COURT OF CHANCERY OF THE STATE OF DELAWARE
TAMIKA R. MONTGOMERY-REEVES Leonard Williams Justice Center VICE CHANCELLOR 500 N. King Street, Suite 11400 Wilmington, Delaware 19801-3734
Date Decided: March 2, 2017
Patricia L. Enerio, Esquire Arthur L. Dent, Esquire Aaron M. Nelson, Esquire Jaclyn C. Levy, Esquire Proctor Heyman Enerio LLP Potter Anderson & Corroon LLP 300 Delaware Avenue Hercules Plaza, 6th Floor Suite 200 1313 North Market Street Wilmington, DE 19801 Wilmington, DE 19801
RE: Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC, Civil Action No. 12647-VCMR
Dear Counsel:
This letter opinion addresses Defendant’s motion to dismiss or to stay this
case in favor of arbitration. I have reviewed the parties’ submissions and the
applicable law and do not require oral argument on this motion. For the reasons
stated herein, Defendant’s motion to stay is granted.
I. BACKGROUND
Plaintiffs’ complaint seeks advancement of legal fees and expenses from
Alliance Beverage Distributing Co., LLC, a Delaware limited liability company,
(“Alliance”) pursuant to Section 18-108 of the Delaware Limited Liability Company
Act (the “LLC Act”)1 and Section 5.5 of the Limited Liability Company Agreement
1 6 Del. C. § 18-108. Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 2 of 7
of Alliance (the “Alliance LLC Agreement”). Arizona Beverage Distributing Co.,
LLC, a subsidiary of Breakthru Beverage Group (“Breakthru”), and Cactus
Beverage Distributing Company (“Cactus”), a subsidiary of Glazer’s, Inc.
(“Glazer’s”), are the two members of Alliance. Glazer’s allegedly entered a
nationwide distribution agreement with Bacardi, Inc. (“Bacardi”), which deprived
Alliance of the ability to distribute Bacardi brands. Glazer’s actions form the basis
of an ongoing dispute between Breakthru and Glazer’s. In this case, Plaintiffs,
certain Alliance managers and Cactus, seek advancement of their legal fees and
expenses incurred in connection with that dispute.
The Alliance LLC Agreement contains a dispute resolution provision, which
requires that:
Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the State of Arizona administered by the American Arbitration Association under its Commercial Arbitration Rules and the Supplemental Procedures for Large, Complex Disputes, and judgments on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.2
In light of the parties’ agreement to submit disputes to arbitration, Defendant moves
to dismiss this case under Court of Chancery Rule 12(b)(1) for lack of subject matter
2 Alliance LLC Agreement § 11.6(a). Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 3 of 7
jurisdiction or alternatively to stay this case pending resolution of the dispute
through arbitration.
II. ANALYSIS
“Delaware courts lack subject matter jurisdiction to resolve disputes that
litigants have contractually agreed to arbitrate.”3 Delaware public policy favors
arbitration, and “in recognition that ‘contractual arbitration clauses are generally
interpreted broadly in furtherance of that policy[,]’ a Rule 12(b)(1) motion will be
granted if the parties contracted to arbitrate the claims asserted . . . .” 4 “This Court
also possesses the inherent power to manage its own docket and may, on the basis
of comity, efficiency, or common sense, issue a stay pending the resolution of an
arbitration . . . .”5
As a threshold matter, I must determine whether this Court has jurisdiction to
decide the question of substantive arbitrability—that is, who may decide whether the
present dispute is subject to arbitration. The Delaware Supreme Court held in James
3 NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 429 (Del. Ch. 2007). 4 Li v. Standard Fiber, LLC, 2013 WL 1286202, at *4 (Del. Ch. Mar. 28, 2013) (quoting Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 581-82 (Del. Ch. 2006)). 5 Legend Nat. Gas II Hldgs., LP v. Hargis, 2012 WL 4481303, at *4 (Del. Ch. Sept. 28, 2012). Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 4 of 7
& Jackson, LLC v. Willie Gary, LLC that the general rule in Delaware is that “courts
should decide questions of substantive arbitrability.”6 That rule may be altered by
