Court Opinion

ID: 4912393
Source: CourtListenerOpinion
Date Created: 2021-09-20 19:08:07.706788+00
Date Added: 2024-06-11T08:13:40.788544
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

AFFINIPAY, LLC AND AFFINIPAY               )
PARENT, LLC,                               )
                                           )
            Plaintiffs,                    )
                                           )   C.A. No. 2021-0549-LWW
      v.                                   )
                                           )
THOMAS WEST,                               )
                                           )
            Defendant.                     )

                           MEMORANDUM OPINION

                          Date Submitted: August 19, 2021
                          Date Decided: September 17, 2021

Rudolf Koch and Ryan D. Konstanzer, RICHARDS, LAYTON, & FINGER, P.A.,
Wilmington, Delaware; Joseph P. Rockers and Batoul Husain, GOODWIN
PROCTER LLP, Boston, Massachusetts; Counsel for Plaintiffs AffiniPay, LLC and
AffiniPay Parent, LLC
Peter B. Ladig, Thad J. Bracegirdle, and Justin C. Barrett, BAYARD, P.A.,
Wilmington, Delaware; Counsel for Defendant Thomas West

WILL, Vice Chancellor
      This case arises from a disagreement over the number of vested options and

the valuation of incentive units granted to a former Chief Executive Officer. The

underlying dispute is subject to arbitration. The only issue presented to this court is

where and how those claims should be properly adjudicated.

      The parties negotiated a series of agreements to govern the former officer’s

option grants and incentive units. Those agreements contain a trio of dispute

resolution provisions that call for different arbitral forums applying different arbitral

procedures. The agreements each contemplate that the arbitrator (albeit different

arbitrators) will decide the question of arbitrability.

      The former officer—the defendant in this action—has initiated an arbitration

proceeding applying procedures called for in one of the agreements. The plaintiff—

his former employer—contends that the arbitration violates the dispute resolution

provisions in the other two agreements, which are relevant to the former officer’s

claims. The plaintiff asks that I preliminary enjoin those claims from proceeding in

the pending arbitration. The former officer asserts that this court lacks subject matter

jurisdiction to decide the preliminary injunction motion because the parties

delegated the issue of substantive arbitrability to the arbitrator. He has moved to

dismiss on that basis.

      In this decision, I conclude that it is impossible to discern which arbitrator the

parties intended to decide the matter of arbitrability given the parties’ agreement to

                                            1
three different dispute resolution provisions. The court therefore has subject matter

jurisdiction to resolve that dispute and the defendant’s motion to dismiss is

denied. Because the plaintiff has demonstrated that the elements of a preliminary

injunction are satisfied, I grant the plaintiff’s motion and preliminary enjoin the

equity-based claims from proceeding in the pending arbitration.

I.        FACTUAL BACKGROUND
          The following facts are drawn from the Verified Complaint and the documents

it incorporates by reference.1

          A.        The Employment Agreement
          Plaintiffs AffiniPay, LLC and AffiniPay Parent, LLC (together, “AffiniPay”)

are Delaware entities with their principal places of business in Austin, Texas. 2

AffiniPay is a fintech market leader providing payment technology services to legal,

accounting, and association professionals throughout the United States.3 Defendant

Thomas West, a resident of Texas, was hired by AffiniPay on September 4, 2018 to

1
  Verified Compl. (“Compl.”) (Dkt. 1). See Winshall v. Viacom Int’l, Inc., 76 A.3d 808,
818 (Del. 2013) (“[A] plaintiff may not reference certain documents outside the complaint
and at the same time prevent the court from considering those documents’ actual terms.”);
Freedman v. Adams, 2012 WL 1345638, at *5 (Del. Ch. Mar. 30, 2012) (“When a plaintiff
expressly refers to and heavily relies upon documents in her complaint, these documents
are considered to be incorporated by reference into the complaint . . . .”), aff’d, 58 A.3d
414 (Del. 2013).
2
    Compl. ¶ 11.
3
    Id. ¶¶ 2, 15.

                                            2
serve as its Chief Growth Officer and later became its Chief Executive Officer.4

Upon his hiring, West and AffiniPay entered into an Employment Agreement

outlining West’s duties, compensation and benefits, and other aspects of West’s

employment.5

          West was granted options in AffiniPay that vested over time as part of his

compensation package.6 The Employment Agreement states in Section 3(D) that

West would be “granted an option . . . under the AffiniPay Holdings LLC Unit

Option Plan” (the “2016 Option Plan”) to purchase incentive units in AffiniPay.7

The Employment Agreement also provides that the options would be “subject to all

other terms and conditions set forth in the [2016] Option Plan” and to the parties’

September 4, 2018 Unit Option Award Agreement (the “Award Agreement”).8

          The vesting schedule included in Section 3(D) of the Employment Agreement

explains that, “[i]n the event of [West’s] termination of employment with

[AffiniPay] for any reason,” the options may be cancelled or repurchased by

AffiniPay “in accordance with the terms of the [2016] Option Plan and [A]ward

4
    Id. ¶¶ 2, 16.
5
    Id. ¶ 16.
6
    Id. ¶ 3.
7
    Compl. Ex. B § 3(D).
8
    Id.

                                           3
[A]greement.”9 Section 3(D) of the Employment Agreement further explains that

“to the extent the terms of the [2016] Option Plan or Award Agreement conflict with

this Section 3(D), the terms of the [2016] Option Plan or Award Agreement shall

control.”10

           The Employment Agreement includes an arbitration clause:

