Background
Radiologist Erik Bee became a member of RAH Equity Holdings, LLC, in connection with a 2022 transaction involving the sale of certain nonclinical assets of his medical practice to Premier Imaging Holdings, LLC. The governing agreement contained a two-year noncompete clause and an arbitration provision incorporating the American Arbitration Association’s commercial rules. The provision limited an arbitrator’s authority to awarding money damages, specified fees and costs, and sanctions for abuse or frustration of the arbitration process, while allowing parties to seek injunctive relief in court.
Bee gave notice in April 2023 that he would resign effective April 21, 2024. On or about March 27, 2024—before his resignation took effect—the defendants initiated AAA arbitration seeking only a declaration that the noncompete was enforceable and that Bee’s employment with Radiologic Associates of Middletown breached it. Bee resigned as planned and joined that practice on April 22, 2024. He then filed this declaratory judgment action challenging the arbitration demand. The trial court ruled that it, rather than an arbitrator, could decide arbitrability and that the defendants’ declaratory claim was not arbitrable. After entry of a final declaratory judgment, the defendants appealed.
The Court’s Holding
The Connecticut Appellate Court affirmed. Applying Delaware substantive law, it held that incorporating the AAA rules did not, by itself, clearly and unmistakably delegate arbitrability questions to an arbitrator. Under the controlling Delaware decision, James & Jackson, LLC v. Willie Gary, LLC, incorporation of rules empowering an arbitrator to decide arbitrability establishes delegation only when the arbitration clause generally submits all disputes to arbitration. This agreement did not: it covered “unresolved” controversies, restricted the remedies an arbitrator could award, and permitted parties to pursue injunctive relief in court. Because the defendants identified no additional evidence of delegation, the trial court properly decided arbitrability.
The court also held that the defendants’ arbitration claim was outside the agreement’s scope. Their demand sought only declaratory relief, but the agreement authorized arbitrators to award only money damages, certain fees and costs, and process-related sanctions. Because the agreement neither authorized declaratory claims nor empowered an arbitrator to grant declaratory relief, such an award would exceed the arbitrator’s contractual authority and be subject to vacatur. The court did not decide whether the noncompete itself was valid or enforceable.
Key Takeaways
- Under the Delaware rule applied here, incorporating AAA rules does not necessarily delegate arbitrability when the agreement does not generally require arbitration of all disputes.
- Express limits on arbitral remedies can place a claim outside the arbitration agreement when the claimant seeks only a form of relief the arbitrator has no authority to award.
- The decision concerns who decides arbitrability and whether the defendants’ declaratory claim could be arbitrated—not the enforceability of Bee’s noncompete clause.
Why It Matters
The decision underscores that courts read an arbitration provision as a whole rather than treating incorporation of arbitral rules as automatically dispositive. Carveouts, remedy restrictions, and other limiting language may preserve judicial authority to determine whether a dispute is arbitrable.
Parties drafting or enforcing arbitration clauses should expressly address both delegation of arbitrability and the remedies an arbitrator may grant. A demand seeking only relief omitted from the arbitrator’s authorized powers may fail even when the underlying dispute relates to the contract.