Originally from Dispute Resolution Journal

EMPLOYMENT

Arbitrability

On de novo review, the 2nd Circuit held that whether this employment dispute was arbitrable was for the arbitrator to decide since the consulting agreement contained an exceedingly broad arbitration clause.

Stuart Bell was a former CFO of Cendant Corp.’s predecessor, employed under an employment agreement governed by Connecticut law. After Bell ceased to be the CFO, he worked part-time for the company as a consultant, an arrangement reflected in a special advisor agreement. This agreement contained an arbitration clause calling for arbitration of claims arising under the agreement “or any other matter or thing.” In May 1999 Cendant sued Bell in federal court in Connecticut to enjoin breach of a noncompete provision in the special advisor agreement. In June 2000 Cendant filed a demand for arbitration alleging fraud, breach of fiduciary duty, breach of the employment and special advisory agreements, and seeking damages arising from Bell’s alleged participation in an accounting scheme that spanned the period of these two agreements. Shortly thereafter, Bell sued Cendant in federal court in New York for a declaration that Cendant’s claims under the employment agreement were not arbitrable, since that agreement lacked an arbitration clause while it had an indemnity clause agreeing to indemnify Bell for litigation costs. Bell moved to enjoin the arbitration while Cendant moved to compel it. Applying Connecticut law, the district court held that the issue of arbitrability was for the arbitrator.

On Bell’s appeal, the 2nd Circuit affirmed. First, the court concluded that the Connecticut standard for determining the arbitrability of a dispute parallels that of the Supreme Court decision in First Options v. Kaplan. Next, it ruled that the arbitration clause in this case “clearly and unmistakably” evidenced the parties’ intent to have the arbitrator determine the scope of the arbitration clause. It noted that Cendant had alleged breach of the special advisor agreement, which contained “as broad an arbitration provision as one can imagine.” Moreover, the authority granted to the arbitrator was “inclusive, categorical, unconditional and unlimited” and did not exclude any category of disputes. Furthermore, controlling authority under Connecticut law and First Options supported sending the issue of arbitrability to the arbitrator.

Bell also argued that Cendant waived its right to arbitrate by pursuing the Connecticut litigation and that the court should decide the waiver issue. But the 2nd Circuit said that since Cendant’s lawsuit involved different facts, Cendant never litigated the dispute involved in the arbitration. Accordingly, the waiver issue was properly left for the arbitrator.

Bell v. Cendant Corp., No. 01-7622 (2nd Cir. June 11, 2002).