Polychain Capital LP v. Pantera Venture Fund II LP

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
PAUL A. FIORAVANTI, JR. LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734

Date Submitted: April 8, 2022
Date Decided: July 6, 2022

Neal C. Belgam, Esquire A. Thompson Bayliss, Esquire
Robert K. Beste, Esquire April M. Kirby, Esquire
Smith, Katzenstein & Jenkins LLP Abrams & Bayliss LLP
1000 West Street, Suite 1501 20 Montchanin Road, Suite 200
Wilmington, DE 19801 Wilmington, DE 19807

RE: Polychain Capital LP et al. v. Pantera Venture Fund II LP et al.,
C.A. No. 2021-0670-PAF

Dear Counsel:

This letter opinion resolves the parties’ cross-motions for summary judgment

over whether to vacate or confirm a May 10, 2021 arbitration award. As explained

below, the petitioners’ motion for summary judgment is denied, the respondents’

cross-motion for summary judgment is granted, and the arbitration award is

confirmed.

I. FACTUAL BACKGROUND

A. The Parties and Their Agreement to Arbitrate

Petitioner Polychain Capital LP (“Polychain Capital” and formerly known as

“Polychain Capital LLC”) is a Delaware limited partnership. Polychain Capital is

an investment management entity in the cryptocurrency space, founded in 2016 by
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petitioner Olaf Carlson-Wee. The other petitioners 1 are entities related to Carlson-

Wee, which the petitioners themselves refer to as “Polychain.” The court also refers

to them collectively, with Polychain Capital and Carlson-Wee, as “Petitioners” or

“Polychain.”

Respondent Pantera Venture Fund II LP (“Pantera Fund”) acquired a 5%

membership interest in Polychain Capital in 2017. Respondent Pantera Capital

Management LP (together with Pantera Fund, “Pantera”), is Pantera Fund’s

investment manager. Pantera is a hedge fund that focuses on cryptocurrencies.

Polychain Capital’s operative governing document for purposes of this action

is the First Amended and Restated Limited Liability Company Agreement (the “LLC

Agreement”).2 Section 13.5 of the LLC Agreement contains an arbitration provision

(the “Arbitration Provision”) which requires that “[a]ny dispute, claim or

controversy arising out of or relating to” the LLC Agreement be arbitrated under the

1
Polychain Meta LLC, Polychain Partners LLC, Polychain VC LP, Polychain Venture
Partners LLC, Polychain Ventures LP, Polychain Crypto Laboratory LLC, Polychain Fund
II LP, Polychain Opportunities Fund I LLC, Polychain Partners II LLC, Polychain
Consulting LLC, and Polychain Ventures II LP.
2
Dkt. 39, Ex. 3 to Declaration of April Kirby (“LLC Agreement”). The LLC Agreement
was later amended, id., Ex. 4 to Declaration of April Kirby, and later converted into a
limited partnership agreement when Polychain Capital converted into a limited partnership
in January 2018. Id., Ex. 5 to Declaration of April Kirby. The parties have briefed their
motions with reference to the First Amended and Restated Limited Liability Company
Agreement, and the court refers to that agreement herein.
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auspices of the Judicial Arbitration and Mediation Services (“JAMS”) pursuant to

its “Comprehensive Arbitration Rules and Procedures.” 3

B. Pantera Commences Arbitration

On August 2, 2018, Pantera commenced an arbitration proceeding against

Polychain Capital, Carlson-Wee, and other Polychain entities and individuals.4

Pantera asserted four direct claims relating to amendments to the LLC Agreement.

Pantera alleged that Polychain had improperly adopted the amendments in an effort

to terminate Pantera Fund’s membership interest in Polychain.5 Pantera also

asserted four derivative claims on behalf of Polychain Capital against Carlson-Wee.6

One of these claims alleged that Carlson-Wee had breached his fiduciary duties by

diverting corporate opportunities of Polychain Capital to Polychain VC LP

(“Polychain VC”), a new investment manager that Carlson-Wee had created “to

advise venture funds investing in the same cryptocurrency space in which [Polychain

Capital] operates.”7 Polychain asserted three counterclaims against Pantera.8

3
LLC Agreement § 13.5.
4
Dkt. 41, Ex. 8 to Declaration of April Kirby (Arbitration Demand).
5
Id. ¶¶ 130–48.
6
Id. ¶¶ 149–78.
7
Id. ¶ 6; see also id. ¶¶ 153–62.
8
Dkt. 39, Ex. 1 to Declaration of April Kirby, Ex. A (“First Interim Award”) at 4.
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The Arbitration Provision requires that the arbitrator be “experienced in

dispute resolution regarding the securities industry.”9 The parties mutually selected

the Honorable Jay C. Gandhi (Ret.) to serve as the arbitrator (the “Arbitrator”). The

Arbitrator previously had served as a United States Magistrate Judge for the Central

District of California. Before that, he was a litigation partner at Paul Hastings LLP,

focusing on complex commercial disputes, multidistrict litigation, and class

actions. 10

The parties engaged in discovery, including document production,

depositions, and expert discovery. Following discovery, the Arbitrator held a five-

day arbitration hearing from September 9 through September 13, 2019 (the

“Hearing”). 11 Six witnesses testified in person, and each side presented its own

expert witness opinion.12 After the Hearing, the parties exchanged post-trial

briefing, totaling 175 pages.13 On December 12, 2019, the parties convened again

for summations, which lasted seven hours.14

9
LLC Agreement § 13.5.
10
Dkt. 41, Ex. 9 to Declaration of April Kirby (Arbitrator’s JAMS biography).
11
First Interim Award at 3–5.
12
Id. at 5.
13
Dkt. 38, Declaration of Michael E. Swartz (“Swartz Decl.”) ¶ 5.
14
First Interim Award at 6; Swartz Decl. ¶ 6.
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C. The Arbitrator’s Decisions

On February 12, 2020, The Arbitrator issued a 54-page Interim Award No. 1,

which resolved all remaining liability issues (the “First Interim Award”).

