DDK Hotels, LLC v. Williams-Sonoma, Inc.
6 F.4th 308
| 2d Cir. | 2021Background
- DDK Hospitality and West Elm formed a 50/50 joint venture governed by a JV Agreement for developing West Elm hotels; board-managed with equal appointees and deadlock procedures.
- Section 16 ("Deadlock") requires mediation and then arbitration (AAA Commercial Rules) only for "Disputed Matters"—defined as matters requiring Board or Member approval on which the Board deadlocks. Exhibit C lists typical "Disputed Matters." Section 16 excludes certain "Fundamental Decisions" and injunctive relief.
- Section 21(h) provides a standalone prevailing-party fee right: the non-prevailing member must pay reasonable costs and fees "upon demand." The JV Agreement is governed by Delaware law.
- West Elm filed a dissolution action in the Delaware Court of Chancery; the Chancery Court dismissed the complaint without prejudice. DDK then demanded $67,594.31 under Section 21(h); West Elm refused.
- Plaintiffs filed a supplemental breach claim in the Eastern District of New York for failure to pay Section 21(h) fees. Defendants moved to compel arbitration, arguing the JV Agreement (via incorporation of AAA Rules) clearly and unmistakably delegated arbitrability to the arbitrator. The district court denied the motion; the Second Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides arbitrability (court or arbitrator)? | JV's arbitration clause is narrow; arbitrability is for the court because delegation is not "clear and unmistakable." | Incorporation of AAA Commercial Rules demonstrates clear delegation of arbitrability to the arbitrator. | Court: incorporation alone insufficient here; delegation not "clear and unmistakable," so court decides arbitrability. |
| Is the supplemental claim for fees under §21(h) a "Disputed Matter" subject to Section 16 arbitration? | §21(h) is a freestanding right payable "upon demand" and does not require board approval; thus not a "Disputed Matter." | Fee dispute falls within the JV’s arbitration scope and should be arbitrated under Section 16. | Court: the dispute arguably falls outside Section 16; district court correctly concluded the claim is not subject to the deadlock/arbitration procedure. (Defendant waived merits challenge on appeal.) |
| Does incorporation of AAA Rules alone suffice to delegate arbitrability when the arbitration clause is limited? | No — context matters; AAA Rules apply only to arbitrations that arise under Section 16 after a dispute is found to be a "Disputed Matter." | Yes — incorporation typically shows clear intent to delegate arbitrability. | Court: incorporation is not dispositive when the arbitration clause is narrow/qualified; ambiguity defeats a clear-and-unmistakable finding. |
| May DDK obtain appellate prevailing-party fees now under §21(h)? | DDK seeks fees for defending appeal and prior motions under §21(h). | Defendants oppose. | Court: request on appeal is improper; district court is the proper forum and factual record for any fee award. |
Key Cases Cited
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (court presumptively decides arbitrability unless parties show clear and unmistakable delegation).
- Contec Corp. v. Remote Sol. Co., 398 F.3d 205 (2d Cir. 2005) (incorporation of AAA Rules can show delegation to arbitrator).
- Metro. Life Ins. Co. v. Bucsek, 919 F.3d 184 (2d Cir. 2019) (narrow/qualified arbitration clauses can defeat inference of delegation despite rule incorporation).
- NASDAQ OMX Grp., Inc. v. UBS Sec., LLC, 770 F.3d 1010 (2d Cir. 2014) (qualifying provisions in arbitration clause create ambiguity about delegating arbitrability).
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (courts must enforce delegation clauses when present; however delegation must exist in the contract).
- Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287 (2010) (FAA governs antecedent agreements to arbitrate gateway issues).
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002) (procedural questions for arbitrator; preserves distinction between substantive coverage and procedural issues).
- Meyer v. Uber Techs., Inc., 868 F.3d 66 (2d Cir. 2017) (denial of motion to compel arbitration reviewed de novo).
- Doctor's Assocs., Inc. v. Alemayehu, 934 F.3d 245 (2d Cir. 2019) (threshold arbitrability questions presumptively for courts).
- Shaw Grp. Inc. v. Triplefine Int'l Corp., 322 F.3d 115 (2d Cir. 2003) (broad arbitration clauses plus rule incorporation support delegation).