257 So. 3d 270
Miss.2018Background
- Nethery founded On‑Site Fuel Service (OSFS) and retained a 30% minority interest after CapitalSouth and Harbert invested and created holding company On‑Site Fuel Holdings (OSFH).
- Nethery signed a Stockholders Agreement containing a broad arbitration clause (Section 5.03(b)) referencing the AAA Commercial Arbitration Rules and a choice‑of‑law provision selecting Delaware law.
- After alleged exclusion from company decisionmaking, suspension, and termination, Nethery sued in Rankin County Circuit Court asserting state‑law claims (breach of fiduciary duty, freeze‑out, unjust enrichment, conspiracy, negligence, etc.). He sought monetary damages only.
- Defendants moved to compel arbitration under the Stockholders Agreement; the circuit court granted the motion and stayed the litigation. Nethery appealed, arguing Delaware law (Parfi) excludes his noncontractual claims from arbitration.
- The Mississippi Supreme Court held Delaware law governs the agreement and the FAA applies, but the court (not an arbitrator) must decide arbitrability here because the agreement carved out judicial remedies (injunctive relief/specific performance) similar to Willie Gary.
- Applying Delaware precedent and the Stockholders Agreement terms, the Court concluded Nethery’s tort and fiduciary‑duty claims arise from and depend on contractual provisions (e.g., approval of debt, lending relationships, repurchase discussions) and thus fall within the broad arbitration clause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Delaware law governs interpretation of the Stockholders Agreement | Choice‑of‑law clause selects Delaware; Parfi applies to exclude independent state‑law claims from arbitration | Agreement selects Delaware; FAA applies and arbitration clause is broad | Delaware law governs; FAA applies |
| Who decides arbitrability (court or arbitrator) | Arbitrability should be for arbitrator because AAA rules incorporated | Incorporation plus broad clause delegates arbitrability; but carve‑outs exist | Court decides arbitrability because Section 5.03(a) permits judicial injunctive/specific‑performance relief (Willie Gary) |
| Whether Parfi controls to keep fiduciary/noncontract claims out of arbitration | Parfi: independent fiduciary claims that could exist absent the contract are not arbitrable | Parfi distinguishable; Jaffari and contract terms tie fiduciary claims to governance provisions so they are arbitrable | Parfi inapplicable; claims are contract‑dependent and arbitrable |
| Whether Nethery’s state‑law claims fall within the arbitration clause’s scope | Claims are independent and could be brought absent the Stockholders Agreement, so not within clause | Claims arise from rights and governance created by the Agreement (e.g., debt approval, lending protections, repurchase terms), so they touch contract rights | Held arbitrable — the claims "touch" contract rights/contract performance and must be arbitrated |
Key Cases Cited
- Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002) (two‑part test for scope of arbitration clause; independent fiduciary claims may fall outside broad arbitration clauses when not tied to contract)
- Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286 (Del. 1999) (broad arbitration clause in organizational agreement can encompass fiduciary‑duty claims when governance documents create the operative framework)
- James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76 (Del. 2006) (Delaware adopts majority federal view that incorporation of AAA rules can show clear intent to delegate arbitrability, but carve‑outs for judicial relief can leave arbitrability to courts)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (ordinary state‑law contract principles govern whether parties agreed to arbitrate arbitrability)