Specifically, the Arbitrator ruled in Pantera’s favor on three derivative claims against

Carlson-Wee and others: (1) breach of fiduciary duty for usurping corporate

opportunities and misappropriating intellectual property, (2) aiding and abetting

Carlson-Wee’s breach of fiduciary duty, and (3) breach of contract for

misappropriating intellectual property.15 With respect to the corporate opportunity

claim that is a focus of this action, the Arbitrator wrote:

At bottom, the equity investments in the funds managed by [Polychain
VC] were within [Polychain Capital’s] line of business. The collective
evidence also establishes that [Polychain Capital] had an interest or
expectation in those investments when they arose during and after the
summer of 2017 and was more than capable of taking advantage of the
opportunities to invest in equity. [Polychain Capital] was Polychain
until Carlson-Wee funneled the venture business to [Polychain VC].16

The Arbitrator ruled that, under the corporate opportunity doctrine, Polychain

Capital “is entitled to any pooled investment vehicles launched under the Polychain

enterprise that fall within the same line of business.” 17

15
First Interim Award at 6–44, 46, 54.
16
Id. at 38.
17
Id.
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On September 4, 2020, the Arbitrator issued Interim Award No. 2, awarding

Pantera $5,208,702.70 for fees and expenses that Pantera had incurred both as the

prevailing party and as a successful derivative plaintiff (the “Second Interim

Award,” and with the First Interim Award, the “Interim Awards”). 18 In addition, he

awarded Pantera’s counsel a fee enhancement of $340,516.45 under the corporate

benefit doctrine the (“Fee Enhancement”) so that Pantera’s counsel would recoup a

10% discount that it had applied to the fees it charged Pantera after the expense of

the Arbitration substantially exceeded initial estimates.19 The total amount of fees

and expenses awarded to Pantera’s counsel was $5,549,219.15. 20

The final phase of the proceedings addressed the form that the final arbitration

award (the “Final Award”) would take. Polychain argued for an entity-level

recovery to Polychain Capital.21 Pantera argued in favor of a pro rata direct recovery

to the individual investors in Polychain Capital.22 Over a period of months, the

parties engaged in extensive letter briefing over the form of the Final Award. 23 On

18
Dkt. 39, Ex. 1 to Declaration of April Kirby, Ex. B (“Second Interim Award”) at 19.
19
Id. at 15–18.
20
Id. at 19.
21
Dkt. 41, Ex. 12 to Declaration of April Kirby (Polychain Sept. 25, 2020 letter).
22
Dkt. 41, Ex. 21 to Declaration of April Kirby (Pantera Mar. 8, 2021 letter).
23
See Dkt. 41, Exs. 10–31 to Declaration of April Kirby.
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March 11 and April 19, 2021, the Arbitrator held video hearings on the form of the

Final Award, during which he issued oral rulings and directed the parties to confer

on a form of Final Award that included an entity-level recovery. 24 The parties

submitted their proposed form of the Final Award on May 7, 2021, which provided

for an entity-level recovery.25 The Arbitrator entered the Final Award on May 10,

2021. 26 The Interim Awards were incorporated by reference and attached as exhibits

to the Final Award.

D. The Post-Arbitration Dispute Moves to this Court

On July 30, 2021, Polychain filed a Verified Petition to Vacate Arbitration

Award in Part in this court.27 On August 9, 2021, Polychain filed a Motion to Vacate

Arbitration Award and for Summary Judgment on Petition to Vacate Arbitration

Award. 28 On September 20, 2021, Pantera, together with other affiliated entities

(“Respondents”), filed an Answer to Verified Petition to Vacate Arbitration Award

24
Dkt. 41, Exs. 22 (Notice of Hearing), 28 (Notice of Hearing) to Declaration of April
Kirby; Swartz Decl. ¶ 7.
25
Dkt. 41, Ex. 30 to Declaration of April Kirby; Dkt. 38, Declaration of April Kirby ¶ 32.
26
Dkt. 41, Ex. 7 to Declaration of April Kirby (JAMS Docket); see Dkt. 39, Ex. 1 to
Declaration of April Kirby (Final Award).
27
Dkt. 1.
28
Dkt. 7.
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in Part and Verified Counterclaim to Confirm Arbitration Award. 29 On November

18, 2021, Respondents filed their Motion to Confirm Arbitration Award and for

Summary Judgment.30

Following full briefing, the court held argument on the motions on March 8,

2022 and received a supplemental submission from Respondents’ counsel on April

8, 2022, providing additional information in response to an inquiry of the court. The

court considered the matter fully submitted on April 8, 2022.

II. ANALYSIS

A. Standard of Review

The filing of cross motions for summary judgment is the “common [method]

for this court to determine whether to vacate or confirm an arbitration award.” Beebe

Med. Ctr., Inc. v. InSight Health Servs. Corp., 751 A.2d 426, 431 (Del. Ch. 1999).

