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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.

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Superior Court Explains When Arbitration Is Binding

Posted In Arbitration

Airbase Carpet Mart Inc. v. Aya Associates Inc., No.. 15C-03-104 VLM (December 15, 2015)

As this decision explains, you can be bound by an arbitration clause even if you do not sign a contract containing such a provision. The issue is did you agree to be bound by that contract’s terms and if you did, then you are in for all of its terms.

Court Of Chancery Explains Arbitration Timelines

Posted In Arbitration

SC&A Construction Inc. v. Potter, C.A. 10528-VCG (January 6, 2016)

This decision explains the timelines for seeking to vacate an arbitration award. It illustrates that an arbitration proceeding has its own rules that the parties better understand or lose their rights.

Court Of Chancery Defers To Arbitrator

In re Knowledge Crossing LLC, C.A.10383-VCG (May 29, 2015)

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.

Court Of Chancery Explains Willie Gary

Posted In Arbitration

Riley v. Brocade Communications System Inc., C.A. 9486-VCN (May 6, 2014)

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.

Court Of Chancery Grants Discovery Of Arbitration Claim

Posted In Arbitration

New Continuum Holdings Corporation v. China/United Capital, LLC, C.A. 9589-VCN (May 6 2014)

This decision explains when a party may get discovery into the issue of whether a claim is subject to an arbitration clause.

Court Of Chancery Orders New Arbitrator

Posted In Arbitration

Lynn v. Ullrich, C.A. 7098-ML-VCN (September 12, 2013)

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.

When A Request For An Injunction Does Not Preempt Arbitration

Posted In Arbitration

Shareholder Representative Services LLC v. ExlService Holdings Inc., C.A. 8367-VCG (August 27, 2013)

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.

Court Of Chancery Explains Injunction Out Clause In Arbitration Agreement

Posted In Arbitration

Medicis Pharmaceutical Corporation v. Anacor Pharmaceuticals Inc., C.A. 8095-VCP (August 12, 2013)

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.

Supreme Court Decides Who Decides

Posted In Arbitration

Viacom International Inc. v. Winshall, C.A. 513, 2012 (Del.  July 16, 2013)

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.

Court Of Chancery Explains Limits Of Review Of Appraiser Decision

Posted In Arbitration

Senior Housing Capital LLC v. SHP Senior Housing Fund LLC, C.A. 4586-CS (May 13, 2013)

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.

Court of Chancery Explains Willie Gary

Posted In Arbitration

Li v. Standard Fiber LLC, C.A. 8191-VCN (March 28, 2013)

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.

Master In Chancery Upholds Arbitration Award

Posted In Arbitration
Garda USA Inc. v. SPX Corporation, C.A. 7115-ML (February 7, 2013) When may an arbitrator's award be vacated?  Of course, that is determined by the applicable  arbitration statute.  However, that begs the question as the statutes are not easy to apply in this area. This decision explains when the arbitrator award may be vacated for a manifest violation of the law. This decision was reversed by the Delaware Supreme Court in C.A. 332, 2013 (June 16, 2014) The test of "manifest disregard" of the law means that the arbitrator must be clearly ignoring clear law and when there is some logical explanation for the arbitrator's decision, that test is not meet.

Court Of Chancery Upholds Duty To Arbitrate Of Alter Ego

Posted In Arbitration

Legend National Gas II Holdings LP v. Hargis, C.A. 7213-VCP (September 28, 2012)

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.

Court of Chancery Discusses The Role of a Stockholder Representative In Arbitration Proceedings

Posted In Arbitration

Pryor v. IAC/Interactivecorp, C.A. 6884-CS (June 7, 2012)

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.

Court of Chancery Arbitration Likely to Become More Prevalent

 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.