NOBLE, Vice Chancellor.
Plaintiff Argyle Solutions, Inc. ("Argyle") asks the Court to preliminarily enjoin an arbitration demanded by Defendant Professional Systems Corporation ("PSC"). Argyle argues that PSC's claims are time barred. Under the Delaware Uniform Arbitration Act, a party hoping to avoid an arbitration proceeding because of its adversary's failure to commence the proceeding timely is authorized to petition this Court for relief, instead of leaving the timeliness determination to the arbitration forum. That aspect of our law is changing. On April 2, 2009, the Governor signed into law legislation that will require arbitrators to resolve such questions in the first instance. That revision to our law, however, does not become effective until July 2, 2009. Accordingly, it remains the duty of this Court to resolve the question of whether the passage of time operates to deny PSC the opportunity to compel arbitration.
10 Del. C. ch. 57.
10 Del. C. § 5702(c) provides in relevant part:
If, at the time that a demand for arbitration was made or a notice of intention to arbitrate was served, the claim sought to be arbitrated would have been barred by limitation of time had it been asserted in a court of the State, a party may assert the limitation as a bar to the arbitration on complaint to the Court as provided in § 5703(b) or by way of defense in an existing case.
10 Del. C. § 5703(b), in turn provides, subject to § 5703(c) that:
a party who has not participated in the arbitration and who has not been made or served with an application to compel arbitration may file its complaint with the Court seeking to enjoin arbitration on the ground that a valid agreement was not made or has not been complied with or that the claim sought to be arbitrated is barred by limitation of § 5702(c).
H.R. 49, 145th Gen. Assem. 1st Reg. Sess. (Del. 2009).
Argyle and PSC are parties to a contract known as the Automated Document Processing and Mailing Agreement (the "Agreement") through which PSC provided mailing and sorting services to Argyle, a debt collection agency.
Compl. Ex. A.
By Article XII ("Applicable Law") of the Agreement:
The validity, performance and construction of this Agreement shall be governed by the laws of the State of Delaware. The parties hereto consent to the exclusive jurisdiction of the courts of the State of Delaware. Any claim arising out of or related to this Agreement must be brought no later than six months after it has accrued.
The Agreement commits dispute resolution to arbitration at Article XIII ("Arbitration"), which provides:
The validity, performance and construction of this Agreement shall be governed by the laws of Delaware without regard to its rules relating to conflicts of law. Any and all disputes arising out of or in connection with the subject matter of this Agreement shall be submitted to arbitration in the State of Delaware under the then current rules of the American Arbitration Association and the decision of the arbitrators shall be final. Any claim arising out of or related to this Agreement must be brought no later than 6 months after it has accrued.
Thus, the Agreement has established a short period — six months from the accrual of the claim — within which the claimant must pursue its claim.
The Agreement, with a term of two years, was executed in late May 2005, and PSC provided services during the period spanning July 2005 and July 2007. PSC grew frustrated because Argyle did not provide the volume of work that had been anticipated. PSC first filed suit against Argyle in the United States District Court for the Eastern District of Pennsylvania, but that action was dismissed on or about July 15, 2008.
PSC, on January 22, 2009, initiated an arbitration proceeding against Argyle before the American Arbitration Association.
Id. ¶ 9.
PSC has pursued Argyle not only for claims arising under the Agreement, but also for services provided to RevCare, a now-bankrupt entity that PSC was told would merge with Argyle and which shared common ownership with Argyle. RevCare and PSC were parties to a contract, the terms of which were substantially the same as those of the Agreement. PSC last performed services for RevCare in December 2008.
The demand for arbitration raised five claims, all of which were substantially the same as those which PSC had presented to the United States District Court for the Eastern District of Pennsylvania. PSC seeks an award of damages "in excess of $600,000."
Pl.'s Mem. in Supp., Ex. B ¶ 46.
Of the five counts, only the first involves PSC's performance of services for Argyle under the Agreement. By virtue of Argyle's failure to provide the anticipated volume of work, PSC claims actual damages of approximately $376,000. The remaining counts relate to RevCare and its alleged failure to pay PSC $70,133.55, the balance due for services provided by PSC to RevCare under its contract with RevCare. Under Count II of the arbitration demand, liability for RevCare's debt would be imposed upon Argyle under a "single entity" theory. In Count III, PSC asserts that it was the victim of negligent misrepresentation by representatives of Argyle and others acting in concert with Argyle to the effect that Argyle would pay for the services to be supplied to RevCare. The fourth count takes the negligent misrepresentation claim and converts it into a fraud claim. In essence, Argyle and others are accused of fraud and falsely promising to pay PSC for the services to be provided to RevCare. The fifth count, under Pennsylvania's Uniform Fraudulent Transfers Act, alleges that assets of RevCare, which otherwise might have satisfied RevCare's obligations to PSC, were transferred to Argyle without payment of fair value.