Under Court of Chancery Rule 56, summary judgment will be granted if the record

shows that there is no genuine issue as to any material fact and the moving party is

entitled to judgment as a matter of law. Zurich Am. Ins. Co. v. St. Paul Surplus

Lines, Inc., 2009 WL 4895120, at *4 (Del. Ch. Dec. 10, 2009). Where, as here, the

Dkt. 21. Besides for Pantera, Respondents also include Pantera Advisors LLC, Pantera
29

GP LLC, Pantera ICO Fund LP, Pantera ICO Fund II LP, Dan Morehead, and Paul
Veradittakit.
30
Dkt. 38.
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parties file cross motions for summary judgment and do not argue that there is any

issue of material fact to the disposition of either motion, the court shall deem the

motions to be the equivalent of a stipulation for a decision on the merits based on

the record submitted with the motions. Ct. Ch. R. 56(h); Zurich, 2009 WL 4895120,

at *4.

The parties agree that the Final Award is governed by the terms of the Federal

Arbitration Act (“FAA”). The FAA provides four specific grounds upon which an

award may be vacated. 9 U.S.C. § 10(a). As the Delaware Supreme Court has

observed:

A court’s review of an arbitration award is one of the narrowest
standards of judicial review in all of American jurisprudence. Limited
circumstances warrant vacatur of an arbitration award. Section 10 of
the FAA . . . allows vacatur of an arbitration award only in the case of
arbitral misconduct: corruption, fraud, evident partiality, misconduct,
misbehavior, and exceed[ing] . . . powers.

Auto Equity Loans of Del., LLC v. Baird, 232 A.3d 1293 (Del. 2020) (TABLE)

(quotations and citations omitted).

When considering an application to vacate an arbitration award, the court shall

not pass on the merits of the dispute submitted to the arbitrator. The role of the court

is confined to determining whether one of the specific statutory grounds for vacating

the award exists. To convince a court to vacate an award, the movant must show
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“something beyond and different from a mere error in the law or failure on the part

of the arbitrators to understand or apply the law.” TD Ameritrade, Inc. v.

McLaughlin, Piven, Vogel Sec., Inc., 953 A.2d 726, 732–33 (Del. Ch. 2008) (internal

quotations omitted); accord Agspring, LLC v. NGP X US Hldgs., L.P., 2022 WL

170068, at *3 (Del. Ch. Jan. 19, 2022). If the motion to vacate is denied, the court

must confirm the award. See 9 U.S.C. § 9 (“the court must grant [an application to

confirm the award] unless the award is vacated, modified, or corrected”).

Polychain seeks to vacate the Final Award under Section 10(a)(4) of the FAA,

which permits vacating an award “where the arbitrators exceeded their powers, or

so imperfectly executed them that a mutual, final, and definite award upon the

subject matter submitted was not made.” 9 U.S.C. § 10(a)(4). The court starts with

the “presumption that the arbitrat[or] . . . acted within the scope of its authority” and

“must resolve all doubts in favor of the arbitrator.” TD Ameritrade, 953 A.2d at 732

(internal quotations omitted); accord Carl Zeiss Vision, Inc. v. Refac Hldgs., Inc.,

2017 WL 3635568, at *5 (Del. Ch. Aug. 24, 2017). Demonstrating that an arbitrator

exceeded his authority is a steep hill to climb; indeed, as this court has stated, it is a

“nearly vertical mountain.” Carl Zeiss, 2017 WL 3635568, at *1; accord Auto

Equity Loans, 232 A.3d at 1293 & n.26.
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Delaware courts will vacate an award due to an arbitrator exceeding his

authority only “where the arbitrator acts in manifest disregard of the law . . . meaning

the arbitrator (1) knew of the relevant legal principle, (2) appreciated that this

principle controlled the outcome of the disputed issue, and (3) nonetheless willfully

flouted the governing law by refusing to apply it.” SPX Corp. v. Garda USA, Inc.,

94 A.3d 745, 750 (Del. 2014) (internal quotations omitted). Polychain contends that

the Arbitrator exceeded his powers in three separate ways: (1) the Arbitrator’s

decision on the corporate opportunity claim did not “draw its essence” from the LLC

Agreement; (2) Pantera was an inadequate derivative plaintiff; and (3) the Arbitrator

exceeded his authority by including findings of fact and conclusions of law, which

the LLC Agreement prohibited.

B. The Corporate Opportunity Claim

Polychain argues the Arbitrator’s decision that Carlson-Wee breached his

fiduciary duties by diverting corporate opportunities from Polychain Capital

exceeded the scope of the Arbitrator’s authority under Section 10(a)(4) of the FAA.

Polychain presents its challenge to the Arbitrator’s decision on the corporate

opportunity claim solely as a question involving contract construction. Specifically,

Polychain contends the Arbitrator impermissibly rewrote the LLC Agreement in
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finding liability on the corporate opportunity claim.31 Respondents contend that the

issue is not one of contract interpretation, but rather a fact-intensive, common law

fiduciary duty claim. Even viewing the issue as one of contract interpretation,

Polychain has not satisfied its burden.

When parties submit questions of contract interpretation to an arbitrator, a

reviewing court considering a motion to vacate “is confined to ascertaining whether

the award draws its essence from the contract.” United Paperworkers Int’l Union,

AFL-CIO v. Misco, Inc., 484 U.S. 29, 30 (1987). In that circumstance, the only

question for this court “is whether the arbitrator (even arguably) interpreted the

parties’ contract, not whether he got its meaning right or wrong.” Oxford Health

Plans LLC v. Sutter, 569 U.S. 564, 569 (2013).

