Telephone USA Investments, Inc. v. Lumen Technologies, Inc.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Telephone Investments USA, Inc.,

Plaintiff,

Case No. 22-cv-2260

v.

Judge Mary M. Rowland

Lumen Technologies, Inc.,

Defendant.

MEMORANDUM OPINION AND ORDER

This case concerns a fall-out between business partners. Plaintiff Telephone

Investment USA, Inc. sues Defendant Lumen Technologies, Inc. for injunctive and

declaratory relief to enforce its rights under the parties’ business contract. Defendant

has moved to dismiss for improper venue and to compel arbitration based on an

arbitration provision in the parties’ contract [28]. For the reasons explained below,

this Court grants Defendant’s motion and stays this case pending arbitration.

I. Background

A. Factual Background

In August 1999, Plaintiff Telephone USA Investments partnered with

CenturyTel (Defendant Lumen’s former name) and two individual investors, Dr.

Claude B. Minor, Jr. and Dr. Bobby R. Cunningham, to form Telephone USA of

Wisconsin, LLC (Telephone USA). [31] ¶ 7. The newly formed company then struck a

deal with non-party GTE North Incorporated to purchase GTE’s Wisconsin

telecommunications assets, contingent on approval from the Federal

Communications Commission (FCC). Id. After the FCC approved the transaction,

Telephone USA became a provider of local exchange, long distance, and internet

service to more than sixty thousand customers in thirty-five exchanges in Wisconsin.

Id. The members of Telephone USA formed the company as a minority-controlled

business, although Defendant initially owned an overwhelming majority (89%) stake.

Id.

After a restructuring, Telephone USA’s members formed a holding company,

TelUSA Holdings, LLC (TelUSA Holdings) on July 17, 2002. Id. ¶ 8. As part of the

restructuring, TelUSA Holdings became the owner of Telephone USA, and indirectly,

the assets acquired from GTE. Id. Under the TelUSA Holdings’ operating agreement,

Defendant agreed to finance Plaintiff’s purchase of Defendant’s stake in TelUSA

Holdings if Defendant decided to sell its interest. Id. ¶ 9. The Agreement also placed

management of TelUSA Holdings under the control of its minority members. Id.

Thus, despite holding only 11% of the TelUSA Holdings membership shares, Plaintiff,

Dr. Minor, and Dr. Cunningham controlled TelUSA Holdings; those minority

members had the power to appoint a majority of the TelUSA Holdings board of

directors and to make all decisions, with limited exceptions, requiring a vote of

members. Id. ¶ 10. In 2018, Defendant bought the 1% interest of the two individual

shareholders without providing formal notice to Plaintiff. Id. ¶ 12. Plaintiff alleges

that this transaction breached the parties’ Agreement. Id. ¶ 13.

Plaintiff claims that, in early 2020, a series of events unfolded suggesting that

Defendant may have been engaged in self-dealing. Id. ¶ 15. In December 2019, the

TelUSA Holdings board authorized a distribution of $3,412,000.00 to its members

based on their pro rata membership interests. Id. ¶ 16. Apparently by mistake,

Defendant—acting on TelUSA Holdings’ behalf—issued a check for the full

$3,412,000.00 to Plaintiff. Id. Around that time, Plaintiff coincidentally learned that

Defendant had been acting to Plaintiff’s detriment for many years by treating the

assets of TelUSA Holdings and TelUSA of Wisconsin as Defendant’s own. Id. Among

other things, Plaintiff learned that Defendant had: (1) failed to cause the board to

make annual cash distributions, as required by the Agreement; (2) mismanaged

TelUSA Holdings’ financials by failing to accurately report TelUSA Holdings’ revenue

and expenses; (3) exercised control over the company’s operations and finances in

excess of its authority under the Agreement; (4) failed to hold regular board meetings

as required by the Agreement; (5) improperly allocated expenses belonging to

Defendant onto TelUSA Holdings, including by charging it for items without board

approval; and (6) moved broadband business and revenue from Telephone USA of

Wisconsin to Defendant’s subsidiary without the requisite approval, causing TelUSA

Holdings’ revenue to be underreported. Id. ¶ 17. Over the next two years, Plaintiff

pressed Defendant to abate its behavior and pay Plaintiff its rightly earned share of

profits. Id. ¶ 19. Defendant has, however, refused to do so and has failed to provide

an accounting of its actions. Id.

