IN THE SUPREME COURT OF MISSISSIPPI
NO. 2017-CA-01238-SCT
GREGORY

G. NETHERY

v. CAPITALSOUTH PARTNERS FUND II, L.P., CAPITALSOUTH PARTNERS SBIC FUND III, L.P., CAPITALSOUTH PARTNERS FLORIDA SIDECAR FUND I, LP, CAPITALSOUTH PARTNERS, LLC, HARBERT MEZZANINE PARTNERS III SBIC, LP, HARBERT MEZZANINE PARTNERS III, LP PROPERLY KNOWN AS HARBERT MEZZANINE III, LP f/k/a HARBERT MEZZANINE PARTNERS III SBIC, LP, ON-SITE FUEL SERVICE, INC. AND ONSITE FUEL HOLDINGS, INC.

DATE OF JUDGMENT: 08/25/2017 TRIAL JUDGE: HON. W ILLIAM E. CHAPMAN, III TRIAL COURT ATTORNEYS: CECIL MAISON HEIDELBERG KAYTIE MICHELLE PICKETT EMERSON BARNEY ROBINSON, III PHILIP W . THOMAS ADAM STONE J. KEVIN W ATSON PHIL B. ABERNETHY JOHN HOUSTON DOLLARHIDE COURT FROM W HICH APPEALED: RANKIN COUNTY CIRCUIT COURT ATTORNEYS FOR APPELLANT: CECIL MAISON HEIDELBERG J. KEVIN W ATSON ATTORNEYS FOR APPELLEES: KAYTIE MICHELLE PICKETT ADAM STONE JACKIE RAY BOST, II EMERSON BARNEY ROBINSON, III PHIL B. ABERNETHY JOHN HOUSTON DOLLARHIDE PHILIP W . THOMAS NATURE OF THE CASE: CIVIL - OTHERDISPOSITION: AFFIRMED - 11/15/2018

MOTION FOR REHEARING FILED: MANDATE ISSUED: BEFORE KITCHENS, P.J., BEAM AND CHAMBERLIN, JJ. BEAM, JUSTICE, FOR THE COURT: ¶1. Gre g o r y N e t hery appeals f rom the R ankin County Circuit Court’s d ecision to grant

a m otion to com

pel a rbitration f

iled by Def

endants CapitalSouth Partners, 1 Harbert
Mezzanine P artners, and On-Site Fuel Services (collectively , “Def endants”). 2 F inding the circuit court properly granted Def endants’ m otion to com

p el arbitration, we af

f irm

. COURSE OF PROCEEDINGS ¶2. N e t h e r y f

o u nded On-Site Fuel Service, I nc. (OSFS), in 1996. In 2011, Def endants CapitalSouth and Harbert approached Nethery about acquiring an ownership inte r e s t in
OSFS. A deal was consum m ated f or CaptialSouth and Harbert t o i nvest in OSFS, a nd OSFS
then u sed the inves t me n t c a p i t al to buy out t wo other longtim e investors. On-Site Fuel Holdings (OSFH) was then created as a holding com pany
. OSFH i s a Delaware corporation
that owns OSFS and does business in interstate com m erce and in Mississippi. ¶3. Nethery r etained a m inority thirty

- p e r c e n t ownership interest in OSFS through his

s t o c k i n t e rest in OSFH. CapitalSouth and Harbert each held the rem aining interest. N o shareholder owns m ore than f if t y percent of

the holding com

pany
.

1 C ap italS o u th D ef

en d an t s are C a p italS o u t h P artn ers F u n d II, L .P .; C ap italS o u th P artn ers S B IC , F u n d III, L .P

. ; C ap italS o u th P artn ers, F lo rid a S id ecar F u n d I , L .P .; an d C a p i talS o u th P artn ers, L L C

