IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI NO CA-01238

Transcription

1 E-Filed Document Dec :18: CA Pages: 20 IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI NO CA GREGORY G. NETHERY APPELLANT/PLAINTIFF VS. CAPITALSOUTH PARTNERS FUND II, L.P.; CAPITALSOUTH PARTNERS SBIC FUND III, L.P.; CAPITALSOUTH PARTNERS FLORIDA SIDECAR FUND I, LP; CAPITALSOUTH PARTNERS, LLC; HARBERT MEZZANINE PARTNERS III SBIC, LP; HARBERT MEZZANINE PARTNERS III, LP; ON-SITE FUEL SERVICE, INC.; ON-SITE FUEL HOLDINGS, INC.; AND JOHN DOES 1-10 APPELLEES/DEFENDANTS Appeal from the Circuit Court of Rankin County, Mississippi APPELLANT GREGORY G. NETHERY S BRIEF ORAL ARGUMENT REQUESTED C. Maison Heidelberg, MB 9559 J. Kevin Watson, MB 6991 WATSON HEIDELBERG JONES PLLC 2829 Lakeland Drive, Suite 1502 Flowood, MS Post Office Box Jackson, MS (tel) (fax) Attorneys for Appellant Gregory G. Nethery

2 IN THE COURT OF APPEALS OF THE STATE OF MISSISSIPPI NO CA GREGORY G. NETHERY APPELLANT/PLAINTIFF VS. CAPITALSOUTH PARTNERS FUND II, L.P.; CAPITALSOUTH PARTNERS SBIC FUND III, L.P.; CAPITALSOUTH PARTNERS FLORIDA SIDECAR FUND I, LP; CAPITALSOUTH PARTNERS, LLC; HARBERT MEZZANINE PARTNERS III SBIC, LP; HARBERT MEZZANINE PARTNERS III, LP; ON-SITE FUEL SERVICE, INC.; ON-SITE FUEL HOLDINGS, INC.; AND JOHN DOES 1-10 APPELLEES/DEFENDANTS CERTIFICATE OF INTERESTED PERSONS The undersigned counsel of record for Appellant/Plaintiff certifies that the following listed persons have an interest in the outcome of the case. These representations are made in order that the judges of this Court may evaluate possible disqualifications or recusal: 1. Gregory G. Nethery Plaintiff/Appellant 2. CapitalSouth Partners, LLC CapitalSouth Partners Fund II, LP CapitalSouth Partners SBIC Fund, III, LP CapitalSouth Partners Florida Sidecar Fund I, LP 4201 Congress Street, Suite 360 Charlotte, North Carolina Defendants/Appellees 3. Harbert Mezzanine Partners III SBIC, LP Harbert Mezzanine Partners, III, LP 2100 Third Avenue North, Suite 600 Birmingham, AL Defendants/Appellees i

3 4. On-Site Fuel Service, Inc. On-Site Fuel Holdings, Inc. 1089A Old Fannin Road Brandon, MS Defendants/Appellees 5. C. Maison Heidelberg Attorney for Plaintiff/Appellant 6. E. Barney Robinson, III Phil B. Abernathy John H. Dollarhide Attorneys for Harbert Mezzanine Partners entities 7. Philip W. Thomas Attorney for On-Site Fuel entities 8. Adam Stone Kaytie M. Pickett Attorneys for CapitalSouth entities 9. Honorable William E. Chapman, III, Circuit Judge of Rankin Co., MS /s/ C. Maison Heidelberg C. MAISON HEIDELBERG, MB #9559 Attorney for Appellant Gregory G. Nethery ii

4 TABLE OF CONTENTS Certificate of Interested Persons... i Table of Contents... ii Table of Authorities... iii Statement of the Issue... 1 Statement of the Case... 1 A. Course of Proceedings and Disposition of the Court Below... 1 B. Statement of Relevant Facts... 2 Summary of the Argument... 3 Argument... 4 A. The circuit court determined arbitrability, and was correct to do so B. The circuit court erred by concluding that Nethery s claims were subject to arbitration Conclusion Certificate of Service iii