Then, in August 2021, Defendant announced the sale of its interests of all its

telecommunications assets in twenty states to Connect Holding, LLC, an affiliate of

Apollo Global Management, Inc. Id. ¶ 20. Plaintiff alleges that, with broadband being

the focal point and driving the Apollo transaction, Defendant has pirated the

broadband assets from Telephone USA into one of Defendant’s subsidiaries,

CenturyTel Broadband Services. Id. ¶ 22. According to Plaintiff, this movement of

assets and business lines out of Telephone USA into CenturyTel was not authorized.

Id.

Plaintiff also alleges that under TelUSA Holding’s operating agreement (the

Agreement), Defendant may not sell its interest in the company to an outsider

without providing Plaintiff proper notice and a period of thirty days during which

Plaintiff may exercise its right to buy Defendant’s stake, financed by Defendant. Id.

¶ 28. Section 3.5 of the Agreement provides:

If any Member (the ‘Selling Member’) desires to sell all (and not less

than all) of its Shares and such Selling Member shall have received a

bona fide arm's length written offer (the ‘Bona Fide Offer’) for the

purchase of such Shares (the ‘Offered Shares’) for cash from a Person

who is not an Affiliate of the Selling Member (the ‘Outside Party’), the

Selling Member shall give a notice (‘Option Notice’) to each Initial

Member that owns Shares as of the date of such notice (the ‘Remaining

Initial Members’) setting forth its desire to sell such Offered Shares,

which notice shall be accompanied by a legible photocopy of the original

executed Bona Fide Offer and shall set forth the name and address of

the Outside Party and the price and terms of such offer. Upon delivery

of such Option Notice, each Remaining Initial Member shall have a non-

assignable first option to purchase such Offered Shares on a pro rata

basis based upon the number of Shares owned by such Remaining Initial

Member in relation to the aggregate number of Shares owned by all

Remaining Initial Members, at the price and on the terms set forth in

the Bona Fide Offer, which option may be exercised by giving, within 30

days after the delivery of such Option Notice, a counter-notice to the

Selling Member.

Id. ¶ 28 (emphasis added).

Defendant attempted to trigger Section 3.5 through a letter dated April 8,

2022, offering to sell its interest to Plaintiff for $48,017,282.00 cash. Id. ¶¶ 28–29.

Plaintiff asserts, however, that Defendant violated the terms of Section 3.5 by

attaching only a portion of its sale agreement with Apollo and failing to set forth the

“price and terms of such offer” from Apollo. Id. ¶¶ 28–29. On April 15, 2022, Plaintiff

responded to Defendant’s letter, stating that Defendant’s April 8, 2022 notice failed

to satisfy Section 3.5’s requirements. Id. ¶ 31. Defendant replied on April 28, 2022,

contending that the thirty-day right of first refusal period had been properly triggered

and that Plaintiff’s rights would expire on May 8, 2022. Id. ¶ 31. As that time has

expired, Defendant now contends that Plaintiff’s right of first refusal expired and that

it may now sell its interest in TelUSA Holdings to Apollo. Id.

B. The Pending Arbitration

The Agreement also contains an arbitration provision, in Section 13.11, which

states as follows:

(a) Subject to paragraph (b) below, any and all controversies or claims

arising out of or relating to this Agreement, or the interpretation or

enforcement thereof, shall be settled by arbitration (including the

allocation of costs of any arbitration) to be held in Dallas, Texas in

accordance with the Commercial Arbitration Rules of the American

Arbitration Association. The decision and award of the arbitrator shall

be final and binding on all parties in interest. Judgment upon the award

rendered by the arbitrator may be entered in any court having

jurisdiction thereof.

(b) Notwithstanding the terms of the foregoing paragraph, any party

facing irreparable harm shall be entitled to seek injunctive and other

forms of equitable relief from any court of competent jurisdiction

(whether during the pendency of any arbitration proceedings or

otherwise) to prevent nonperformance or breach of one or more

agreements or covenants set forth herein, and to enforce specifically the

terms and provisions hereof, without the necessity or posting a bond or

other security as may be required by applicable law.

