Document: Douzinas v. ABS Nautical Systems, LLC, C.A. No. 1496 (January 24, 2006)
Members of a manager-managed LLC alleged that the manager, inter alia, breached its fiduciary duties. The Defendants argued that the claims must be arbitrated under the LLC Agreement. The Plaintiffs responded that under Parfi Holding AB v. Mirror Image Internet, Inc., the claims should be allowed to proceed in the Court. The Court held that the Defendants were entitled to an order compelling arbitration.
The Parfi Holding case was distinguished by Elf Atochem North America, Inc. v. Jaffari, which stated that an arbitration clause in an LLC agreement could control fiduciary duty claims.
The Parfi Holding case was distinguished because, although corporate fiduciary duties cannot be altered by contract, the Delaware Limited Liability Act specifically allows fiduciary duties to be expanded, restricted or eliminated.
The Court interpreted the arbitration clause broadly, despite the distinction that the Elf Atochem arbitration clause specifically included the manager of that LLC, and the clause here did not, because the clause at issue covered “any dispute related to” the LLC Agreement.
The Plaintiffs were equitably estopped from bringing claims against affiliates of the LLC, who were not signatories to the LLC Agreement, outside of arbitration, because the affiliate claims were interconnected with the claims that will be arbitrated for other defendants. To allow those claims to proceed would defeat much of the purpose of the arbitration clause.