Background
Quentin Bichon agreed to purchase 22,115 shares of Securitize, Inc. Series A preferred stock from Sharding Capital Management, LLC and Sharding Capital I under an amended purchase agreement. The agreement required all controversies arising under it to be resolved through binding arbitration conducted by JAMS, if available, while permitting the parties to seek injunctive relief in a court of competent jurisdiction. It also authorized reasonable attorneys’ fees for the prevailing party in a legal proceeding.
After a dispute arose over the allegedly improper cancellation of the share transfer, Bichon sued for breach of contract and breach of the implied covenant of good faith and fair dealing. He requested specific performance and attorneys’ fees. Sharding moved to dismiss in favor of arbitration, but during briefing the disputed shares were transferred, mooting Bichon’s substantive claims and leaving only his contractual fee request.
The Court’s Holding
The Court of Chancery granted Sharding’s motion and dismissed the complaint without prejudice under Court of Chancery Rule 12(b)(1). It declined to exercise jurisdiction over the remaining fee dispute because the purchase agreement clearly and unmistakably delegated questions of substantive arbitrability to an arbitrator.
The court reasoned that the agreement generally sent all controversies to arbitration and incorporated JAMS rules authorizing arbitrators to decide jurisdiction and arbitrability. The limited carveout permitting judicial requests for injunctive relief was not broad or substantial enough to overcome the resulting heavy presumption of delegation. Accordingly, the arbitrator—not the court—must decide whether the fee dispute is arbitrable and, if so, whether fee shifting is appropriate.
Key Takeaways
- Incorporating JAMS rules can provide clear and unmistakable evidence that the parties delegated substantive arbitrability to the arbitrator.
- A limited carveout allowing judicial requests for injunctive relief does not necessarily defeat delegation where the agreement otherwise broadly requires arbitration.
- Because the merits claims became moot, the arbitrator must determine both the arbitrability of the remaining contractual fee dispute and, if arbitrable, entitlement to fees.
Why It Matters
The decision reinforces that Delaware courts will enforce contractual delegation provisions even when litigation began with a request for relief permitted by an arbitration clause’s judicial carveout. Once the underlying equitable claims became moot, the court would not use the cleanup doctrine to decide the remaining fee issue.
Contracting parties and litigators should therefore examine both the breadth of an arbitration clause and the incorporated arbitral rules. Incorporation of rules empowering arbitrators to determine their own jurisdiction may require an arbitrator to resolve threshold questions about even a residual attorneys’ fee claim.