           [A]ny and all disputes or claims arising out of or relating to [the
           Employment Agreement] or concerning [West’s] employment with
           [AffiniPay] or termination thereof shall be settled by final and binding
           arbitration to be conducted in Austin, Texas, under the then existing
           Employment Arbitration and Mediation Procedures [Employment
           Arbitration Rules]) of the American Arbitration Association (‘AAA’).11
The arbitration clause further provides that “[a]ny disagreement as to whether a

particular dispute is arbitrable under [the Employment Agreement] will itself be

subject to determination by the arbitrator in arbitration in accordance with the

procedures set forth herein.”12

           B.     The Award Agreement and 2016 Option Plan
           On September 4, 2018, AffiniPay granted options to West pursuant to the

Award Agreement.13 The Award Agreement provides that the options were issued

“upon the terms and conditions set forth in the [2016 Option Plan]” and “[s]ubject

9
    Id.
10
     Id.
11
     Compl. Ex. B at 10-11.
12
     Id. at 11.
13
     Compl. ¶ 18, Ex. C § 1.

                                              4
to the terms and conditions” of the Award Agreement.14 The Award Agreement

contains a vesting schedule that is generally consistent with the vesting schedule in

the Employment Agreement but provides additional details about the forfeiture and

repurchase of the options in the event of West’s termination.15 The 2016 Option

Plan gives AffiniPay the right to repurchase incentive units acquired through options

granted under the 2016 Option Plan at a defined fair market value if West is

terminated for any reason.16

          Disputes related to the Award Agreement are governed by Section 12 of the

2016 Option Plan.17 Section 12 also includes an arbitration clause:

          Any dispute between [AffiniPay] and [West] as to the interpretation of any
          provision of the [2016 Option Plan] or [the] Award Agreement or the rights
          and obligations of any party thereunder . . . will be resolved through binding
          arbitration as hereinafter provided in Austin, Texas . . . in accordance with the
          Commercial Arbitration Rules of the [AAA] then in effect.18

Section 12 sets out the procedures that would govern any such arbitration.19

14
     Compl. Ex. C (Preamble), § 1.
15
     See Compl. Ex. B § 3(D), Ex. C §§ 2-3.
16
  Compl. Ex. D § 9; see also id. § 2 (definitions of “Fair Market Value” and “Repurchase
Event”).
17
     Compl. ¶ 19, Ex. D § 12.
18
     Compl. Ex. D § 12.
19
     Id. § 12(a).

                                              5
         C.     The Rollover Agreement

         On February 28, 2020, private equity firm TA Associates acquired a majority

interest in AffiniPay.20 The sale transaction triggered vesting acceleration provisions

in the Award Agreement and the Employment Agreement, causing a portion of

West’s options to vest.21         In connection with TA Associates’ acquisition of

AffiniPay, West entered into a Unit Option Rollover Agreement (the “Rollover

Agreement”) with AffiniPay.22

          Under the Rollover Agreement, West exchanged his options for new, post-

deal options (referred to as the “New Options” in the Rollover Agreement) that

would allow West to purchase common units of AffiniPay Parent, LLC.23 The

Rollover Agreement provides that the New Options West received post-rollover

would “be governed by the same terms and conditions of the [2016 Option Plan and

the Award Agreement],” including with respect to vesting.24               The Rollover

Agreement does not reference the Employment Agreement other than to adopt its

20
     Compl. ¶ 20, Ex. A ¶ 5.
21
     Compl. ¶ 20, Ex. A ¶ 5, Ex. B § 3(D), Ex. C § 2.2.
22
     Compl. ¶ 21, Ex. G (Preamble).
23
     Compl. ¶ 21, Ex. G §§ 1-2.
24
  Compl. Ex. G § 2(c). The Rollover Agreement incorporated the terms of the Award
Agreement and Options Agreement except “that all references in the [Award Agreement
and 2016 Option Plan] to the ‘Company’ shall be deemed to be references to [AffiniPay
Parent, LLC], and upon exercise of any New Option(s), [West] shall be entitled to receive
[common units of AffiniPay Parent, LLC].” Id.

                                              6
definition of “Cause.”25 The Rollover Agreement also contains an integration clause

providing that it and “the agreements and documents referred to” in it constitute the

complete agreement between the parties on its subject matter and supersede any prior

understandings or agreements.26

           D.    The Profit Interest Agreement and 2020 Option Plan

           On June 24, 2020, AffiniPay granted West incentive units in AffiniPay Parent,

LLC pursuant to a Profit Interest Award Agreement (the “Profit Interest

Agreement”).27 The Profit Interest Agreement explains that the units were granted

under the Company’s 2020 Unit Option and Grant Plan (“2020 Option Plan”), which

replaced the 2016 Option Plan post-acquisition, and “subject to the terms and

conditions set forth” in the Profit Interest Agreement.28

           The Profit Interest Agreement contains a vesting schedule for the incentive

units.29 The 2020 Option Plan gives AffiniPay the right to repurchase West’s vested

units upon his termination at a defined “Fair Market Value” determined in

accordance with the 2020 Option Plan.30

25
     Id.
26
     Compl. Ex. G § 7.
27
     Compl. ¶ 22, Ex. E (Preamble).
28
     Compl. Ex. E (Preamble).
29
     Compl. Ex. E § 1.
30
     Compl. Ex. F § 9.

