An email exchange between counsel that discusses potential resolution alternatives and reflects an agreement to mediate and arbitrate can establish an enforceable arbitration agreement, says the Delaware Court of Chancery. In Gomes v. Karnell, the court held that a valid agreement to arbitrate can exist when the terms are discussed and agreed pursuant to counsels' email communications.
Dispute Leads to a Binding Email Exchange
Gomes involves three members of a Delaware LLC and a dispute over whether a valid arbitration agreement existed. The members, Gomes and two brothers, Ian and Jeremi Karnell, launched several businesses together, including PTT Capital, LLC and Montext, LLC. Shortly after the formation of Montext, disputes arose regarding the ownership of a web-based platform connected to Montext.
Counsel for both sides discussed potential dispute resolution processes. Gomes' counsel wrote an email to the Karnells' counsel titled "Agreement to mediate and arbitrate." That email read, in part, "[t]his will memorialize our agreement as how to move this matter forward." The email also explained that the parties agreed to mediate their disputes and stated that "[t]he parties further agree that if an impasse is declared by the mediator, the parties will immediately initiate the binding process in an effort to resolve these disputes." The Karnells' counsel responded that he was "happy to call this an agreement on the core point of mediating/arbitrating in lieu of litigation." In a subsequent email, the Karnells' counsel reiterated the enforceability of the parties' agreement to mediate and arbitrate.
The parties operated under the arbitration agreement that their counsel had reached. The parties selected a mediator, set a date for mediation, agreed to the scope of mediation, and engaged in limited discovery. Gomes then canceled the mediation days before it was scheduled to begin and filed a complaint against the Karnells, PTT, and Montext alleging breach of fiduciary duty, breach of the PTT LLC agreement, and various other claims.
The defendants, including the Karnells, filed a motion to dismiss for lack of subject matter jurisdiction and to compel arbitration under the arbitration agreement established through counsels' email exchange. Gomes opposed that motion, arguing that the email communications about arbitration omitted certain essential terms and should not be considered final.
Court Finds a Valid Arbitration Agreement
The court held that the email communications between the parties' counsel constituted an enforceable arbitration agreement because it was a valid contract between the parties. The court explained that under Delaware law, a valid agreement exists when (1) parties intended the contract to bind them, (2) the terms of the contract are sufficiently definite, and (3) the parties exchange legal consideration. The court concluded that the Karnells' counsel expressed unconditional commitment because he accepted Gomes' counsel's proposal without altering any of its terms. The court highlighted that all essential terms of a contract to arbitrate were present: The emails established the scope of arbitration, when the arbitration was to occur, and the parties to the arbitration.
The court also found that because the email exchange established a contract to arbitrate involving interstate commerce, the Federal Arbitration Act governs. Thus, the terms that were missing, such as the identity and means of selecting an arbitrator, are dictated by the FAA and are not essential to the contract. The court granted the defendants' motion to compel arbitration as to Gomes' claims for breach of fiduciary duty, breach of the PTT LLC agreement, certain other claims, but stayed Gomes' dissolution claim pending the outcome of the arbitration.
Contract Law Principles Apply to Emails
Section leaders view this decision as a reminder that a court will enforce an arbitration agreement if one exists, even in the form of an email exchange between counsel. "This case illustrates that you do not need a 10-page arbitration clause to have an enforceable obligation to arbitrate," declares Harout J. Samra, Miami, FL, cochair of the ABA Section of Litigation's Alternative Dispute Resolution Committee.
This decision also directs practitioners to take caution in what they write. "I think one lesson of the case is that lawyers can bind their clients to arbitration provisions and that statements made in email matter," warns Mitchell L. Marinello, Chicago, IL, vice chair of the Alternative Dispute Resolution Committee. "Parties entering into arbitration agreements should be aware of the legal context. Virtually every state has an arbitration law, many of which include default or gap-filling provisions that may apply in the absence of an agreement of the parties," says Samra.
Onika K. Williams is an associate editor for Litigation News.
Keywords: arbitration, mediation, contract, Federal Arbitration Act
- » Ramone v. Lang, C.A. No. 1592-N (Del. Ch. Apr. 3, 2016).
- » Leeds v. First Allied Connecticut Corp., 521 A.2d 1095, 1101 (Del. Ch. 1986).
- » Legend Nat. Gas II Hldgs., LP v. Hargis, CA. No. 7213 (Del. Ch. Sept. 28, 2012).
- » Federal Arbitration Act, 9 U.S.C. § 1 et seq.
- » Asa Lopatin, "What Constitutes Arbitration for Federal Arbitration Act Purposes?" Alternative Dispute Resolution, Section of Litigation (June 16, 2014).