Citing Delaware law, the Arbitrator acknowledged that “[w]hether or not a

corporate opportunity has been usurped ‘is a factual question to be decided by

reasonable inference from objective facts.’” First Interim Award at 33 (emphasis in

original) (quoting Grove v. Brown, 2013 WL 4041495, at *8 (Del. Ch. Aug. 8, 2013)

(internal quotations omitted)). As to this particular case, the Arbitrator observed that

“the corporate opportunity analysis is so intensely factual, there are no cases cited

31
Dkt. 34 (“Pets.’ Op. Br.”) at 26–42.
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that are directly on point.”32 Polychain argued that the LLC Agreement reflected the

parties’ intent that Polychain Capital did not have a right (or interest or expectancy)

in future funds.33 As a threshold matter, the Arbitrator determined, and Polychain

admits, that the LLC Agreement neither disclaims corporate opportunities nor

eliminates fiduciary duties. 34 The Arbitrator then considered Polychain’s arguments

and concluded that they were not persuasive. 35

Polychain contends that the Final Award can and should be vacated because

the arbitrator’s ruling did not “draw its essence” from the LLC Agreement, but,

32
First Interim Award at 31.
33
Id. at 33–35.
34
Id. at 27, 33–35; Dkt. 63 (“Hrg.”) at 11:18–23 (“THE COURT: Does the LLC agreement
disclaim the corporate opportunity doctrine? ATTORNEY LEVINE: Your Honor, it does
not. . . . Nor have we ever argued that the fiduciary duties were disclaimed.”).
35
Polychain denies that it is seeking plenary review of the Arbitrator’s determination on
the corporate opportunity claim, but its submissions to this court belie that assertion. Its
opening brief resembles a post-trial brief. See, e.g., Pets.’ Op. Br. 30 (arguing about what
Carlson-Wee and Polychain’s largest outside investor “intended or believed” concerning
the meaning of the LLC Agreement); id. (arguing that Polychain presented
“[u]ncontroverted evidence at the hearing” about industry practice); id. at 36 (arguing that
“[e]xtrinsic evidence regarding the parties’ agreement confirms that there is no basis for
finding that Polychain Capital had an interest in future funds”); id. at 38 (“Pantera’s only
evidence that it had expected fees on future funds was the self-serving testimony of its
principals.”). Polychain also submitted 34 exhibits with its opening brief in support of its
motion for summary judgment. See Dkt. 32. Many of those exhibits are emails that were
submitted as evidentiary exhibits in the arbitration; they also include witness testimony,
either during the arbitration proceeding or via deposition. This court does not sit as an
appellate court reviewing an arbitrator’s decision. World-Win Mktg., Inc. v. Ganley Mgmt.
Co., 2009 WL 2534874, at *2 (Del. Ch. Aug. 18, 2009).
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instead, is premised upon the Arbitrator’s modification of the agreement.36

Polychain primarily cites decisions seeking to vacate arbitration awards involving

the construction and application of labor contracts. 37 It relies most heavily upon

Monongahela Valley Hospital Inc. v. United Steel Paper & Forestry Rubber

Manufacturing Allied Industrial & Service Workers International Union AFL-CIO,

946 F.3d 195 (3d Cir. 2019). A discussion of that decision demonstrates that it is

inapplicable to this case.

Monongahela involved the interpretation of a vacation time policy contained

in a collective bargaining agreement between a hospital and union member

employees. 946 F.3d at 197. Specifically, the policy provided: “[v]acation will, so

far as possible, be granted at times most desired by employees; but the final right to

allow vacation periods, and the right to change vacation periods[,] is exclusively

reserved to the Hospital.” Id. (alteration in original). Arbitration ensued after the

hospital denied a union member employee her requested vacation time. Id. at 198.

The arbitrator found in favor of the employee, ruling that “notwithstanding the

Hospital’s reservation of exclusive rights,” the policy precluded the hospital from

36
Pets.’ Op. Br. 26 (quoting PMA Cap. Ins. Co. v. Platinum Underwriters Bermuda, Ltd.,
659 F. Supp. 2d 631, 637 (E.D. Pa. 2009), aff’d, 400 F. App’x 654 (3d Cir. 2010)).
37
Id. at 33–35.
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denying senior employees in the bargaining unit their desired vacation absent an

“operating need.” Id. The district court vacated the award for “manifest disregard”

of the collective bargaining agreement’s plain language and the clear intent of the

parties. Id. at 199. The Third Circuit affirmed, holding that the arbitrator exceeded

his authority by “inserting the ‘operating need’ restriction.” Id. at 200–01.

Unlike in Monongahela, the Arbitrator here did not ignore the express

language of the LLC Agreement and insert a term that effectively rewrote the

agreement. The Arbitrator decided a common law breach of fiduciary duty claim

for usurpation of a corporate opportunity. The LLC Agreement neither waived the

corporate opportunity doctrine nor eliminated fiduciary duties. The Arbitrator

considered, but was not persuaded by, Polychain’s argument that the provisions of

the LLC Agreement and other evidence showed that Polychain Capital did not have

an expectancy or interest in the corporate opportunity derived from the creation of

future funds. The LLC Agreement does not expressly state that Polychain Capital

did not have any expectancy or interest in managing other funds. The Arbitrator

reasoned: “The lack of express language referencing interests in ‘future funds’ does

not necessarily negate [Polychain] Capital’s right” to an interest in future funds.38

38
First Interim Award at 35. In support of its position, Pantera pointed to language in the
LLC Agreement stating that Polychain Capital “primarily intends to provide investment
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But even as the Arbitrator acknowledged, that was “not the end of the analysis.”39

The Arbitrator then reasoned that Pantera had established its corporate opportunity

claim.

