Delaware Business Litigation Report

Chancery Finds Buzzfeed and Others Not Bound by Arbitration Provisions in Employment Agreements

Buzzfeed v. Anderson, C.A. No. 2022-0357-MTZ (Del. Ch. Oct. 28, 2022)
In 2021, Buzzfeed engaged in a SPAC transaction wherein its stock was converted into stock in Buzzfeed’s post-SPAC corporate form. An IPO followed. In connection with the IPO, former employees of the pre-transaction Buzzfeed (“Old Buzzfeed”) who had received shares in the post-transaction Buzzfeed (“New Buzzfeed”), filed mass arbitrations against New Buzzfeed, certain officers and directors, and the IPO transfer agent. These former employees and New Buzzfeed shareholders alleged that, because a different class of stock was offered in the IPO than the class of stock that they held, they were unable to participate in the IPO, suffering $9 million in damages. In response, New Buzzfeed, certain officers and directors, and the IPO transfer agent sued in the Court of Chancery seeking: (1) to enjoin the arbitrations, (2) a declaration that they were not bound by arbitration provisions in employment agreements entered into with Old Buzzfeed, and (3) a declaration that the former employees were obligated to comply with a forum selection clause in New Buzzfeed’s charter and bring their claims in the Court of Chancery. The plaintiffs moved for summary judgment on their claims; the former employees moved to dismiss the complaint for lack of subject matter and personal jurisdiction.

In their motion to dismiss, the former employees first argued that the Court of Chancery lacked subject matter jurisdiction over the action because the arbitration provision in the employment agreements required an arbitrator to make the determination of arbitrability and, in any event, the claims were arbitrable. In rejecting this argument, the Court noted that, regardless of the scope of the arbitration provisions, the plaintiffs were neither signatories to the employment agreements nor had they demonstrated an intent to be bound by the arbitration provisions. Thus, the Court had subject matter jurisdiction over the arbitrability question and determined that the plaintiffs’ claims were not arbitrable. The former employees then argued that, because personal jurisdiction was premised upon a forum selection clause that allegedly was unenforceable to them, the Court of Chancery lacked personal exercise jurisdiction over them. Specifically, the former employees argued that (1) it was unjust to apply New Buzzfeed’s 6-month-old forum selection clause to them because Old Buzzfeed’s charter did not contain such a provision, and (2) enforcing the clause violated Delaware’s pro-arbitration public policy. The Court rejected these arguments finding that (1) the age of the charter was irrelevant and the former employees, as stockholders of New Buzzfeed, had consented to the forum selection clause, and (2) Delaware had a public policy of enforcing valid forum selection clauses that outweighed any pro-arbitration policy considerations. Thus, the Court held that it had both personal and subject matter jurisdiction over the former employees, and denied their motion to dismiss. 

In granting the plaintiffs’ motion for summary judgment in part, the Court found that, because the plaintiffs were not bound by the arbitration provision in the employment agreements, they were entitled to an anti-arbitration injunction. However, the Court denied their request for a declaratory judgment that the former employees’ arbitration claims had to be brought to the Court of Chancery, holding that such relief would amount to an advisory opinion.

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