Pryor v. IAC/InterActiveCorp., C.A. No. 6884-CS (Del. Ch. June 7, 2012).
Issues Presented: (1) Whether the challenge to an arbitration award via a Chancery complaint was timely; and (2) Whether a collateral attack of the award was permissible.
Short Answer: The Court dismissed the complaint as untimely and any related issues would be subject to the arbitration clause for the arbitrator to determine.
This case involved the challenge to an arbitration award pursuant to a binding arbitration clause in a stockholders agreement in connection with the determination of the value of shares. The Court determined that the Federal Arbitration Act (the “FAA”) was controlling, and most of the decisions cited in this Court of Chancery opinion were rulings from federal courts interpreting the FAA. The Court explained that the FAA requires a challenge to the arbitration decision to be served within three months of the award. The Court found that the three month deadline was not met in this case. In addition, the Court determined that the attempt to collaterally attack the arbitration award did not satisfy the prerequisites of the FAA, but that in any event it was an issue within the scope of the arbitration clause and which would need to be determined by the arbitrator.
This relatively short 19-page decision by the Court of Chancery applied federal law regarding the FAA. The opinion addressed whether the three month deadline by which an arbitration decision must be challenged begins to run from the date that the arbitration award is filed or delivered. See footnote 16. There was some discussion about whether the arbitration award was received or mailed by a certain date.
The Court explained that because the award was e-mailed by the arbitrator,it would be deemed to be received on the date that it was e-mailed. In addition, there was an issue about whether the “designated stockholder representative” was deemed to have received the award on behalf of the other stockholders that he represented. The Court found that receipt by the representative was deemed to be receipt for those other stockholders whom he represented, based at least in part on principles of agency.
The Court provides an extended analysis both in the text of the decision and in the expansive footnotes regarding the basic agency principle that: “A notification given to an agent is effective as notice to the principal if the agent has actual or apparent authority to receive the notification.” See footnote 49.
In addition, the Court explained why the concept of equitable tolling would not apply, and cited what it referred to as “distinguished federal courts” that supported the inapplicability of that equitable exception to deadlines involved in this case.
The Court also explained why the separate claims for breach of contract and breach of fiduciary duty failed as being impermissible collateral attacks on the arbitration award, and not satisfying the prerequisites of the FAA to make such an attack.
In one of the many fulsome footnotes the Court referred to an argument by one of the parties as an “epistemological hole.” See footnote 56. Also notable was the reference in footnote 61 to one of the treatises authored by the valuation icon, Shannon Pratt.
Lastly, the Court provides extensive citations to authority both on the federal and Delaware level, which explain the high threshold that must be met before a Court will set aside an arbitration decision.