An Eckert Seamans associate prepared this overview.
A recent Chancery Court opinion enforced an agreement to arbitrate based on an email exchange.
Background: This matter involves a dispute between three members of an LLC over the validity of an arbitration agreement. The parties owned multiple business ventures together, including Montex, LLC (“Montex”) and PTT Capital, LLC (“PTT”). The Montex operating agreement contained a mediation and arbitration clause. After disagreements arose, the parties’ counsel further memorialized an ADR agreement over email. Plaintiff’s counsel wrote:
This will memorialize our agreement as to how to move this matter forward.
The parties…agree to mediate all disputes between the three of them related to PTT and Montext. The parties, through counsel, agrees [sic] to use their best efforts to select a mediator by September 11.
The parties further agree that if an impasse is declared by the mediator, the parties will immediately initiate the binding arbitration process in an effort to resolve these disputes.
Defendants’ counsel responded:
I am happy to call this an agreement on the core point of mediating/arbitrating in lieu of litigation. That said, let’s move on nailing down some particulars, including items already discussed such as location, at the same time we continue to discuss interim and final settlement terms.
Defendants’ counsel reiterated that the parties agreed to mediate and arbitrate in a later email. Subsequently, Plaintiff’s counsel suggested possible mediators with respect to an ongoing dispute. The parties selected a mediator, set a mediation date, agreed to the scope of mediation, and engaged in limited discovery. Shortly thereafter, Plaintiff cancelled the mediation, and later filed suit.
Parties’ Allegations: Plaintiff alleged multiple equitable causes of action against Defendants. Plaintiff also sought dissolution of PTT and the appointment of a liquidating trustee. Defendants moved to dismiss the complaint for lack of subject matter jurisdiction due to the arbitration agreement. Plaintiff responded that the “bare-boned” email agreement was missing essential terms, and was therefore unenforceable. Specifically, the agreement was missing the: (1) arbitrator’s identity; (2) means of selecting an arbitrator; (3) location; (4) applicable procedures; (5) effect of arbitration; (6) governing law; (7) relief available; (8) scope of discovery; and (9) fee information. Plaintiff also argued that the agreement was unenforceable because a PTT operating agreement did not contain an arbitration provision.
Court’s Analysis: The Court found that the parties’ arbitration agreement was enforceable because it contained all essential terms and the parties manifested assent to be bound. Specifically, Defendants’ counsel responded to the initial email stating that he was “happy to call this an agreement on the core point of mediating/arbitrating in lieu of litigation.” Even if issues like location were not final, the parties explicitly agreed to mediate and arbitrate disputes related to PTT and Montex. They also agreed that arbitration was binding if mediation was not successful. Plaintiff failed to convince the Court that other terms were required to create a valid agreement. Moreover, the Court was persuaded by the parties’ overt actions in accordance with the agreement, as they initially selected a mediator and started the mediation process.
The Court further held that a draft PTT operating agreement did not control on the issue. Even if the PTT draft were operative, it did not mention arbitration, and therefore did not foreclose arbitration in the Montex matter.
Conclusion: Therefore, the Court granted Defendants’ motion to dismiss and stayed issues regarding dissolution and appointment of a liquidating trustee until the completion of arbitration.