Plaintiffs Capstone Associated Services, Ltd. And Capstone Associated Services (Wyoming), Limited Partnership (collectively, “Capstone”) brought suit against various defendants concerning the use of and rights to certain intellectual property related to a captive insurance arrangement. The parties agreed to mediate their dispute, resulting in the execution of a Mediated Settlement Agreement (“MSA”) that covered all of the claims between the parties except the intellectual property claims pending the lawsuit. The MSA contained an arbitration provision.

Thereafter, Capstone moved to compel arbitration under the MSA. After the arbitrator designated by the MSA declined his appointment, Capstone sought arbitration pursuant an arbitration agreement in an engagement letter that was part of the operative contract they and their attorneys (“Feldman”) entered into with the defendants as part of the captive insurance arrangement. Capstone argued that the affirmative defenses asserted by the defendants in the lawsuit were encompassed by the arbitration provision because those defenses challenged the propriety of the services provided by Capstone and Feldman under the engagement letter. The defendants opposed arbitration under the engagement letter, arguing that the parties’ claims and affirmative defenses were not arbitrable under the relevant provision.

Applying the standard set forth in the Federal Arbitration Act, the court denied Capstone’s motion to compel arbitration under the MSA, ruling that because the designated arbitrator declined his appointment, compelling arbitration in an alternative manner would be inconsistent with the express terms of the MSA’s arbitration agreement. However, the court granted Capstone’s motion to compel pursuant to the arbitration clause in the engagement letter, holding that the arbitrability of the parties’ claims and defenses were to be decided in arbitration, and not by the Court, under the terms of the operative clause. Capstone Associated Services, Ltd., et al. v. Organizational Strategies, Inc., et al., No. H-15-3233 (USDC S.D.Tex. Apr. 8, 2016).