Delaware Business Litigation Report

Chancery Stays Case So That Committee of Company May Decide Whether It Has Power to Interpret Alternate Dispute Resolution Provision of Agreement

Terrell v. Kiromic Biopharma, Inc., C. A. No. 2021-0248-MTZ (Del. Ch. Jan. 20, 2022)
When an alternative dispute resolution (“ADR”) provision is an arbitration provision, presumptively the Court may consider the scope of the provision absent “clear and unmistakable” evidence to the contrary. When an ADR provision is not an arbitration provision, however, the Court applies contract interpretation principles to determine who – as between the Court or the person or body specified in the provision – may construe its scope.

In this case, there was a dispute regarding a provision in a stock option agreement as to whether that provision extinguished rights under previous agreements. However, before deciding this issue, the Court first had to examine and interpret another provision that required disputes regarding the interpretation of the agreement to be resolved by a committee of the board of the company. The Court considered whether the agreement permitted the Court to interpret the scope of that ADR provision, or whether the committee should interpret that provision.

The Court first determined that, in accordance with cases classifying ADR provisions like Penton Business Media Holdings, LLC v. Informa PLC, 252 A.3d 445 (Del. Ch. 2018), this provision was not an arbitration provision. Because it was not an arbitration provision, the normal rules concerning interpretating arbitration provisions – under which the Court presumptively may construe them – were inapt. As the plain language of the agreement did not clearly state that the Court had the power to interpret the scope of the provision, the Court, therefore, stayed the case so that the committee of the company could determine whether the Court had the power to interpret the provision.

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