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Aug. 22 — The Delaware Court of Chancery Aug. 20 dismissed a lawsuit seeking to compel action in an ongoing arbitration proceeding because the arbitration proceeding had been filed first.
Vice Chancellor J. Travis Laster dismissed LG's complaint under the McWane doctrine because the parties' ongoing arbitration proceeding constituted a prior action “capable of doing prompt and complete justice involving the same parties and the same issues.” Although Delaware courts apparently had never applied the doctrine when the qualifying prior action was an arbitration proceeding, Laster found the doctrine satisfied.
Since early 2013, LG Electronics, Inc. and InterDigital Communications, Inc. have been arbitrating a dispute over a Wireless Patent License Agreement before the International Centre for Dispute Resolution. Shortly after LG filed a demand for arbitration, the parties entered into a non-disclosure agreement (“NDA”) that restricted the parties' use of certain documents and communications, defined as “Settlement Communications.” The NDA, however, did not include an arbitration provision.
In April 2013, InterDigital asked the arbitral tribunal whether the NDA applied to pre-NDA communications, including the Settlement Communications. The tribunal, however, ruled that the request was “premature.” Subsequently, InterDigital submitted a brief that LG contended improperly disclosed “Settlement Communications.” On June 9, 2014, after the parties agreed to lift about a year's stay of the arbitral proceedings, LG filed a complaint in the chancery court seeking to compel InterDigital to withdraw its brief from the tribunal and to bar it from breaching the NDA in the future.
Vice Chancellor Laster noted that even though the court had subject-matter jurisdiction over the dispute, the court could exercise its discretion under the McWane doctrine to dismiss the action in favor of an earlier-filed arbitration proceeding. Pursuant to the doctrine, “such discretion should be exercised freely in favor of the stay when there is a prior action pending elsewhere, in a court capable of doing prompt and complete justice, involving the same parties and the same issues.”
LG argued that the arbitration proceed could not constitute a “prior action” under McWane because there were no Delaware court cases that had applied McWane to dismiss a lawsuit in favor of first-filed arbitration. The court acknowledged that the facts of this case were uncommon because in most cases involving an existing arbitration, the court lacks jurisdiction to hear the dispute or the arbitral tribunal cannot hear the dispute because the case is not arbitrable.
However, the court found that this case “presents the rare instance when both the arbitral tribunal and the court have jurisdiction such that McWane could apply.”
More, the court found that the arbitral tribunal could provide “prompt and complete justice,” even though the NDA did not contain an arbitration clause. Specifically, the court noted that the interests of justice are better served if the tribunal deciding the overall matter in the first instance determines procedural disputes like the instant one. “Allowing parties to seek judicial review every time an arbitrator rules on—or, as in this case, declines to rule on—a procedural issue would frustrate the arbitral process.”
The court also pointed out that the arbitral tribunal could provide equitable relief despite the PLA providing that the tribunal shall act “as arbitrators as law only.” Delaware is one of the few states that still separates courts of law and equity. Vice Chancellor Laster found that the PLA's reference to “arbitration at law” had nothing to do with Delaware's division of courts, however. Instead, he found that this reference is “to make clear that the arbitrators will decide the case by applying legal principles as a court would.”
To contact the reporter on this story: Michael Greene in Washington at firstname.lastname@example.org
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The opinion is available at http://www.bloomberglaw.com/public/document/LG_ELECTRONICS_INC_v_INTERDIGITAL_COMMUNICATIONS_INC_CA_No_9747VC
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