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Summaries and analysis of recent Delaware court decisions concerning business-related litigation.
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Court Of Chancery Decides If Arbitration Required When Arbitration Clause Not In One Of Two Contracts
When only one of two related contracts has an arbitration clause, the Court can still require arbitration of a dispute under the contract lacking that clause. The question is whether the two contracts deal with the same subject matter and that is not as easy to decide as it may appear. For example, if the two contracts need to be read together to accomplish the parties’ intent, such as where one contract defines certain necessary terms while the other does not, then an arbitration clause in one contract may require arbitration of disputes that nominally arise under the other contract as well. While employing Illinois law, this decision helps guide how to determine if the relationship between the contracts warrants compelling arbitration.
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.
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.
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.