McKenzie v. Brannan, 19 F.4th 8

Background

Michael McKenzie (American Image Art) and artist Robert Indiana entered a 2008 publishing agreement that included a broad AAA arbitration clause for "any disputes."
Indiana died in 2018; his Estate (represented by Brannan) inherited rights; disputes between McKenzie and the Estate were litigated, including in a New York AAA arbitration initiated under the 2008 Agreement.
In 2019 the parties signed a confidential Term Sheet at mediation stating the 2008 Agreement was "terminated," that a new production agreement would be executed, and that the pending New York arbitration would be dismissed with prejudice; the Term Sheet contemplated a later formal settlement/production agreement.
Formal settlement negotiations failed, the Estate sought to resume arbitration, and McKenzie sued in the District of Maine seeking a declaration that the 2019 Term Sheet was binding and an injunction to stop the arbitration.
The district court found the 2008 Agreement clearly and unmistakably delegated the gateway arbitrability question to arbitrators, compelled arbitration, and dismissed McKenzie’s injunctive claim as moot; the AAA panel later found the dispute arbitrable.
The First Circuit vacated the order compelling arbitration and the dismissals, holding that McKenzie’s contention that the 2019 Term Sheet superseded the 2008 Agreement is a targeted challenge to the existence/enforceability of an arbitration agreement and thus the court (not arbitrators) must decide that issue; the case was remanded for factual findings.

Issues

Issue	Plaintiff's Argument (McKenzie)	Defendant's Argument (Estate)	Held
Who decides gateway arbitrability (delegation question)?	The court should decide because McKenzie alleges the 2019 Term Sheet superseded and extinguished the 2008 arbitration obligation (a challenge to existence).	The 2008 Agreement contains broad, direct delegation language that clearly and unmistakably assigns arbitrability to the AAA panel.	Court holds that McKenzie’s targeted challenge to whether any arbitration agreement exists means the court must decide arbitrability; no clear-and-unmistakable delegation shown. Remanded.
Is the 2019 Term Sheet binding and did it supersede/terminate the 2008 Agreement?	The Term Sheet is "confidential and binding," terminated the 2008 Agreement, and required dismissal of the New York arbitration.	The Term Sheet was non‑binding preliminary settlement documentation pending a formal agreement; the 2008 Agreement thus remained effective.	The First Circuit did not decide on the merits; it remanded for the district court to resolve this fact‑intensive question.
Does the arbitration clause survive termination/severability of the 2008 Agreement?	If the 2008 Agreement was terminated/superseded, arbitration obligations were extinguished.	Even if the underlying contract terminated, the arbitration clause can survive and remains enforceable absent a targeted challenge to the arbitration clause itself.	The court noted precedent that arbitration clauses are presumptively severable, but declined to resolve the factual dispute; remand required.
Proper immediate relief (preliminary injunction and dismissal)?	Sought injunction to halt arbitration pending court resolution that Term Sheet is binding.	Moved to compel arbitration and stay/dismiss proceedings in favor of arbitration.	The First Circuit vacated the district court’s grant to compel arbitration and the dismissals, and vacated the denial of McKenzie’s injunction as moot; remanded for further proceedings.

Key Cases Cited

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (explains distinctions among merits, arbitrability, and who decides arbitrability)
Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (courts presume arbitrators decide procedural questions unless otherwise agreed)
Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287 (courts decide threshold questions about whether parties agreed to arbitrate)
BG Group, PLC v. Republic of Argentina, 572 U.S. 25 (presumption that courts decide arbitrability absent clear agreement to delegate)
Rent‑A‑Center, W., Inc. v. Jackson, 561 U.S. 63 (clear‑and‑unmistakable standard for delegation clauses)
Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367 (1st Cir.) (standards for compelling arbitration under FAA)
Biller v. S‑H OpCo Greenwich Bay Manor, LLC, 961 F.3d 502 (1st Cir.) (analysis of severability and targeted challenges to arbitration obligations)