288 A.3d 729
Del. Ch.2023Background
- Blodgett signed a 2013 employment agreement with Fortitude that granted him services-based compensation including a 15% carried-interest share and a broad JAMS arbitration clause (New York, JAMS rules).
- In 2014–2016 the principals formed Delaware LLCs (Fairstead and Affordable) that received Blodgett’s carried-interest allocation; the LLC agreements contain integration clauses and a mandatory forum-selection clause requiring litigation in the Delaware Court of Chancery.
- In Sept. 2021 Fortitude terminated Blodgett for alleged breaches of employment provisions (confidentiality and policy compliance) and declared his LLC membership interests forfeited or redeemed for $0.
- Blodgett filed a JAMS arbitration demanding, among other relief, declarations that he did not breach the employment agreement and that the cancellations were invalid; he named the LLCs as respondents.
- The LLCs sued in the Court of Chancery asserting only breaches of the LLC agreements and sought a permanent injunction to block arbitration of LLC-based claims; parties cross-moved for summary judgment on forum/arbitrability.
Issues
| Issue | Plaintiff's Argument (Fairstead/Affordable) | Defendant's Argument (Blodgett) | Held |
|---|---|---|---|
| Whether non-signatory LLCs are bound by the Employment Arbitration Agreement | LLCs: not parties to the employment agreement; cannot be compelled to arbitrate | Blodgett: estoppel (direct-benefit/promissory) binds the LLCs because they received benefits under the employment deal | LLCs are bound — direct-benefit and promissory estoppel apply; LLCs treated as parties for arbitration-formation purposes |
| Whether delegation of arbitrability to arbitrator is clear and unmistakable | LLCs: conflicting forum clauses mean no clear delegation; court must decide arbitrability | Blodgett: JAMS incorporation + broad clause clearly and unmistakably delegates arbitrability to the arbitrator | Not clear-and-unmistakable here because LLC forum/integration clauses conflict; court must decide substantive arbitrability |
| Whether claims asserting breaches of the LLC agreements must be arbitrated | LLCs: LLC claims arise under LLC agreements and must be litigated in Chancery (integration clause supersedes prior arbitration clause) | Blodgett: LLC claims are related to employment and fall within the employment arbitration scope | Held for LLCs: claims under LLC agreements are for this court; integration clause and LLC forum provision displace the employment arbitration clause as to LLC claims |
| Who decides predicate employment-breach questions that bear on LLC cancellation rights | LLCs: will litigate cancellation under LLC agreement; certain cancellations can be decided by court without probing employment breach | Blodgett: predicate employment-breach issues are arbitrable and must be decided by arbitrator | Mixed: questions whether Blodgett breached the employment agreement are for the arbitrator; issues of LLC breach and cancellation under LLC agreement are for this court, but where LLC cancellation requires a predicate finding of employment breach the court will await the arbitrator’s determination |
Key Cases Cited
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (arbitration clause severable from the container contract)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (courts must enforce delegation clauses unless no valid arbitration agreement exists)
- Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (2010) (delegation clauses are antecedent arbitration agreements and require clear evidence to assign gateway questions to arbitrators)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (presumption that courts decide arbitrability absent clear and unmistakable evidence to the contrary)
- Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (2010) (court must decide whether an arbitration agreement was formed before compelling arbitration)
- Willie Gary LLC v. James & Jackson LLC, 906 A.2d 76 (Del. 2006) (Delaware rule on incorporation of arbitral rules as clear delegation when clause is broad and rules empower arbitrators)
- Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002) (arbitration in one contract does not automatically reach independently and separately assertable claims under another contract)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (arbitration clause separability applies to validity challenges, not formation)
- MZM Constr. Co., Inc. v. New Jersey Bldg. Laborers Statewide Benefit Funds, 974 F.3d 386 (3d Cir. 2020) (court must decide formation/existence issues; delegations not dispositive when existence contested)
- Field Intelligence, Inc. v. Xylem Dewatering Sols. Inc., 49 F.4th 351 (3d Cir. 2022) (later-signed agreement with integration/forum clauses raises judicial question whether earlier arbitration agreement was superseded)