CURRENT MONTH (April 2024)
Business Litigation
Delaware Court of Chancery Departs from Historical Practices and Awards Compounded Prejudgment Interest
In Brown v. Court Square Capital Management, L.P., the Delaware Court of Chancery departed from tradition by awarding compound prejudgment interest to the plaintiff. Kevin Brown, a former partner at Court Square Capital Management, L.P. (“Court Square”), sued his former employer after it stopped paying him his share of carried interest. The court ruled in Brown’s favor and ordered Court Square to repay Brown all owed carried interest, ongoing carried interest, prejudgment interest, post-judgment interest, and interest on a per diem basis for each wrongfully withheld interest payment.
At issue was whether the prejudgment interest would be calculated as simple interest or compound interest. Prejudgment interest serves two purposes—compensatory and restitutionary. It both compensates the plaintiff for the loss of their money and forces the defendant to relinquish any benefit obtained by retaining the plaintiff’s money during the litigation.
Traditionally, Delaware courts have disfavored compound interest. However, this court recognized that market realities justify the use of compound interest to fully compensate a plaintiff and disgorge any undue profits from a defendant. Considering the sophisticated nature of the parties involved, the unfairness of awarding only simple interest, and the compensatory and restitutionary aims of prejudgment interest, the court departed from tradition and awarded Brown compounded prejudgment interest.
Dispute Resolution
The Second Circuit Finds It Has Jurisdiction by Applying State Law over a District Court Decision Declining to Enjoin an Arbitration
By Leslie A. Berkoff, Partner and Chair of Dispute Resolution Practice Group, Moritt Hock & Hamroff LLP
In The Resource Grp. Int’l Ltd. v. Chishti, No. 23-286, issued January 22, 2024, the Second Circuit determined that it had jurisdiction to reverse a district court decision declining to enjoin an arbitration by looking to governing New York state law based upon a forum selection clause in amendments to the governing agreement. 91 F.4th 107, 111 (2d Cir. 2024). The dispute was between The Resource Group International Limited (“TRGI”), a Bermuda corporation, and its former chairman (“Chishti”) concerning certain investments. The initial agreement between the parties contained a mandatory arbitration provision, which was subsequently amended at the time the chairman resigned to address certain concerns. Then, Chishti commenced arbitration proceedings alleging that TRGI had breached the agreement. TRGI sued Chishti in federal court, asserting that Chishti had breached the subsequent agreement, and sought a preliminary injunction enjoining the arbitration proceedings. The district court did not enjoin the arbitration, finding that TRGI had failed to establish likelihood of success on the merits or irreparable harm, based in part upon a determination that the forum selection clause in the subsequent agreement could not supersede the prior agreement.
In hearing the appeal brought by TRGI, the Second Circuit first recognized that pursuant to the Federal Arbitration Act (“FAA”), decisions declining to enjoin an arbitration are ordinarily not appealable, but it noted that this could by modified if a different law were to apply: “Section 16[ of the FAA]’s constraint on appellate jurisdiction, however, is not absolute because the Supreme Court has held that parties may ‘specify by contract the rules under which th[e] arbitration will be conducted,’ including ‘state rules of arbitration.’” The Second Circuit noted that the amendment contained a choice of law clause applying “the Uniform Arbitration Act as in effect in the State of New York,” and while New York has an arbitration statute, it has not enacted a “Uniform Arbitration Act.” The court found, however, that the reference “evince[d] the parties’ clear intent to arbitrate claims under New York’s existing arbitration law,” which “allows for an appeal of an order refusing to enjoin an arbitration.” As a result, the Second Circuit held that the appeal was permissible and that it had jurisdiction over it.
The court next looked at the merits of the injunctive request and TRGI’s ability to meet the standard and found that denial of a request to arbitrate could indeed constitute irreparable harm under Second Circuit precedent. The court remanded the matter back to the district court to determine the scope of the subsequent agreement and consider which claims were arbitrable in the first instance. Further the Second Circuit required the district court to consider “whether the harm TRGI identified was “a harm for which [it] would adequately be compensated if [it was] in fact correct as to the inarbitrable nature of any of the claims in dispute.”