                                             7
           The Profit Interest Agreement also contains an arbitration clause in Section

5(j) to govern disputes about the incentive units:

           The parties hereto agree that any dispute or controversy arising out of,
           relating to, or in connection with [the Profit Interest Agreement] or the
           transactions contemplated hereby shall be arbitrated pursuant to the
           Delaware Rapid Arbitration Act, 10 Del. C. § 5801 et seq.31

Section 5(j) goes on to outline other terms and procedures to govern any arbitration,

including that the arbitration “shall be conducted in accordance with the Delaware

Rapid Arbitration Rules.”32

           E.    The Arbitration

           On March 3, 2021, AffiniPay terminated West and provided him with a

proposed separation agreement.33 The separation agreement identified the number

of West’s options that AffiniPay claims had vested and informed West that

AffiniPay was electing to repurchase his incentive units at their “Fair Market

Value.”34 West disputed AffiniPay’s calculation of the number of options that had

vested and AffiniPay’s valuation of his incentive units.35 He refused to sign the

separation agreement and asserted that he was entitled to more than double the

number of vested options under his interpretation of the vesting provisions in the

31
     Compl. Ex. E § 5(j).
32
     Id.
33
     Compl. ¶ 24, Ex. A ¶¶ 9, 10, 16.
34
     Compl. ¶ 24.
35
     Id. ¶ 25; see Compl. Ex. A ¶¶ 18-21.

                                              8
Award Agreement and to a higher value for his incentive units.36          AffiniPay

responded that it viewed the vesting calculation to be consistent with the terms of

the Award Agreement, 2016 Option Plan, and Rollover Agreement and the

determination of “Fair Market Value” to be consistent with the terms of the Profit

Interest Agreement and 2020 Option Plan.37 West did not respond and the separation

agreement went unsigned.

          On May 11, 2021, West filed a demand for arbitration in Austin, Texas

pursuant to the Employment Arbitration Rules of the AAA (the “Arbitration”).38

West brings five claims in the Arbitration, two of which are relevant here. First,

West asserts a breach of contract claim against AffiniPay (Count 4), alleging that

AffiniPay “breached [the Employment Agreement] by refusing to place the

appropriate value on West’s [options] and by attempting to manipulat[e] his vesting

schedule to deprive him of additional options.”39 Second, West asserts a fraud claim

against AffiniPay (Count 5), alleging that “AffiniPay committed fraud by

manipulating a vesting schedule.”40 The allegations in West’s Summary of Claim

seem to concern both the vesting schedule of his rolled-over New Options and the

36
     Compl. ¶ 25.
37
     Id. ¶ 26.
38
     Id. ¶ 27.
39
     Compl. Ex. A ¶¶ 36-39.
40
     Id. ¶¶ 40-41.

                                         9
value of the incentive units AffiniPay had elected to buy back.41 During oral

argument in this action, West’s attorney argued that West only intended to bring

claims pursuant to the Employment Agreement.42

         F.     Procedural Posture
         On June 22, 2021, AffiniPay filed this action seeking declaratory and

injunctive relief to prevent West from arbitrating his equity-related claims in the

Arbitration. AffiniPay filed a motion for a preliminary injunction on the same day.

On July 2, 2021, the court approved a stipulation between the parties staying the

pending Arbitration until September 19, 2021.43 On July 26, 2021, West moved to

dismiss the complaint under Court of Chancery Rule 12(b)(1) for lack of subject

matter jurisdiction or, alternatively, “to stay this action pending the . . . arbitrator’s

determination of [the issue of] arbitrability.”44 The court heard argument on both

the motion for a preliminary injunction and motion to dismiss on August 19, 2021.45

II.      LEGAL ANALYSIS

         This decision must address two issues. First, I must determine whether the

court has subject matter jurisdiction to decide the issue of substantive arbitrability.

41
     Id. ¶¶ 16, 20-21.
42
     Oral Arg. Tr. 34 (Dkt. 38).
43
     Dkt. 19.
44
     Dkt. 26.
45
     Dkt. 36.

                                           10
If the issue of substantive arbitrability rests in this court, rather than with the

arbitrator, I must assess whether AffiniPay is entitled to an injunction to prevent the

equity-based claims from being heard in the Arbitration.

           Court of Chancery Rule 12(b)(1) governs the first question. “In considering

a motion to dismiss under Rule 12(b)(1) for lack of subject matter jurisdiction, the

court must address the nature of the wrong alleged and the remedy sought to

determine whether a legal, as opposed to an equitable, remedy is available and

adequate.”46 “If a claim is arbitrable, i.e., properly committed to arbitration, this

Court lacks subject matter jurisdiction because arbitration provides an adequate legal

remedy.”47

           The second question must be evaluated under the standard for a preliminary

injunction. To obtain a preliminary injunction, the moving party “must demonstrate

(i) a reasonable probability of success on the merits; (ii) a threat of irreparable injury

if an injunction is not granted; and (iii) that the balance of the equities favors the

issuance of an injunction.”48

           For the reasons discussed below, I find that both questions must be answered

in the affirmative. Because the contracts at issue have conflicting dispute resolution

46
     Julian v. Julian, 2009 WL 2937121, at *3 (Del. Ch. Sept. 9, 2009).
47
     Id.
48
     Pell v. Kill, 135 A.3d 764, 783 (Del. Ch. 2016).

                                              11
provisions, the court—rather than the arbitrator—must decide the question of

substantive arbitrability. Subject matter jurisdiction is therefore proper in this court.

An analysis of those same contracts, which are implicated by West’s equity-based

claims and contain separate arbitration provisions, also leads me to conclude that the

Arbitration must be enjoined.