Although the arbitration demand seeks damages in excess of $600,000, it appears that the quantified damages, including those sought both from Argyle directly and on account of RevCare, total less than $450,000. The record does not explain the discrepancy.
In order to achieve the issuance of a preliminary injunction, the moving party must demonstrate that: first, it has a reasonable probability of success on the merits; second, in the absence of interim relief, it would suffer irreparable injury; and third, a balancing of the equities is in its favor.
Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334, 1341 (Del. 1987); Deloitte Touche USA LLP v. Lamala, 2005 WL 2810719, at *5 (Del.Ch. Oct. 21, 2005).
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The principles guiding the Court's application of the Agreement are not in dispute. "The goal of contract interpretation is to ascertain the shared intention of the parties. Contracts must be construed as a whole. Where contract language is `clear and unambiguous,' the ordinary and usual meaning of the chosen words will generally establish the parties' intent." The Agreement requires arbitration of "[a]ny and all disputes arising out of, or in connection with, the subject matter of this Agreement." It also requires the bringing within six months of accrual of "[a]ny claim arising out of, or related to, this Agreement." The question is whether "in connection with" and "related to" were used to capture distinct sets of claims.
West Willow-Bay Court, LLC v. Robino-Bay Court Plaza, LLC, 2007 WL 3317551, at *9 (Del.Ch. Nov. 2, 2007) (citations omitted).
Ordinarily, one presumes that drafters who choose different words have intended to implement different concepts. Under the Agreement, might some claims be subject to arbitration but not limited by the six-month period? Or, are some claims relegated to resolution through a means other than arbitration, yet are still subject to a six-month claims period? One can strain and find differences between the two formulations, but no material distinction between the two has been asserted by PSC. Thus, claims subject to arbitration under the Agreement are also subject to the Agreement's mandate that they be brought to arbitration within six months of accrual.
PSC has not challenged the enforceability of the six-month contractually-imposed period in which to assert a claim in arbitration. Nor, at least based on the record in this matter, could it argue that the period is unreasonable. See, e.g., Rob-Win, Inc. v. Lydia Sec. Monitoring, Inc., 2007 WL 3360036, at *3-4 (Del.Super. Apr. 30, 2007).
As for the damages claim of approximately $376,000 asserted in Count I of the arbitration demand, the services were performed, at the latest, in July 2007. The claim, therefore, arose at that time and, when eventually tendered in the arbitration forum approximately eighteen months later, was clearly barred by the six-month time limit imposed by the Agreement.
The counts related to the claims based on the RevCare debt suffer a similar fate. PSC's work for RevCare was completed no later than December 2007. Under the terms of the Agreement, the filing of a demand for arbitration related to those claims more than one year later is also barred. Moreover, all of these claims were presented in the action filed in the United States District Court for the Eastern District of Pennsylvania and all of these claims were dismissed on July 15, 2008. It was, thus, more than six months even after the dismissal of the federal litigation before this arbitration was commenced.
The RevCare agreement provides for a one-year period, instead of the six-month period of the Agreement, for the filing of arbitration claims. The arbitration demand at issue in this case was premised exclusively upon the Agreement. It does not purport to be based upon any rights of arbitration that may have accrued under the RevCare contract.
In sum, the claims which PSC seeks to arbitrate all accrued more than six months before the filing of the demand for arbitration. Accordingly, Argyle has succeeded in demonstrating a reasonable probability of success with respect to its argument that the arbitration is time-barred.
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PSC offers two arguments in an effort to avoid the consequences of the six-month limitation period for the filing of arbitration claims. First, it argues that "claims of fraud, negligent misrepresentation, and violation of the Uniform Fraudulent Transfers Act are merely incidental and tangential to the contract. These claims do not `arise out' of `the agreement,' nor are they related to it." If that is true, then the claims are not subject to arbitration under the Agreement. If they do not "arise out of" the Agreement, PSC cannot insist upon their arbitration. How this argument advances its efforts to resist an application to enjoin the arbitration is something of a mystery.
