CURRENT MONTH (December 2022)
Business Litigation
BuzzFeed Employee Suit Governed by Corporate Charter, not Arbitration Clause
By Rafael X. Zahralddin-Aravena, Esq.
Vice Chancellor Morgan T. Zurn denied a motion to dismiss filed by employees of Buzzfeed, Inc., challenging the company’s suit concerning stock conversions and seeking an injunction against arbitration. The employees, relying on a mandatory arbitration clause in their employment agreements, previously filed an arbitration demand alleging various claims following BuzzFeed’s 2021 special purpose acquisition company (“SPAC”) transaction, which was followed by an IPO. The employees contend management mishandled the SPAC and, as a result, they were unable to convert their shares into tradeable shares and lost millions. News outlets reported that certain employees were able to sell shares without restriction, notably including former Editor-in-Chief Ben Smith, who held onto his stock options for most of his tenure as media columnist at the New York Times.[1] The employees filed demands for arbitration on March 15, 2022.
Following the filing of the arbitration demand, the company filed suit in the Delaware Court of Chancery seeking an injunction against the arbitration and declaratory relief that the forum selection clause in the company’s charter and not the arbitration clause controlled. The company moved for summary judgment arguing that the Court of Chancery had the authority to determine whether the arbitration clause applied and should retain jurisdiction. The employee defendants argued that the Court lacked both subject matter jurisdiction and personal jurisdiction over the employees.
The Court held that new Buzzfeed and certain directors were not signatories to the employment agreements and thus not bound by the arbitration provision. The Court also rejected the defendants’ theory that directors and officers who were not signatories could be bound to the employment agreements as agents of the old BuzzFeed, noting that under Delaware law, directors and officers are not responsible for the corporation’s obligations. The Court rejected estoppel arguments, holding that while there was a valid arbitration clause and the directors and officers had a close relationship to the plaintiff, there was no direct benefit that would bind these parties to the employment agreements. The Court also found that the employees, as shareholders, were bound to the new company charter because the employees did not meet their burden to show that the forum selection clause in the charter was unreasonable or unjust. The Court refused to give an advisory opinion on the issue of whether their claims must be pursued in the Court of Chancery.[2]A copy of the opinion is available here.
By Sean M. Brennecke, Partner, Lewis Brisbois
AmerisourceBergen Corporation (the “Company”), one of the “big three” wholesale pharmaceutical distributors, has paid over $6 billion in damages and incurred over $1 billion in legal fees in connection with its role in the opioid epidemic. In Lebanon County Employees’ Retirement Fund et al., v. Collis, et al., the Company’s stockholders sought to hold the Company’s directors and officers personally liable for those damages and fees. 2022 Del. Ch. LEXIS 358 (Del. Ch. Dec. 22, 2022).
The Defendants moved to dismiss the action, claiming that because the action was derivative the Plaintiffs were required, but failed, to satisfy the rigorous “demand futility” requirement of Court of Chancery Rule 23.1. Plaintiffs argued that demand was futile because each of the Defendants faced a substantial likelihood of liability. Id. at *40–49.
On December 22, 2022, Vice Chancellor Laster issued an opinion dismissing the action. The Court’s opinion in this case is notable because of the high-profile nature of the allegations, and the fact that the Court dismissed the case notwithstanding its finding that the allegations would ordinarily be sufficient to survive a motion to dismiss.
The Court looked to the United States District Court for the Southern District of West Virginia’s decision in City of Huntington v. AmerisourceBergen Corp. (2022 U.S. Dist. LEXIS 117322 [S.D. WV, 2022]), which held that the Company’s Anti-Diversion Policies were appropriate. Based on that holding, the Court found that the Defendants did not face a substantial likelihood of liability for the allegations in the complaint because it was impossible to infer that the Company failed to comply with its anti-diversion obligations. Id. at *50–51.
For a more detailed discussion of this opinion, please see the accompanying full-length article.