         A.     This Court Has Subject Matter Jurisdiction to Decide Substantive
                Arbitrability.
                1.     Substantive Arbitrability Generally

         Substantive arbitrability is the question of whether a dispute is within the

scope of an arbitration provision and, therefore, subject to arbitration.49 Delaware

courts follow the “general rule, announced by the United States Supreme Court . . .

that courts should decide” the issue of substantive arbitrability.50 That rule has an

important exception: when parties delegate issues of arbitrability to an arbitrator, “a

court . . . possesses no power to decide the arbitrability issue.”51 For that exception

to apply, however, there must be clear and unmistakable evidence that the parties

intended to delegate issues of arbitrability to an arbitrator.52 That is so “even if the

49
  UPM-Kymmene Corp. v. Renmatix, Inc., 2017 WL 4461130, at *4 (Del. Ch. Oct. 6,
2017).
50
     James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006).
51
     Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019).
52
  See Willie Gary, 906 A.2d at 78; see also First Options of Chi., Inc. v. Kaplan, 514 U.S.
938, 944 (1995) (explaining that “[c]ourts should not assume that the parties agreed to
                                              12
court thinks that the argument that the arbitration agreement applies to a particular

dispute is wholly groundless.”53

         The Federal Arbitration Act (FAA) governs disputes over the arbitrability of

contracts involving interstate commerce.54 The FAA, in turn, implicates state law

contract principles. “When deciding whether the parties agreed to arbitrate . . . [the

issue of] arbitrability” under the FAA, “courts generally . . . should apply ordinary

state-law principles that govern the formation of contracts.”55

         In Willie Gary, the Delaware Supreme Court explained that contractual

parties’ “clear and unmistakable intent” to submit arbitrability issues to an arbitrator

is found “where the arbitration clause generally provides for arbitration of all

disputes and also incorporates a set of arbitration rules that empower[s] arbitrators

arbitrate [the issue of] arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence
that they did so”).
53
     Henry Schein, 139 S. Ct. at 529.
54
     9 U.S.C. § 2.
55
  See First Options, 514 U.S. at 940; Ario v. Underwriting Members of Syndicate 53 at
Lloyds for 1998 Year of Acct., 618 F.3d 277, 288 (3d Cir. 2010), as amended (Dec. 7,
2010).

                                            13
to decide arbitrability.”56 Delaware courts routinely apply Willie Gary in resolving

a question of substantive arbitrability.57

          The analysis becomes complicated when the court is faced with multiple

agreements providing for dispute resolution in different arbitral forums. This court

has cautioned that the Willie Gary framework should not be applied “reflexively in

the multiple-contract scenario.”58 Rather, if various contracts are implicated in a

claim and those contracts diverge on the matter of arbitral dispute resolution, Willie

Gary’s requirement that a provision mandate the arbitration of “all disputes” is

impossible to satisfy.59      It then falls to the court to determine substantive

56
   906 A.2d 76, at *80. In McLaughlin v. McCann, then-Vice Chancellor Strine added a
third consideration before a court will resolve substantive arbitrability: that there be
“essentially no non-frivolous argument about [issues of] . . . arbitrability to make before
the arbitrator.” 942 A.2d 616, 627 (Del. Ch. 2008). The United States Supreme Court’s
decision in Henry Schein renders that consideration a nullity. In Henry Schein, the Court
explained that a court cannot rule on the merits of an underlying claim, even if the claim
appears frivolous to the court, when parties clearly delegate the issue of substantive
arbitrability to an arbitrator. Henry Schein, 139 S. Ct. 529.
57
     See UPM-Kymmene, 2017 WL 4461130, at *4 n.29 (collecting cases).
58
     Id. at *6.
59
  TowerHill Wealth Mgmt, LLC v. Bander Fam. P’ship, 2008 WL 4615865, at *3 (Del.
Ch. Oct. 9, 2008) (“[W]here there are various dispute resolution clauses in play in various
contracts, it is impossible to select one and say it applies generally to all disputes.”).

                                             14
arbitrability.60 That is so even where the dispute resolution provisions reserve

questions of arbitrability for the arbitrator.61

           Then-Chancellor Bouchard’s decision in UPM-Kymmene Corp. v. Renmatix

Inc. is instructive. There, the parties entered into two contracts with conflicting

arbitration clauses. Both clauses empowered an arbitrator to decide issues of

arbitrability, but the first contract called for resolution before the International

Chamber of Commerce (ICC) and the second contract contemplated arbitration

before the AAA.62 The first contract’s arbitration clause governed all disputes

between the parties.63 The second contract’s arbitration clause governed all disputes

under the second contract.64 Although the party demanding arbitration in UPM

asserted its claims before the AAA under the second contract, the court found that

both agreements—which were intended to operate concurrently—were in play.65

Faced with dueling arbitration clauses, the court could not conclude that there was a

“clear and unmistakable intention . . . that the parties wished to have one arbitrator

60
  See id. at *3 (explaining that the court has jurisdiction to decide issues of substantive
arbitrability where an arbitration was brought under one contract but claims implicated
other contracts that mandated dispute resolution by the court).
61
     UPM-Kymmene, 2017 WL 4461130, at *7.
62
     Id. at *2.
63
     Id.
64
     Id.
65
     Id. at *5-7.

                                            15
rather than the other determine where the Demands should be arbitrated.”66 The

issue of arbitrability was therefore left for the court to decide.