[31-1] at 46.

On December 8, 2021, Defendant initiated arbitration to redress the “clerical

error” that resulted in the $3,145,800.00 overpayment to Plaintiff in late December

2019. [31-3] at 3; [31] ¶ 32. According to Defendant’s arbitration petition, Plaintiff

has refused to return the overpayment. Id. Defendant asserted claims in arbitration

for breach of contract, breach of the covenant of good faith and fair dealing, unjust

enrichment, and “money had and received.” [31-3] at 4–7. In response, Plaintiff

counterclaimed for breach of the Agreement based on Defendant’s failures to

accurately and reliably report the LLC’s revenues and expenses and to declare

distributions of available cash; and for breach of the implied covenant of good faith

and fair dealing. [32] ¶ 32; [31-3]. The final arbitration hearing is set for January 5,

2023. [39-1] at 1.

C. Procedural History

On April 29, 2022, Plaintiff filed a complaint in this Court seeking: (1) a

judgment declaring that Defendant’s April 8 notice did not trigger its right of first

refusal; and (2) to enjoin Defendant from selling its interest to Apollo. [1]. Plaintiff

contemporaneously moved for a temporary restraining order [5]; [6], seeking to

immediately enjoin Defendant from selling its interest in TelUSA Holdings to Apollo.

This Court held a hearing on Plaintiff’s motion on May 24, 2022 and denied it

on the record, [26]; the next day, this Court issued a written opinion further

explaining its reasons for denying the motion, [27]. Soon after, Defendant moved to

compel arbitration and to dismiss under Federal Rule of Civil Procedure 12(b)(3). [28].

After Plaintiff amended its complaint [31], Defendant supplemented its motion to

account for any new allegations [35]. Plaintiff’s amended complaint seeks injunctive

relief in both counts. [31]. Plaintiff’s claims here, unlike its counterclaims in

arbitration, do not concern Defendant’s alleged mismanagement or self-dealing; its

claims here solely concern the Apollo deal. Id. ¶ 32. Defendant’s motion to compel and

to dismiss is now fully briefed and ripe for adjudication.

II. Legal Standard

In 1925, Congress enacted the Federal Arbitration Act (FAA) to counter

generalized judicial hostility to arbitration as an alternative to litigation and to allow

agreements to arbitrate to be enforced. AT&T Mobility LLC v. Concepcion, 563 U.S.

333, 339 (2011). The FAA embodies a “policy favoring arbitration.” Morgan v.

Sundance, Inc., 142 S. Ct. 1708, 1713 (2022) (quoting Moses H. Cone Mem’l Hosp. v.

Mercury Constr. Corp., 460 U.S. 1, 24 (1983)). Under the FAA, a party may compel

arbitration if it can demonstrate: (1) an enforceable written agreement to arbitrate;

(2) a dispute within the scope of the arbitration agreement; and (3) a refusal to

arbitrate. A.D. v. Credit One Bank, N.A., 885 F.3d 1054, 1060 (7th Cir. 2018);

Scheurer v. Fromm Family Foods LLC, 863 F.3d 748, 752 (7th Cir. 2017). The party

opposing arbitration bears the burden of proving the arbitration agreement is

unenforceable or proving that the claims are unsuitable for arbitration. Green Tree

Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 91–92 (2000); A.D., 885 F.3d at 1063. To

meet this burden, the party opposing arbitration must also identify a triable issue of

fact on the purported arbitration agreement. Gilbert v. I.C. Sys., Inc., No. 19-CV-

04988, 2021 WL 292852, at *2 (N.D. Ill. Jan. 28, 2021) (citing Tinder v. Pinkerton

Sec., 305 F.3d 728, 735 (7th Cir. 2002)).

III. Analysis

This dispute centers around whether the Agreement’s arbitration provision

applies to the claims Plaintiff asserts in this lawsuit. But before deciding that issue,

this Court must first address a threshold issue that Defendant has raised—whether

the parties have agreed to delegate questions of arbitrability to the arbitrator in the

first instance.