5 TABLE OF AUTHORITIES CASES PAGE AT &T Techs, Inc. v. Commc ns Workers of Am. 475 U.S. 643 (1986)... 5 Compere s Nursing Home, Inc. v. Estate of Farish ex rel. Lewis 982 So. 2d 382 (Miss. 2008)... 4 Douglas v. Regions Bank 757 F. 3d 460 (5 th Cir. 2014)... 9 Douzinas v. Am. Bureau of Shipping, Inc. 888 A.2d 1146 (Del. Ch. Ct. 2006)... 7, 11 Elf Atochem N. Am. Jaffari 727 A.2d 286 (Del. 1999)... 7, 11 First Options of Chicago, Inc. v. Kaplan 514 U.S. 938 (1995)... 3, 5, 6, 9 Ford v. NYLCare Health Plans of the Gulf Coast, Inc. 141 F.3d 243 (5 th Cir. 1998)... 9 James & Jackson, LLC v. Willie Gary, LLC 906 A.2d 76 (Del. 2006)... 6, 10 Mastrobuono v. Shearson Lehman Hutton, Inc. 514 U.S. 52, 115 S. Ct. 1212, 131 L.Ed. 76 (1995)... 5, 10 Medicis Pharm. Corp. v. Anacor Pharm, Inc WL (Del. Ch. Aug. 12, 2013)... 7 Parfi Holding AB v. Mirror Image Internet, Inc. 817 A.2d 149 (Del. 2002)... 3, 6, 7, 8, 9, 10, 11, 12 Prima Paint Corp. v. Flood & Conklin Mfg. Co. 388 U.S. 395 (1967) Rogers-Dabbs Chevrolet-Hummer, Inc. v. Blakeney 950 So. 2d. 170 (Miss. 2007)... 9 Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ. 489 U.S. 468 (1989) iv

6 Washington Mut. Fin. Grp., LLC v. Bailey 364 F. 3d 260 (5 th Cir. 2004)... 3, 6 v

7 STATEMENT OF THE ISSUE Whether the circuit court erred when it failed to apply the Stockholders Agreement s choice of law provision and conclude under Delaware law that Nethery s independent state law claims outside the contract are not subject to the contract s arbitration provision. STATEMENT OF THE CASE A. Course of Proceedings and Disposition of the Court Below Nethery sued the defendant hedge funds, which are the majority stockholders in On-Site Fuel Service, Inc., a company Nethery started, for breach of fiduciary duty, corporate freeze out, unjust enrichment, and related, state common law claims. Nethery s complaint asserted, among other things, that these majority stockholders used their leverage and superior position to (a) deplete the interests of Nethery, the minority stockholder, effectively destroying his interest in a lucrative company, and (b) line their own pockets with cash produced by the company, to the detriment of the company s interest, all of which depleted the value of Nethery s interest. See R. 8., R.E. 13 (Complaint). The defendants filed a motion to compel arbitration pursuant to an arbitration provision in a stockholders agreement; however, the stockholder agreement was unrelated to Nethery s non-contractual, state law claims as set forth in the Complaint. That is, Nethery did not allege that any of the Stockholders Agreement s provisions (most of which are technical) had been breached, nor did he seek to enforce the stockholders agreement. Nevertheless, the circuit court granted the motion to compel arbitration. 1

8 B. Statement of Relevant Facts This is not a breach of contract case. Nethery did not assert any contract claims, and he, in fact, specifically disclaimed all claims for breach of contract in his complaint. R. 9, R.E. 14 at 3. In sum, the defendants motion to compel was based upon an arbitration clause in a contract upon which Nethery did not sue. The subject arbitration provision reads: Except as provided in Section 6.03(a), 1 any dispute among the parties hereto shall, on demand of any party to such dispute, be submitted to binding arbitration in Charlotte, North Carolina, conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association.... R. 157, R.E. 63 at 5.03(b) (Stockholders Agreement). Importantly, the Stockholders Agreement also contains a choice of law provision which provides: The laws of the state of Delaware, excluding the principle of conflicts of law thereof, shall govern the interpretation, validity and performance of the terms of this Agreement. R. 159 and R.E. 65 at Applying Delaware law, the arbitration clause does not apply because Nethery s complaint does not allege that any of the Stockholders Agreement s provisions have been breached, nor does it seek legal relief under the stockholders agreement. Rather, 1 The exception to the arbitration provision, reads: Each Stockholder acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages, and therefore each Stockholder hereby waives the defense in any action for specific performance or injunctive relief that a remedy at law would be adequate. Each stockholder further agrees that all other Stockholders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of this Agreement and to obtain injunctive relief in any action instituted in a court of proper jurisdiction. R. 157, R.E. 63 at 5.03(a). In other words, the arbitration agreement does not apply comprehensively but rather exempts claims for specific performance and injunctive relief. (The 6.03(a) reference in the arbitration clause is a typographical error; it should have read 5.03(a).) 2