.
2 O n -S ite F u el D ef

en d a n ts are O n -S ite F u el S erv ice, In c., a n d O n -S i te F u el H o ld in g s, In c. 2¶4. As part of the deal, Nethery s igned a Stockho l d e r s A g r e e me n t c o n t a i n i n g a n

arbitration clause (denoted as Section 5.03(b) o f t h e agreem ent), which provided the
f ollowing: Except as provided in Section 6.03(a), 3 a ny dispute am ong the parties hereto shall, on dem and of any party to such dispute, b e s u b mi tted to binding arbitration in Charlotte, North C arol i n a , conducted in accordance with the Com m ercial Arbitration Rules of the Am erican Arbitration Association by a panel of three im

partial arbitrators selected i n accor d a n c e w ith such Com m ercial Arbitration R ules, a nd judgm ent u

pon the award m ay b e entered in a ny court o f com

p e tent jurisdiction. In rendering the award, the a rbitrators shall enf o rce this Agreem ent in accordance with its t erm s and in a ccordance with applicable law, and shall a ssess the costs o f such arbitration as they d eem just and equitable in light of their determ i nation of the i ssues being arbitrated. ¶5. In October 2016, N ethery f iled suit in circuit court a gainst C apitalSouth and Harbert,
claim ing breach of f

iduciary duty , corporate f

r eeze out, unjust enrichm ent, constructive trust, civil conspiracy , and negligence and m ism anagem ent. 4

3 T h is i s a ty

p o g rap h ical erro r
. S ectio n 5 .0 3 (b ) clearly r ef ers to S e ctio n 5 .0 3 (a), n o t S ectio n 6 .0 3 (a), b ecau se n o S ectio n 6 is co n tain ed in th e S to ck h o ld ers A g r eem en t. S ectio n 5 .0 3 (a) p ro v id ed th e f

o llo w i n g :
E a ch S t o ck h o ld er a ck n o w led g e s an d ag rees th at in th e ev e n t o f an y b reach o f th is A g reem en t, t h e n o n - b reac h i n g p arty o r p a rties w o u ld b e irrep arab ly h arm ed a n d co u ld n o t b e m ad e w h o le b y mo n e t a r y d am ag es, an d th e ref o re each S to ck h o ld er h ereb y w ai v es t h e d ef en se in a n y actio n f

o r sp ecif ic p erf o rm an c e o r in

j u n ctiv e relief th at a rem e d y a t l a w w o u ld b e ad eq u ate. E a ch S to c k h o l d er f

u rth er ag rees th at all o th er S to ck h o ld ers, in ad d itio n to an y o th er rem ed y to w h i ch th ey m a y b e en t itled at l aw o r in eq u ity , sh all b e en titled t o co m

p e l s p ecif

ic p erf o rm an ce o f th is A g reem en t an d to o b tain in j u n ctiv e relief

in an y actio n in stitu ted in a co u rt o f p ro p er j u risd i ctio n
.

4 Nethery did not plead a cause of action against O SFS, but h e nam ed it as a def endant in order to “seek the rem edy of an accounting.”

3¶6. I n the com plaint, Nethery claim ed that OSFS, u n d e r h i s c o n t i n u e d g u i d a n c e , transitioned well f

rom C apita l S o u t h ’ s a nd Harbert’s entry into the business, growing “Earnings Bef

ore Interest, Taxes, Depreciation and Am ortization” ( EBITDA) s ubstantially , which in turn “grew enterprise value.” Due to the g rowth, OSFS was contacted by num erous investm ent g roups i nterested i n acquisition. But CapitalSouth and Harbert ref u sed t o engage seriously in these opportunities that “would have benef ited all stockholders handsom ely .” ¶7. In Decem

ber 2013, CapitalSouth a n d H a rbert a ppointed their own executive to be
present at the com

pany of f ices on a r e gular basis. In 2 014, Nethery claim s he began t o be
excluded f

rom com pany and departm ental m eetings. Nethery conf r onted C apitalSouth and
Harbert about his exclusion f rom com pany business to no avail. ¶8. In June 2014, Nethery say s he was invited t o A t l a n t a to m eet with CapitalSouth principals. CapitalSouth dem anded c ore c h a n g e s i n the com pany and told Nethery these
dem ands were better than asking f or Nethery ’s resignation. ¶9. According to Nethery , CapitalSouth Def e ndants suspended him later that sam e m onth
“under the guise of f

alse and specious allegations.” A nd in July 2014, N e t h ery was
term inated without cause. ¶10. Nethery claim s that sin c e his term ination, “ the com pany ’ s trajectory has spiraled in

