Delaware Chancery Limits Arbitration Preclusion in LLC Dispute, Citing 16-State Reach of Employment Terms
Updated
Updated · The National Law Review · May 27
Delaware Chancery Limits Arbitration Preclusion in LLC Dispute, Citing 16-State Reach of Employment Terms
2 articles · Updated · The National Law Review · May 27
Summary
A May 13 Delaware Chancery ruling in Fairstead Capital Management v. Blodgett held that an earlier arbitration bars relitigation of factual findings, but not legal conclusions on separate LLC-agreement breach claims tied to equity forfeiture.
The court said the challenged conduct was taken in the defendant’s capacity as an employee rather than as an LLC member, and it read the employment and LLC agreements together for interpretive consistency.
That distinction shaped how the court treated overlapping provisions, including guidance on when employee obligations control, how to analyze borderline employee-investor cases, and how contractual good-faith duties differ from fiduciary good faith.
Vice Chancellor J. Travis Laster also warned that importing employment terms into Delaware internal-governance documents could strain other states’ deference to Delaware law, noting Chancery has interpreted such agreements involving operations in 16 other jurisdictions.