Delaware Business Litigation Report

Superior Court Grants Motion to Dismiss Claims Raised in Arbitration, Denies Motion to Dismiss Separate Breach of Contract

Mehiel v. Solo Cup Company, No. 06C-01-169-JEB, 2007 WL 901637 (Del. Super. Ct. Mar. 26, 2007).

This case arose from defendant’s acquisition of SF Holdings and relates to disagreements over the amount of SF Holdings’ working capital adjustments and, by extension, its purchase price. The plaintiff, chairman and CEO of SF Holdings, brought this action in his capacity as the shareholders’ representative for fraud in the inducement, breach of contract, and unjust enrichment. 

Shortly after the parties entered into the merger agreement—and days before closing—they found themselves deadlocked and unable to reach an agreement on the working capital adjustments. To resolve their differences, the parties appointed a neutral auditor as provided in the merger agreement, which further stated that the auditor’s decision would be final, binding, and conclusive, making no mention of appeal or reconsideration. The auditor resolved several issues in favor of the purchasing company (defendant), and plaintiffs’ action followed.

The defendant moved to dismiss the complaint on the primary ground that the Superior Court lacked subject matter jurisdiction because these claims were already resolved in arbitration. The plaintiff argued that they were separate common law claims.

The court agreed with the defendant, granting defendant's motion to dismiss and holding that it lacked jurisdiction over plaintiffs’ claims that were raised in the arbitration proceedings. The court found that the contractual language in the merger agreement, requiring appointment of a neutral auditor, demonstrated an intent to arbitrate, and so did the parties’ conduct. Further, since the issues underlying plaintiffs’ claims were already settled at the working capital arbitration, the Superior Court lacked the jurisdiction to enter judgment on or vacate them: The Superior Court lacks jurisdiction over arbitration awards, and in addition, valid arbitration awards are given the same effect as a court’s judgment under the doctrine of res judicata. 

The court, however, denied the defendant’s motion to dismiss as to the one breach of contract claim that related to assets not addressed by the arbitration proceedings. Share