Policy Administration Solutions, Inc. v. QBC Holdings, Inc., 7:15-cv-02473

Background

PAS (New York corp.) developed pasExecutive.Net and licensed it to Clarendon, later transferred to Praetorian; QBE ultimately merged with Praetorian and assumed its obligations.
The License Agreement (2005) contains a broad arbitration clause (AAA rules, New York City) and provisions addressing proprietary rights/confidential information; a separate Confidentiality Agreement (2005) purports to govern return of confidential materials and contains a forum-selection clause (New York courts) but no arbitration clause.
Disputes arose after QBE allegedly modified PAS’s code and ceased maintenance; PAS sued in federal court asserting copyright infringement, breach of the License Agreement, breach of the Confidentiality Agreement, unjust enrichment, and statutory/damages claims under the Copyright Act.
Prior state-court litigation and an AAA arbitration related to certain maintenance/Statements of Work occurred; the AAA issued an award that was partially vacated/remanded in state court, producing litigation over arbitration procedures and arbitrator selection.
Defendants moved to compel arbitration in federal court under the License Agreement; PAS contends its copyright/confidentiality claims fall under the separate Confidentiality Agreement (no arbitration) and that QBE waived arbitration by litigating.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Who decides arbitrability (court or arbitrator)?	Arbitrability should be decided by the court because PAS’s claims arise under the Confidentiality Agreement, which has no AAA rule incorporation.	The License Agreement incorporates the AAA Rules (including Rule 7), which clearly and unmistakably delegate arbitrability questions to the arbitrator.	Delegation question is for the arbitrator; court declines to decide arbitrability.
Are PAS’s copyright/confidentiality claims arbitrable?	Claims relate to the Confidentiality Agreement and a forum-selection clause for New York courts controls; thus not subject to arbitration.	Claims concern use/retention/modification of licensed software and are licensing disputes "relating to" the License Agreement, so they fall within its broad arbitration clause.	Court declines to rule on merits of arbitrability and sends the issue to arbitrator under the delegation clause.
Did QBE waive the right to arbitrate by litigating?	QBE litigated for ~40 months and engaged in merits motions, causing PAS expense and prejudice, so arbitration was waived.	QBE’s pre-arbitration activity was limited (brief motion practice, stayed proceedings, prompt motion to compel after stay lifted) and did not produce prejudice.	No waiver: delay and litigation were not so extensive and PAS failed to show prejudice sufficient to defeat arbitration.
Effect of Confidentiality Agreement (merger/venue clause) on arbitration clause	The Confidentiality Agreement’s "Entire Agreement" and forum-selection clause supersede prior agreements regarding confidential information, so arbitration clause in License Agreement is inapplicable.	Even if Confidentiality Agreement exists, whether it supersedes or limits the License Agreement raises arbitrability questions delegated to arbitrator; also License Agreement’s confidentiality provisions are invoked in the complaint.	Whether the Confidentiality Agreement supersedes the arbitration clause is a question for the arbitrator.

Key Cases Cited

Contec Corp. v. Remote Sols., Co., 398 F.3d 205 (2d Cir.) (incorporation of AAA rules is clear evidence of intent to delegate arbitrability to arbitrator)
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (FAA allows parties to agree that arbitrators resolve merits disputes)
Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840 (2d Cir.) (framework for district court inquiries on arbitrability and stays)
Katz v. Cellco P’ship, 794 F.3d 341 (2d Cir.) (FAA requires stay when all claims are referred to arbitration and a stay is requested)