9 Nethery asserts only non-contractual, state law claims which do not arise under the contract, and the stated legal claims exist independently from the contract. Delaware law, specifically Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149, 155 (Del. 2002), controls the legal analysis and provides that a contract s arbitration clause cannot be broader than the contract itself or the rights created in the contract. Pursuant to the Parfi analysis and other applicable law, Nethery s independent state law claims are not subject to arbitration, and, thus, the trial court s order compelling arbitration should be reversed. SUMMARY OF THE ARGUMENT Whether the parties agreed to arbitrate Nethery s claims is an issue of contract interpretation. The Stockholders Agreement specifies that Delaware state law applies to the interpretation of its terms, and applying Delaware state law to this set of facts, the motion to compel arbitration should have been denied. The analysis is governed by Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002). 2 Parfi dictates that when the arbitrability of a claim is disputed, the court must determine the following two issues to resolve the question: (1) whether the arbitration clause is broad or narrow in scope; and (2) whether the legal claim stated by the plaintiff in the complaint falls within the scope of the contractual arbitration provision. Id. at 155. Under prong (1), if the arbitration clause is narrow, the court asks if the cause of action directly relates to a right in the contract. Id. If the arbitration clause is broad, the court refers to arbitration any issues that touch on contract rights or contract 2 See First Options of Chicago, Inc. v. Kaplan, 514 U.S. at 938, 944 (1995) ( When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally... should apply ordinary state-law principles that govern the formation of contracts. ); Washington Mut., 364 F.3d at 264 ( [I]n determining whether the parties agreed to arbitrate a certain matter, courts apply the contract law of the particular state that governs the agreement. ). 3

10 performance. Id. The narrow test applies here, but even if the broad test applies, this case should not have been referred to arbitration. The subject arbitration clause is considered narrow in scope because it contains exceptions for actions to compel specific performance and to obtain injunctive relief. Where, as here, the arbitration clause is narrow, the legal test for whether to apply the arbitration clause is whether the subject cause of action (i.e., the Complaint) directly relates to a right in the contract. That test is not met here: the Stockholders Agreement governs limited, primarily technical, areas, which Nethery s complaint does not allege have been breached. Thus, applying Delaware law, the arbitration clause does not trigger. Additionally and alternatively, even assuming arguendo that the arbitration clause is broad, the broad test would not trigger the arbitration clause. The broad test for whether to apply the arbitration clause is whether the complaint raises issues that touch on contract rights or contract performance. That test is still not met because Nethery s complaint asserts completely independent tort claims for breach of the defendants fiduciary duties, duties which arise under state law and not under the contract. Further, Nethery s claims do not depend upon the Stockholders Agreement in any way; if there was no Stockholders Agreement, his claims of fiduciary duty breaches would still be viable. Thus, applying either test, the arbitration provision in the Stockholders Agreement does not direct that Nethery s lawsuit be decided in arbitration. ARGUMENT The Court reviews de novo a circuit court s disposition of a motion to compel arbitration. Compere's Nursing Home, Inc. v. Estate of Farish ex rel. Lewis, 982 So. 2d 382, 383 (Miss. 2008). 4