                  2.   Substantive Arbitrability in This Case
          As in UPM, this court must assess whether the relevant contracts evidence

the parties’ clear and unmistakable intent to submit substantive arbitrability to the

arbitrator. The initial question is whether there are multiple contracts at issue. West

asserts that his breach of contract and fraud claims in the Arbitration are brought

only under the Employment Agreement.67 That is so, West argues, because he seeks

to remedy AffiniPay’s alleged violation of the Employment Agreement by

undervaluing his shares and manipulating the relevant vesting schedule after his

termination.68 If the Arbitration concerns only the Employment Agreement as he

claims, then under Willie Gary, the dispute resolution provision in the Employment

66
     Id. at *7.
67
     Def.’s Opp. Br. at 39 (Dkt. 27).
68
   Id. at 38-39. In further support of his argument, West cites several cases that he says are
examples of courts following the Willie Gary test and deferring issues of arbitrability to
arbitrators. See Pls.’ Opening Br. at 32-37, 40-43 (Dkt. 22) (citing Celestialrx Invs., LLC
v. Krivulka, 2019 WL 1396764 (Del. Ch. Mar. 27, 2019); Chemours Co. v. DowDuPont
Inc., 2020 WL 1527783 (Del. Ch. Mar. 30, 2020); Dewey v. Amazon.com, Inc., 2019 WL
3384769 (Del. Super. Ct. July 25, 2019); Blackmon v. O3 Insight, Inc., 2021 WL 868559
(Del. Ch. Mar. 9, 2021)). There is a fundamental difference between the facts at issue in
those disputes and this case: none address dueling arbitration clauses. This court’s decision
in Celestialrx comes the closest. There, the parties entered into multiple agreements with
differing arbitration clauses, but the court found that only one arbitration clause was
implicated by the claims. Here, West’s claims implicate at least two (maybe three)
different arbitration clauses.

                                             16
Agreement would mandate that arbitrability be addressed in arbitration under the

Employment Arbitration Rules of the AAA.69 The pending Arbitration is being

conducted in accordance with those rules.70

         AffiniPay, for its part, argues that West’s claims cannot be decided without

also considering the 2016 Option Plan and Profit Interest Agreement.71 The

Employment Agreement, 2016 Option Plan, and Profit Interest Agreement each

contain a dispute resolution provision empowering a different arbitrator to determine

arbitrability.72 As a result, AffiniPay contends, there is no clear and unmistakable

evidence that the parties intended for one particular arbitrator to decide that issue.73

         After reviewing the relevant contracts, I conclude that AffiniPay has the better

of the arguments. West is correct that the dispute resolution provision in the

Employment Agreement evidences the clearest intent of the parties to submit the

issue of substantive arbitrability to the arbitrator. It provides that “any and all

disputes” arising out of the Employment Agreement or concerning West’s

employment or termination from AffiniPay must be settled by arbitration under the

69
   Compl. Ex. B at 11. The AAA Employment Arbitration Rules provide that “[t]he
arbitrator shall have the power to rule on his or her own jurisdiction.” AAA Empl. Proc.
Rule R–6.
70
     Def.’s Opp. Br., Ex. 3 at 1.
71
     Pls.’ Opening Br. at 15 (Dkt. 22).
72
     Compl. Ex. B at 10-11, Ex. D § 12, Ex. E § 5(j).
73
     Pls.’ Opening Br. at 16.

                                              17
AAA Employment Arbitration Rules, including “any disagreement as to whether a

dispute is arbitrable under the [Employment Agreement].”74 If the Employment

Agreement was the only contract relevant to West’s equity-based claims, the Willie

Gary test would apply for the reasons discussed above.

           But there are other relevant contracts that contain conflicting dispute

resolution provisions, making that conclusion impossible. The parties agreed in

Section 3(D) of the Employment Agreement that West’s options would be awarded

“subject to all other terms and conditions set forth in the [2016] Option Plan and the

[Award Agreement].”75         In other words, even if West’s equity claims in the

Arbitration are viewed narrowly to concern his options granted under the Award

Agreement, the terms of the 2016 Option Plan must be considered.

           Both the Employment Agreement and 2016 Option Plan contemplate

arbitration before the AAA in Austin, Texas.76 But they adopt different arbitration

rules: the AAA Employment Arbitration Rules in the Employment Agreement, and

the AAA Commercial Arbitration Rules in the 2016 Option Plan.77 Although both

sets of rules delegate the issue of substantive arbitrability to the arbitrator, the rules

74
     Compl. Ex. B at 11.
75
     Compl. Ex. B § 3(D).
76
     Compl. Ex. B at 10-11, Ex. D § 12.
77
     Id.

                                           18
are not identical.78 In application, the rules could lead to different results, for

example, in the selection of an arbitrator with particular expertise or in the

procedures that would apply.

         The dispute resolution provision in a third agreement that may be relevant—

the Profit Interest Agreement—creates more uncertainty. As described in the next

section of this decision, the valuation allegations in West’s breach of contract claim

could be read to arise, at least in part, out of the Profit Interest Agreement.79 That

agreement contains a dispute resolution provision that mandates arbitration under

the Delaware Rapid Arbitration Act.80 The Delaware Arbitration Rules also provide

that the arbitrator has the authority “to resolve, finally and exclusively, any dispute

of substantive or procedural arbitrability.”81

         The “policy that favors alternative dispute resolution mechanism, such as

arbitration, does not trump basic notions of contract interpretation.” 82 Faced with

two (perhaps three) dispute resolution clauses that are in tension, it is impossible to

discern which arbitrator (and which rules) the parties intended would determine the

78
     See generally AAA. Com. Rules; AAA Empl. Proc. Rules.
79
     See infra Section II.B.1.b.
80
     Compl. Ex. E § 5(j); see 10 Del. C. § 5703(b).
81
     See Del. Rapid Arb. R. 6.
82
  Hough Assoc., Inc. v. Hill, 2007 WL 148751, at *13 (Del. Ch. Jan. 17, 2007) (quoting
Parfi Hldg. AB v. Mirror Image Internet, Inc., 817 A.2d 149, 156 (Del. 2002)).

