Delaware Chancery Court Delineates Authority Divide Regarding Arbitration Issues

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By Michael Greene

Feb. 3 — The Delaware Chancery Court Jan. 30 held that the failure to timely submit a certificate of dispute as required under a stock-purchase agreement is an issue of procedural arbitrability that must be decided by the arbitrator and not the court.

According to Vice Chancellor Donald F. Parsons Jr., that an agreement between the parties to arbitrate unresolved disputes “also delineates the procedural mechanism for perfecting such a ‘dispute' and presenting it to the arbitrator does not transform the procedural and formal requirements of that provision into ‘“gateway questions' of substantive arbitrability.”

Ultimately, the court granted the plaintiff's motion to compel arbitration and denied the defendant's motion to limit the issues that would be decided by the arbitrator.

Arbitration

Defendant Milliken Design Inc. entered into a stock-purchase agreement to acquire several entities owned by the plaintiff and his former business partners. The agreement provided for three potential post-closing earn-out payments.

After a dispute arose involving these post-closing price adjustments, the plaintiff filed a lawsuit seeking to compel arbitration of the earn-out dispute.

‘Procedural Arbitrability.'

Vice Chancellor Parsons noted that the threshold question of whether the parties agreed to arbitrate, commonly referred to as “substantive arbitrability,” is an issue for the court to decide, whereas, “procedural arbitrability” questions are left for the arbitrator.

A portion of the agreement stated that calculations and related earn-out payments “shall be final and binding on the parties” after 30 days if the seller's representative does not properly submit a “Certificate of Earnout Dispute.”

Because this certificate was not delivered with respect to some of the plaintiff's claims, Milliken sought a declaration limiting the issues that could be arbitrated.

Vice Chancellor Parsons noted that Milliken's argument conceivably had merits, but he concluded that under controlling Delaware Supreme Court precedent, the only issue the court should decide was whether the subject matter of the dispute falls within the arbitration provision.

Accordingly, although the interpretation of that provision “may be ‘likely to affect the scope of the arbitration,'” the court held that the plaintiff's alleged failure to formally deliver a “Certificate of Earnout Dispute” involved a procedural question that the arbitrator should resolve.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

The opinion is available at http://www.bloomberglaw.com/public/document/Weiner_v_Milliken_Design_Inc_No_9671VCP_2015_BL_23910_Del_Ch_Jan_.