a 180-direction.” T h e com pany reported approxim ately $8 m illion in losses during 2015, and
shareholder equity e ssentially vanished. But the m a j ority shareholders “prof

ited in spite of
the losses by im

plem enting a loan arrangem e nt with the com pan y where they collect over

4$250,000 per m o nth through interest and accruals.” Through their loans to the c o m pany , the

m ajority shareholders “drain cash f low, handcuf

f ing the com

pany , while they

benef it.” ¶11. Nethery cla i m s t h a t a t all tim es, CapitalSouth and H arbert “conspired t ogether and
acted in concert on b e half of them selves and each other, taking the positions of each other,
and acting in o ne block to control the voting of t he com pany .” Considering their com bined

m ajority interest, CapitalSouth and Harbert w o rked together f or them selves and a gainst the
interests of

Nethery , the m inority

shareholder. ¶12. Def

endants answered Nethery ’s com plaint, asserting t h e a f

f i r ma t i v e d e f

e nse of arbitration, and f

iled their m otion to com

pel arbitration that s am e day

. T h e c i r c u it court granted the m o t ion and stay ed the action f i l e d by Nethery pending the com p letion of any resulting arbitration. ¶13. As he c laim ed in th e c i r c u i t c o urt, Nethery m a i ntains on appeal that, based upon a choice-of -law provision contained in the S tockholders A greem e nt, Delaware law governs interpretation of the agreem ent. 5 Nethery c ontends that under D elaware l aw, the arbitration
clause does not apply because Nethery ’s com plaint d oes not allege breach of the
Stockholders Agreem ent, n or does Nether y s e e k legal relief under t he a greem ent. Rather, Nethery asserts only noncontractual state-law claim s and h is legal claim s exist independently
f rom the contract.

5 S ection 5.07 of the Stockholders Agreem ent provides, “The laws of the S tate of Delaware, excluding the principles of conf licts of l aw thereof

, shall govern the interp r e t a t i on, validity and perf orm ance of the term s of

this Agreem ent.”
5¶14. Nethery contends the D elaware Suprem e C o u r t ’ s d e c i s i on i n Parfi Holding AB v.

Mirror Im ag e I

n t e r n e t , Inc. , 817 A.2d 149, 155 (Del. 2002), controls. Under Parfi ’s analy sis d ealin g w i th an arbitration clause contained in a “stock underwriting agreem ent,” Nethery argues his indep e n d e n t s tate-law claim s f all outside t he scope o f the arbitration

agreem ent; theref

ore, according to Nethery , they are not subject to arbitration. ¶15. Def

endants respond that Delaware law is inapplicable, a nd it is also preem pted by the
Federal Arbitration Act (FAA). Alternatively , the Def endants contend that, eve n if Delaware
law does apply , Parfi is distinguishable, and the controlling case i s Elf Atochem North
Am erica, Inc. v. Jaffari , 727 A.2d 286, 294 (Del. 1999). ¶16. The Def

endants f u rther contend that, because the arbitration agreem ent incorporates
the Rules of the Am erican Arbitration Association (AAA), the parties intended to delegate questions of arbitrability t o a n a r b itrator (in this case, an arbitration p anel). Thus, they
continue that the s cope of t he arbitration agreem ent should be determ ined by an arbitration panel, not the court.
DISCUSSION ¶17. At the outset, we agr e e w i t h N e t h e r y t h at Delaware law governs interpretation of
Stockholders Agreem ent, based upon the agr e em ent’s choice-of -law provision. In turn,
Delaware law governs t he a r b i t ration provision incorporated into the agreem ent. And
because the Stockholders Agreem ent indisputably involves interstate com m erce, the Federal
Arbitration Act (FAA) governs. Jam es & Jackson, LLC v. W illie Gary, LLC

, 906 A.2d 76, 80 (Del. 2006).