                                              19
matter of arbitrability. There is no clear and unmistakable evidence that the parties

intended to delegate substantive arbitrability to an arbitrator under the AAA

Employment Arbitration Rules, as West has done. This court, rather than the

arbitrator, must decide the issue of substantive arbitrability.83

         B.    The Arbitration Must Be Enjoined as to West’s Equity Claims.

         Because subject matter jurisdiction is proper in this court,84 the remaining

question is whether West’s equity claims are subject to arbitration under the dispute

resolution provision in the Employment Agreement. AffiniPay seeks a preliminary

injunction preventing West from pursing in the Arbitration any claims about the

vesting schedule applicable to West’s options in AffiniPay or the fair market value

of West’s incentive units.85 I conclude that because AffiniPay has satisfied the

standard for a preliminary injunction, West must be preliminarily enjoined from

pursuing claims related to those issues in the pending Arbitration.

               1.    Reasonable Probability of Success on the Merits

         AffiniPay’s complaint seeks injunctive relief and a declaratory judgment that

West must pursue his claims about the vesting schedule applicable to his AffiniPay

options in an arbitration that complies with Section 12 of the 2016 Option Plan and

83
     See UPM-Kymmene, 2017 WL 4461130, at *7.
84
   The court also has subject matter jurisdiction to order a preliminary injunction related to
the Arbitration. See 10 Del. C. § 341; 10 Del. C. § 5804(b); see also Eastman Kodak Co.
v. Cetus Corp., 1991 WL 202184, at *2 (Del. Ch. Oct. 4, 1991).
85
     Dkt. 3.
                                             20
about the valuation of his incentive units in an arbitration that complies with Section

5(j) of the Profit Interest Award.86 West contends that his claims arise only from the

Employment Agreement and that, as the claimant in the Arbitration, he is entitled to

that narrow framing.87

          A review of West’s claims belies his position. First, West’s equity-based

allegations in the Arbitration are about the options he was originally promised

pursuant to the Employment Agreement.           West’s Summary of Claim in the

Arbitration accuses AffiniPay of manipulating the vesting schedule for his New

Options post-rollover.88 Those allegations go to West’s breach of contract claim

(Count IV) that AffiniPay has “attempt[ed] to manipulate his vesting schedule to

deprive him of additional options” and his fraud claim (Count V) that AffiniPay

“manipulat[ed] a vesting schedule for which there was no consideration.”89 I will

refer to West’s claims about manipulation of his vesting schedule as the “Vesting

Claim.” West’s Summary of Claim also challenges AffiniPay’s valuation of the

incentive units he was awarded after the sale transaction as being below fair value.90

Those allegations pertaining to his claim in Count IV that AffiniPay has “refus[ed]

86
     Compl. ¶ 40.
87
     Def.’s Opp. Br. at 39.
88
     Compl. Ex. A ¶¶ 19, 20.
89
     Id. ¶¶ 38, 41.
90
     Id. ¶ 21.

                                          21
to place the appropriate value on West’s stock.”91 I will refer to that claim as the

“Valuation Claim.”

                 a.    The Vesting Claim
           With regard to West’s Vesting Claim, I begin—as I must—with a review of

the Employment Agreement. The Employment Agreement is governed by Texas

law,92 which, like Delaware law, requires courts to “afford common words their plain

meaning unless context indicates the word are used in another sense.”93 A court

must “consider the entire agreement in an effort to harmonize and give effect to all

provisions so that none are rendered meaningless.”94

           The Employment Agreement contains a broad arbitration provision applying

to “all disputes or claims arising out of or relating to th[at] Agreement.” 95 But, in

determining whether AffiniPay has a reasonable probability of showing that the

Vesting Claim is not properly raised in the Arbitration, the plain language of Section

3(D) cannot be ignored. Section 3(D) says that West “will be granted an option”

and contains a vesting schedule but unambiguously states that the option will be

“subject to all other terms and conditions set forth in the [2016] Option Plan and the

91
     Id. ¶ 38.
92
     Compl. Ex. B at 10-11 (“The laws of the State of Texas shall govern this agreement.”).
93
  N. Nat. Gas Co. v. Oneok Bushton Processing, Inc., 2012 WL 4364652, at *2 (Tex. App.
Sept. 25, 2012).
94
     Id.
95
     Compl. Ex. B at 10-11.

                                             22
[Award Agreement].”96 Moreover, the Employment Agreement states that if there

is any conflict between Section 3(D) and the 2016 Option Plan or Award Agreement

the terms of the latter “shall control.”97

           It is reasonable to interpret those provisions as evidencing the parties’ intent

that the Award Agreement granting the options and the 2016 Option Plan providing

the terms for the grant would govern the option West was promised in the

Employment Agreement. The Award Agreement contains a detailed vesting

schedule and explains that the options will “vest and [be] exercisable only in

accordance with the conditions stated in” Section 2 of the Award Agreement.98 The

Award Agreement also provides that the options were granted “[p]ursuant to the

provisions of the [2016 Option Plan].”99

           The 2016 Option Plan is subject to Delaware law.100 “Delaware law adheres

to the objective theory of contracts, i.e., a contract’s construction should be that

which would be understood by an objective, reasonable third party.”101 This court

96
     Compl. Ex. B § 3(D).
97
     Id.
98
     Compl. Ex. C § 2.
99
     Id. (Preamble).
100
   Compl. Ex. D § 11 (“[The 2016 Option Plan] shall be subject to the governing law
provision set forth in the LLC Agreement.”); Konstanzer Decl. Ex. 1 (2015 AffiniPay
Holdings LLC Agreement) § 12.16 (applying Delaware law).
101
      Salamone v. Gorman, 106 W.3d 354, 367-68 (Del. 2014).

