A recent Delaware Court of Chancery opinion is noteworthy because it describes the impact of a recent decision of the United States Supreme Court on the Delaware law of arbitrability. In Gulf LNG Energy, LLC v. ENI USA Gas Marketing LLC, C.A. No. 2019-0460-AGB (Del. Ch. Dec. 30, 2019), the court also addressed two important lines of authority: (1) When a court should intervene to prevent collateral attacks on an arbitration award; and (2) What disputes will be covered by the contractual intent of the parties regarding who decides issues of arbitrability: the court or the arbitrators. Although many decisions on arbitrability have been covered on these pages over the last 15 years, this Chancery opinion provides helpful insights on relatively new nuances.
The detailed facts of this case should be reviewed for a full understanding of this decision, but this brief overview will be limited to the most important aspects of the decision with the widest applicability.
Two energy companies entered into a long-term agreement involving a few hundred-million dollars. An arbitration decision initially resolved contractual disputes about the termination of that agreement. Subsequently, ENI initiated a separate, second arbitration, which prompted a lawsuit in Chancery seeking a permanent injunction to enjoin ENI from pursuing the second arbitration.
Most Notable Takeaways from Decision:
- This decision observed that both Delaware law and New York law are essentially the same on the issue of arbitrability to the extent that when the parties specifically incorporate rules such as those of the American Arbitration Association, the net result is that it demonstrates an intent of the parties to have arbitrators decide issues of arbitrability.
- This decision compares the differences between the issue of arbitrability and the separate collateral attack doctrine. The latter allows a court to issue an injunction to prevent a circumvention of a prior arbitration ruling.
- The United Supreme Court recently issued an important decision on arbitrability styled Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S.Ct. 524, 529 (2019). The Court of Chancery noted that: “One consequence of Schein is that it should end the additional ‘no non-frivolous argument about substantive arbitrability’ inquiry” this court has conducted under McLaughlin v. McCann, 942 A.2d 616, 626-27 (Del. Ch. 2008), to guard against the frivolous invocation of an arbitration clause even when the [Delaware Supreme Court’s] Willie Gary test has been satisfied.” UPM-Kymmene, 2017 WL 4461130, at * 4. See footnote 83.
- But the Court of Chancery emphasized that the SCOTUS decision in Schein “does not address the collateral attack doctrine. Nor does Schein address the scenario present here where a second, related arbitration proceeding has been filed.”
- The Court of Chancery conducts a very careful analysis to determine whether the claims in the second arbitration should be considered prohibited under the collateral attack doctrine or whether they present issues of arbitrability for the arbitration panel to determine. After synthesizing federal case law interpreting the Federal Arbitration Act, the court determined that one of the claims in the second arbitration was barred by the collateral attack doctrine and would be permanently enjoined, but that the other issue raised in the second arbitration presented an issue of arbitrability for the arbitrators to determine. That is, the arbitrators would determine whether the second issue raised in the subsequent arbitration was covered by the arbitration clause or should be decided in some other manner. See Slip op. at 30 – 33.