11 A. The circuit court determined arbitrability and was correct to do so. The threshold question is whether the court or the arbitration panel should determine arbitrability, and this is a matter of state contract law. See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) ( Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, see, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57, 115 S.Ct. 1212, 1216, 131 L.Ed.2d 76 (1995),... so the question who has the primary power to decide arbitrability turns upon what the parties agreed about that matter. ). The circuit court did not address this issue through legal analysis in its order, but it did refer the case to arbitration. Accordingly, by implication, the circuit court decided that it, not an arbitration panel, should decide arbitrability. 3 This was a correct decision because [u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator. AT & T Techs., Inc. v. Commc'ns Workers of Am., The United States Supreme Court held in Kaplan: When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally (though with a qualification we discuss below) should apply ordinary state-law principles that govern the formation of contracts. Id. at 944. The Court explained: This Court... has (as we just said) added an important qualification, applicable when courts decide whether a party has agreed that arbitrators should decide arbitrability: Courts should not assume that the parties agreed to arbitrate arbitrability unless there is clea[r] and unmistakabl[e] evidence that they did so. In this manner the law treats silence or ambiguity about the question who (primarily) should decide arbitrability differently from the way it treats silence or ambiguity about the question whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement -for in respect to this latter question the law reverses the presumption. And, given the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration, one can understand why courts might hesitate to interpret silence or ambiguity on the who should decide arbitrability point as giving the arbitrators that power, for doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide. 5

12 U.S. 643, 649 (1986) (emphasis added). This analysis under Delaware law 4 is governed by James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 80 (Del. 2006), which provides that an arbitration clause that incorporates by reference the AAA rules is not enough, by itself, to evidence that the contracting parties desired that an arbitration panel decide arbitrability; rather, the arbitration clause must also refer all disputes between the contracting parties to arbitration. Here, the arbitration clause does not apply to all disputes between the contacting parties, so under Willie Gary, the Court, not the arbitration panel, must decide arbitrability. In other words, applying Willie Gary, there is no comprehensive arbitration clause; therefore, there is no clear and unmistakable evidence of intent to arbitrate arbitrability so the Court, not the arbitration panel, must therefore determine arbitrability and interpret the scope of the arbitration clause. B. The circuit court erred by concluding that Nethery s claims were subject to arbitration. While the Circuit Court correctly ruled, implicitly, that it could decide arbitrability, it incorrectly interpreted the arbitration clause. The Circuit Court erred in its conclusion by failing to apply the governing law set forth in Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002). 5 Parfi dictates that when the arbitrability of a claim is disputed, the court must determine the following two issues to resolve the question: (1) whether the arbitration clause is broad or narrow in scope; and (2) whether the legal claim stated by the plaintiff in the complaint falls within the scope of the contractual arbitration 4 The Stockholders Agreement also contains a choice of law provision which provides: The laws of the state of Delaware, excluding the principle of conflicts of law thereof, shall govern the interpretation, validity and performance of the terms of this Agreement. R. 159 and R.E. 65 at See Kaplan, 514 U.S. at 944 ( When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally... should apply ordinary state-law principles that govern the formation of contracts. ); Washington Mut., 364 F.3d at 264 ( [I]n determining whether the parties agreed to arbitrate a certain matter, courts apply the contract law of the particular state that governs the agreement. ). 6

