One question I get frequently is whether a party can protect the status quo by seeking a court injunction, even if there is an arbitration agreement in place. Usually, I point them back to this post from 2011 (with the caveat that the AAA rules now authorize arbitrators to grant emergency relief, without any need for referencing “optional rules”). But, a new case from the First Circuit — with retired Justice Souter on the panel — confirms that injunctions remain possible, and not just for the limited purpose of maintaining the status quo.
In Axia Netmedia Corp. v. Mass. Technology Park Corp., 2018 WL 1940220 (1st Cir. April 25, 2018), the dispute related to one defendant’s promise to operate a new broadband network for a public entity at its own cost, and another defendant’s promise to guarantee the performance of the first defendant. Let’s call the first defendant the Operator, and the second the Guarantor. The whole thing did not go as smoothly as planned, and within three years the parties were claiming multiple breaches of contract. Eventually, the public entity demanded arbitration. The Guarantor immediately filed a federal suit, seeking a declaratory judgment that it had no responsibility to continue guaranteeing payments or performance by the Operator during the arbitration. In response, the public entity sought an injunction requiring Guarantor to do exactly those things (guarantee the payments and performance during the arbitration). The district court granted the injunction to the public entity.
On appeal, the First Circuit affirmed. It focused on language within the dispute resolution provision of the Operator’s contract, which provided that it had to “continue performing [its] respective obligations…while the dispute is being resolved” and on the language in the Guarantor’s contract, which provided the Guarantor had to “perform all such obligations of” the Operator (and incorporated the Operator’s contract). Because of that incorporation, the court found the Guarantor agreed “to perform [its] obligations under that contract pending resolution of any dispute” and therefore the district court did not err in finding the public entity was likely to succeed in showing the Guarantor had a continuing obligation to perform.
This case is helpful for drafters of arbitration clauses, because it shows it is worth including language saying that parties have to continue performing during the ADR process. And also because it offers support for those limited instances where a party must seeking a court injunction at the beginning of an arbitration.