A. Delegation Clause

Presumptively, the court, not the arbitrator, decides “certain gateway matters,

such as whether the parties have a valid arbitration agreement at all or whether a

concededly binding arbitration clause applies to a certain type of controversy.” Oxford

Health Plans LLC v. Sutter, 569 U.S. 564, 569 n.2 (2013). Despite this presumption,

“parties may delegate threshold arbitrability questions to the arbitrator, so long as

the parties’ agreement does so by ‘clear and unmistakable’ evidence.” Henry Schein,

Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019) (quoting First Options of

Chi., Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). A provision to arbitrate gateway

issues—also known as a delegation clause—“is simply an additional, antecedent

agreement the party seeking arbitration asks the federal court to enforce, and the

FAA operates on this additional arbitration agreement just as it does on any other.”

Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 70 (2010); see also K.F.C. v. Snap Inc.,

29 F.4th 835, 837 (7th Cir. 2022) (observing that “if there is a contract, then an

arbitration clause may delegate all other issues, including defenses, to the

arbitrator”). When parties make this clear and unmistakable delegation, a court

“possesses no power to decide the arbitrability issue.” Henry Schein, 139 S. Ct. at 529.

This “is true even if the court thinks that the argument that the arbitration

agreement applies to a particular dispute is wholly groundless.” Id.

Courts find clear and unmistakable evidence of intent to delegate under two

circumstances. First, a delegation clause explicitly conferring authority to decide

arbitrability issues to an arbitrator constitutes clear and unmistakable intent to

delegate arbitrability. In Rent-A-Center, for example, the Supreme Court held that a

contract provision stating that the “Arbitrator . . . shall have exclusive authority to

resolve any dispute relating to the interpretation, applicability, enforceability or

formation of this Agreement” constituted a clear and unmistakable delegation of

arbitrability questions to the arbitrator. 561 U.S. at 66, 72.

Second, although the Seventh Circuit has not addressed this issue, the

consensus view among district courts in this circuit and among the other appellate

circuits holds that reference to or incorporation of AAA rules constitutes clear and

unmistakable evidence to delegate arbitrability to an arbitrator. See Sha-Poppin

Gourmet Popcorn LLC v. JPMorgan Chase Bank, N.A., 553 F. Supp. 3d 452, 458 (N.D.

Ill. 2021); 20/20 Foresight, Inc. v. McGuffin, No. 20 C 6915, 2021 WL 619718, at *3

(N.D. Ill. Feb. 17, 2021); Wilcosky v. Amazon.com, Inc., No. 19-CV-05061, 2021 WL

410705, at *11 (N.D. Ill. Feb. 5, 2021); Crooms v. Sw. Airlines Co., 459 F. Supp. 3d

1041, 1055 (N.D. Ill. 2020); accord Bosse v. N.Y. Life Ins. Co., 992 F.3d 20, 29 (1st Cir.

2021); Blanton v. Domino’s Pizza Franchising LLC, 962 F.3d 842, 845 (6th Cir. 2020),

cert. denied sub nom. Piersing v. Domino’s Pizza Franchising LLC, 141 S. Ct. 1268

(2021); JPay, Inc. v. Kobel, 904 F.3d 923, 936 (11th Cir. 2018); Arnold v. Homeaway,

Inc., 890 F.3d 546, 552 (5th Cir. 2018); Dish Network L.L.C. v. Ray, 900 F.3d 1240,

1246 (10th Cir. 2018); Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015);

Fallo v. High-Tech Inst., 559 F.3d 874, 878 (8th Cir. 2009); Contec Corp. v. Remote

Sol., Co., 398 F.3d 205, 208 (2d Cir. 2005). This consensus view finds its roots in AAA

Commercial Rule 7(a), which expressly delegates arbitrability questions to the

arbitrator, as follows: “The arbitrator shall have the power to rule on his or her own

jurisdiction, including any objections with respect to the existence, scope, or validity

of the arbitration agreement or to the arbitrability of any claim or counterclaim.” Am.

