Saturday, November 5, 2022

The Buzzfeed opinion issues!

Back in September, I posted about the Buzzfeed case that I was watching in Delaware Chancery.  Well, now a decision has issued, and the whole situation remains intriguing. 

In Buzzfeed v. Anderson, employees of privately-held Buzzfeed signed an arbitration agreement with the company concerning their employment, and also received equity compensation.  Buzzfeed went public via a SPAC merger, whereby the old private company became the subsidiary of the publicly-traded SPAC.  Employees’ equity comp was converted into stock of the new, publicly traded entity, but, through a series of unfortunate events, they were unable to trade for the first few days.  That cost them a lot, because the stock price plummeted immediately thereafter.  Relying on their employment agreements, the employees brought mass arbitration claims against the public company and several insiders.  Those defendants then sued in Delaware for a declaration that they were not bound by the arbitration agreement, and that in fact the employees were bound to bring any claims in Delaware, because the new, publicly traded entity had a forum selection provision in its charter.

In her decision, Vice Chancellor Zurn held that the arbitration clause did not apply to the company defendants (now plaintiffs in the Delaware action; it gets confusing).  The entity the employees had sued was the publicly traded parent of their former employer; the parent had not signed the arbitration agreement.  The insiders, as well, had not signed the agreement, which was between the employees and private-Buzzfeed.  VC Zurn observed that the insiders might have had rights, as nonsignatories, to force the employees into arbitration if they had sued in court, but it didn’t work the other way around.  Op. at 23-24.

I’m not an arbitration expert, so this doctrine was new to me and just highlights the Kafka-esque nature of how arbitration contracts work these days.

But! What actually interested me was the effect of the forum-selection provision. 

As I’ve previously mentioned, I recently posted a new paper to SSRN: Inside Out (or, One State to Rule them All): New Challenges to the Internal Affairs Doctrine, forthcoming in the Wake Forest Law Review.  It’s about how the internal affairs doctrine is encroaching on other areas of law, including employment law, and the Buzzfeed case seemed like a perfect example.  Here you had employees suing about a compensation dispute, and their employment claims were (according to the company defendants) converted into shareholder claims by virtue of a charter provision, over which the employees had no control, that operated to override their for-real contracts.

The problem with Buzzfeed though, from my perspective, was that the substantive claims of the employees – the ones they actually filed in their arbitrations – were pretty explicitly rooted in their status as stockholders.  They brought claims under Section 11 of the Securities Act (which is a little strange because, as I understand it, the whole issue here was that the employees’ shares were not registered when they were supposed to be).  They explicitly invoked the companies’ status as a Delaware corporation to argue that Delaware law applied.  It was only later, when they got to court in Delaware, that they tried to recast their claims as related to their employment, and therefore not subject to the charter forum provision.

So. I didn’t mention the case in my Inside Out paper, but I was curious to see what VC Zurn would do with it.  And she kind of split the baby. 

There were two separate arguments: The employees claimed Delaware had no personal jurisdiction over them, and therefore this case was simply improperly filed; and the company defendants claimed that the employees were bound bring any disputes in Delaware.

On the former argument, VC Zurn found that the employees had consented to suit in Delaware via the forum provision and therefore she had jurisdiction to hear the dispute, Op. at 39-43, but on the latter, she held that until the employees’ lodged their claims in a court, she could not determine if they fell within the forum provision, Op. at 47-48.

Those holdings are … difficult to reconcile.  If she has not determined whether the claims substantively fall within the forum provision, how can she know whether the employees “agreed” to be sued in Delaware via the forum provision?  As best I can tell, the holding had to do with her interpretation of the employees’ arguments; the employees argued that their claims were not covered under the forum provision for the purposes of whether they had to bring their claims in Delaware, but not for jurisdictional purposes.  Op. at 40-41.

Anyway.  As it stands, I’m not sure there are any grand lessons (other than, as I previously posted, the hot mess that was the SPAC frenzy), but I will continue to keep an eye on things to see where they go from here.

https://lawprofessors.typepad.com/business_law/2022/11/the-buzzfeed-opinion-issues.html

Ann Lipton | Permalink

Comments

Post a comment