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CAPROC Manager4/18/2005
ovisions that require arbitration. . . . If the arbitration clause is broad in scope, the court will defer to arbitration on any issues that touch on contract rights or contract performance.
In assessing arbitrability, the court may not determine the merits of the dispute. Indeed, " courts may not consider any aspect of the merits of the claim sought to be arbitrated, no matter how frivolous they appear."
A. Arbitrability
The LLC Agreement contains a broad arbitration provision. Section 12.7 states that " ny dispute or controversy arising under this Agreement shall be submitted to binding arbitration . . . ." Delaware courts have found arbitration provisions using similar "arising under" language to be broad in scope.
Having concluded that the arbitration provision is broad, the Court now must apply it to Plaintiffs' asserted claim. According to Defendants, the question of whether CAPROC Manager remains the Managing Shareholder of CAPROC depends upon the interpretation of the parties' rights and obligations under the LLC Agreement, and is therefore arbitrable. CAPROC advances two primary arguments to the contrary. First, CAPROC argues that the validity of the purported removal of the Managing Shareholder does not "arise under" the LLC Agreement because the Agreement does not contain a removal provision. Second, CAPROC contends that the LLC Agreement provides strong evidence of a purpose to exclude removal from arbitration.
1. Does removal "arise under" the LLC Agreement?
CAPROC argues that the provision of the LLC Agreement that names CAPROC Manager as Managing Shareholder without specifying any term limit or method of removal reflects an intent to make CAPROC Manager the permanent Managing Shareholder of CAPROC. Section 18-402 of the Delaware Act expressly provides that "a manager shall cease to be a manager as provided in a limited liability company agreement." The LLC Agreement, however, does not contain any provision relating to removal of a manager. CAPROC contends that the only permissible method of removal under the LLC Agreement is through amendment of the Agreement, but any amendment would require "written consent of CAPROC Manager and Seventy-Five (75%) of the remaining Shareholders of the Company." Because Defendants do not claim to have validly amended the LLC Agreement, CAPROC contends that they cannot claim to have used a method of removal that would "arise under" the Agreement and, therefore, be subject to arbitration.
Defendants disagree and contend that there are at least two methods to remove CAPROC Manager other than by amendment, and that they accomplished removal under both those methods. First, Defendants suggest that removal may be accomplished by a simple majority vote because the parties intended the default rule of 6 Del. C. § 18-402 to apply. They rely on the portion of § 18-402 which states that " nless otherwise provided in a limited liability company agreement, the management of a limited liability company shall be vested in its members . . . with the decision of members owning more than 50 percent of the . . . interests in the profits controlling." Thus, Defendants contend that they did not have to have enough votes to amend the LLC Agreement (75%). Second, Defendants contend that removal is a remedy implicitly available as a response to breach of contract and that removal therefore was proper in response to CAPROC Manager's alleged breaches of the LLC Agreement.
The validity of Defendants' purported removal of CAPROC Manager necessarily depends on interpretation of the parties' rights and obligations under the LLC Agreement. In its Complaint, CAPROC averred that " s Managing Shareh
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