                                              23
will review an agreement as a whole and give effect to each term and provision “so

as not to render any part of the contract mere surplusage.”102 The 2016 Option Plan

contains an arbitration clause requiring that “[a]ny dispute . . . as to the interpretation

of any provision of the [2016 Option Plan] or [the] Award Agreement or the rights

and obligations of any party thereunder” be arbitrated under the AAA Commercial

Arbitration Rules.103 In construing each of the relevant agreements, there is a

reasonable basis to conclude that parties intended that claims about West’s options

would be adjudicated under that provision.

          The subsequent rollover of West’s options confirms that AffiniPay may

ultimately be able to demonstrate that the dispute resolution provision in the 2016

Option Plan applies to West’s Vesting Claim. The Rollover Agreement, which is

subject to Delaware law, provides that West’s AffiniPay options would be

exchanged into New Options to purchase parent units at the closing of the sale

transaction.104     The Rollover Agreement explains that those New Options are

“governed by the same terms and conditions of the [Award Agreement and 2016

Option Plan].”105 If that is the case, the Vesting Claim must be resolved in arbitration

under the AAA Commercial Arbitration Rules, as the 2016 Option Plan requires.

102
      Osborn v. Kemp, 991 A.2d 1153, 1159 (Del. 2010).
103
      Compl. Ex. D § 12.
104
      Compl. Ex. G §§ 1-2, 7.
105
      Id. § 2.

                                            24
                b.     The Valuation Claim

         Because West’s Valuation Claim is styled as one for breach of the

Employment Agreement, my analysis again begins with that contract. Section 3(D)

of the Employment Agreement concerns an option to purchase incentive units which,

if vested, AffiniPay could repurchase “in accordance with the terms of the [2016]

Option Plan and [A]ward [A]greement.”106 There is no provision for valuation of

incentive units in the Employment Agreement. Even if there was, the units at issue

in the Valuation Claim were—according to West’s arbitration claim—“new options

(issued at the TA transaction).”107

         Based on West’s description of those units, the Valuation Claim concerns the

New Options issued post-rollover. In that case, the dispute resolution of the 2016

Option Plan—not the Employment Agreement—would be relevant. AffiniPay

would establish reasonable probability of success on the merits of its claim that the

Valuation Claim is improperly in the Arbitration for the reasons discussed above.

         AffiniPay contends that the Profit Interest Agreement and the 2020 Option

Plan are, instead, the proper agreements that must be considered to resolve the

Valuation Claim.108 That is so, AffiniPay argues, because the Valuation Claim

106
      Compl. Ex. B § 3(D), Ex. D § 9.
107
      Compl. Ex. A ¶ 21.
108
      Pls.’ Opening Br. at 22-23.

                                             25
concerns a dispute about whether AffiniPay ascribed “fair value” to the incentive

units awarded in July 2020 that it sought to repurchase upon West’s termination.109

AffiniPay granted West those incentive units “subject to the terms and conditions

set forth” in the Profit Interest Agreement and the 2020 Option Plan.110 The 2020

Option Plan affords AffiniPay the right to repurchase West’s vested incentive units

upon his termination at their “Fair Market Value.”111 “Fair Market Value” is a term

defined in the 2020 Option Plan as being, in relevant part, “based on the reasonable

application of a reasonable valuation method not inconsistent with Section 409A of

the [Tax] Code, including a valuation conducted by an independent valuation

firm.”112

            West’s Valuation Claim could be read to address those provisions of the 2020

Option Plan. West’s Summary of Claim in the Arbitration alleges that “AffiniPay

would prefer to set the fair value at the January 2011 409A valuation of 1.91 per

share or $751M total.”113 He further alleges that a valuation by Lazard “placing the

value at ~$1.4B” is more accurate.114

109
      Compl. ¶¶ 22, 24-26, Ex. A ¶¶ 21, 38.
110
      Compl. Ex. E (Preamble).
111
      Compl. Ex. F § 9.
112
      Id. § 1.
113
      Compl. Ex. A ¶ 21.
114
      Id.

                                              26
         There is also a definition of “Fair Market Value” in the 2016 Option Plan

providing that the determination of value “shall be made in good faith by [AffiniPay]

in compliance with Section 409A.”115 I cannot conclude at this phase that the 2016

Option Plan is irrelevant to the Valuation Claim. Perhaps provisions in both the

2016 Option Plan and 2020 Option Plan apply. Regardless, it is reasonably likely

that the Profit Interest Agreement, rather than the Employment Agreement, governs

at least some of the incentive units at issue in the Arbitration.116 The Profit Interest

Agreement, which is governed by Delaware law, provides that those units were

granted to West “subject to the terms and conditions” in the Profit Interest

Agreement, the 2020 Option Plan, and AffiniPay’s LLC Agreement.117 The Profit

Interest Agreement contains an arbitration clause requiring “that any dispute or

controversy arising out of, relating to, or in connection with” that agreement or the

transactions it contemplates must be arbitrated under the DRAA.118

115
      Compl. Ex. D § 2.
116
   Even if only the 2016 Option Plan was relevant, the Employment Agreement would not
be at issue in the Valuation Claim.
117
   Compl. Ex. E at 1; id. § 5(e) (“This Agreement shall be governed by and construed in
accordance with the Delaware Limited Liability Company Act as to matters within the
scope thereof, and as to all other matters shall be governed and construed in accordance
with the internal laws of the State of Delaware . . . .”); Konstanzer Decl. Ex. 1 (2015
AffiniPay Holdings LLC Agreement) § 12.16 (applying Delaware law).
118
      Compl. Ex. E § 5(j).