contract when there is “‘clear and unmistakable’ evidence that the parties agreed to
arbitrate.”7 Willie Gary holds that such clear evidence of the parties’ intent to
arbitrate exists when the contract contains “(1) an arbitration clause that generally
provides for arbitration of all disputes; and (2) a reference to a set of arbitration rules
that empower arbitrators to decide arbitrability . . . .”8 This Court subsequently held
in McLaughlin v. McCann that to realize the efficiency goals of the Willie Gary rule,
“absent a clear showing that the party desiring arbitration has essentially no non-
frivolous argument about substantive arbitrability to make before the arbitrator, the
court should require the signatory to address its arguments against arbitrability to the
arbitrator.”9
Under the Willie Gary test, the Alliance LLC Agreement presents “clear and
unmistakable” evidence that the parties intended to arbitrate the question of
6 James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006). 7 Li, 2013 WL 1286202, at *5 (quoting Willie Gary, 906 A.2d at 79). 8 Redeemer Comm. of the Highland Crusader Fund v. Highland Capital Mgmt., L.P., 2017 WL 713633, at *3 (Del. Ch. Feb. 23, 2017) (citing Willie Gary, 906 A.2d at 79). 9 McLaughlin v. McCann, 942 A.2d 616, 627 (Del. Ch. 2008). Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 5 of 7
substantive arbitrability in this case. The Alliance LLC Agreement provides that
“[a]ny controversy or claim arising out of or relating to this Agreement, or the breach
thereof” shall be submitted to arbitration.10 The parties point to no exceptions in the
Alliance LLC Agreement to that arbitration clause. Such a broad agreement to
arbitrate satisfies the first prong of the Willie Gary test.
The arbitration clause also satisfies the second Willie Gary prong. It requires
that arbitration proceedings arising under or related to the Alliance LLC Agreement
be “administered by the American Arbitration Association under its Commercial
Arbitration Rules and the Supplemental Procedures for Large, Complex Disputes.”11
AAA Commercial Arbitration Rule 7 provides that “[t]he arbitrator shall have the
power to rule on his or her own jurisdiction.”12 Thus, the Alliance LLC Agreement
incorporates by reference arbitration rules under which the arbitrator is empowered
to decide questions of arbitrability.
Additionally, Defendant has more than a non-frivolous argument that
substantive arbitrability should be decided by the arbitrators in Arizona. While I
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COURT OF CHANCERY OF THE STATE OF DELAWARE
TAMIKA R. MONTGOMERY-REEVES Leonard Williams Justice Center VICE CHANCELLOR 500 N. King Street, Suite 11400 Wilmington, Delaware 19801-3734
Date Decided: March 2, 2017
Patricia L. Enerio, Esquire Arthur L. Dent, Esquire Aaron M. Nelson, Esquire Jaclyn C. Levy, Esquire Proctor Heyman Enerio LLP Potter Anderson & Corroon LLP 300 Delaware Avenue Hercules Plaza, 6th Floor Suite 200 1313 North Market Street Wilmington, DE 19801 Wilmington, DE 19801
RE: Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC, Civil Action No. 12647-VCMR
Dear Counsel:
This letter opinion addresses Defendant’s motion to dismiss or to stay this
case in favor of arbitration. I have reviewed the parties’ submissions and the
applicable law and do not require oral argument on this motion. For the reasons
stated herein, Defendant’s motion to stay is granted.
I. BACKGROUND
Plaintiffs’ complaint seeks advancement of legal fees and expenses from
Alliance Beverage Distributing Co., LLC, a Delaware limited liability company,
(“Alliance”) pursuant to Section 18-108 of the Delaware Limited Liability Company
Act (the “LLC Act”)1 and Section 5.5 of the Limited Liability Company Agreement
1 6 Del. C. § 18-108. Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 2 of 7
of Alliance (the “Alliance LLC Agreement”). Arizona Beverage Distributing Co.,
LLC, a subsidiary of Breakthru Beverage Group (“Breakthru”), and Cactus
Beverage Distributing Company (“Cactus”), a subsidiary of Glazer’s, Inc.
