United States District Court, W.D. Virginia, Lynchburg Division
K. MOON, UNITED STATES DISTRICT JUDGE
diversity case involves a contract dispute about delays to
the design phase of a product. The issue now before the Court
is whether the contract requires arbitration.
Ungava alleges that Defendant Innerspec “improperly
terminated the Contract and has wrongly demanded that Ungava
submit to arbitration.” (Complaint ¶ 2). Ungava
contends termination is improper for its (admitted) design
and engineering delays, and that arbitration cannot occur
regarding such delays until the parties engage in a
contractual, pre-arbitration dispute resolution procedure.
(Id.). So Ungava seeks to enjoin arbitration.
counterclaim alleges Ungava breached the contract by failing
to: (1) use its “best efforts” to complete the
product design; (2) give priority to its work for Innerspec,
and; (3) provide notice of known delays. (Counterclaim
¶¶ 4-7). Innerspec asks Ungava be compelled to
participate in arbitration, and it requests a declaration
that it properly terminated the contract. (Id.
¶ 10; dkt. 7).
Court holds that the contract plainly provides for
arbitration of this case. Accordingly, the motion to enjoin
arbitration will be denied and the motion to compel it will
RELEVANT CONTRACTUAL PROVISIONS
parties entered into an agreement whereby Ungava would design
and engineer for Innerspec two products relating to pulsar
technology. (Dkt. 1-1 (hereinafter “Contract”),
§§ 1.1- 1.2). Ungava agreed to use its “best
efforts” to produce the first batch of “Product
#2” by the second quarter of 2015. (Contract §
1.5). Under Section 7, the contract terminates after seven
years, or “can be terminated” prior to seven
years upon the occurrence of one of four events which are not
presently relevant. (Contract §§ 7.1-7.2).
9 of the contract addresses dispute resolution, and reads in
relevant part as follows:
The parties agree that any dispute, conflict or claim arising
under this Agreement, in particular concerning its formation,
existence, validity, effects, interpretation, implementation,
violation, resolution or annulment, shall be finally resolved
by means of arbitration using a panel of three people. Two
will be nominated by UNGAVA and INNERSPEC respectively. The
third person will be an industry expert agreed upon by both
parties. The decision of the arbitration panel shall be by
majority of the panel and shall be final as to the matters
resolved and fully enforceable in a court of law. The parties
shall share any expenses incurred for the resolution of the
(Contract § 9.1 (emphasis added)).
1 addresses the “Design & Engineering” phase
of the contract. Importantly, Section 1.7 reads:
INNERSPEC understands that UNGAVA will be doing a best effort
[sic] to execute the design, engineering and
prototyping with the understanding that INNERSPEC will have
priority over other work received after INNERSPEC's
purchase order. Any delays on the above mentioned scheduled
with the plans to remedy them will be provided to INNERSPEC
as soon as the delay is known. If the delay is foreseen to be
longer than 4 months, INNERSPEC and UNGAVA will meet to find
a solution agreeable to both parties. If an agreement cannot
be found, a panel of 3 people as per Section 9 will convene
to assess the situation and determine the course of action.
admits it experienced delays in producing a prototype of
Product #2, but says it timely notified Innerspec of the
delays. (Complaint ¶¶ 19-20). Ungava avers that,
rather than follow the dispute resolution mechanism in §
1.7 for design delays, Innerspec “continued to request
that Ungava proceed with the development and prototyping of
Product #2.” (Id. ¶ 21). Although Ungava
“was close” to completing a prototype in
September 2016, Innerspec gave notice that “the
Contract is cancelled and terminated.” (Id.
¶ 22). On October 13, 2016, Ungava told Innerspec of its
view that Innerspec could not unilaterally terminate the
contract based on a delay during the design phase, but
instead had to follow the dispute resolution procedure in
§ 1.7. (Id. ¶ 23). Innerspec responded by
demanding arbitration pursuant to § 9.1. (Id.
¶ 24). Extensive correspondence between the parties and
through counsel was unavailing. (Id. ¶ 25).
claims Ungava breached the Contract by failing: to use its
best efforts to execute the design, engineering and
prototyping; to give priority to work for Innerspec; and, to
provide notice of delays. (Countercomplaint ¶¶
4-7). Innerspec alleges that, pursuant to § 1.7, the
parties “conferred and agreed” to resolve the
delay problems by April 1, 2015. (Id. ¶ 7).
This, according to Innerspec, “exhausted the
procedures” in Section 1.7, so “there was never
any further need or requirement to submit any unresolved
dispute to a panel of three persons to solve the delay
issue.” (Id.). Nevertheless, based on
Ungava's failures of performance, Innerspec terminated
the agreement in September 2016. (Id. ¶ 8).
Innerspec contends that “Ungava has refused to
participate [in arbitration] . . . based on the ...