6¶18. “The FAA requires that upon application of a party t o a s uit b rought in court, the c ourt

shall stay the court proceeding ‘upon being satisf ied that the issue i n v olved i n such suit or proceeding is ref

e rable to arbitration . . . .’” McLaughlin v. McCann , 942 A.2d 616, 621 (Del. C h. 2008). “W hen deciding whether the p arties agreed to arbi t r a t e a certain m atter (including arbitrability ) , courts generally should a p p l y ordinary state-law principles that

govern the f

orm ation of c ontracts.” Id. (quoting First Options of Chicago, Inc., v. Kaplan , 514 U.S. 938, 944, 115 S

. C t

. 1920, 131 L. E d. 2d 985 (1995)). G enerally , “ any doubts concerning the s cope o f ar b i t r a b l e issues should be resolved in f avor of arbitration.” Id. (quoting Mitsubishi Motors Corp. v. S oler Chrysler-Plym outh, Inc. , 473 U.S. 614, 626, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985)). ¶19. I n a p p l y ing t raditional state-contract-law p rinciples t o m ake a d eterm ination on th e question of a rbitrability , “the court presum es t hat parties intended courts to decide issues of
substantive arbitrability [ , ] unless ‘ the parties clearly and unm istakably provide otherwise.’”
Willie Gary , 906 A .2d a t 79 (citing Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 83, 123 S. Ct. 588, 154 L. Ed. 2d 491 (2002)). Arbitrability ¶20. As a threshold issue, D elaware has a d opted “the m ajority f ederal view that ref

erence
to the AAA rules evidences a clear and unm istakable intent to subm it arbitrability issues to
an arbitrator.” Willie Gary , 906 A.2d at 80. Willie Gary provides,
As a m atter of policy , we adopt t he m ajority f ederal view that ref

erence to the AAA r u les evidences a clear and unm istakable intent to subm it arbitrabilit y issues to an arbitrator. W e do so in t h e b e lief that Delaware benef i ts f rom ad o p t i n g a w idely held interpretation o f the applicable rule, a s long as t hat

7i n t e r p retation is not unreasonable. The m ajority v iew does not, howev e r ,

m andate that arbitrators decide arbitrability in all cases where an arbi t r a tion clause incorporates the AAA rules. Rather, it applies in those cases where the arbitration clause generally provides f o r a r b itration of a ll disputes and also incorporates a s et of arbitration rules tha t e m power arbitrators to decide arbitrability

. Id. ¶21. T h u s , u n d e r Delaware law, “the parties are deem e d to have a g re e d t o a r b i t r a t e substantive arbitrability in accordance with the r ules t hat they

have broadly incorporated,” under two conditions: “(1) the arbitration provision ref ers to the AAA or com

parable rules
and (2) t he arbitration clause generally provides f or t he arbitration o f a ll disputes.” Roberts

v. Strickland , No. CV 510-081, 2010 W L 11553201, *1 (S.D. Ga. Dec. 10, 2010) (quoting GTSI Corp. v. Eyak Tech., LLC , 10 A.3d 1116, 1120-21 (Del. Ch. 2010)). ¶22. In W

illie Gary , t h e Delaware Suprem e Court held that, even though the arbitration
clause b ef ore it had incorporated t he AAA r ules, the f ederal m ajority r

ule did n ot apply

. Id.

at 81. Because the arbitration clause contained in the parties’ “LLC agreem ent” also allowed
LLC m e m

bers to pursue injunctive relief and specif ic perf orm ance in the court, the Delaware Suprem e Court reasoned that the arbitration clause did not ref e r “ all controversies to arbitration,

. . . and som ething other than t h e i n corporation of the AAA rules would be
needed to establish t hat the parties intended to subm i t arbitrability questions t o an arbitrator.”
Id. at 81. ¶23. Here, sim ilar to the LLC agreem ent construed in Willie Gary , the arbitration clause
under Section 5.03(b) of the Stockholders Agreem ent generally ref ers a ll d isputes arising or

r e l a ting to the Stockholders Agreem ent to arbitration, and t he clause specif ically in c o r

p o r a t e s

8the Com m ercial Arbitration Rules of the AAA. But also sim ilar to Willie Gary , the language

contained in Section 5.03(a) a l l o w s t he parties to pursue claim s f or injunctive r elief and specif ic perf orm ance in the court. ¶24. W h ile Nethery d oes not seek i njunctive or specif i c-perf orm ance relief

