Buzzfeed Does Not Have to Arbitrate Claims Brought by Employees

The litigation arose out of a SPAC acquisition of Buzzfeed by a special purpose entity, 890 5th Avenue Partners, Inc. (890).  The Court refers to 890 as “New Buzzfeed” and to the acquired company as “Old Buzzfeed.”  Defendants in the litigation are 91 employees of Buzzfeed (both Old and New) who claim that they were excluded from an IPO conducted by New Buzzfeed that created a new class of stock that the employees could not acquire because they could not timely convert their Old Buzzfeed stock.  Pursuant to their employment agreements with Old Buzzfeed, they sought to arbitrate their claims.  In Buzzfeed, Inc. v. Anderson, the Delaware Chancery Court held that defendants’ claims are not subject to arbitration.  There are lots of interesting aspects to this litigation, and I refer readers to excellent posts by Ann Lipton on our sister blog, the Business LawProf Blog here and here.

The merger, completed in December 2021, which the Court refers to as “the Combination,” involved four entities and resulted in two surviving entities, New Buzzfeed, now a subsidiary of Operating Co., which assumed Old Buzzfeed’s liabilities.  Defendants owned Class B stock in Old Buzzfeed pursuant to their Option Plan, and after the Combination, that stock was converted into Class B stock in New Buzzfeed.  But problems with conversion made it impossible for defendants to buy the new class of stock in New Buzzfeed in time to profitably participate in the IPO.  They filed what the Chancery Court calls two “mass arbitrations.”  I’m not sure what that means and the Corut doesn’t explain, but given that Buzzfeed was required to pay filing fees of $300 per claimant, I assume that it means that attorneys filed the same claim for each defendant, with each claim differing only in the name of the claimant and perhaps in some particulars about how they acquired their shares and the number of shares held.

Defendants claimed that the question of jurisdiction had to be sent to arbitration under Delaware’s Willie Gary test.  That test requires courts to decide questions of arbitrability absent “clear and unmistakable evidence” that the parties intended otherwise.   Here, only the defendants’ employment agreements required arbitration, and the plaintiffs were not parties to those agreements.  The court thus found that defendants had not established the parties’ intent to have the arbiter determine whether the defendants’ claims were arbitrable.  

The Court then concluded that the plaintiffs’ claims, seeking declaratory and injunctive relief, were not arbitrable.  The Court determined that it had jurisdiction over plaintiffs’ claims and personal jurisdiction over the defendants as New Buzzfeed shareholders pursuant to the New Buzzfeed forum selection clause, which specifies jurisdiction in the Delaware Chancery Court.  The Court then granted plaintiffs the anti-arbitration injunction they sought.  

The reasoning seems solid, but the outcome seems unjust.  Plaintiffs have manipulated the corporate form so as to deprive defendants of their preferred forum.  Defendants are forced to litigate in the Chancery Court as New Buzzfeed Shareholders, but they did not become New Buzzfeed shareholders by choice.  That occurred as a result of the Combination.  They thought they had a right to arbitrate pursuant to their employment agreements with Old Buzzfeed, but they cannot vindicate that right against a corporate entity that no longer exists.  Nor can they vindicate that right against the new entity or its officers and directors, because they  were not party to the employment agreements.  

I wonder what contracts profs who also teach corporate law think of all this.  I’m putting out a call for help.