Court Opinion

ID: 4149821
Source: CourtListenerOpinion
Date Created: 2017-03-02 19:06:51.21165+00
Date Added: 2024-06-11T09:27:30.664443
License: Public Domain

COURT OF CHANCERY
                                                OF THE
                                         STATE OF DELAWARE

TAMIKA R. MONTGOMERY-REEVES                                           Leonard Williams Justice Center
          VICE CHANCELLOR                                             500 N. King Street, Suite 11400
                                                                     Wilmington, Delaware 19801-3734

                                      Date Decided: March 2, 2017

          Patricia L. Enerio, Esquire                    Arthur L. Dent, Esquire
          Aaron M. Nelson, Esquire                       Jaclyn C. Levy, Esquire
          Proctor Heyman Enerio LLP                      Potter Anderson & Corroon LLP
          300 Delaware Avenue                            Hercules Plaza, 6th Floor
          Suite 200                                      1313 North Market Street
          Wilmington, DE 19801                           Wilmington, DE 19801

                RE:   Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC,
                      Civil Action No. 12647-VCMR

      Dear Counsel:

                This letter opinion addresses Defendant’s motion to dismiss or to stay this

      case in favor of arbitration. I have reviewed the parties’ submissions and the

      applicable law and do not require oral argument on this motion. For the reasons

      stated herein, Defendant’s motion to stay is granted.

      I.        BACKGROUND

                Plaintiffs’ complaint seeks advancement of legal fees and expenses from

      Alliance Beverage Distributing Co., LLC, a Delaware limited liability company,

      (“Alliance”) pursuant to Section 18-108 of the Delaware Limited Liability Company

      Act (the “LLC Act”)1 and Section 5.5 of the Limited Liability Company Agreement

      1
                6 Del. C. § 18-108.
Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC
C.A. No. 12647-VCMR
March 2, 2017
Page 2 of 7

of Alliance (the “Alliance LLC Agreement”). Arizona Beverage Distributing Co.,

LLC, a subsidiary of Breakthru Beverage Group (“Breakthru”), and Cactus

Beverage Distributing Company (“Cactus”), a subsidiary of Glazer’s, Inc.

(“Glazer’s”), are the two members of Alliance.          Glazer’s allegedly entered a

nationwide distribution agreement with Bacardi, Inc. (“Bacardi”), which deprived

Alliance of the ability to distribute Bacardi brands. Glazer’s actions form the basis

of an ongoing dispute between Breakthru and Glazer’s. In this case, Plaintiffs,

certain Alliance managers and Cactus, seek advancement of their legal fees and

expenses incurred in connection with that dispute.

      The Alliance LLC Agreement contains a dispute resolution provision, which

requires that:

             Any controversy or claim arising out of or relating to this
             Agreement, or the breach thereof, shall be settled by
             arbitration in the State of Arizona administered by the
             American Arbitration Association under its Commercial
             Arbitration Rules and the Supplemental Procedures for
             Large, Complex Disputes, and judgments on the award
             rendered by the arbitrators may be entered in any court
             having jurisdiction thereof.2

In light of the parties’ agreement to submit disputes to arbitration, Defendant moves

to dismiss this case under Court of Chancery Rule 12(b)(1) for lack of subject matter

2
      Alliance LLC Agreement § 11.6(a).
Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC
C.A. No. 12647-VCMR
March 2, 2017
Page 3 of 7

jurisdiction or alternatively to stay this case pending resolution of the dispute

through arbitration.

II.    ANALYSIS

       “Delaware courts lack subject matter jurisdiction to resolve disputes that

litigants have contractually agreed to arbitrate.”3 Delaware public policy favors

arbitration, and “in recognition that ‘contractual arbitration clauses are generally

interpreted broadly in furtherance of that policy[,]’ a Rule 12(b)(1) motion will be

granted if the parties contracted to arbitrate the claims asserted . . . .” 4 “This Court

also possesses the inherent power to manage its own docket and may, on the basis

of comity, efficiency, or common sense, issue a stay pending the resolution of an

arbitration . . . .”5

       As a threshold matter, I must determine whether this Court has jurisdiction to

decide the question of substantive arbitrability—that is, who may decide whether the

present dispute is subject to arbitration. The Delaware Supreme Court held in James

3
       NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 429 (Del. Ch.
       2007).
4
       Li v. Standard Fiber, LLC, 2013 WL 1286202, at *4 (Del. Ch. Mar. 28, 2013)
       (quoting Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 581-82 (Del.
       Ch. 2006)).
5
       Legend Nat. Gas II Hldgs., LP v. Hargis, 2012 WL 4481303, at *4 (Del. Ch. Sept.
       28, 2012).
Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC
C.A. No. 12647-VCMR
March 2, 2017
Page 4 of 7

& Jackson, LLC v. Willie Gary, LLC that the general rule in Delaware is that “courts

should decide questions of substantive arbitrability.”6 That rule may be altered by

contract when there is “‘clear and unmistakable’ evidence that the parties agreed to

arbitrate.”7 Willie Gary holds that such clear evidence of the parties’ intent to

arbitrate exists when the contract contains “(1) an arbitration clause that generally

provides for arbitration of all disputes; and (2) a reference to a set of arbitration rules

that empower arbitrators to decide arbitrability . . . .”8 This Court subsequently held

in McLaughlin v. McCann that to realize the efficiency goals of the Willie Gary rule,

