Background
Iridium Industries, Inc. was founded in 1998 by brothers Khosrow (Jack) Sassouni and Eli Sassouni. Jack remained a director, chief executive officer, and major stockholder. After disputes concerning control of the company, the Court of Chancery determined in a separate proceeding that Iridium’s board consisted of Jack, Benjamin Nazarian, and Eliott Sassouni.
Benjamin and Eliott later formed a special committee empowered to act for Iridium and pursue claims against Jack. The committee caused Iridium to file this declaratory-judgment action seeking a ruling that the board validly appointed Doug Flannery as interim chief financial officer and that his associated powers were binding. Jack invoked a broad arbitration provision in a longstanding stockholder agreement signed by both him and Iridium and moved to dismiss or, alternatively, stay the case.
The Court’s Holding
The court granted Jack’s alternative request to stay the action pending the arbitrators’ decision on substantive arbitrability. Although the caption identified the special committee as plaintiff and Iridium as a nominal defendant, the verified complaint expressly alleged that Iridium was the plaintiff bringing the action through the committee. Because both Iridium and Jack signed the stockholder agreement, the court held that a valid arbitration agreement existed between the parties to this action. The committee could not disavow Iridium’s contractual obligations when exercising corporate power on its behalf.
The arbitration clause broadly covered any controversy between the parties arising out of or pertaining to Iridium and incorporated the American Arbitration Association’s Commercial Arbitration Rules, which authorize arbitrators to rule on their own jurisdiction. That language clearly and unmistakably delegated substantive arbitrability to the arbitrators. The court also rejected reliance on the principle that internal-affairs claims arising independently of a contract cannot be routed elsewhere by contract, explaining that DGCL § 122(18) abrogated that principle for covered stockholder agreements and permits such agreements to route internal-affairs disputes to arbitration.
Key Takeaways
- A special committee acting for a corporation cannot avoid an arbitration agreement signed by the corporation merely because the committee itself was not a signatory.
- A broad arbitration clause incorporating rules that empower arbitrators to determine their jurisdiction delegates substantive arbitrability to the arbitrators.
- DGCL § 122(18) permits covered stockholder agreements to route internal-affairs claims to non-Delaware forums, including arbitration.
Why It Matters
The decision underscores that Delaware corporations remain bound by their contractual dispute-resolution commitments when boards or special committees exercise corporate authority. Pleading that the corporation brings an action through a committee can be decisive in identifying the parties bound by an arbitration provision.
It also illustrates the practical effect of DGCL § 122(18): qualifying stockholder agreements may require arbitration of disputes involving corporate governance and internal affairs. Here, however, the court did not decide whether the underlying declaratory-judgment claim must be arbitrated; it stayed the litigation so the arbitrators could decide that threshold question.