Commercial Litigation and Arbitration

Court May Award Injunctive Relief While Arbitration Is Pending If Contract Permits Recourse to Court — Circuit Split as to Whether Judicial Injunctive Relief Awardable under FAA Absent Contractual Provision Authorizing It

Digital Generation, Inc. v. Boring, 2012 U.S. Dist. LEXIS 57272 (N.D. Tex. April 24, 2012):

[T]he parties disagree whether their arbitration agreement permits the court, at this stage, to consider DG's request for injunctive relief, before the arbitrator has determined whether Boring violated the employment agreement. The arbitration agreement is set forth in paragraph 14 of the employment agreement and states in pertinent part:

Employee [Boring] agrees that any dispute or controversy arising out of, relating to, or concerning any interpretation, construction, performance or breach of this Agreement or Employee's employment with the Corporation [DG] . . . shall be exclusively settled by final and binding arbitration . . . except that the Corporation [DG] shall be entitled to seek injunctive relief in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Sections 2, 4, 5, and 7 of this Agreement. The Arbitrator still may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration.

***Based on the express language in this paragraph, and in particular the inclusion in this paragraph of the term "to prevent any continuation of any violation," Boring contends that judicial intervention is only permissible after a violation of the employment agreement has been found by the arbitrator. Boring additionally asserts that because the arbitration is already underway, the proper forum for DG's motion for injunctive relief is the arbitration, and the court should not intervene. For support that intervention by the court during the pendency of the arbitration would be inappropriate, Boring cites RGI, Incorporated v. Tucker & Associates, Incorporated, 858 F.2d 227, 229-30 (5th Cir. 1988). Both parties acknowledge that the court in RGI upheld a judicial injunction to maintain the status quo pending arbitration based on the language in the parties' arbitration agreement that permitted such relief. They disagree, however, whether the language in their arbitration agreement permits the court to grant injunctive relief during the pendency of the arbitration.

The court in RGI noted the circuit split concerning a district court's power under the Federal Arbitration Act ("FAA") to issue an injunction while arbitration is pending but declined to weigh in on the issue, as the "bargained-for arbitration provision [at issue] clearly contemplate[d] that the status quo is to continue during arbitration." Id. at 231. [Note: the only reference in the RGI contract was to maintaining the status quo in general, not to recourse to a court in particular.] The court therefore concluded that "it was appropriate for the district court to issue the preliminary injunction to insure that the arbitration clause of the contract will be carried out as written." Id. Unlike the arbitration agreement at issue in RGI, the language in the parties' agreement expressly states that DG may seek injunctive relief from a court of competent jurisdiction or the arbitrator. Moreover, the court rejects Boring's argument that an arbitrator must first make a finding on the merits of whether he violated the employment agreement before DG can seek injunctive relief from a court, because such an interpretation would defeat the purpose of permitting DG to seek injunctive relief. A finding on the merits could take months or years and would defeat entirely the purpose of allowing injunctive relief to maintain the status quo, regardless of whether it was granted by a court or arbitrator. Additionally, requiring a conclusive finding on the merits is contrary to the requirement that a party need only demonstrate a substantial likelihood of prevailing on the merits to be entitled to injunctive relief.

Furthermore, similar arguments that an arbitration agreement is rendered illusory by the inclusion of language permitting injunctive relief by a court have been rejected by the Fifth Circuit. See Lawrence, 833 F.2d at 1163. Because the arbitration provision limits a court's granting of an injunction "to prevent any continuation of any violation of the provisions of Sections 2, 4, 5, and 7 of this Agreement," and is limited to injunctive relief, the court determines that it is not illusory as written. See id. The court notes, however, that neither party has cited to any cases in which injunctive relief was sought after arbitration was commenced. This could be because requests for injunctive relief are typically sought in conjunction with a motion to compel arbitration. Because DG sought injunctive relief immediately upon filing the arbitration to maintain the status quo pending arbitration, the court will consider its current motion. Absent additional legal authority, though, the court would be reluctant to intervene and entertain any further requests for injunctive relief once arbitration on the merits is well underway since doing so would run afoul of the FAA's purpose of moving arbitrable disputes as quickly as possible to arbitration.

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