“absent a clear showing that the party desiring arbitration has essentially no non-

frivolous argument about substantive arbitrability to make before the arbitrator, the

court should require the signatory to address its arguments against arbitrability to the

arbitrator.”9

       Under the Willie Gary test, the Alliance LLC Agreement presents “clear and

unmistakable” evidence that the parties intended to arbitrate the question of

6
       James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006).
7
       Li, 2013 WL 1286202, at *5 (quoting Willie Gary, 906 A.2d at 79).
8
       Redeemer Comm. of the Highland Crusader Fund v. Highland Capital Mgmt., L.P.,
       2017 WL 713633, at *3 (Del. Ch. Feb. 23, 2017) (citing Willie Gary, 906 A.2d at
       79).
9
       McLaughlin v. McCann, 942 A.2d 616, 627 (Del. Ch. 2008).
Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC
C.A. No. 12647-VCMR
March 2, 2017
Page 5 of 7

substantive arbitrability in this case. The Alliance LLC Agreement provides that

“[a]ny controversy or claim arising out of or relating to this Agreement, or the breach

thereof” shall be submitted to arbitration.10 The parties point to no exceptions in the

Alliance LLC Agreement to that arbitration clause. Such a broad agreement to

arbitrate satisfies the first prong of the Willie Gary test.

      The arbitration clause also satisfies the second Willie Gary prong. It requires

that arbitration proceedings arising under or related to the Alliance LLC Agreement

be “administered by the American Arbitration Association under its Commercial

Arbitration Rules and the Supplemental Procedures for Large, Complex Disputes.”11

AAA Commercial Arbitration Rule 7 provides that “[t]he arbitrator shall have the

power to rule on his or her own jurisdiction.”12 Thus, the Alliance LLC Agreement

incorporates by reference arbitration rules under which the arbitrator is empowered

to decide questions of arbitrability.

      Additionally, Defendant has more than a non-frivolous argument that

substantive arbitrability should be decided by the arbitrators in Arizona. While I

“must not ‘delve into the scope of the arbitration clause and the details of the contract

10
      Alliance LLC Agreement § 11.6(a).
11
      Id.
12
      Def.’s Opening Br. 9 (quoting AAA Commercial Arbitration Rule 7).
Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC
C.A. No. 12647-VCMR
March 2, 2017
Page 6 of 7

and pending lawsuit’” as part of this “preliminary evaluation,”13 the parties point to

no exceptions to the broad contractual language vesting the arbitrator with the power

to decide substantive arbitrability. Further, Plaintiffs do not argue that their claim

for advancement does not fall within the Alliance LLC Agreement’s broad

arbitration clause or does not relate to the Alliance LLC Agreement. This Court,

therefore, lacks subject matter jurisdiction to decide substantive arbitrability.

      Plaintiffs argue that they should not be required to arbitrate their right to

advancement of legal fees and expenses because the right to advancement must be

adjudicated summarily in order for advancement to be of any value as a right

separate from indemnification. They assert that arbitration will take longer than

litigation in part because of the extended process for choosing arbitrators. Plaintiffs

do not address Defendant’s Willie Gary arguments and appear to contend that

advancement should not be submitted to arbitration regardless of an agreement to

the contrary.   But that is not Delaware law.14        Further, Plaintiffs caused any

13
      Li, 2013 WL 1286202, at *5 (quoting McLaughlin, 942 A.2d at 623).
14
      See, e.g., Redeemer Comm. of the Highland Crusader Fund v. Highland Capital
      Mgmt., L.P., 2017 WL 713633 (Del. Ch. Feb. 23, 2017) (staying an advancement
      case in favor of arbitration); Riley v. Brocade Commc’ns Sys., Inc., 2014 WL
      1813285 (Del. Ch. May 6, 2014) (same); Li, 2013 WL 1286202 (same); Yuen v.
      Gemstar-TV Guide Int’l, Inc., 2004 WL 1517133 (Del. Ch. June 30, 2004)
      (dismissing an advancement case in favor of arbitration).
Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC
C.A. No. 12647-VCMR
March 2, 2017
Page 7 of 7

additional delay themselves by filing a complaint for advancement in this Court in

the face of a broad arbitration clause. Thus, I grant Defendant’s motion for a stay

pending the arbitrator’s decision regarding arbitrability.

III.   CONCLUSION

       Because I conclude that the parties agreed to submit the question of

substantive arbitrability to an arbitrator and because Plaintiffs have not shown that

Defendant has no non-frivolous arguments regarding substantive arbitrability,

Defendant’s motion to stay pending the arbitrator’s determination of substantive

arbitrability is GRANTED.

       IT IS SO ORDERED.

                                               Sincerely,
                                               /s/Tamika Montgomery-Reeves
                                               Vice Chancellor

TMR/jp