In the case of Pryor v. IAC/InterActiveCorp., C.A. No. 6884-CS (Del. Ch. June 7, 2012), the Court of Chancery examined whether a challenge to an arbitration award was timely filed, and whether the arbitration award could be attacked on other grounds.
Background
Plaintiff William Pryor, is the co-founder, former COO, and stockholder of Shoebuy.com, Inc. In 2006, defendant IAC/InterActiveCorp acquired Shoebuy and entered into a Stockholders’ Agreement with Shoebuy’s four founding stockholders. Under that Agreement, the stockholder with the most number of shares (the Stockholder Representative) had the right to require IAC to purchase all of the stockholders’ shares under certain circumstances (the “Stockholder Group Put”). The Stockholders’ Agreement required that, upon exercise of the Stockholder Group Put, IAC purchase these shares at the Appraisal Value of Shoebuy. Any dispute relating to the determination of the Appraisal Value, including disputes related to the selection of the Valuation Firm that would be the final arbiter of the Appraisal Value, were required to be submitted to arbitration.
In January 2011, Scott Savitz, the Stockholder Representative, exercised the Stockholder Group Put on behalf of the other Stockholders, including Pryor. But, Savitz and IAC could not agree on the Appraisal Value of Shoebuy, so they followed the arbitration procedures set forth in the Stockholders‘ Agreement. The dispute was arbitrated, and plaintiff filed this action to appeal the arbitration award.
The Court found the Federal Arbitration Act (the “FAA”) to be controlling, and indicated that the FAA requires challenges to arbitration decisions to be served within three months of the award, and that the three month deadline had not been met in this case. Of note, the Court indicated that courts have strictly enforced this legislative-determined limitations period of three months.
Moreover, the Court found that the attempt to collaterally attack the award did not satisfy the prerequisites of the FAA, and therefore dismissed the additional counts of the complaint alleging that IAC breached its fiduciary duties and contractual obligations in connection with the appraisal valuation. Furthermore, the Court held that the Stockholders’ Agreement plainly held that the controversy be determined by an arbitrator, not the courts, and as such these counts were dismissed for lack of subject matter jurisdiction.
Conclusion
This case is significant in that it demonstrates the Court’s strict adherence to the three-month deadline to appeal arbitration awards as set forth by the FAA, and the reluctance of the Court to adjudicate an appeal to such an award when such an appeal is untimely filed.