Summary
The Delaware Court of Chancery denied John Merrill Lafferty, Jr.'s request to enjoin arbitration initiated by his former employer. The court held that Lafferty assented to the Fifth Amended and Restated Limited Liability Company Agreement, including its arbitration provision, by signing an equity award agreement incorporating the amended agreement and by accepting benefits under it. Judgment was entered for the defendants.
Topics
Practice areas
Questions Presented
- Whether the Court of Chancery or the arbitrator had authority to decide whether Lafferty was bound by the Fifth LLC Agreement and its arbitration clause.
- Whether the Fifth LLC Agreement was validly adopted under the amendment provisions of the Fourth LLC Agreement.
- Whether Lafferty manifested assent to the Fifth LLC Agreement by signing the Equity Award Agreement and incorporated documents.
- Whether Lafferty manifested assent to the Fifth LLC Agreement by accepting benefits under it through his conduct.
- Whether Lafferty's reliance on an email describing the amendment as not materially adverse excused his failure to read the Fifth LLC Agreement.
Holdings
- Questions concerning contract formation and the existence of an agreement containing an arbitration clause are for the court to decide, even when the purported agreement includes a broad delegation clause.
- A party who signs an agreement that incorporates another agreement, including through nested incorporated documents, is bound by the incorporated agreement's terms, including its arbitration provision.
- A party that accepts the benefits of an agreement cannot later reject the agreement's burdens, including its dispute-resolution provision.
- The court need not decide whether the Fifth LLC Agreement's replacement of the Delaware forum clause materially, adversely, and disproportionately affected Lafferty because, even assuming his consent was required, the record established that he later consented.
Key quotations
“The plaintiff manifested his assent to the amended agreement when he signed an equity award that incorporated its terms. He then accepted the amended agreement’s economic benefits for nearly a year before resigning. Having done so, he is bound by the agreement, including its arbitration clause.” (at 1)
“Under Delaware law, questions of contract formation and existence are for the court to decide, not the arbitrator.” (at 12)
“By executing the Equity Award Agreement, Lafferty accepted the conversion of his Class B units to Class A units, a grant of additional units, and the receipt of quarterly distributions through 2025.” (at 18)
“Lafferty’s request to enjoin the Miami arbitration fails. He is bound by the Fifth LLC Agreement, including its arbitration provision. Judgment is entered for the defendants.” (at 21)
Factual background
Lafferty became a member of Corient Partners and initially joined the Fourth LLC Agreement, which required litigation in Delaware and permitted amendments subject to limits on material, adverse, and disproportionate effects. Corient later adopted the Fifth LLC Agreement, replacing the Delaware forum clause with a broad arbitration provision. Lafferty electronically signed an Equity Award Agreement incorporating the Notice of Conversion, which referred to the Fifth LLC Agreement, and then accepted converted units, additional units, and quarterly distributions totaling more than $7 million in value before resigning. After his resignation, Corient initiated arbitration concerning restrictive-covenant claims.
Procedural history
Corient initiated a JAMS arbitration against Lafferty on December 29, 2025, and an emergency arbitrator issued a temporary restraining order after determining that Lafferty had expressly adopted the Fifth LLC Agreement and its arbitration clause. Lafferty filed this action on January 2, 2026, asserting that the Fourth LLC Agreement governed and required litigation in Delaware. The Court of Chancery held a paper-record trial and entered judgment for defendants, denying the requested injunction.