Arb. Assoc., Commercial Arbitration Rules and Mediation Procedures 13 (2016),

https://adr.org/sites/default/files/Commercial%20Rules.pdf.

B. The Parties Agreed to Delegate Arbitrability

In light of the above standards, the parties have clearly and unmistakably

agreed to delegate the threshold question of arbitrability to the arbitrators. Subpart

(a) of the arbitration provision here states:

(a) Subject to paragraph (b) below, any and all controversies or claims

arising out of or relating to this Agreement, or the interpretation or

enforcement thereof, shall be settled by arbitration (including the

allocation of costs of any arbitration) to be held in Dallas, Texas in

accordance with the Commercial Arbitration Rules of the American

Arbitration Association. The decision and award of the arbitrator shall

be final and binding on all parties in interest. Judgment upon the award

rendered by the arbitrator may be entered in any court having

jurisdiction thereof.

[31-1] at 46.

This provision—which delegates all controversies relating to the

“interpretation or enforcement” of the Agreement—reflects a clear and unmistakable

intent for arbitrability to be decided by the arbitrators. See, e.g., McClenon v.

Postmates Inc., 473 F. Supp. 3d 803, 808 (N.D. Ill. 2020) (finding clear and

unmistakable intent to delegate from a clause giving the arbitrator the “exclusive

authority to resolve any dispute relating to the interpretation, applicability,

enforceability, or formation” of the arbitration provision); Lee v. Uber Techs., Inc., 208

F. Supp. 3d 886, 889, 891 (N.D. Ill. 2016) (holding that language providing that

matters concerning “enforceability, revocability or validity” of arbitration provision

“shall be decided by an Arbitrator” sufficed to show intent to delegate arbitrability).

Additionally, consistent with the “consensus view” among federal courts, this

Court finds that the parties’ agreement to arbitrate pursuant to AAA Rules also

constitutes clear and unmistakable intent to delegate arbitrability. Wilcosky, 2021

WL 410705, at *11 (observing that “the consensus view of federal case law is that the

incorporation by reference of the AAA Rules is clear and unmistakable evidence of an

intention to arbitrate arbitrability”) (quoting Ali v. Vehi-Ship, LLC, No. 17 CV 02688,

2017 WL 5890876, at *3 (N.D. Ill. Nov. 27, 2017)).

C. The Carve-Out Provision

In opposing arbitration, Plaintiff points to the arbitration provisions subpart

(b), which states:

(b) Notwithstanding the terms of the foregoing paragraph, any party

facing irreparable harm shall be entitled to seek injunctive and other

forms of equitable relief from any court of competent jurisdiction

(whether during the pendency of any arbitration proceedings or

otherwise) to prevent nonperformance or breach of one or more

agreements or covenants set forth herein, and to enforce specifically the

terms and provisions hereof, without the necessity or posting a bond or

other security as may be required by applicable law.

[31-1] at 46. This provision, Plaintiff argues, creates an exception to the prior

paragraph’s agreement to submit all issues—including those regarding

arbitrability—to the arbitrators for complaints seeking injunctive relief. [38] at 5–6.

This Court disagrees.

Several federal courts have considered similar carve-out provisions. In

Crawford Professional Drugs, Inc. v. CVS Caremark Corp., the Fifth Circuit

interpreted an arbitration provision that included a carve-out for claims of injunctive

relief; that provision stated:

Any and all disputes in connection with or arising out of the Provider

Agreement by the parties will be exclusively settled by arbitration before

a single arbitrator in accordance with the Rules of the American

Arbitration Association. The arbitrator must follow the rule of Law, and

may only award remedies provided for in the Provider Agreement. . . .

Any such arbitration must be conducted in Scottsdale, Arizona, and

Provider agrees to such jurisdiction, unless otherwise agreed to by the

parties in writing. The expenses of arbitration, including reasonable

attorney's fees, will be paid for by the party against whom the award of

the arbitrator is rendered.... Arbitration shall be the exclusive and final

remedy for any dispute between the parties in connection with or arising

out of the Provider Agreement; provided, however, that nothing in this

provision shall prevent either party from seeking injunctive relief for

breach of this Provider Agreement in any state or federal court of law.

