Preferred Sands of Genoa, LLC v. Outotec (USA) Inc., C.A. No. 6011-VCN (Del. Ch. July 29, 2011), read letter decision here. This jewel of a pithy decision includes one of the most concise summaries of the Delaware law on arbitrability that one is likely to find in a Court ruling.

(  The new Kent County Superior Court  Pictured is the recently completed Kent County Courthouse building which will house the Court of Chancery’s Dover Courtrooms until the old Courthouse building is renovated, at which time they will move back to their renovated quarters on The Green.)

Issues Addressed:

(1) The issue of arbitrability in this case specifically related to a settlement agreement and whether the enforceability of a settlement agreement (which did not have an arbitration clause), was covered by the same arbitration clause in the prime agreement for which a breach of contract case had previously been inititated before an arbitration panel. The settlement agreement purported to settle the pending arbitration proceeding.

(2) The high threshold (not met here) of trying to dismiss a case in Delaware based on forum non conveniens was also addressed by the Court.

Key Legal Points

When an agreement involves interstate commerce, the Federal Arbitration Act (which Delaware law closely tracks), applies. See footnote 8. The Court also cited the seminal Delaware Supreme Court decision on arbitrability,  James & Jackson LLC v. Willie Gary, LLC, 906 A.2d 76, 80 (Del. 2006)(summarized on these pages here), as well as related decisions. This decision is consistent with similar federal law on arbitrability which squarely resolved this case and sent it back to the arbitrators.

The issue of arbitrability or in other words: “who decides whether a claim should be arbitrated, the court or the arbitrator,” was analyzed by the Court in a succinct fashion. The Court observed that Section 5703 of Title 10 of the Delaware Code gives Chancery jurisdiction to enjoin an arbitration when no binding arbitration agreement exists. If such an applicable arbitration agreement exists, however, it divests the Court of jurisdiction.

The issue of forum non conveniens was also easily dispatched and it was noted that despite linguistic appearances, mere inconvenience is not a basis in Delaware to have a case dismissed, but rather substantial hardship is required if  forum non conveniens is relied on for a motion to dismiss.