Dispute Resolution
NJ Interprets the EFAA to be Prospective in Its Effect
By Leslie Ann Berkoff, Partner at Moritt Hock & Hamroff LLP, Chair of Dispute Resolution Department
On March 3, 2022, Congress enacted the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “EFAA”), a landmark legislative act that prohibits employers from requiring arbitration of workplace sexual harassment or assault claims in any cases filed under federal, state, or tribal law and invalidates pre-dispute arbitration agreements for sexual harassment and sexual assault claims. In a recent case in New Jersey, Zuluaga v. Altice USA (N.J. App. Div. Nov. 29, 2022), the Appellate Division determined that the EFAA was to be applied prospectively only to “any dispute or claim that arises or accrues on or after the date of enactment of this Act.”
In this case, the plaintiff had signed an arbitration agreement in November 2020 when she first started working at Altice USA. The agreement waived the right to bring employment-related disputes in court and instead required them to be arbitrated. In October 2021, the plaintiff sued Altice for alleged violations of the New Jersey Law Against Discrimination (“NJLAD”), claiming “that Altice fostered and condoned a sexually hostile work environment and constructively discharged her.” Altice filed a motion to dismiss the claims and instead sought to compel arbitration. The lower court entered an order compelling arbitration based on the parties’ underlying arbitration agreement, and this decision was subsequently affirmed by the Appellate Division.
On appeal, the Appellate Division rejected the plaintiff’s argument that the EFAA had invalidated the arbitration agreement and freed her to move forward in the State Court system with her claims. The Court premised its decision on the timing of the claims and the enactment of the EFAA, finding that plaintiff’s sexual harassment claim arose no later than October 27, 2021, at the time her lawsuit was commenced, and that the EFAA should not be applied retroactively
The Appellate Division specifically looked at the language of the EFAA (and supporting notes) and found the EFAA clearly stated that the law was not to be applied retroactively in light of verbiage in the statute stating that it applied to “any dispute or claim that arises or accrues on or after the date of enactment.” The Court found that the claim in question had arisen pre-enactment (at the time the lawsuit was filed), and the fact that the commencement of the actual arbitration proceedings was to take place post-enactment did not change the application of the EFAA. The Court noted that Congress could have created an exception for claims arising prior to the enactment but commencing post-enactment, but chose not to do so.
Finally, after reviewing supplemental briefing on an issue not addressed by the lower court, the Appellate Division addressed whether Section 12.7 of the NJLAD—which states that provisions in employment contracts that waive substantive or procedural rights related to claims of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable—was preempted by the Federal Arbitration Act (“FAA”) or whether the EFAA’s passage had eliminated the preemption. The Court found that the FAA continued to preempt this section of the NJLAD and given the specific language in the EFAA, any impact on the issues of preemption between the FAA and the NJLAD would also only apply after March 3, 2022.
Jen Wieczner, “The BuzzFeed SPAC Fiasco Is Only Getting Worse: Some ex-employees, it turns out, were able to trade while others could only watch the shares plummet.” June 8, 2022 accessed on December 27, 2022, at https://nymag.com/intelligencer/2022/06/buzzfeed-spac-fiasco-is-only-getting-worse.html. The New York Times reported that the company provided incomplete and incorrect information, which delayed the conversions and sale of shares while other employees were able to sell their shares before the company share prices crashed. Katie Robertson, “Dozens of BuzzFeed Employees Claim They Were Illegally Shortchanged in I.P.O.” March 15, 2022, accessed on December 27, 2022, at https://www.nytimes.com/2022/03/15/business/media/buzzfeed-ipo-arbitration.html. ↑
The Court also denied costs and fees, rejecting the Plaintiff’s arguments that the employees filed the actions in bad faith in the face of the charter’s choice of forum provisions. The Court indicated that it had the power to shift costs in this type of action, but that the employees had not used the forum selection clause as a defense in a first-filed action and had not asserted a claim for breach of the clause in the Chancery Court. The Court also refused to shift fees because that would require evidence of bad faith by the employees, and none was alleged or shown by the Plaintiffs. ↑
