Delaware Business Litigation Report

Court Enforces Provision in Merger Agreement Permitting Arbitration of Disputed Representation-and-Warranty and Working-Capital Claims

Mehiel v. Solo Cup Co., C.A. No. 1596-N, 2005 WL 3074723 (Del. Ch. Nov. 3, 2005). Following the closing on a merger, several disputes developed between the shareholder representative of an acquired company and the acquirer involving working-capital-adjustment issues and the accuracy of seller's representations and warranties. The merger agreement contained two separate arbitration provisions for working capital adjustment disputes and disputes regarding the parties' respective representations and warranties. The acquirer first attempted to submit its disputes with the shareholder representative to arbitration as working-capital claims. The arbitrator refused to consider those claims, however, based on the acquirer's failure to comply with certain procedural requirements. In response, the acquirer submitted the same claims to the separate arbitrator for representation-and-warranty claims. The shareholder representative subsequently filed a complaint asking the court to issue an injunction barring the second arbitrator from hearing the disputed claims. The court denied the shareholder representative's motion for summary judgment, stating that the first arbitrator's determination that the claims were waived on procedural grounds has no bearing on whether those claims could be raised in the context of the separate representation-and-warranty arbitration. The court noted that the merger agreement created two arbitration forums and did not say that either forum was the exclusive forum in which to arbitrate disputes that can be characterized as either working-capital or representation-and-warranty disputes. The court also rejected the shareholder representative's argument that allowing the claims to be raised in the representation-and-warranty proceeding would permit the acquirer to arbitrate the same issues twice, because (the court explained) the first arbitration did not substantively address the disputed issues. Share