It is not this court’s role on a motion to vacate to second-guess the Arbitrator’s

weighing of facts or even his interpretation of contract language in assessing a fact-

intensive, common law fiduciary duty claim. The only question for this court “is

whether the arbitrator (even arguably) interpreted the parties’ contract, not whether

he got its meaning right or wrong.” Oxford Health Plans, 569 U.S. at 569. In

considering whether the arbitrator exceeded its authority, “the Court must resolve

all doubts in favor of the arbitrator.” TD Ameritrade, 953 A.2d 732 (internal

quotations omitted). Here, the court harbors no doubt that the Arbitrator’s decision

on the corporate opportunity claim was well within the scope of his authority.

Accordingly, the application to vacate the decision on the corporate opportunity

claim is denied.

management services and to act as an investment manager to one or more pooled
investment vehicles . . . including but not limited to Polychain Fund I LP.” LLC Agreement
§ 1.2 (emphasis added).
39
First Interim Award at 35.
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C. Pantera’s Qualification as a Derivative Plaintiff

Polychain also seeks to vacate the Final Award on the corporate opportunity

claim on the ground that the Arbitrator exceeded his authority by failing to disqualify

Pantera as a derivative plaintiff. This argument is, admittedly, somewhat difficult

to follow. As the court understands Polychain’s argument, Pantera should have been

disqualified as a derivative plaintiff because, in the parties’ competing proposals

over the form of the Final Award, Pantera sought individual relief, rather than relief

to the entity. As noted above, however, the Arbitrator ultimately awarded an entity-

level recovery on the corporate opportunity claim, not the investor-level recovery

that Pantera had initially proposed.

Polychain presented the disqualification issue to the Arbitrator, and he

rejected Polychain’s arguments.40 Polychain argues that the Arbitrator exceeded his

40
See Dkt. 41, Ex. 19 to Declaration of April Kirby at 15 (Jan. 22, 2021 letter from
Polychain’s counsel to the Arbitrator: “In light of Pantera’s post-Interim Award efforts to
fundamentally change the scope of its claims and the nature of the relief it seeks from
derivative to direct, it would be entirely appropriate for the Arbitrator to exercise the
discretion granted under JAMS Rules 24(c) to reconsider not only the merits of the Interim
Award but Pantera’s adequacy as a representative of the interests of the investors in
Polychain Capital.”); Dkt. 32, Declaration of Andrew Levine, Ex. 31 at 3 (March 3, 2021
letter from Polychain’s counsel to the Arbitrator: “[The Arbitrator] should reject Pantera’s
bid to gain personal advantage at Polychain’s expense, which calls into doubt whether
Pantera has been an appropriate advocate on the Company’s behalf and should be allowed
to continue as a derivative plaintiff.”); Hrg. 103:15–17 (Petitioners’ counsel advising this
court that Polychain “extensively briefed the adequacy issue. And I believe that Judge
Gandhi considered it and ruled on it and rejected it.”); Swartz Decl. ¶ 8 (“During the March
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authority because Pantera sought individual relief and was antagonistic to Polychain

Capital. Polychain cannot satisfy its burden under Section 10(a)(4) of the FAA. In

considering an application to vacate an award on the grounds that the arbitrator

exceeded its authority, it is not enough to show merely that the arbitrator committed

legal error. The court “may not review the merits of [an arbitration] award,” even

in the case of serious legal error. Verizon Pa., LLC v. Commc’ns Workers of Am.,

AFL-CIO, Local 13000, 13 F.4th 300, 306 (3d Cir. 2021); see Oxford Health Plans,

569 U.S. at 569 (“It is not enough . . . to show that the [arbitrator] committed an

error—or even a serious error.”). Even if the arbitrator erred in his interpretation of

the case law on the qualification of a derivative plaintiff, the result would not change

because “[e]xceeding one’s powers . . . is not synonymous with making a mistake.”

Ross Dress for Less Inc. v. VIWP, L.P., 750 F. App’x 141, 144 (3d Cir. 2018).

“Factual or legal errors, without more, are not sufficient bases to vacate an arbitration

award.” Blank Rome, LLP v. Vendel, 2003 WL 21801179, at *7 (Del. Ch. Aug. 5,

2003).

11, 2021 hearing, Judge Gandhi . . . rejected Polychain’s request that Pantera be
disqualified as a derivative plaintiff.”). The parties have advised that there was no
transcript of the March 11, 2021 hearing before the Arbitrator. Dkt. 64 at 3.
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Polychain points to Smollar v. Potarazu, 2016 WL 3635304 (Del. Ch. June

29, 2016), as support for vacating the Final Award due to the Arbitrator’s refusal to

disqualify Pantera. In Smollar, the court rejected a derivative settlement because the

representative plaintiff executed a settlement agreement that provided for him to

receive a personal financial benefit not available to other stockholders—i.e., the

company’s purchase of the plaintiff’s stock at the price he paid for it fifteen years

earlier. Thereafter, other stockholders moved to disqualify the plaintiff and his

counsel for lack of standing. The court granted the motion because the plaintiff

sought court approval of a settlement that provided him with a substantial personal

benefit and because the plaintiff “stated his intention, notwithstanding the Court’s

rejection of the proposed Settlement Agreement, to forego any further prosecution

of the action.” Id. at *3.

