An epic arbitration provision must be enforced – NC Court of Appeals

Epic Games v. Johnson. A guy named Johnson built a software platform for game developers while in college. In 2005, Epic Games negotiated with Johnson to purchase “Reality Engine” and recruited him to North Carolina from London.

There were seven contracts that sold Johnson’s company and Reality Engine to Epic. In exchange, Epic gave Johnson a job, stock options and cash. The first two agreements purchased Reality Engine then licensed it back to Johnson’s company. The next five granted Johnson his options  and his employment, subjected him to a confidentiality, invention assignment and noncompete, and acquired any residual rights from him.

The employment agreement contained an arbitration clause, requiring disputes to go to arbitration rather than court. It also required the application of North Carolina law.

Under the stock option agreement, Johnson’s options vested over four years. Meaning, he would get all of his shares if he stayed with the company for four years. If he left sooner, there would be some proration and he’d get less.

He would still get all of his options if he was fired “without cause.” In negotiation, Johnson requested a narrow definition of “cause” so that the he would be more likely to vest in his options. The company agreed, but in exchange requested additional intellectual property rights surrounding the Reality Engine.

Epic fired “with cause” Johnson just before any of his options and bonuses vested.

Eight years after he was fired, he demanded arbitration.

Epic filed a motion in Wake County Superior Court, alleging that Epic never consented to arbitrate certain claims brought by Johnson. The court entered an order in favor of Epic enjoining most, but not all, of the claims in Johnson’s complaint.

Johnson contends that the trial court erred by enjoining certain disputes from proceeding to arbitration, because according to the plain language of the arbitration clause, the threshold issue of substantive arbitrability was delegated to an arbitrator. We agree.

The clause provided, in part:

Any disputes between Employee and Epic in any way concerning his employment, this Agreement or this Agreement’s enforcement, including the applicability of this Paragraph, shall be submitted at the initiative of either party to mandatory arbitration before a single arbitrator…

The court wrote:

The language Epic Games employed in drafting the clause makes it clear that any disputes regarding whether the arbitration clause applied to a particular claim should be submitted to arbitration and decided by the arbitrator.

The rules of arbitration (AAA) selected by the agreement also supported this conclusion.

The court concluded that all of the trial court’s decisions were without authority, and that the whole thing needed to go to arbitration.