13 provision. Id. at 155. Under prong (1), if the arbitration clause is narrow, the court asks if the cause of action directly relates to a right in the contract. Id. If the arbitration clause is broad, the court refers to arbitration any issues that touch on contract rights or contract performance. Id. The narrow test applies here, but even if the broad test applies, this case should not have been referred to arbitration. The arbitration clause here is narrow because it specifically excepts actions to compel specific performance and to obtain injunctive relief in addition to any other remedy... at law or in equity. See 5.03(a). 6 Under Delaware law, arbitration clauses that contain exceptions are not considered comprehensive and are therefore defined as narrow in scope for purposes of the Parfi analysis. Medicis Pharm. Corp. v. Anacor Pharm., Inc., 2013 WL , at *4 (Del. Ch. Aug. 12, 2013) (concluding that arbitration provision was narrow in scope because it included exceptions to the parties agreement to arbitrate). Accordingly, under the Parfi analysis, the Court should only decide whether the subject cause of action directly relates to a right in the contract under Parfi s narrow test. Parfi, 817 A.2d at 155. Clearly that test is not met because the Stockholders Agreement governs limited, primarily technical, areas, such as: (a) the process by which stock can be transferred [ 2.01 and 2.02], (b) how the board should be appointed [ 3.01], (c) voting [ 3.03], (d) decisions regarding dissolution, bankruptcy, merger, and guarantees [ 3.04], and (e) securities registration [Article 4]. R , , Cf. Elf, 727 A.2d at 288 ( The Agreement contains an arbitration clause covering all disputes. The clause, Section 13.8, provides that any controversy or dispute arising out of this Agreement, the interpretation of any of the provisions hereof, or the action or inaction of any Member or Manager hereunder shall be submitted to arbitration in San Francisco, California... Section 13.8 further provides: No action... based upon any claim arising out of or related to this Agreement shall be instituted in any court by any Member except (a) an action to compel arbitration... or (b) an action to enforce an award obtained in an arbitration proceeding... ); Douzinas, 888 A.2d at 1150 ( In of Nautical Systems's LLC Agreement, the parties agreed not only to arbitrate claims arising under that Agreement but also claims related to that Agreement whether arising in contract, tort or otherwise, and whether arising at law or in equity. ). 7

14 156; R.E.49-50, 56-57, By comparison, Nethery s complaint does not allege that any of aspects of the Stockholders Agreement have been breached, all of which are, again, technical in nature. The lawsuit is about self-serving loans made by the majority partners to the company at exorbitant interest rates, which drained the cash from the company, and related breaches of fiduciary duties to the minority shareholder. 7 See R. 13, 14 and R.E. 18, 19 at Moreover, the complaint specifically states that no contract claims are asserted. R. 9; R.E. 14 at 3. Therefore, this lawsuit does not directly relate[] to a right in the contract under the Parfi test, and the arbitration clause does not trigger. But even assuming arguendo that the arbitration clause here is broad (as in Parfi), the Parfi broad test is whether the complaint raises issues that touch on contract rights or contract performance. Parfi, 817 A.2d at 155. That test is not met either because, as in Parfi, Nethery s complaint asserts completely independent tort claims for breach of the defendants fiduciary duties, duties which arise under state law and not the contract. See R. 9, R.E. 14 at 3 ( [Nethery] does not sue for breach of contract. ); Parfi, 817 A.2d at 157 (holding that fiduciary duties owed to minority shareholders consisted of a set of rights and obligations that were independent of any contract ). Further, Nethery s claims do not depend upon the Stockholders Agreement in any way; if there was no Stockholders Agreement, his claims of fiduciary duty breaches would still be viable. See Parfi, 817 A.2d at 156 n.24 ( Generally, purportedly independent actions do not touch 7 The core complaint is that the defendants encumbered high interest debt to the benefit of the majority shareholders who were loaning to the company, that they drain[ed] company cash flow, handcuffing the company, while they benefit, and that they profited in spite of the losses by implementing a loan arrangement with the company where they collect over $250,000 per month through interest and accruals. R. 13, R.E. 18 at 29. These allegations are not remotely related to the rights created in the Stockholders Agreement but rather are creatures of common law, founded in fiduciary concepts of fairness and loyalty. 8