Smollar arose in an entirely different context and will not carry the burden

that Polychain asks it to bear here. First, Smollar involved a proposed settlement

subject to court approval, not review of an arbitration award or a judgment entered

by a court. Second, Smollar was a purely derivative action where the representative

plaintiff sought a personal benefit in the settlement which was not available to other

stockholders. Here, by contrast, Pantera asserted both derivative and individual

claims and sought relief for both. Beyond that, the proposed derivative relief for the
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corporate opportunity claim was a pro-rata investor-level recovery, not solely a

personal benefit for Pantera.41 Third, unlike in Smollar, Pantera did not forgo any

further prosecution of the action after Polychain objected to Pantera’s form of the

Final Award. Fourth, Polychain does not take issue with the actual relief awarded

for the corporate opportunity claim.

Polychain next argues that the Arbitrator’s decision that awarded Pantera a

“fee enhancement” of $340,516.45 above the amount billed by its lawyers was

irrational and must be vacated.42 Pantera’s counsel charged a reduced rate to accept

the representation. Pantera sought, and the Arbitrator awarded, the fee enhancement

based upon the benefits conferred upon Polychain Capital. The Second Interim

Award acknowledged that benefit, which “logically results in an increase in the

valuation of [Polychain] Capital, as the fees generated from the funds at issue now

flow back to [Polychain] Capital.” 43 It is well-settled that a plaintiff is entitled to

41
“[S]ubstantial authority supports a court’s ability to grant a pro rata recovery on a
derivative claim. Such a recovery is the exception, not the rule, but it is possible.” In re
El Paso Pipeline P’rs, L.P. Deriv. Litig., 132 A.3d 67, 75 (Del. Ch. 2015), rev’d on other
grounds sub nom. El Paso Pipeline GP Co., LLC v. Brinckerhoff, 152 A.3d 1248 (Del.
2016); see also In re Happy Child World, Inc., 2020 WL 5793156, at *2 (Del. Ch. Sept.
29, 2020) (“As a court of equity, this Court, I believe, would be within its authority to
fashion [a direct recovery for a derivative claim] if it did so with care.”).
42
Pets.’ Op. Br. 53–54.
43
Second Interim Award at 15.
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recover attorneys’ fees for a corporate benefit in derivative litigation. Chrysler

Corp. v. Dann, 223 A.2d 384, 386 (Del. 1966).

Polychain does not contend that the Arbitrator lacked the authority to award

fees or to award a fee enhancement. Instead, Polychain argues that Pantera should

not have been provided a fee enhancement because it first “urge[d] the Arbitrator to

award Pantera a direct reward and thereby deny Polychain Capital any benefit on

that claim and prevent any fees from flow[ing] back to [Polychain] Capital, while

simultaneously requesting that the Award grant Pantera unique extra-contractual

information rights it could use to unfairly compete with Polychain.” 44 This misses

the point. As discussed above, Pantera initially sought an investor-level recovery as

relief for Carlson-Wee’s usurpation of corporate opportunities. Even then, a fee-

enhancement would have been permitted based on a common fund benefit. At

bottom, Polychain’s argument on this point is merely a slight twist on its previously

rejected argument that the Arbitrator exceeded his authority by not disqualifying

Pantera as a derivative plaintiff. Polychain has not satisfied its high burden under

Section 10(a)(4) of the FAA. The FAA does not provide for a “general review for

an arbitrator’s legal errors.” Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576,

44
Pets.’ Op. Br. 53–54 (internal quotations and emphasis omitted).
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585 (2008); accord TD Ameritrade, 953 A.2d at 731. Awarding the fee enhancement

was well within the Arbitrator’s authority and was hardly irrational. Accordingly,

the challenge to the fee enhancement fails.

D. The Form of the Final Award

Polychain’s final challenge concerns the form of the Arbitrator’s Final Award.

Polychain points to Section 13.5 of the LLC Agreement, which provides that “[t]he

arbitration award will not include factual findings or conclusions of law.”45

Polychain argues that the Arbitrator’s 54-page First Interim Award contained

detailed factual findings and conclusions of law, which violated this contractual

limitation on the Arbitrator’s authority. 46 The Interim Awards were incorporated by

reference into and made part of the May 10, 2021 Final Award.

According to Polychain, any portion of the Final Award that contains findings

and conclusions should not exist.47 This portion of Polychain’s challenge to the

Final Award does not seek to undo any of the relief that the Arbitrator awarded.

Instead, Polychain seeks an order requiring that large portions of the Final Award

and most all of the Interim Awards that are attached thereto be excised. Polychain

45
LLC Agreement § 13.5.
46
The Second Interim Award was 19 pages in length.
47
See Pets.’ Op. Br. 61–62.
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insists that it is entitled to this relief because the LLC Agreement’s Arbitration

Provision reflects the parties’ express intention to maintain the confidential nature

of their relationship and any disputes between them.

