Bennett J. Glazer v. Alliance Beverage Distributing Co., LLC
12647-VCMR
| Del. Ch. | Mar 2, 2017Background
- Plaintiffs are certain managers of Alliance Beverage Distributing Co., LLC and member Cactus seeking advancement of legal fees under 6 Del. C. § 18-108 and § 5.5 of the Alliance LLC Agreement for defense in a dispute between Alliance members (Breakthru and Glazer’s) over distribution rights.
- Alliance’s LLC Agreement contains a broad arbitration clause requiring arbitration in Arizona administered by the AAA under its Commercial Arbitration Rules and Supplemental Procedures for Large, Complex Disputes.
- Defendant moved to dismiss or, alternatively, to stay the Court of Chancery proceeding in favor of arbitration.
- The threshold legal question was whether the Court or the arbitrator should decide substantive arbitrability (i.e., whether the advancement claim must be arbitrated).
- The court applied Delaware precedent (Willie Gary and its progeny) to determine whether the contract shows “clear and unmistakable” intent to arbitrate arbitrability and conducted a preliminary evaluation of the parties’ positions.
- The court concluded the arbitration clause (plus incorporation of AAA rules empowering arbitrators to rule on jurisdiction) satisfies Willie Gary and that defendants have a non-frivolous argument; it therefore stayed the case pending the arbitrator’s determination of arbitrability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Delaware court lacks subject-matter jurisdiction because parties agreed to arbitrate | Advancement must be litigated in court quickly; arbitration would be slower and thus undermine advancement remedy | Broad arbitration clause delegates disputes under the Agreement to arbitration; Delaware courts must honor arbitration agreements | Court stayed the case; arbitration governs subject-matter jurisdiction question |
| Who decides substantive arbitrability (court vs. arbitrator) | Plaintiffs did not contest Willie Gary standard directly; argued advancement should not be sent to arbitration because of urgency | Agreement contains broad arbitration clause plus incorporation of AAA rules that empower arbitrator to decide arbitrability (clear and unmistakable evidence) | Under Willie Gary, parties clearly delegated arbitrability to arbitrator; court lacks jurisdiction to decide arbitrability |
| Whether advancement claims are exempt from arbitration because of need for summary adjudication | Advancement is a distinct right requiring prompt resolution, so arbitration would defeat the remedy | No contract exception; Plaintiffs caused delay by filing here despite clause; defendants have non-frivolous arbitrability arguments | Court rejected plaintiffs' urgency argument and stayed the case pending arbitrator's arbitrability decision |
Key Cases Cited
- James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76 (Del. 2006) (courts generally decide arbitrability unless contract clearly and unmistakably delegates that question to arbitrators)
- McLaughlin v. McCann, 942 A.2d 616 (Del. Ch. 2008) (directs courts to require parties to present non-frivolous arbitrability arguments to arbitrators to advance efficiency)
- NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417 (Del. Ch. 2007) (Delaware courts lack jurisdiction to resolve disputes contractually committed to arbitration)
- Majkowski v. American Imaging Mgmt. Servs., LLC, 913 A.2d 572 (Del. Ch. 2006) (discusses Delaware’s policy favoring arbitration and broad interpretation of arbitration clauses)