In Country Life Homes, Inc. v. Shaffer, (Del. Ch., Jan. 31, 2007), 2007 WL 333075, read opinion here, the Chancery Court addressed an issue of "competing arbitration awards" and determined that the first decision would prevail. The buyers of a home signed a construction agreement that included an arbitration clause and they later signed a warranty agreement that also provided for arbitration by a different arbitration service. The arbitrator selected pursuant to the warranty agreement (the second agreement),  rendered his decision first and found in favor of the builder on claims regarding the construction of the house. A few weeks later, an arbitrator who heard claims based on the first agreement rendered his decision in favor of the homeowners. Arguably the decisions of each arbitrator, though reaching different conclusions, covered the same claims.

The court reasoned that when 2 conflicting agreements between the same parties on the same subject matter exist, the newer agreement will control to the extent that the new contract is inconsistent with the old one. (citation omitted to case law and to Corbin’s treatise on contracts in which he describes the new contract as "both a rescission and discharge by substitution" of the old one.)  Here the court noted a recent decision giving the arbitrator the power to decide arbitrability if the parties simply incorporate the rules of the arbitration service, such as the AAA. See James & Jackson LLC v. Willie Gary LLC, 906 A.2d 76, 80 (Del. Ch. 2006).

The court also discussed the Delaware statutes for "confirming" arbitration awards, or modifying them and/or vacating them under 10 Del. C. Sections 5713; 5714 or 5715, as well as the public policy that  favors upholding decisions by arbitrators in binding arbitrations. See footnote 17.

In sum, because the parties agreed that the first arbitrator’s award was final and binding, the decision of the second arbitrator  was beyond his powers to grant, thus giving res judicata effect to the first arbitration decision.

In a closing footnote the court recognized that the result might be unsettling due in part to the conclusion in the court’s opinion being impacted by the better administration by the arbitration service that scheduled the hearing faster and rendered a decision sooner (even though the second decision was from the arbitration service where the first claim was filed.)

This case underscores the uneven handling of claims by the various ADR providers such as the AAA, which in my view also emphasizes the need for a few drafting tips to be observed when drafting arbitration clauses:

(i) do not become a hostage to the arbitration service provider. (For example, in this case, if the provider was faster in handling and scheduling the claim, and rendering a decision, that decision may have prevailed.)

(ii) consider your own timetable for scheduling the arbitration hearing and  use your own procedure for selecting the arbitrator;

(iii) do not simply incorporate the rules of the AAA, for example. As noted in the Willie Gary case, supra, such wholesale use of the AAA rules, for example, may prevent the court from granting expedited injunctive relief–and this case provides a striking example of why service providers such as the AAA, in my opinion, are ill-suited for providing expedited treatment of an urgent matter and how, in my humble view,  their lack of administrative speed can have an adverse impact on one’s case.

Yes, one might conclude that the use of an independent arbitrator (such as a retired judge, for example),  may be more effective that the use of an ADR service company.

In, LLC. v. Vertrue Inc., (read opinion here), the Chancery Court ruled on several procedural issues that are important, practical summaries of Delaware law for a litigator to have handy in his or her "toolbox". A prior summary of a decision last year in this case, in which a preliminary injunction request was denied, was posted here.

Initially, the Court viewed an attempt to block an arbitration as a request for a permanent injunction, and recited the 3 basic prerequisites for that relief. Also addressed were the following issues:

(i)  arbitrability (who decides and what issues are subject to arbitration. The Court and the parties relied heavily on the recent decision in  the Willie Gary case, summarized here );

(ii) Delaware’s version of the Uniform Arbitration Act and procedural defenses, requirements and related issues;

(iii) waiver of right to arbitrate  based on participation in litigation and discovery; and

(iv) judicial estoppel based on a party’s prior arguments in the same case.

In Delta Pine Land Company v. Monsanto Company, download file, the Chancery Court read two related agreements together to conclude that the parties intended to arbitrate the issues raised. The Vice Chancellor refused to distinguish a recent Chancery Court opinion in Willie Gary, LLC v. James and Jackson, LLC, summarized here on this blog, which discussed the applicable standards about enforceability of arbitration clauses in great detail.
Unlike the Willie Gary case, the court found that the instant arbitration clauses did not have a “carve out” for injunctive relief.

The Delaware Supreme Court issued an opinion on March 14 that is must reading for anyone who drafts or needs to interpret an arbitration clause in an agreement governed by Delaware law. In James and Jackson LLC v. Willie Gary LLC, Del. Supr., (March 14, 2006),  Delaware’s highest court affirmed the trial court and with pithy reasoning addressed the issues of: (i) who decides arbitrability if the agreement incorporates the rules of the American Arbitration Association (AAA); and (ii) based on the terms of the specific agreement at issue, whether the claims raised were governed by the arbitration clause. The Court determined that based on the terms of the particular agreement involved, the parties intended that the trial court determine the threshold issue of arbitrability, and that likewise injunctive relief should be decided by the trial court. CAVEAT: If the parties to an agreement simply incorporate the rules of the AAA without more, one should be aware that the AAA will likely be empowered to not only decide the issue of arbitrability, but the AAA will also be the forum to dispense equitable relief. FULL DISCLOSURE: The author of this blog argued the winning side in the expedited appeal and in the trial court–whose decision was summarized here. I would have reported both opinions as important decisions nonetheless, even if I lost (though not with as much cheerfulness.)
UPDATE: Steve Jakubowski of The Bankruptcy Litigation Blog kindly references me and this decision in his post today. Prof. Larry Ribstein also comments on the case here.

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.