                                          27
      In short, I do not read the Valuation Claim to concern any of the rights and

obligations provided for in the Employment Agreement.              Under the court’s

reasoning in Parfi Hldg. AB v. Mirror Image Internet, Inc., if a claim does not

address any of the rights and obligations provided for in an underlying agreement,

then the claim is beyond the reach of the underlying agreement’s arbitration

clause.119   The Valuation Claim therefore may be beyond the scope of the

Employment Agreement’s arbitration clause.

      The subject matter of the Valuation Claim suggests that the 2016 Option

Plan’s arbitration clause, and possibly the Profit Interest Agreement’s dispute

resolution provision, will control. I need not make that ultimate determination at the

present stage. The relevant issue for AffiniPay’s preliminary injunction motion is

whether AffiniPay is reasonably likely to prevail in demonstrating that the pending

Arbitration is an inappropriate forum to arbitrate the Vesting and Valuation Claims.

AffiniPay has made that showing.

119
    817 A.2d 149, 156 (Del. 2002); see also Chandler v. Ciccoricco, 2003 WL 21040185,
at *15 n.65 (Del. Ch. May 5, 2003) (denying the enforcement of an arbitration provision
because the claims did not arise out of the underlying agreement); Seven Hills Com., LLC
v. Mirabal Custom Homes, Inc., 442 S.W.3d 706 (Tex. App. 2014) (holding that courts
will not enforce an agreement’s arbitration provisions unless the claims arise out of or
relate to the underlying agreement).

                                          28
                2.     Threat of Irreparable Injury

         AffiniPay has also demonstrated that it faces irreparable harm if the Vesting

Claim and Valuation Claim go forward in the pending Arbitration. “Delaware courts

have consistently found that threatened, wrongful enforcement of an arbitration

clause constitutes sufficient irreparable harm to justify an injunction.”120 West

asserts that AffiniPay faces no risk of harm because it agreed to arbitrate before the

AAA pursuant to the Employment Arbitration Rules.121                But if AffiniPay’s

interpretation of the relevant contracts is correct, the Arbitration would effectively

strip it of the dispute resolution procedures it bargained for in the 2016 Option Plan

and Profit Interest Award. To force AffiniPay to proceed with the Arbitration,

pursuant to the Employment Arbitration Rules, “involves a quantum of irreparable

harm that outweighs the risk of improvidently granting a preliminary injunction.”122

                3.     Balance of the Equities
         The balance of the equities also favors the issuance of an injunction barring

West from pursuing the Vesting Claim and Valuation Claim in the Arbitration. If

the court does not grant an injunction, AffiniPay may be subjected to arbitral rules

in an arbitral forum that it never agreed to. West argues that if injunctive relief is

granted, he will be “deprived of the mutual covenants that both parties made when

120
      Brown v. T-Ink, LLC, 2007 WL 4302594, at *16 (Del. Ch. Dec. 4, 2007).
121
      Def.’s Opp. Br. at 44-45.
122
      Angus v. Ajio, LLC, 2016 WL 2894246, at *1 (Del. Ch. May 13, 2016).

                                            29
entering into the Employment Agreement.”123 If AffiniPay’s arguments ultimately

bear out, however, the parties’ agreements will be honored. Moreover, West will

not be prevented from pursuing his equity-based claims against AffiniPay. He

simply would be required to pursue them in the forum and subject to the rules the

parties contracted for. Neither party would be forced to arbitrate under procedures

inconsistent with the parties’ arbitration agreements.

                  4.      Bond

            Under Court of Chancery Rule 65(c), the court must impose a bond when

granting a preliminary injunction.124 The bond is to be “in such sum as the Court

deems proper, for the payment of such costs and damages as may be incurred or

suffered by any party who is found to have been wrongfully enjoined or

restrained.”125

            Only AffiniPay makes any argument about the appropriate amount of a bond,

contending that a nominal bond of $1.00 should be imposed.126 West has no

response. Because West does not appear to face cognizable harm from the issuance

of a limited preliminary injunction and has not set forth any argument that would

123
      Def.’s Opp. Br. at 46.
124
      Ct. Ch. R. 65(c).
125
      Id.
126
      Pls.’ Opening Br. at note 6.

                                            30
support the imposition of a significant bond, I conclude that a nominal bond of

$1,000 is appropriate.127

III.   CONCLUSION
       For the reasons described above, West’s motion to dismiss for lack of subject

matter jurisdiction is denied. Because AffiniPay has shown a reasonable probability

of success on the merits, a sufficient threat of irreparable injury, and that the balance

of the equities favors the issuance of an injunction, AffiniPay’s motion for

preliminary injunction is granted. West is preliminarily enjoined from pursuing in

the Arbitration claims relating to the vesting schedule applicable to his AffiniPay

options or the fair value of his incentive units, including the Vesting Claim and

Valuation Claim.

127
   In Rodgers v. Bingham, the court set a “nominal bond” of $1,000 where the defendant
“did not set forth any facts of record or any realistic theory” to support a significant bond.
C.A. No. 2017-0314-AGB, at 96 (Del. Ch. June 1, 2017) (TRANSCRIPT). In Angus v.
Ajio, LLC, the parties agreed to a bond in the amount of $1,000 where the court preliminary
enjoined an arbitration. C.A. No. 11895–VCG (Del. Ch. April 4, 2016) (Dkt. 44).

                                             31