreement to arbitrate; exception for equitable relief / litigation carve‑out allows this Court to decide | Wacker: ESA incorporates AAA Rules giving arbitrator power to decide jurisdiction/scope — clear and unmistakable delegation | Grant dismissal — incorporation of AAA Rules is clear and unmistakable evidence delegating gateway arbitrability questions to arbitrator; arbitrator decides scope and exceptions |
| Effect of ESA’s litigation carve‑out for equitable/injunctive relief and remedy (dismiss vs stay) | Jacobs: its declaratory/injunctive action falls within the carve‑out, so court should adjudicate; if arbitration compelled a stay may be appropriate | Wacker: carve‑out is itself a scope question for the arbitrator if delegation applies; dismissal appropriate when all claims are arbitrable/delegated | Court held carve‑out raises the same scope question and, because delegation exists, the arbitrator must decide; the court dismissed (not stayed) the action as retaining the suit served no purpose |
Key Cases Cited
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (parties may delegate arbitrability; delegation enforceable if clear and unmistakable)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (a court must enforce an arbitration agreement’s delegation clause even if argument that arbitration is inapplicable is "wholly groundless")
- Freeland v. Liberty Mut. Fire Ins. Co., 632 F.3d 250 (value of object of declaratory action measured by consequences of litigation)
- Cleveland Hous. Renewal Project v. Deutsche Bank Tr. Co., 621 F.3d 554 (amount in controversy in declaratory/injunctive actions measured by value of object in controversy)
- Grand Trunk W. R.R. Co. v. Consolidated Rail Corp., 746 F.2d 323 (district court discretion under Declaratory Judgment Act — factors guiding whether to decline declaratory relief)