UPM-Kymmene Corp. v. Renmatix, Inc., C.A. No. 2017-0363-AGB (Del. Ch. Oct. 6, 2017) (Bouchard, C.)
In this memorandum opinion, the Court of Chancery for the first time addressed the application of the Delaware Supreme Court’s decision in James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76 (Del. 2006), to a dispute involving two contracts that each specified a different arbitral forum. The opinion reiterated the “cardinal principle” that courts are responsible for deciding questions of substantive arbitrability unless there is “clear and unmistakable” evidence that the parties intended to submit that question to an arbitrator. Eschewing the Willie Gary test in favor of “ordinary principles of contract law,” the Court found such evidence lacking because the conflicting arbitration provisions did not express an intention as to which arbitrator should determine where the claims should be arbitrated.
UPM-Kymmene Corp. (“UPM”) and Renmatix, Inc. (“Renmatix”) entered into two agreements with conflicting arbitration provisions. In May 2013, they signed a “Bi-Lateral Agreement” to commercialize a process for producing sugars for the renewable chemical and fuel markets. The Bi-Lateral Agreement required that “all disputes, controversies or claims” between the parties be arbitrated before the International Chamber of Commerce (the “ICC”). In November 2013, UPM, Renmatix, and BASF entered into a “Tri-Lateral Agreement” to improve the steps of that process. The Tri-Lateral Agreement required that “any dispute, claim or controversy arising pursuant to this Agreement” be arbitrated before the American Arbitration Association (the “AAA”). The Tri-Lateral Agreement provided that it “shall not supersede” the Bi-Lateral Agreement.
In April 2017, Renmatix initiated arbitration with the AAA. Its arbitration demand alleged that UPM violated the Tri-Lateral Agreement by filing patent applications directed to technology that the parties agreed would be owned by Renmatix. The demand discussed the Bi-Lateral Agreement but did not assert claims under any specific provisions of that agreement.
In May 2017, UPM filed an action in the Court of Chancery seeking to prevent Renmatix from arbitrating its claims before any forum other than the ICC. Renmatix moved to dismiss pursuant to Court of Chancery Rule 12(b)(1) for lack of subject matter jurisdiction, claiming an adequate remedy at law existed in the form of AAA arbitration.
The Court began its analysis by considering the standard for determining whether a dispute is subject to arbitration in the first place, an issue known as “substantive arbitrability.” The general rule provides that a court should determine substantive arbitrability unless there is “clear and unmistakable” evidence that the parties intended that the issue be decided by an arbitrator. In Willie Gary, the Delaware Supreme Court held that there is clear and unmistakable evidence of such an intent if the arbitration clause: (1) “generally provides for arbitration of all disputes;” and (2) “incorporates a set of arbitration rules that empower[s] arbitrators to decide arbitrability.”
Renmatix argued that, under Willie Gary, the AAA arbitrator must determine substantive arbitrability. UPM argued that the Court should apply ordinary principles of contract construction, rather than the Willie Gary test, and determine which of the conflicting arbitration provisions governs. Although neither party cited Delaware authority applying Willie Gary in the face of conflicting arbitration provisions, UPM cited several decisions addressing arbitration where multiple contracts defined the parties’ relationships. The Court concluded from those decisions that “the Willie Gary test should be applied with particular caution and not reflexively in the multiple-contract scenario.”
Applying ordinary principles of contract law, the Court held that there was a lack of clear and unmistakable evidence that the parties intended to have an arbitrator determine substantive arbitrability. The Court noted that the two agreements incorporated different arbitration rules empowering different arbitrators to decide substantive arbitrability. In the face of those conflicting provisions, the Court could not discern a clear and unmistakable intent to have one arbitrator rather than the other decide substantive arbitrability. The Court was therefore required to decide substantive arbitrability.
The Court resolved that question in favor of Renmatix, holding that claims under the Tri-Lateral Agreement, such as those in Renmatix’s arbitration demand, were required to be arbitrated before the AAA, while claims under the Bi-Lateral Agreement were required to be arbitrated before the ICC. The Court rejected UPM’s argument that disputes involving only UPM and Renmatix (and not BASF) were subject to the Bi-Lateral Agreement and not the Tri-Lateral Agreement. Most important to that conclusion was the fact that the Tri-Lateral Agreement imposed various obligations that would be illogical if construed as enforceable only in the context of a dispute involving all three parties to the Tri-Lateral Agreement. Accordingly, the Court held that Renmatix could bring claims under the Tri-Lateral Agreement against UPM alone without involving BASF, and that those claims were subject to AAA arbitration. The Court therefore granted the motion to dismiss.