This issue was hotly litigated before the Arbitrator, and he expressly

addressed it in his April 20, 2020 Ruling, rejecting Polychain’s arguments. In his

ruling on Polychain’s motion to correct the First Interim Award, the Arbitrator took

issue with the assertion that his award contained findings of fact and conclusions of

law in violation of the LLC Agreement. 48 The Arbitrator, a former litigation partner

at a national law firm and retired federal Magistrate Judge, offered several reasons

for his decision.

First, the Arbitrator explained that the Arbitration Provision incorporated the

JAMS Comprehensive Arbitration Rules and Procedures, which instructs that

“‘[u]nless all Parties agree otherwise, the Award shall also contain a concise written

statement of the reasons for the Award.’” 49 The Arbitrator cited JAMS guidance for

the understanding that there are three types of arbitration awards: (1) bare, (2)

48
Dkt. 18, Ex. A at 2–3.
49
Id. at 2 (quoting JAMS Comprehensive Arbitration Rules and Procedures Rule 24(h)).
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reasoned, and (3) findings of fact and conclusions of law. 50 Polychain counters with

authority stating that “[a] ‘reasoned award’ means that findings of fact and

conclusions of law supporting the ultimate award rendered are stated in the award or

in a supporting memorandum.” 21 Williston on Contracts § 57:116 (4th ed.); see

also Dunhill Franchisees Tr. v. Dunhill Staffing Sys., Inc., 513 F. Supp. 2d 23, 27

(S.D.N.Y. 2007) (equating a “‘reasoned’ award” with “a formal articulation of the

Arbitrator’s findings of fact, conclusions of law, or reasons for his determination”).51

The Arbitrator considered Polychain to be asserting that the LLC Agreement

only provided for a bare award, which he dismissed as inconsistent with the JAMS

Rules that were incorporated into the Arbitration Provision. The Arbitrator

determined that he was entitled to issue a reasoned award, and the LLC Agreement

did not preclude him from providing rationales and explanations for his rulings.52

The Arbitrator’s determination finds support in the case law cited by

Polychain:

Logically, the varying forms of awards may be considered along a
spectrum of increasingly reasoned awards, with a standard award
requiring the least explanation and findings of fact and conclusions of

Id. at 3 (citing Hon. David Huebner (Ret.) & Richard Chernick, JAMS Los Angeles,
50

Making Arbitration Work: Best Practices, Nov. 13, 2019).
51
Pets.’ Op. Br. 60.
52
Dkt. 18, Ex. A at 2–3.
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law requiring the most. In this light, therefore, a reasoned award is
something short of findings and conclusions but more than a simple
result.

Cat Charter, LLC v. Schurtenberger, 646 F.3d 836, 844 (11th Cir. 2011) (quoting

Sarofim v. Tr. Co. of the W., 440 F.3d 213, 215 n.1 (5th Cir.2006)) (internal

quotations and citations omitted). Cat Charter went on to explain that “[s]trictly

speaking, then, a ‘reasoned’ award is an award that is provided with or marked by

the detailed listing or mention of expressions or statements offered as a justification

of an act—the ‘act’ here being, of course, the decision of the Panel.” Id.; see also

Leeward Constr. Co., Ltd. v. Am. Univ. of Antigua-College of Med., 826 F.3d 634,

640 (2d Cir. 2016) (observing that a “reasoned award sets forth the basic reasoning

of the arbitral panel on the central issue or issues raised before it”). The issue in Cat

Charter was the opposite of what is being argued here. In that case, the arbitration

panel’s award was being challenged for containing too little information to be

considered a “reasoned award.” The appeals court, reversing the trial court, held

that it did.

Polychain cites only one case where an arbitrator was held to have exceeded

his authority for issuing an award that contained more detail than what the parties

had bargained for. In Allstate Insurance Co. v Superior Court, 48 Cal. Rptr. 3d 266

(Cal. Ct. App. 2006), the parties’ agreement provided: “The decision of the
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arbitrator . . . shall be issued without a written opinion other than to indicate which

party prevailed and how much, if anything, Allstate shall pay to [the insured].” Id.

at 268. The arbitrator was not apprised of this language until after he had issued a

five-page ruling that spelled out his reasoning in detail. The arbitrator subsequently

told the parties that, if a court were to rule that the arbitrator could modify his ruling,

he would withdraw the ruling and issue a revised ruling. Id. at 269. The trial court

vacated the arbitrator’s ruling on the grounds that he had not resolved all issues. On

appeal, the California Court of Appeal directed the trial court to vacate its order

vacating the arbitration award and to correct the arbitration award by deleting the

introduction and discussion of the award, leaving only the conclusion containing the

amount of the award. Id. at 271.

All of the other cases upon which Polychain relies involve challenges to the

arbitrator’s form of award for having insufficient detail, not too much. See, e.g., W.

Emp’rs Ins. Co. v. Jefferies & Co., Inc., 958 F.2d 258, 260 (9th Cir. 1992) (vacating

award because it failed to contain findings of fact and conclusions of law); Cat

Charter, 646 F.3d at 842, 846 (reversing trial court’s decision that the arbitrators had
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exceeded their authority for having failed to provide a satisfactorily reasoned

award).53

Unlike in Allstate, the Arbitration Provision did not expressly limit the form

of award to an identification of the prevailing party and the amount of the award.

There was room for interpretation as to whether it permitted a reasoned award under

the JAMS Rules. Under JAMS Rule 11(a): “Once appointed, the Arbitrator shall

resolve disputes about the interpretation and applicability of these Rules and conduct

of the Arbitration Hearing. The resolution of the issue by the Arbitrator shall be

final.” JAMS Rule 11(a). The Arbitrator’s interpretation and application of the

JAMS Rules are entitled to deference upon review of an award. See Berland v.

