McLaughlin Gormley King Company v. Terminix International Company, L.P.
Docket: 96-1619
Court: Court of Appeals for the Eighth Circuit; January 29, 1997; Federal Appellate Court
The Eighth Circuit Court of Appeals is reviewing the case of McLaughlin Gormley King Company (MGK) versus Terminix International Company regarding whether a court or an arbitrator should determine the arbitrability of their dispute. The original contract between MGK and Terminix included an arbitration clause for controversies arising from the agreement. Following a lawsuit by the Herb family alleging injuries from fenvalerate, MGK declined to indemnify Terminix, leading Terminix to seek arbitration for indemnification and defense costs after settling the Herb lawsuit. MGK filed a declaratory judgment action claiming the dispute was non-arbitrable due to the expiration of the original contract. The district court granted a preliminary injunction against Terminix's arbitration demand and denied its motion to compel arbitration while seeking further discovery on the arbitrability issue. Terminix appealed, arguing jurisdiction under 28 U.S.C. § 1292(a)(1) due to the injunction's effects. The court noted that the appealability of the order is governed by the Federal Arbitration Act, which allows appeals from orders denying arbitration applications or granting injunctions against arbitration. Terminix asserted that the arbitrator should decide arbitrability; thus, the district court's order delaying arbitration was improper. The Court of Appeals recognized the implications of the injunction, determining it favored litigation over arbitration, making it immediately appealable under the specified provisions. The Supreme Court clarified that the determination of arbitrability—whether a court or an arbitrator decides the issue—depends on whether the parties agreed to submit the arbitrability question to arbitration. Courts require "clear and unmistakable evidence" of such an agreement, distinguishing this from ambiguity regarding the arbitrability of specific merits-related disputes. This approach prevents forcing unwilling parties to arbitrate something they believed a judge would decide. In the case of Terminix and MGK, the arbitration clause did not clearly indicate that the arbitrator had the authority to determine arbitrability. Terminix's argument that a broadly worded arbitration clause necessitates arbitration on arbitrability was rejected, as the focus is on enforcing arbitration agreements according to their terms. Consequently, the district court was correct to decide the arbitrability issue. Additionally, Terminix claimed the preliminary injunction against its arbitration pursuit was an abuse of discretion, arguing that costs of arbitration do not constitute irreparable harm, referencing case law that only considered irreparable injury after confirming arbitrability. The district court's determination regarding arbitrability is upheld, confirming its authority to resolve this issue. If a court finds a dispute is non-arbitrable, precedent allows for the injunction of arbitration proceedings to prevent unnecessary costs, even if the only damage to the opposing party is related to defending against arbitration. The court's order to pause dispute resolution until arbitrability is determined is deemed appropriate. This action, although labeled a preliminary injunction, is primarily aimed at efficiently resolving the arbitrability question and is considered a nonappealable order that manages the litigation process. The appellate court affirms the district court's order and denies a request to prematurely address the arbitrability issue, focusing instead on whether the district court erred by not referring the arbitrability matter to arbitration.