748 F.3d 249, 256 (5th Cir. 2014) (emphasis added). Although it did not specifically

analyze the carve-out clause relating to injunctive relief, the Fifth Circuit held that

the “express incorporation of the same AAA Rules constitutes clear and unmistakable

evidence that the parties agreed to arbitrate arbitrability.” Id. at 262–63.

In Oracle America, Inc. v. Myriad Group A.G., 724 F.3d 1069 (9th Cir. 2013),

the Ninth Circuit considered the scope of an arbitration provision carving out

intellectual property disputes. The relevant clause provided:

Any dispute arising out of or relating to this License shall be finally

settled by arbitration as set out herein, except that either party may

bring any action, in a court of competent jurisdiction (which jurisdiction

shall be exclusive), with respect to any dispute relating to such party's

Intellectual Property Rights or with respect to Your compliance with the

TCK license. Arbitration shall be administered: (i) by the American

Arbitration Association (AAA), (ii) in accordance with the rules of the

United Nations Commission on International Trade Law (UNCITRAL)

(the “Rules”) in effect at the time of arbitration as modified herein; and

(iii) the arbitrator will apply the substantive laws of California and

United States. Judgment upon the award rendered by the arbitrator

may be entered in any court having jurisdiction to enforce such award.

Id. at 1071 (emphasis added). Like the Crawford court, the Ninth Circuit in Oracle

held that, by incorporating AAA rules, the arbitration clause constituted clear and

unmistakable intent to delegate arbitrability. Id. at 1074. Moreover, the carve-out

did not negate the delegation; rather, as the Ninth Circuit reasoned, the “decision

that a claim related to intellectual property rights . . . constitutes an arbitrability

determination, which the parties have clearly and unmistakably delegated to the

arbitrator.” Id. at 1077. To hold otherwise, the court reasoned, would conflate “the

scope of the arbitration clause, i.e., which claims fall within the carve-out provision,

with the question of who decides arbitrability.” Id. at 1076. The court thus rejected

the notion that merely by bringing an intellectual property claim, a party can avoid

its contract to delegate the arbitrability of such claims to an arbitrator. Id. at 1075–

76.

A more recent Fifth Circuit case distinguished both Crawford and Oracle: In

Archer & White Sales, Inc. v. Henry Schein, Inc., the court of appeals considered a

carve-out provision within the following arbitration provision:

This Agreement shall be governed by the laws of the State of North

Carolina. Any dispute arising under or related to this Agreement (except

for actions seeking injunctive relief and disputes related to trademarks,

trade secrets, or other intellectual property of Pelton & Crane), shall be

resolved by binding arbitration in accordance with the arbitration rules

of the American Arbitration Association. The place of arbitration shall

be in Charlotte, North Carolina.

935 F.3d 274, 277 (5th Cir. 2019). The Archer court distinguished this carve-out

provision from the one in Crawford, ruling that the “placement of the carve-out here

is dispositive” and that the “most natural reading of the arbitration clause at issue

here states that any dispute, except actions seeking injunctive relief, shall be resolved

in arbitration in accordance with the AAA rules.” Id. at 281. The court thus concluded

that the agreement delegated arbitrability for all disputes except those under the

carve-out (i.e., injunctive relief). Id. at 281–82.

The arbitration provision here is more similar to the ones in Crawford and

Oracle than Archer. In Crawford and Oracle, the arbitration provisions delegated all

disputes relating to the contracts, including those of arbitrability to the arbitrators;

carve-outs within those arbitration provisions merely allowed certain claims to be

brought in court. So too, here. The arbitration provision in subpart (a) provides that

“any controversies or claims arising out of or relating to this Agreement, or the

interpretation or enforcement thereof, shall be settled by arbitration. . . .” [31-1] at 46

(emphasis added). This clause, in addition to the incorporation of AAA rules, clearly

delegates all disputes—including those concerning arbitrability—to the arbitrators.

