Eleventh Circuit Says Pond Scum Dispute Must Go to Arbitration

Cyanotech Corporation and Valensa International are competitors.  They nonetheless entered into two agreements under which Cyanotech was to sell algae to Valensa so that it could extract from said algae an antioxidant compound.  Both agreements were governed by arbitration provisions, except for carve-outs for litigation relating to breaches of confidentiality.  Valensa sued Cyanotech for tortious interference and breach of a confidentiality agreement.  The suit relates to the two parties’ dealings with a third company, Mercola.  In short, Valensa was selling antioxidant to Mercola, and when Cyanotech found out, it offered to provide its antioxidant at a lower price.  Finding that the dispute fell within the carve-out, the District Court denied Cyantotech’s motion to compel arbitration.

In U.S. Neutraceuticals, LLC v. Cyanotech Corp., the Eleventh Circuit reversed. Citing its decision in Terminix Int’l Co. v. Palmer Ranch Ltd. P’ship, 432 F.3d 1332 (11th Cir. 2005), the Eleventh Circuit held that the question of arbitrability must be determined by the arbiter.  The District Court determined that the case was not arbitrable under the second of the two contracts between the parties.  In so doing, said the Eleventh Circuit, the District Court decided an issue (which contract governs or do both govern) that only the arbiter could decide.

Judge Wilson dissented, agreeing with the District Court that the later agreement clearly governed because the later agreement is the one cited to in the complaint.  Although there is a general presumption in favor of arbitration, that presumption does not apply to the qeustion of which agreement governs.  Judge Wilson then carefully reviewed the terms of the later agreement and found that the District Court had correctly denied the motion to compel arbitration.