(“Glazer’s”), are the two members of Alliance. Glazer’s allegedly entered a
nationwide distribution agreement with Bacardi, Inc. (“Bacardi”), which deprived
Alliance of the ability to distribute Bacardi brands. Glazer’s actions form the basis
of an ongoing dispute between Breakthru and Glazer’s. In this case, Plaintiffs,
certain Alliance managers and Cactus, seek advancement of their legal fees and
expenses incurred in connection with that dispute.
The Alliance LLC Agreement contains a dispute resolution provision, which
requires that:
Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in the State of Arizona administered by the American Arbitration Association under its Commercial Arbitration Rules and the Supplemental Procedures for Large, Complex Disputes, and judgments on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.2
In light of the parties’ agreement to submit disputes to arbitration, Defendant moves
to dismiss this case under Court of Chancery Rule 12(b)(1) for lack of subject matter
2 Alliance LLC Agreement § 11.6(a). Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 3 of 7
jurisdiction or alternatively to stay this case pending resolution of the dispute
through arbitration.
II. ANALYSIS
“Delaware courts lack subject matter jurisdiction to resolve disputes that
litigants have contractually agreed to arbitrate.”3 Delaware public policy favors
arbitration, and “in recognition that ‘contractual arbitration clauses are generally
interpreted broadly in furtherance of that policy[,]’ a Rule 12(b)(1) motion will be
granted if the parties contracted to arbitrate the claims asserted . . . .” 4 “This Court
also possesses the inherent power to manage its own docket and may, on the basis
of comity, efficiency, or common sense, issue a stay pending the resolution of an
arbitration . . . .”5
As a threshold matter, I must determine whether this Court has jurisdiction to
decide the question of substantive arbitrability—that is, who may decide whether the
present dispute is subject to arbitration. The Delaware Supreme Court held in James
3 NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 429 (Del. Ch. 2007). 4 Li v. Standard Fiber, LLC, 2013 WL 1286202, at *4 (Del. Ch. Mar. 28, 2013) (quoting Majkowski v. Am. Imaging Mgmt. Servs., LLC, 913 A.2d 572, 581-82 (Del. Ch. 2006)). 5 Legend Nat. Gas II Hldgs., LP v. Hargis, 2012 WL 4481303, at *4 (Del. Ch. Sept. 28, 2012). Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 4 of 7
& Jackson, LLC v. Willie Gary, LLC that the general rule in Delaware is that “courts
should decide questions of substantive arbitrability.”6 That rule may be altered by
contract when there is “‘clear and unmistakable’ evidence that the parties agreed to
arbitrate.”7 Willie Gary holds that such clear evidence of the parties’ intent to
arbitrate exists when the contract contains “(1) an arbitration clause that generally
provides for arbitration of all disputes; and (2) a reference to a set of arbitration rules
that empower arbitrators to decide arbitrability . . . .”8 This Court subsequently held
in McLaughlin v. McCann that to realize the efficiency goals of the Willie Gary rule,
“absent a clear showing that the party desiring arbitration has essentially no non-
frivolous argument about substantive arbitrability to make before the arbitrator, the
court should require the signatory to address its arguments against arbitrability to the
arbitrator.”9
Under the Willie Gary test, the Alliance LLC Agreement presents “clear and
unmistakable” evidence that the parties intended to arbitrate the question of
6 James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006). 7 Li, 2013 WL 1286202, at *5 (quoting Willie Gary, 906 A.2d at 79). 8 Redeemer Comm. of the Highland Crusader Fund v. Highland Capital Mgmt., L.P., 2017 WL 713633, at *3 (Del. Ch. Feb. 23, 2017) (citing Willie Gary, 906 A.2d at 79). 9 McLaughlin v. McCann, 942 A.2d 616, 627 (Del. Ch. 2008). Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 5 of 7
substantive arbitrability in this case. The Alliance LLC Agreement provides that
“[a]ny controversy or claim arising out of or relating to this Agreement, or the breach
thereof” shall be submitted to arbitration.10 The parties point to no exceptions in the
Alliance LLC Agreement to that arbitration clause. Such a broad agreement to
arbitrate satisfies the first prong of the Willie Gary test.
