The US Court of Appeals for the Federal Circuit declined to apply an arbitration provision to a dispute where the asserted claims were not within the scope of the contract containing the arbitration provision. Roof N Box, Inc. v. Building Materials Corp., Case No. 16-2427 (Fed. Cir., June 5, 2017) (Taranto, J).
Roof N Box (RNB) and Building Materials Corp. of America d/b/a GAF-ELK Corp. (GAF) entered into an agreement under which GAF would promote RNB’s product. The agreement contained a provision requiring the parties to submit disputes “arising under” the agreement to arbitration. Some time later, RNB brought a design patent infringement suit against GAF that included claims of trade dress infringement and unfair competition, based on GAF’s marketing of its own product in competition with the RNB product. GAF moved to dismiss or stay the action pending arbitration based on the arbitration provision. After the district court denied the motion, GAF appealed, arguing that the district court erred (1) by deciding whether the claims of the complaint were arbitrable (rather than reserving that issue for the arbitrator), and (2) by determining that the claims were not arbitrable.
The Federal Circuit affirmed the district court, accepting for the purposes of the appeal a “wholly groundless” standard to determine whether or not the district court properly rejected the request for arbitration. Under this standard, “the court may reject arbitration if and only if the assertion of arbitrability is wholly groundless.” The Court found GAF’s assertion of arbitrability wholly groundless because the relevant arbitration provision only reached claims “arising under” the promotion agreement, and the claims brought by RNB were unrelated to that agreement. The promotion agreement only concerned GAF’s promotion of RNB’s products, while the claims brought by RNB concerned allegations of making and selling a competing product. Because the latter claims did not involve any issue related to the performance or interpretation of the promotion agreement, the Court concluded that they were outside of the agreement and its arbitration provision.