Scope of Arbitration – Winning the Battle and Losing the War

Be careful what you ask for. A lower-tier sub sued the first-tier sub, claiming payment issues arose in part from racial discrimination. In the face of the first-tier sub’s motion to compel arbitration, the lower tier argued that the claim of race discrimination was not within the scope of the arbitration clause.

The Indiana federal district court has agreed. Citing cases where employment and other statutory claims were found to be included within broad arbitration clauses, the court nonetheless held that the arbitration clause in this case was not as broad as in other cases. “Here, by contrast, the arbitration clause applies to claims ‘arising under’ the Subcontract, thus limiting the reach of the provision to the terms of the contract itself.” Since the claims of race discrimination did not “arise under” the subcontract, such claims would be outside the scope of arbitration.

But: “Plaintiff's Section 1981 [race discrimination] claim is premised on the same facts as those which form the basis of [the claims subject to arbitration]. Because the arbitration will resolve this pivotal issue, the court finds the interests of justice warrant that Count I be stayed pending the resolution of Plaintiffs' arbitrable claims.” Thus, if the lower-tier sub fails to prevail in arbitration, the race discrimination claim, although not subject to arbitration, may suffer the same fate. If, however, the lower-tier sub prevails on the arbitrable claims, the race discrimination claim not subject to arbitration may succeed independently.

The case is Grant v. Performance Contr., Inc., 2017 U.S. Dist. LEXIS 114792 (S.D., Ind., July 24, 2017) (Lexis subscription required).