The carve-out clause in subpart (b), like the ones in Crawford and Oracle does

not explicitly exempt claims for injunctive relief from the requirement that any

controversies relating to the interpretation or enforcement of the Agreement shall be

submitted to the arbitrator. Rather, like the carve-outs in Crawford and Oracle, the

carve-out here exempted specified claims for arbitration but did not limit the

arbitrators’ exclusive jurisdiction to decide questions of arbitrability. The carve-out

here simply allows a “party facing irreparable harm” to “seek injunctive and other

forms of equitable relief.” [31-1] at 46; see also, e.g., Blanton, 962 F.3d at 848 (noting

that, although the parties had not raised arguments about a carve-out in an

arbitration provision, that to the extent an arbitration agreement carved out “certain

claims from arbitration, it does so from the agreement in general, not from the

provision that incorporates the AAA rules. So the carveout goes to the scope of the

agreement—a question that the agreement otherwise delegates to the arbitrator—not

the scope of the arbitrator's authority to decide questions of arbitrability.”) (internal

quotation marks omitted). In contrast, Archer’s arbitration provision limited

arbitration to “[a]ny dispute arising under the agreement (except for actions seeking

injunctive relief. . .”). 935 F.3d at 277. The arbitration provision in Archer, unlike the

one here, expressly exempted all disputes from arbitration where a party sought

injunctive relief. Id.

Other persuasive authorities confronting similar carve-outs support the

conclusion that the carve-out here does not exempt arbitrability questions from

arbitration. In Manlove v. Volkswagen Aktiengesellschaft, a district court considered

the following arbitration agreement, similar to the one at issue here:

Submission to Arbitration. Any and all disputes which involve or relate

in any way to Employee’s employment (or termination of employment)

with [VW America], whether initiated by Employee or by [VW America],

shall be submitted to and resolved by final and binding arbitration.

However, nothing in this Agreement shall be construed to restrict or

prevent either party from pursuing injunctive relief in a court of

competent jurisdiction.

***

Injunctive Relief. Nothing in this agreement shall be interpreted to

prevent or restrict either party from seeking provisional injunctive

relief, where appropriate, in a court of competent jurisdiction. Injunctive

relief includes, but is not limited to, temporary and/or permanent

injunctions or restraining orders.

No. 1:18-CV-145, 2019 WL 2291890, at *2 (E.D. Tenn. Jan. 11, 2019). In Manlove,

after the defendant moved to compel arbitration, the plaintiff argued that he only

sought only injunctive relief, and that, “by its express terms, the agreement does not

apply to claims for injunctive relief, such as those brought in this action.” Id. at *3.

The court, while noting that “there is no question Plaintiff’s claims for purely

injunctive relief may be brought in a court of law,” nevertheless compelled arbitration

due to the broad delegation clause that clearly and unmistakably delegated threshold

issues of arbitrability of all claims—including those for injunctive relief—to an

arbitrator. Id. at *3.

A District of Columbia court considered an arbitration agreement providing

that “any dispute or controversy between the Parties arising under or in connection

with this Agreement” will be submitted to arbitration “in accordance with the

Commercial Rules of the American Arbitration Association then in effect.” KONE Inc.

v. Chenega Worldwide Support, LLC, No. 20-CV-999 (DLF), 2021 WL 827163, at *1

(D.D.C. Mar. 3, 2021). The provision also contained a carve-out provision stating that

the arbitration provision “shall . . . not apply to a Party’s pursuit of recovery of

undisputed payments due and owing under this Agreement.” Id. The court found that

the “broad language” of the provision “confirms that the parties manifested a clear

and unmistakable intent to delegate arbitrability determinations to an arbitrator.”

Id. at *5. As for the carve-out, the court interpreted it as a clause that “merely

constitutes a class of disputes and controversies that the parties did not agree to

subject to merits arbitration.” Id.

The above persuasive authorities confirm that the carve-out in this case refers

to a class of disputes that the parties contemplated could be brought in court; it does

not, however, limit the arbitrators’ ability to decide threshold issues of arbitrability.

Because the parties clearly and unmistakably delegated arbitrability issues, this

Court lacks the authority to decide whether it can hear Plaintiff’s claims for

injunctive relief. That is a matter for the arbitrator to decide. See, e.g., McClenon, 473

F. Supp. 3d at 811–12 (“[T]he Court concludes that the Fleet Agreement delegates to

the arbitrator the exclusive authority to resolve Postmates’ claims that

Petitioners’ arbitration demands violate the Class Action and Representative Action

Waivers by seeking de facto class arbitration. As such, the Court declines to consider

the merits of the parties’ arguments on that issue and leaves them for an arbitrator to

resolve.”).

