Delaware Business Litigation Report

Federal Court Affirms Arbitration Award That Included Share Valuation By Agreement

Millennium Validation Services, Inc. v. Thompson, C.A. No. 02-1430 (GMS), 2006 WL 3159821 (D. Del. Nov. 3, 2006).

Plaintiff, a Delaware corporation, and defendant filed motions to vacate/modify and confirm the arbitration award respectively. The Court granted the defendant’s motion to confirm the award. Defendant Thompson and two others founded Millennium Validation Services, Inc. (“Millennium”) with equal shareholding. Due to some differences, the two other members sought to compel defendant Thompson to withdraw from Millennium, by triggering some clauses under their Shareholder Agreement (“Agreement”). Subsequently, plaintiff sought to buy-out the defendant’s shareholding, with its valuation computed under the Agreement. In the interim, the plaintiff discovered through its agents that defendant was allegedly violating the terms of his non compete provisions of the Agreement because he was employed by a competitor. Plaintiff therefore suspended its buy-out of his shares.

Plaintiff then filed suit for breach of contract and interference with prospective contractual relations and the defendant cross-claimed for breach of fiduciary duty. Thereafter, the parties stipulated to binding arbitration. The independent arbitrator denied the plaintiff’s claims for lost profits, breach of contract and tortious interference and ordered it to pay defendant a far greater amount representing the buy-out value of his shares and accumulated interest, in addition to a loan that the defendant had advanced the plaintiff company. The arbitrator declined to amend or modify the award and the above cross-motions ensued.

The Court held that the limited grounds on which the arbitration award could have been vacated were absent in the present matter. Here, the plaintiff alleged that the arbitrator had exceeded his powers by revaluing the shares of the defendant, a matter solely governed by the Agreement. This argument was dismissed because the parties had agreed to arbitration of the entire dispute – a term that included the valuation of the shares too. Similarly, the Court found that plaintiff’s non-compete violation and other claims failed to assert any grounds for vacating the arbitration award. Finally, the Court dismissed plaintiff’s argument that it was impermissible for the arbitrator to order a subsequent hearing to determine attorney fees and costs because there was no authoritative support for that contention.

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