South-Western Legal Studies in Business

Arbitration Clause Only Covers Matters Mentioned in Agreement, Not All Disputes
Description Delaware high court held that a claim by minority shareholders for breach of fiduciary duty could be litigated despite an arbitration clause in the initial financing agreement because that clause did not encompass such a claim.
Topic Alternate Dispute Resolution
Key Words Arbitration; Scope of Contract
C A S E   S U M M A R Y
Facts Mirror Image Internet, a subsidiary of a Swedish company, was formed in 1997 and struggled to stay alive. It entered into various agreements with different investors over time to get cash infusions to keep the company going. In doing so, it diluted the original stock, which resulted in a suit by minority shareholders, who claimed that their rights in the initial stock subscription agreement had been violated, and that the fiduciary obligation of the directors of the firm had been breached. Following the terms of an arbitration agreement, the matter was arbitrated in Stockholm, which did not produce the results desired by the minority shareholders. They then sued in state court in Delaware. The trial court held that the results of arbitration were upheld; shareholders appealed.

Reversed. "Contracting parties who provide for the arbitration of disputes in their agreements need submit to arbitration only those claims that touch on the legal rights created by their contract." The arbitration clause here did not require arbitration of claims for breach of fiduciary duty, so that matter may be litigated, even though it is similar to the claims that were subject to the arbitration in Stockholm.

Citation Parfi Holding AB v. Mirror Image Internet, Inc., 2002 WL 31277125 (--- A.2d ---, Sup. Ct., Del., 2002)

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