15 matters implicated in a contract if the independent cause of action could be brought had the parties not signed a contract. (emphasis added) (citing Ford v. NYLCare Health Plans of the Gulf Coast, Inc., 141 F.3d 243, (5 th Cir. 1998) (holding that physician could bring class action lawsuit on behalf of his patients against an HMO for false advertising; duties under his agreement with the HMO were not related to the separate duties the HMO owed potential patients under tort law)). Thus, applying either test under Parfi, 8 the arbitration provision in the Stockholders Agreement does not direct that Nethery s lawsuit be decided in arbitration. See id. at 156 ( An arbitration clause, no matter how broadly construed, can extend only so far as the series of obligations set forth in the underlying agreement. (emphasis added)). 9 In Parfi, the Delaware Supreme Court considered a broad arbitration clause in an Underwriting Agreement, by which the parties agreed to arbitrate any dispute, controversy, or claim arising out of or in connection with the Underwriting Agreement. Id. According to the court, at issue was whether the fiduciary duty claims [stated by Plaintiff] implicate[d] any of the rights and obligations provided for in the Underwriting Agreement. Id. ( Stated differently, do the fiduciary duty claims depend on the existence 8 The court noted that courts in several other jurisdictions employ a similar inquiry. Id. at 155 n. 15 (citing, e.g., Ford v. NYLCare Health Plans of the Gulf Coast, Inc., 141 F.3d 243, (5th Cir. 1998) (interpreting Texas law)). 9 Even if Delaware law did not apply, the result would be the same. See NYLCare Health Plans, 141 F.3d at 250 (stating that a claim is arbitrable if it is so interwoven with the contract that it could not stand alone, but is not arbitrable if it is completely independent of the contract and could be maintained without reference to a contract ); Douglas v. Regions Bank, 757 F.3d 460, (5th Cir. 2014) ( The mere existence of a delegation provision in the... arbitration agreement, however, cannot possibly bind [the signatory] to arbitrate gateway questions of arbitrability in all future disputes with the other party, no matter their origin. (emphasis in original)); Rogers-Dabbs Chevrolet-Hummer, Inc. v. Blakeney, 950 So. 2d 170, (Miss. 2007) (concluding that plaintiff s claim of fraud was outside the scope of the arbitration agreement). 9

16 of the Underwriting Agreement? ). Concluding that the independently-grounded, state law claims were not subject to arbitration, the Parfi court stated: When parties to an agreement decide that they will submit their claims to arbitration, Delaware courts strive to honor the reasonable expectations of the parties and ordinarily resolve any doubt as to arbitrability in favor of arbitration. Nevertheless, arbitration is a mechanism of dispute resolution created by contract. An arbitration clause, no matter how broadly construed, can extend only so far as the series of obligations set forth in the underlying agreement. Thus, arbitration clauses should be applied only to claims that bear on the duties and obligations under the Agreement. The policy that favors alternate dispute resolution mechanisms, such as arbitration, does not trump basic principles of contract interpretation. Id. at (emphasis added). It bears repeating: An arbitration clause, no matter how broadly construed, can extend only so far as the series of obligations set forth in the underlying agreement. Id.; see also Kaplan, 514 U.S. at 943 ( [A]rbitration is simply a matter of contract between the parties; it is a way to resolve those disputes-but only those disputes-that the parties have agreed to submit to arbitration. ). 10 The Parfi court s analysis was to compare the plaintiff s the rights under the contract to the independent, fiduciary duties alleged in the complaint. Id. at In so doing, the court concluded that the plaintiff could maintain an action in court based on breaches of independent, state law, fiduciary duties that were owed to the stockholders 10 There is no preemption issue because Delaware arbitration law mirrors federal law. James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 79 (Del. 2006). The FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989). It simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms. Id. (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967) (the Act was designed to make arbitration agreements as enforceable as other contracts, but not more so )); see also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995) ( [T]he FAA's proarbitration policy does not operate without regard to the wishes of the contracting parties. ). 11 The court did not focus on the conduct that led to the claims for contract and fiduciary breaches of duty. Id. 10