, unlike as was the case in Willie Gary , 6 w e t hink Section 5.03 f ails under Willi e G

a r y ’ s s econd prong. Under Willie Gary , Section 5 .03(a) constitutes a carve-out p r o v ision providing judicial

rem edies f

or disputes. Given its inclusion i n the agreem ent, we think “som e thing other than incorporation o f t h e A A A r ules would be n eeded to establish t hat the parties intended to
subm it arbitrability questions to an arbitrator.” I d. at 81. Accordingly , we f ind t h a t t h e question of arbitrability in this c ase was an issue f or the circuit court’s determ ination; it was not an issue f

or determ i nation by

an arbitration panel. ¶25. The circuit court’s order com pelled Nethery

to arbitrate all of

his claim s against the
def endants in accordance with the arbitration clause contained in t he parties’ Stockholders Agreem ent. For reasons explained below, we af f irm the circuit court’s order. Scope ¶26. In Parfi , t he D elawar e S u p r e me Court e stablished a two-part test f or determ ining whether a dispute is com m itted to arbitration: First, the court m

ust determ ine whether the arbitration clause is broad or narrow in scope. Second, the cou r t mu s t a pply the relevant scope of the provision to the asserted legal claim to d eterm ine whether the clai m f a l l s within the scope o f t h e contractual provisions that require arbitration. I f the

6 In Willie Gary , the com plainant had sought injunctive r elief , specif ic perf orm ance, and, alternatively , dissolution. W illie Gary , 9 06 A.2d at 78. No other relief w as sought. Id. Here, Nethery

seeks m onetary

dam ages only

.

9court is evaluating a narrow arbitration clause, it will ask if the cause of action

pursued in c ourt d irectly rela t e s t o a r i g ht in the contract. If the arbitration clause is broad in s c o pe, the court will def er to arbitration on any i ssues t hat touch on contract rights or contract perf o rm ance. Parfi , 817 A.2d at 155. ¶27. The issue bef

ore the Delaware S uprem e Cou r t i n P arfi was w hether an arbitration
clause in an underwriting agreem ent s h o u l d c o n t r o l i n a m i n o r i t

y s h a r eholder’s f

iduciary -duty
claim s against a c orporation. Id. at 1 55-56. T h e P a r f i c ourt f ound a t the outset that the
arbitration clause was broad in scope. “By agreeing t o subm it to arbitration any dispu te,

cont r o v e r s y , o r claim arising out of or in connection with Underwriting Agreem ent, [ the

p a r t ies] have signaled an intent to arbitrate all possible claim s that t ouch on the rights set
f orth in their contract.” Id. a t 1 55. Even though the Parfi Court f ound t he arbitration clause

was broad in scope, it said the actual question bef o re it was “whether the arbitrable contract
claim s are connected to t he f i duciary duty c lai ms that a re independently grounded on Delaware corporation law.” Id. ¶28. In a nswering the question, the P arfi court s aid, “ Generally , purportedly independent
actions d o not touch m atters i m plicated in a contract if the independent c a use of action could
be brought had the parties not s i g n e d a contract.” Id. a t 156 n .24. Apply ing this test, the Parfi court concluded t hat b ecause the f i duciary c l a i ms “ w ould b e independently and separately assertable” e ven i f no underwriting agreem ent existed, they are “not ‘in
connection’ with t he Agreem ent.” Id. a t 157. T ha t i s t o s ay , because t he f iduciary claim s did not depend i n any m anner on t he underwriting agreem ent, the Parfi court f ound that the
claim s were not arbitrable. Id.

1 0¶29. The Parfi court, however, was caref ul t o d i s t i n g u i s h i t s c a s e , which involved a
separate underwriting a greem ent not binding on all t he stockholders of t he corporation, and
the situation in Jaffari

. In Jaffari , the Delaware Suprem e C ourt h eld that a broad arbitration provision in an LLC Agreem ent could encom pass b reach-of