D. Dismissal Without Prejudice

Having decided that the parties have agreed to delegate threshold issues of

arbitrability, this Court must determine whether it should dismiss this case (as

Defendant requests), or alternatively, whether it should stay the case.

Under Section 4 of the FAA, a district court cannot compel arbitration outside

the confines of its district. Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801,

808 (7th Cir. 2011). But while “courts cannot grant a § 4 order to compel arbitration

unless they sit in the same district as the arbitration venue, a § 3 order to stay

pending arbitration has no such requirement.” See Kawasaki Heavy Indus., Ltd. v.

Bombardier Recreational Prods. Inc., 660 F.3d 988, 997 (7th Cir. 2011). For

“arbitrable issues, a § 3 stay is mandatory.” Volkswagen of Am., Inc. v. Süds of Peoria,

Inc., 474 F.3d 966, 971 (7th Cir. 2007). Because the parties’ arbitration provision

provides that arbitration will take place in Dallas, Texas, this Court lacks the

authority under Section 4 of the FAA to compel arbitration. This Court will, however,

stay this case under Section 3 pending the ongoing AAA proceedings. See, e.g.,

Imperial Crane Sales, Inc. v. Sany Am., Inc., No. 15 C 859, 2015 WL 4325483, at *6

(N.D. Ill. July 15, 2015) (staying, rather than dismissing, a case after deciding that

the parties delegated threshold arbitrability issues, and referring the arbitrability

determination to a AAA arbitration proceeding the plaintiff had already initiated in

Georgia).

This Court notes Plaintiff’s concerns that arbitration will preclude the efficient

resolution of its claims. Plaintiff seeks to enjoin the transaction between Defendant

and Apollo that Defendant expects to close during the fourth quarter of this year. See

[27] at 3. Indeed, courts necessarily face a “tension” when “forced to choose between

providing preliminary injunctive relief and enforcing an agreement to delegate to the

arbitrator the decision of whether preliminary injunctive relief is arbitrable.”

Manlove, 2019 WL 2291890, at *4. But this Court does not believe that arbitration

will significantly delay this matter. If the arbitrators rule that Plaintiff’s claims for

injunctive relief are not arbitrable, Plaintiff can seek to lift the stay in this Court,

which can then proceed to the merits of Plaintiff’s claims. See Henry Schein, 139 S.

Ct. at 531 (“Arbitrators can efficiently dispose of frivolous cases by quickly ruling that

a claim is not in fact arbitrable.”).

If, on the other hand, the arbitrators rule that Plaintiff’s claims for injunctive

relief belong in arbitration, the arbitrators appear poised to incorporate those claims

into the pending proceedings. The scheduling order in the arbitration contemplates

that the parties “shall amend their statements of claim and counterclaims” by “(1)

July 22, 2022 or (2) the expiration of seven days following a decision by the court on

[Defendant]’s motion to compel arbitration and to dismiss” in this case. [39-1] at 1.

Plaintiff can thus amend its arbitration claims to include the injunctive relief claims

it seeks here. Moreover, although the final arbitration hearing will not take place

until January 2023, see id., Plaintiff is not without remedy in arbitration to obtain

interim relief. Rule 37(a) of the AAA Commercial Arbitration Rules permits the

arbitrator to “take whatever interim measures he or she deems necessary, including

injunctive relief.” Am. Arb. Assoc., Commercial Arbitration Rules and Mediation

Procedures 13 (2016), https://adr.org/sites/default/files/Commercial%20Rules.pdf.

IV. Conclusion

For the reasons explained above, this Court grants Defendant’s motion to

dismiss and compel arbitration [28] and stays this case pending arbitration.

Plaintiff's motion for summary judgment [40] is denied without prejudice.

ENTER:

Te Bole

Dated: July 20, 2022 / hg M

“MARYM.ROWLAND sis

United States District Judge

20