Def.'s Mem. in Opp'n at 4.
Perhaps PSC is correct in its assertion that its negligent misrepresentation, fraud, and Uniform Transfers Act claims should not be deemed subject to the time limits imposed by the Agreement. The Court need not reach that question because PSC cannot fairly argue that it is entitled to arbitrate claims that do not "arise out of" the Agreement, while at the same time maintain that it is not subject to the agreed-upon time limit imposed on claims that "arise out of" the Agreement.
Second, PSC contends that the contractually agreed upon time limits should be deemed tolled because of inequitable conduct on the part of Argyle, or its representatives. This argument takes two forms. First, PSC contends that it was informed that Argyle and RevCare were going to merge and that it did not learn until the fall of 2008 that the merger had not occurred. Second, counsel for PSC contends that counsel for Argyle induced him into reliance upon discussions regarding the possibility of a "global" arbitration that would resolve all claims at issue between PSC and Argyle. It is not clear why either of these would justify relaxing the Agreement's time limit, especially in light of the complaint filed in the United States District Court for the Eastern District of Pennsylvania charging Argyle and related entities with negligent misrepresentation and fraud. As far as the discussions between counsel, the record only suggests that there were discussions; there is no indication of an agreement or some other meeting of the minds to the effect that the time limit of the Agreement would somehow be extended. There simply was nothing upon which counsel for PSC could reasonably rely. Similarly, perhaps there were misrepresentations about whether or not Argyle and RevCare had merged, or would merge. Regardless of that, however, the contractual dispute existed with respect to payment of sums due PSC, and whether the merger did or did not occur would not extend the six-month time limit specified in the Agreement. That discussions are ongoing does not, without more, relieve a party of its obligation to file its actions in accordance with the terms or conditions governing its rights to file those actions.
In short, the various excuses offered by PSC for having failed to file its arbitration claims in a timely fashion do not alter the conclusion that Argyle has demonstrated a reasonable probability of success on the merits of its claim.
PSC has demanded that the arbitration take place in the Commonwealth of Pennsylvania. The Agreement unambiguously provides that arbitration under the Agreement must take place in Delaware. That alone might satisfy Argyle's burden of demonstrating a reasonable probability of success on the merits of its claim, but, in fairness to the parties, the real dispute between them is not about where to arbitrate; instead, it is about whether there is anything to arbitrate.
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Argyle has also demonstrated that, in the absence of interim relief, it would suffer irreparable harm if it were necessary to participate in the arbitration demanded by PSC in order to protect its interests. Indeed, "[i]t is well-settled that . . . the procession of an unwarranted arbitration poses a threat of irreparable injury to the party rightfully resisting arbitration."
Parfi Holding AB v. Mirror Image Internet, Inc., 842 A.2d 1245, 1259 (Del.Ch. 2004).
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Lastly, the Court must weigh the equities in favor of and against entering a preliminary injunction. This requires the Court to "consider the potential harm in wrongfully granting the injunction, discounted by its probability, against the harm of wrongfully denying the preliminary injunction, discounted by its probability." In substance, Argyle seeks a preliminary injunction to suspend the arbitration proceedings pending a final determination as to whether it is, in fact, bound to arbitrate any disputes in that forum. Argyle has made a significant showing in support of its position that PSC's efforts to arbitrate are barred by the time constraints imposed by their agreement. Allowing an arbitration to proceed would clearly impose a significant risk of harm on Argyle because of the risk of an unappealable arbitration award entered adversely against it. The harm from entering a preliminary injunction against PSC is minimal in this instance. If PSC is, in fact, entitled to arbitrate this dispute as determined on final judgment, then a delay, especially in light of the tardiness with which it has brought forth its claims, would seem to be minimal. Thus, the potential harm to Argyle of not enjoining the arbitration proceedings clearly outweighs any harm to PSC from enjoining the arbitration proceedings.
HDS Inv. Holding, Inc. v. Home Depot, Inc., 2008 WL 4606262, at *9 (Del.Ch. Oct. 17, 2008) (citations omitted).
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Accordingly, for the foregoing reasons, Argyle has satisfied the elements required to support issuance of a preliminary injunction. The Court, in the exercise of its discretion, concludes that a preliminary injunction is appropriate. An order preliminarily enjoining further arbitration proceedings will be entered.