CURRENT MONTH (November 2022)
Delaware Court Addresses Arbitrability of Claims Challenging Post-SPAC IPO
Defendants were employees of, and compensated with stock in, Buzzfeed, Inc. (“Old Buzzfeed”). Old Buzzfeed completed a SPAC transaction, and Defendants’ stock automatically converted into equivalent stock in Buzzfeed’s post-SPAC form (“New Buzzfeed”). New Buzzfeed then conducted an IPO, offering a new class of stock.
Relying on arbitration provisions in employment agreements with Old Buzzfeed (the “Agreements”), Defendants filed arbitration claims against New Buzzfeed and four of its officers and directors (collectively, “Plaintiffs”). Defendants claimed they were wrongfully excluded from participating in the IPO because they could not timely convert their New Buzzfeed stock to tradeable shares.
In response, Plaintiffs filed suit in Chancery seeking a declaration that they were not bound by the Agreements’ arbitration provisions and that Defendants, as New Buzzfeed stockholders, were instead bound by a forum selection bylaw in New Buzzfeed’s charter (the “Bylaw”) designating Delaware as the sole forum for Defendants’ claims. Plaintiffs also sought an injunction preventing the arbitration from proceeding and requiring Defendants’ claims to be litigated in Chancery. On competing case-dispositive motions, Vice Chancellor Morgan T. Zurn considered whether the Court had subject matter jurisdiction and personal jurisdiction.
The Vice Chancellor concluded that the Court had subject matter jurisdiction over Plaintiffs’ claims, as the Court was required to assess substantive arbitrability and the claims were not subject to the Agreements’ arbitration provisions. The Vice Chancellor reasoned that those arbitration provisions and the Bylaw presented no conflict over the forum for determining substantive arbitrability; regardless, the Vice Chancellor concluded the Court could make arbitrability determinations. Moreover, Plaintiffs were not signatories to those Agreements—Old Buzzfeed was—and Defendants could not bind Plaintiffs to those Agreements under principles of agency or estoppel, nor under the theory that New Buzzfeed was a successor in interest to Old Buzzfeed’s contracts. Because Plaintiffs were not bound by the Agreements, the arbitration provisions could not encompass Plaintiffs’ claims.
The Vice Chancellor also found the Court had personal jurisdiction over Defendants, who consented to jurisdiction via the Bylaw, citing now-familiar case law regarding similar forum provisions. Specifically, the Court rejected Defendants’ as-applied challenge to the Bylaw on the basis that New Buzzfeed’s charter was “barely six months old” and Old Buzzfeed’s charter did not “contain an equivalent forum-selection clause.”
Having established jurisdiction, the Court issued Plaintiffs’ requested declaration and corresponding injunction foreclosing arbitration. However, the Court declined to issue a declaration requiring Defendants to re-file their claims in Chancery, instead allowing Defendants to elect whether to continue to pursue their claims.
Second Circuit Applies Supreme Court Ruling on 1782 to Arbitrations under the ICSID
By Leslie Ann Berkoff, Partner at Moritt Hock & Hamroff LLP, Chair of Dispute Resolution Department
In a recent decision by Master Judge Robert M. Levy of the Eastern District of New York, In Re: Alpene Ltd., case number 1:21-mc-02547, the Court extended the Supreme Court’s holding in AlixPartners, LLP v. Fund for Prot. of Investors’ Rights in Foreign States, which prohibited private parties from petitioning a federal court for discovery rulings in aid of private arbitration, to include disputes before the International Centre for Settlement of Investment Disputes (ICSID).
In his October 2022 ruling, M.J. Levy held that although an arbitration under a bilateral investment treaty between China and the Republic of Malta before the ICSID involved a dispute between nations, it nevertheless failed to qualify as a proceeding before a “foreign and international tribunal” for purposes of qualifying for rights under 28 U.S.C. Section 1782.
The case involved claims between Alpene, a Hong Kong–based corporation, and the Republic of Malta, wherein Alpene sought to obtain subpoenas for documents and testimony from a New York resident. The Court identified certain key elements based upon the Supreme Court’s holding in AlixPartners: (1) whether the treaty reflected an intent from either nation to empower the panel to exercise governmental authority; (2) the extent of the panel’s affiliation with either nation; (3) the panel’s composition, including whether the chosen arbitrators had any official affiliation with the relevant governments or received government funding; and (4) whether the proceedings were confidential.
The Court found that the governing treaty afforded claimant three potential venues to hear the dispute: (1) a court of the appropriate party country, (2) an ICSID panel, or (3) an UNCITRAL panel. The court determined that the inclusion of a domestic court as a potential venue adversely impacted the argument that the other two potential panels possessed governmental authority. The Court also took note of the ICSID’s status as an independent and self-contained system, its providing for arbitrator immunity, and its requiring payments of fees, considering these as factors undermining any conclusion that the panel was imbued with governmental authority. While the Court noted that member states could designate individuals to serve on the ICSID’s panels and that the rulings of the ICSID were given full faith and credit in party courts, it did not find these facts sufficient to alter its ultimate conclusion.
The Court also considered whether granting the discovery requests would “promote assistance and cooperation between the United States and foreign countries,” but it found that both the ICSID and the concept of investor arbitration in general did not even exist when Section 1782 was amended to include “foreign and international tribunals”; thus the Court concluded it was unlikely that this particular tribunal was intended to be included within the governing definition. Given that there is an over-arching need to interpret Section 1782 in harmony with the Federal Arbitration Act (which prohibits parties from utilizing courts to compel discovery except in exceedingly narrow circumstances), the Court ultimately concluded that the ICSID tribunal was simply not imbued with the requisite governmental authority. As the Supreme Court only recently issued its key decision in AlixPartners, this is likely one of the first of many decisions to come analyzing the full impact and extent of AlixPartners’ interpretation.