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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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It is now established that a pending arbitration qualifies for purposes of applying Delaware’s law on when to stay a case in favor of a prior proceeding. This decision extends that law to enter a stay to let the arbitrator decide if he is going to deal with the issues in the later-filed Delaware case.
When a claim is subject to arbitration needs to be decided by either the court or the arbitrator, and the Willie Gary decision says who gets that honor. This decision explains how to apply Willie Gary.
This decision explains when a party may get discovery into the issue of whether a claim is subject to an arbitration clause.
This decision ordered the parties to pick a new arbitrator when the prior arbitrator concluded he was biased. Why anyone would argue this seems odd.
Arbitration clauses often have an exemption for suits for injunctive relief. Yet just asking for an injunction in the complaint may not avoid the need to arbitrate, as this decision holds. Apparently, when the injunction is just to enforce the terms of the contract and not to prevent irreparable harm, the claim must still go to arbitration.
Agreements to arbitrate disputes often have an "out clause" that permits the parties to seek judicial relief by way of an injunction. The scope of such a clause is the focus of this opinion that explains when a party may still file suit even after the other party has demanded arbitration.
When there is an argument over whether part of a dispute is subject to the Court or the arbitrator's judgment, there has been considerable confusion. The classic formulation of the test is:
Issues of substantive arbitrability are gateway questions relating to the scope of an arbitration provision and its applicability to a given dispute, and are presumptively decided by the court. Procedural arbitrability issues concern whether the parties have complied with the terms of an arbitration provision, and are presumptively handled by arbitrators. These issues include whether prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent to an obligation to arbitrate have been met, as well as allegations of waiver, delay, or a like defense to arbitrability.
In this Supreme Court decision, the Court adopts this test at first and then seems to back away from it for a new test of its own. The new test seems to be whether the dispute is simply part of the overall controversy. If it is, then the arbitrator decides it. Now that may be a misguided view of the holding, but it is the best that I can do.
This decision explains the limits on any substantive review of an appraisal determination the Court will undertake when the parties' agreement limits that review. it is an excellent overview of the way in which parties may decide how much judicial review they want in such cases.
Who decides if a dispute is subject to arbitration? The Delaware Supreme Court decision in the Willie Gary case sets the way to resolve this question. However, those rules are often hard to interpret. This decision explains Willie Gary in a useful way.
When a non-party to a contract is still bound by its arbitration provision is surprisingly often litigated. This decision reviews the past law and reiterates that a non-party may need to arbitrate when it is the alter ego of the a party that agreed to the arbitration clause, such as a successor partnership.
What is the role of a "stockholder representative" in an arbitration proceeding? When there are many parties to an agreement, it is common for the parties on one side (such as the selling stockholders entitled to an earn out payment) to chose one of their bretheren to act for them all. While most assume that the representative chosen has the right to call the shots in the arbitration, her role may be much more. This decision explains why that may be important. It holds that notice to the representative that begins the period in which an appeal may be filed also counts as notice to all the parties the chosen one represented. Hence, if she does not file a timely appeal, the others may not do so later. Moreover, the decision suggests that only the representative may argue the merits of an appeal.
Authored by Lewis H. Lazarus
This article was originally published in the Delaware Business Court Insider | September 28, 2011
In 2009, Delaware's General Assembly passed and Gov. Jack Markell signed legislation enabling arbitration in the Court of Chancery. In 2010, the Court of Chancery adopted rules governing arbitration. As the statutes — 10 Del. C. §§ 349 and 351 — and rules — Court of Chancery Rules 96-98 (Arbitration Rules) — are new and arbitration requires mutual agreement, arbitration may become a more prevalent means of resolving disputes as deal lawyers increasingly require Court of Chancery arbitration for disputes arising out of merger and other agreements.
Reportedly, the current dispute between Skyworks Solutions and Advanced Analogic Technologies contains a dispute resolution clause mandating arbitration in the Court of Chancery. It is thus appropriate to review why Chancery Court arbitration is likely to become an increasingly preferred method of dispute resolution.
First, the arbitration rules permit resolution of disputes by decision-makers with the knowledge and experience of the chancellor and vice-chancellors. To be eligible for Court of Chancery arbitration, the dispute must involve at least one party that is a Delaware entity; both parties must agree to arbitration; and if the dispute is solely about monetary damages, the amount in controversy must exceed $1 million. The procedure is not available for consumer disputes. Previously, disputes solely for monetary damages were not amenable to subject matter jurisdiction in the Court of Chancery.
Second, the members of the Court of Chancery are used to resolving matters on an expedited basis. The arbitration rules contemplate that generally an arbitration hearing will be scheduled within 90 days of the filing of the petition. However, they also allow for modification of the schedule with the consent of the parties and approval of the arbitrator. The arbitration rules thus permit flexibility for the parties and arbitrator to structure the dispute resolution on a schedule that makes sense.
Third, Chancery Court arbitration proceedings are confidential. The filing of a petition for arbitration is not included on the court's docket system. The petition and all supporting documents are by rule considered confidential and not of the public record, unless there is an appeal.
Fourth, Section 351 of Title 10 expressly authorizes parties to stipulate that an arbitration award shall be final, binding and non-appealable. As the synopsis to the legislation explains, "In many matters parties desire an answer and their dispute is narrow enough that even if they cannot settle, they are willing to agree in advance to live with the outcome rendered ... ." The new statutes permit that voluntary option.
Fifth, any appeals go to the Delaware Supreme Court, a decision-making body equally acclaimed for its knowledge and experience in the prompt resolution of significant business disputes.
Sixth, for parties in disputes with foreign entities, the new statutes and arbitration rules may provide greater comfort that the arbitration award will be enforceable against a foreign entity on its home turf under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Finally, the price is right compared to private arbitration. The filing fee is $12,000, to be equally divided by the parties. For each day or partial day that the vice chancellor or master engages in arbitration after the first day of arbitration, there is a $6,000 fee, also to be equally divided by the parties.
Efficiency, confidentiality, first-rate decision-makers experienced in resolving complex business disputes — for these reasons deal lawyers should consider the benefits of Chancery Court arbitration. And as they counsel their clients to specify Chancery Court arbitration in their agreements, we can expect that it will be an increasingly utilized tool for dispute resolution.
This decision discusses when a party may obtain discovery in an action seeking to vacate an arbitration award. The short answer is "not very often." However, discovery was granted in this case alleging arbitrator bias.
Arbitration between insurance companies is different. To begin with, the arbitrators are expected more than most to follow the statutory scheme they are supposed to enforce. Here, when the arbitrator made a clear mistake of law, the Court vacated the award. Whether it would do so in a less clear cut case involving other sorts of arbitration claims remains to be seen.