The arbitration clause also satisfies the second Willie Gary prong. It requires
that arbitration proceedings arising under or related to the Alliance LLC Agreement
be “administered by the American Arbitration Association under its Commercial
Arbitration Rules and the Supplemental Procedures for Large, Complex Disputes.”11
AAA Commercial Arbitration Rule 7 provides that “[t]he arbitrator shall have the
power to rule on his or her own jurisdiction.”12 Thus, the Alliance LLC Agreement
incorporates by reference arbitration rules under which the arbitrator is empowered
to decide questions of arbitrability.
Additionally, Defendant has more than a non-frivolous argument that
substantive arbitrability should be decided by the arbitrators in Arizona. While I
“must not ‘delve into the scope of the arbitration clause and the details of the contract
10 Alliance LLC Agreement § 11.6(a). 11 Id. 12 Def.’s Opening Br. 9 (quoting AAA Commercial Arbitration Rule 7). Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 6 of 7
and pending lawsuit’” as part of this “preliminary evaluation,”13 the parties point to
no exceptions to the broad contractual language vesting the arbitrator with the power
to decide substantive arbitrability. Further, Plaintiffs do not argue that their claim
for advancement does not fall within the Alliance LLC Agreement’s broad
arbitration clause or does not relate to the Alliance LLC Agreement. This Court,
therefore, lacks subject matter jurisdiction to decide substantive arbitrability.
Plaintiffs argue that they should not be required to arbitrate their right to
advancement of legal fees and expenses because the right to advancement must be
adjudicated summarily in order for advancement to be of any value as a right
separate from indemnification. They assert that arbitration will take longer than
litigation in part because of the extended process for choosing arbitrators. Plaintiffs
do not address Defendant’s Willie Gary arguments and appear to contend that
advancement should not be submitted to arbitration regardless of an agreement to
the contrary. But that is not Delaware law.14 Further, Plaintiffs caused any
13 Li, 2013 WL 1286202, at *5 (quoting McLaughlin, 942 A.2d at 623). 14 See, e.g., Redeemer Comm. of the Highland Crusader Fund v. Highland Capital Mgmt., L.P., 2017 WL 713633 (Del. Ch. Feb. 23, 2017) (staying an advancement case in favor of arbitration); Riley v. Brocade Commc’ns Sys., Inc., 2014 WL 1813285 (Del. Ch. May 6, 2014) (same); Li, 2013 WL 1286202 (same); Yuen v. Gemstar-TV Guide Int’l, Inc., 2004 WL 1517133 (Del. Ch. June 30, 2004) (dismissing an advancement case in favor of arbitration). Bennett J. Glazer, et al. v. Alliance Beverage Distributing Co., LLC C.A. No. 12647-VCMR March 2, 2017 Page 7 of 7
additional delay themselves by filing a complaint for advancement in this Court in
the face of a broad arbitration clause. Thus, I grant Defendant’s motion for a stay
pending the arbitrator’s decision regarding arbitrability.
III. CONCLUSION
Because I conclude that the parties agreed to submit the question of
substantive arbitrability to an arbitrator and because Plaintiffs have not shown that
Defendant has no non-frivolous arguments regarding substantive arbitrability,
Defendant’s motion to stay pending the arbitrator’s determination of substantive
arbitrability is GRANTED.
IT IS SO ORDERED.
Sincerely, /s/Tamika Montgomery-Reeves Vice Chancellor
TMR/jp