In one of the first Chancery Court published opinions of 2006, Vice Chancellor Leo Strine provided a clearly defined framework to analyze the arbitrability of a dispute arguably subject to an arbitration clause but which clause has an “out” for a party seeking injunctive relief. In Willie Gary LLC v. James & Jackson LLC, download file, the court made clear that the general rule remains that the courts will decide the arbitrability of disputes unless there is a “clear and unmistakable” intent expressed in the document that an arbitrator will determine arbitrability, notwithstanding the incorporation by reference of the rules of the American Arbitration Association (“AAA”) whose rules provide for the arbitrator to determine arbitrability. Nor was the court’s reasoning altered by AAA rules that ostensibly allow the AAA’s arbitrator to grant injunctive or equitable relief. At issue in this case was whether the dissolution of a limited liability company would be required to be pursued in arbitration or whether it was within the equitable jurisdiction of the Chancery Court. The procedural posture was that the defendants had moved to dismiss the complaint due to the arbitration clause. The court reasoned that the policy of Delaware is identical to that expressed in the Federal Arbitration Act, but like federal law it is equally important in Delaware that only those parties who contractually obligated themselves to arbitrate a dispute can be forced to do so. In this case the court found that it would be “impossible to conclude” that Willie Gary had a contractual obligation to arbitrate its claims. Although the court determined that the Federal Arbitration Act (FAA) applied and not the Delaware Uniform Arbitration Act because the contract involved interstate commerce, the court found consistency between state and federal law and also determined that the FAA did not create a body of federal contract law. Rather, the FAA simply “requires that contracts with arbitration clauses be interpreted in accordance with the ordinary principles of contract interpretation that would otherwise govern and that no anti-arbitration state law policies override the intentions of commercial parties to a contract to have their disputes resolved by arbitration.” The court relied on precedent of the United States Supreme Court for its reasoning that the question of arbitrability itself was one that was presumed, by default, to be a matter that the parties intended would be decided by a court. The analysis of whether such evidence existed, did not involve the application of federal common law but instead an analysis of the parties’ contract using the principles of the state law that govern their agreement’s interpretation. The court discussed general principles of contract interpretation in determining the intent of the parties not to arbitrate the instant claims. The court reviewed “the overall structure of the LLC Agreement” and found it “impossible to conclude” that the issues raised should be decided in the first instance by an arbitrator. The court also found that more specific provisions of the agreement addressing the arbitrability question, “in normal contract terms, trumped the more general provisions of the LLC Agreement.” (citing Sonitrol Holding Co. v. Marceau Investissements, 607 A.2d 1177, 1184 (Del. 1992)). I should note that I am counsel for the plaintiff in this case. My friend Steve Jakubowski of the Bankruptcy Litigation Blog, recommended this link when he saw the opinion.