August 14, 2019 Practice Points

Carve-Out for Equitable Relief Trumped by AAA Rule

The court held that the carve-out did not remove from the arbitrator the power to decide arbitrability.

By Joel Levine

AllyAlign Health, Inc. contracted with Signature Advantage, LLC., to serve as administrator of Signature Advantage's self-insured health maintenance organization.

The agreement contained an arbitration clause which required following the American Arbitration Association’s (AAA) Commercial Arbitration Rules and also contained a carve-out stating that “Notwithstanding any other provision of this Agreement, any party shall have the right to seek equitable relief, in a court of competent jurisdiction . . . .”

Signature sued AllyAlign for breach of fiduciary duty, unjust enrichment, rescission, restitution, and injunctive relief. AllyAlign moved to compel arbitration of all claims and Signature opposed the motion asserting the carve-out provision for equitable claims (rescission and restitution).

Citing AAA Rule 7(a), the court held that the carve-out did not remove from the arbitrator the power to decide arbitrability, the court citing AAA Rule 7(a). The court noted that

Virtually every circuit . . . has determined that incorporation of the [AAA’s Rules] constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. . . . A carve-out provision for certain claims to be decided by a court does not negate the clear and unmistakable mandate of the AAA's Rules that the arbitrability of claims is to be decided by the arbitrator, not the Court.

A vigorous dissent argued that the words “Notwithstanding any other provision of this Agreement” should have resulted in a contrary holding. AllyAlign Health, Inc. v. Signature Advantage, LLC., 2019 SC-000001-1 (Ky. Sup. Ct. June 13, 2019).

Joel Levine is an experienced arbitrator and mediator in the Phoenix/Scottsdale, Arizona, area.

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