-f iduciary -duty claim s raised by

a m em ber. Jaffari , 727 A.2d at 295. And as P arfi itself s um m a r ized, the LLC agreem ent
in Jaffari required “parties to subm it purported f iduciary d uty claim s to arbitration since the

s e ries of agreem ents created a sy stem setting f or[ th] the governance and operati o n o f t h e parties’ joint venture.” Parfi , 817 A.2d at 160 n.42 (citing Jaffari , 727 A.2d at 293-95). ¶30. Here, the arbitration provision contained in the Stockholders A greem e nt is broad in

scope, b ecause it governs “[ a]ny dispute am ong the parties.” The Stockholders Agreem ent

governs the relationship b etween stockhol d e r s ( CapitalSouth, Harbert, Sidecar, and Nethery )
who expressed t he “desire to enter into this A greem ent f or the purpose of agreeing to certain aspects of their relationship as holders of such capital stock.” ¶31. This relati o n s h i p , a s t h e Def endants argue, is directly related to Nethery ’s prim ary allegation: “Due to t he m a jority shareholders’ actions, the com pany has becom e encum

bered
with high interest debt t o the m ajority s hareholders and/or their entities, a b enef i t t o the

m ajority shareholders and a detrim ent to the m i nority shareholders.” ¶32. Section 3.04 of

the Stockholders Agreem ent provides, Major M anagem e nt Decisions. The f ollowing acts, expenditures, decisions and obligations m ade or incurred b y the Com pany o r any Subsidiary shall require the prior w ritten approval of the Required Investors (unl e s s the R e quired Investors i ndicate o therwise in writing p rior to any action b y t h e Board, approval by the CapitalSouth Nom inees and the Harbert Nom inees at a m eeting or by

written consent shall constitute the approval of the Required

1 1Investors f or the purposes of

this Section 3.04):

. . . . (h) the incurrence of Debt, other than borrowings under any r evolving line of credit that has been approved hereunder, or the sale or issuance by the Com p any o r any Subsidiary of any equity security of t he Com pa n y o r any Subidiary ; (i) the guarantee of any

obligation (including Debt) in excess of $100,000 of any Person, other than a Com pany Subsidiary

. ¶33. Section 5.14 of

the Stockholders Agreem ent provides,
No Ef f ect o n L ending Relationships. To t h e extent any lender to the Com p any owns any Com

pany Securities, nothing contained in this Agreem ent or any other equity docum entation shall af f e ct, lim i t o r im

pair t h e rights and rem edies of any lender to the Com pany i n its capacity as a lender pursuant to any agreem ent u n d er which t he Com pany has borrowed m oney f rom such Person. ¶34. Section 5.16 provides,

Discussion re P urcha s e o f Nethery ’s Com pany Securities. Upon term ination of N ethery ’s em ploy m ent with the Com

pany and its Subsidiaries f o r any reason, t he Com

pany and Nethery shall negotiate in good f ai t h w i t h respect to a potential repurchase of the Nethery ’s Com pany Securities by

the Com p any
. In connection with such negotiations, upon the request of Nethery , the Com pany s hall engage a national or regional investm e nt bank or business appraiser who shall be m utually a cceptable t o the C o m pany a n d N ethery , to provide a non-binding determ ination of t he f air m arket v alue of such Com pany Securities. The costs of

such appraisal shall b e b orn[ e ] 50% by Nethery and 50% by the Com pany
. ¶35. The conduct in which Nethery alleges the D ef e n dants engaged (and which f orm s the
b a s i s f o r each of Nethery ’s s tate-law claim s) arises f rom the authority provided b y t h e Stockholders Agreem ent a nd its provisions therein—Sections 3. 0 4(h) and ( i) and Section
5.14 of the Stockholders A greem ent, in particular. The alleged conduct is dependent on the

1 2agreem ent’s t e rm s and is not “ i ndependently and separately assertable” a p art f rom the
Stockholders Agreem ent. Cf

. P a rfi , 817 A.2d at 157. Thus, the circuit c ourt correctly f ound that Nethery ’s claim s are subject to the agreem ent’s arbitration provision.
CONCLUSION ¶36. For these reasons, we af f i rm the circuit court’s order g ranting the def endants’ m otion

to com pel arbitration. ¶37. AFFIRMED. WALLER, C.J., RANDOLPH AND KITCHENS, P.JJ., KING, COLEMAN, MAX W ELL, CHAMBERLIN AND ISHEE, JJ., CONCUR.

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