17 even though the state law claims arose from some or all of the same facts that would have provided the basis for breach of contract claims. Id. at The same analysis applies here: Nethery has asserted independent, state law claims that do not depend upon the contract for legal viability. Moreover, reviewing the provisions of the Underwriting Agreement, the Delaware court also found no contract terms that created an obligation upon which the plaintiff could base a state law, breach of fiduciary duty claim. Id. In other words, the court did not believe breaching the contract could, in itself, give rise to a state law breach of a fiduciary duty claim. Once again, the same analysis applies here and the conclusion must also be the same. Finally, the Parfi court also held that the fiduciary duties owed (and sued upon) were beyond the contract and depended upon an independent set of legal rights provided for under Delaware corporation law. Id. And once again, the same is true here. 12 CONCLUSION The defendants argued to the circuit court that Nethery s dispute with them touches the Stockholders Agreement because its very essence concerns the relationship between Nethery, OSFH, OSFS, Harbert and the CapSouth Defendants, 12 The Delaware Supreme Court noted that [w]hile some agreements, by their nature, extend so far as to mandate arbitration for breach of fiduciary duty claims, the Underwriting Agreement here did not. Parfi, 817 A.2d at For the reasons given, the subject Agreement and breach of fiduciary duty claims are akin to those in Parfi. See id. at 151 ( [T]he fiduciary duty claims the minority stockholders asserted are not based on the rights and obligations created by the underlying agreement.... ). Cf. Elf Atochem N. Am., Inc. v. Jaffari, 727 A.2d 286, 295 (Del. 1999) (holding that the plaintiff s claims bear directly on the defendant s duties and obligations under the LLC Agreement); Douzinas v. Am. Bureau of Shipping, Inc., 888 A.2d 1146, 1152 (Del. Ch. Ct. 2006) (concluding under Texas law that LLC Agreement s arbitration provision applied to plaintiff s claims because adjudicator would be required to interpret provisions of the LLC Agreement to determine the breadth and nature of fiduciary duties, if any, owed, where provisions of the LLC Agreement were implicated by the claims, including exculpatory provision limiting the liability of managing member of LLC). 11

18 which is the general subject of the Stockholders Agreement. 13 However, under the governing legal analysis, a dispute does not touch a contract unless it is based on the rights and obligations created by the contract. Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149, 151 (Del. 2002). Where, as here, the complaint asserts independent, tort claims for breach of the defendants fiduciary duties, duties which arise under state law and do not depend upon the Agreement, the Agreement s arbitration clause is not triggered. 14 Id. ( When contracting parties provide for the arbitration of claims in their agreement, the arbitration provision, no matter how broadly drafted, can reach only the claims within the scope of the contract.... (emphasis added)). The contract specifies that Delaware law applies to its interpretation, and under Delaware law, the Court should conclude that the claims before it are not subject to the Agreement s arbitration provision because Nethery s lawsuit states no breach of contract claims under the Agreement but rather pursues independent tort and breach of fiduciary duty claims under state law (not under the contract). Parfi, 817 A.2d at 156 ( An arbitration clause, no matter how broadly construed, can extend only so far as the series of obligations set forth in the underlying agreement. (emphasis added)). WHEREFORE, PREMISES CONSIDERED, the Appellant Gregory G. Nethery respectfully prays that, after hearing all the things and matters set forth herein, the Court will reverse the circuit court s grant of the Motion to Compel Arbitration. 13 Yet the defendants concede that OSFS and even other Defendants are not even signatories to the Stockholders Agreement. 14 Again, Nethery s complaint disclaims any contract claims, including claims arising under the Stockholder Agreement. R. 9, R.E. 14 at 3. 12

19 THIS, the 22 nd day of December, /s/ C. Maison Heidelberg C. MAISON HEIDELBERG, MB: 9559 Attorney for Plaintiff Gregory G. Nethery OF COUNSEL: J. Kevin Watson, MB: 6991 WATSON HEIDELBERG JONES PLLC 2829 Lakeland Drive, Suite 1502 Flowood, Mississippi P.O. Box Jackson, Mississippi Phone: Fax:

20 CERTIFICATE OF SERVICE I, C. Maison Heidelberg, hereby certify that on this day I electronically filed the foregoing pleading or other paper with the Clerk of Court using the MEC system which sent notification of such filing to the following: E. Barney Robinson, III Phil B. Abernathy John H. Dollarhide BUTLER SNOW LLP P.O. Box 6010 Ridgeland, MS Philip W. Thomas PHILIP W. THOMAS, PA P.O. Box Jackson, MS Adam Stone Kaytie M. Pickett JONES WALKER LLP P.O. Box 427 Jackson, MS Honorable William E. Chapman, III Circuit Court Judge P.O. Box 1626 Madison, MS THIS, the 22 nd day of December, /s/ C. Maison Heidelberg C. MAISON HEIDELBERG 14