Delaware Court of Chancery Enjoins Arbitration, Holds It Has Subject Matter Jurisdiction to Decide Substantive Arbitrability In Face Of Competing Arbitration Provisions

Morris James LLP

AffiniPay, LLC, et al. v. West, C.A. No. 2021-0549-LWW (Del. Ch. Sept. 17, 2021)

As a general matter, Delaware courts retain jurisdiction to determine substantive arbitrability – that is, whether claims are subject to arbitration under the relevant arbitration clause. Delaware courts will defer to arbitrators’ determinations of such issues, however, where the parties’ contract reflects their “clear and unmistakable” intent to do so, a standard that may be met by, among other things, contractual language that “all disputes” are submitted to arbitration and the incorporation of official arbitration rules that empower arbitrators to decide arbitrability. Here, because the parties’ dispute implicated multiple agreements with competing and conflicting arbitration clauses assigning arbitrability to different arbitrators, the Court of Chancery retained jurisdiction to determine arbitrability. The Court granted a preliminary injunction preventing arbitration from proceeding in the arguably incorrect forum.

Specifically, the former chief executive officer of one of the plaintiff-entities filed an arbitration for claims under his employment agreement relating to certain vested options and incentive units. Plaintiffs then filed suit in the Court of Chancery, seeking to enjoin the arbitration on the grounds that the arbitration violated the dispute resolution provisions of two related agreements, entered into later in time, concerning similar subjects. The defendant moved to dismiss asserting that the Court lacked subject matter jurisdiction because his employment agreement assigned all disputes to an arbitrator, including questions of arbitrability. The Court denied the defendant’s motion because the two related agreements on which the plaintiffs relied also contained arbitration provisions which assigned all disputes, including questions of arbitrability, two other arbitrators. Under these circumstances, the Court of Chancery concluded it had jurisdiction to determine arbitrability. Because the pending arbitration involved claims that arguably should have been presented in a different dispute resolution forum, the Court preliminarily enjoined the plaintiff from proceeding with the arbitration pending a final determination of the scope of the parties’ agreement to arbitrate.

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