370 S.W.3d 68
Tex. App.2012Background
- Delaware LLCs MBCorp and CES, with BossCorp managing both, faced ownership/control disputes and a restructuring dispute over a Bridge Loan.
- Donegal and Kestrel funded the Bridge Loan liabilities in exchange for 90% of CES and control over CES and MBCorp via new boards; BossCorp removed as manager.
- Donegal and Kestrel later reneged on funding, prompting a plan to restore appellants’ control and ownership in CES; merger purportedly dissolved MBCorp into CES.
- Appellants filed suit for injunctive/declaratory relief and then Demand for Arbitration under AAA arbitration clauses in the Delaware LLC agreements.
- Trial court granted stay of arbitration, concluding the dispute raised no arbitrable issues; appellants challenged the stay and argued arbitration should proceed.
- The court held the arbitrability question is governed by Delaware law with FAA preemption; the stay as to Donegal was proper, but stayed issues against Kestrel and CES should proceed to arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides arbitrability scope | WillieGary delegation to arbitrator; broad AAA reference; carve-outs show arbitrator scope. | Court should decide arbitrability because carve-outs require judicial ruling. | Court properly decided scope in the first instance. |
| Arbitrability of Kestrel and CES claims | Restructuring Agreement does not defeat LLC arbitration; CES/Kestrel claims fall under LLC arbitration. | Restructuring Agreement lacks arbitration clause; some claims not arbitrable. | Kestrel and CES claims are arbitrable; Donegal stayed. |
| Arbitrability of Donegal claims | Donegal, though non-signatory, may be bound by estoppel or related theories to arbitrate. | Donegal is non-signatory to arbitration agreements and should not be compelled to arbitrate. | Donegal's stay was proper; Donegal is not compelled to arbitrate. |
Key Cases Cited
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (gateway issues resolved by court unless delegated to arbitrator)
- Moses H. Cone Mem'l Hosp. v. Mercury Const. Corp., 460 U.S. 1 (U.S. 1983) (presumes arbitration is favored and limits arbitrability questions)
- Willie Gary, LLC v. Barcap, 906 A.2d 70 (Del. 2006) (AAA reference can indicate delegation to arbitrator; carve-outs limit scope)
- Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286 (Del. 1999) (Del. LLC bound by arbitration provisions of its founding agreement)
- Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002) (claims touching contract rights/performances fall within arbitration scope)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. 2002) (gateway issues refer to court or arbitrator for arbitrability)
- In re Olshan Found. Repair Co., LLC, 328 S.W.3d 883 (Tex. 2010) (FAA preemption and state-law contract formation principles)