Conclave, LLC, 2021 WL 461727, at *7 (S.D. Cal. Feb. 9. 2021) (“The Arbitrator’s

53
Polychain also contends that the Final Award must be significantly edited because of its
potential precedential effect. Hrg. 106:21–107:11. That argument was not raised with the
Arbitrator and was not raised in Polychain’s opening brief. Therefore, it is waived. See
Emerald P’rs v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed
waived.”); Winshall v. Viacom Int’l, Inc., 55 A.3d 629, 642 (Del. Ch. 2011) (ruling that an
argument raised for the first time at a hearing was “not fairly or timely presented and was
waived”), aff’d, 76 A.3d 808 (Del. 2013); accord Hill v. LW Buyer, LLC, 2019 WL
3492165, at *6 n.65 & *11 n.108 (Del. Ch. July 31, 2019). In any event, the argument is
without merit. “It is black letter law that arbitration awards are not entitled to the
precedential effect accorded to judicial decisions. Indeed, an arbitration award is not
considered conclusive or binding in subsequent cases involving the same contract language
but different incidents or grievances.” El Dorado Tech. Servs., Inc. v. Union Gen. De
Trabajadores de P.R., 961 F.2d 317, 321 (1st Cir. 1992).
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interpretation and application of the JAMS Rules is entitled to significant

deference.”).

The Arbitrator’s reasoning on this issue was not limited solely to his

interpretation of the Arbitration Provision and its interplay with the JAMS Rules.

The Arbitrator also detailed how Polychain was well aware throughout the lengthy

arbitration process that the Arbitrator would not be issuing a bare award. For

example, the Arbitrator noted that he had issued reasoned decisions throughout the

arbitration, containing the bases for his decisions, to which no party objected.54 In

addition, the Arbitrator specifically requested that the parties de-duplicate the

exhibits “so that we’re not citing two exhibits on the award.” 55 The Arbitrator

explained that he also told the parties that in preparation for deciding the First

Interim Award, he did not want to refer to multiple exhibits and that he had reminded

the parties that he wanted more than 30 days to draft the First Interim Award. 56 The

Arbitrator noted:

Neither party objected to the Arbitrator’s requests. In fact, counsel for
Polychain offered to create a correlation table of exhibits for cross-
reference to assist the Arbitrator with the de-duplication process in
drafting the award. It goes without saying that a “bare” award certainly

54
Dkt. 18, Ex. A at 3.
55
Id. (quoting the arbitration transcript).
56
Id.
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would not require the citation of multiple evidentiary exhibits or, for
that matter, more than 30 days to complete. 57

Although the Arbitrator did not use the terms “acquiescence” or “waiver,” that is

certainly the flavor of his reasoning.

The court also must consider Polychain’s requested relief in the current

context of the parties’ dispute. At an earlier phase of this action, Polychain sought

confidential treatment of the Final Award, including the Interim Awards attached

thereto. Respondents challenged that application under Court of Chancery Rule 5.1.

The court denied Polychain’s application because Polychain over-designated large

swaths of the Final Award, much of which did not satisfy the criteria for

“confidential information” under Rule 5.1.58

In denying the motion for confidential treatment, the court expressly delayed

implementation of its order for 10 days to allow Polychain the opportunity to seek

an interlocutory appeal before the Final Award, including the Interim Awards,

57
Id. Finally, the Arbitrator noted that the driving factor for Polychain’s motion to correct
the First Interim Award was to protect the confidentiality of the proceeding. The parties
had stipulated to a protective order ensuring the confidentiality of sensitive information
elicited through discovery. The Arbitrator also noted that while this order stated that the
parties would “consider” whether an additional order governing the confidentiality of the
arbitration hearing would be necessary, the parties never stipulated to such an order. Id.
58
See Dkt. 47.
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became public.59 Polychain did not seek an interlocutory appeal, and the Final

Award, including the Interim Awards became public. The Final Award and the

Interim Awards have been publicly disclosed via the news media.60 Thus, even if

the court were to grant the requested relief—excising the Arbitrator’s reasoning from

the Final Award, including the Interim Awards—the Arbitrator’s reasoning for the

Final Award would be unchanged, and it would be publicly available. The court is

hard-pressed to see how granting Polychain’s requested relief on this issue would be

anything more than, at best, a Pyrrhic victory.

Polychain has not established sufficient grounds to excise portions of the Final

Award that contain the Arbitrator’s reasoning and analysis. The Arbitrator’s

decision on the appropriate form of award, which carefully considered the

Arbitration Provision in the context of the incorporated JAMS Rules, is entitled to

deference. In addition, the court cannot conclude that the Arbitrator’s decision on

this issue, in the context of the parties’ conduct during the entire arbitration, reflect

that he exceeded his authority under Section 10(a)(4) of the FAA. “[Q]uestionable

59
Id. ¶ 16.
60
See, e.g., Allison Grande, Chancery Won’t Let Polychain’s ‘Sweeping’ Redactions
Stand, LAW360 (Dec. 10, 2021), available at
https://www.law360.com/articles/1447779/chancery-won-t-let-polychain-s-sweeping-
redactions-stand.
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legal support or a misreading of the law alone are insufficient to vacate an arbitration

award.” Auto Equity Loans, 232 A.3d at 1293. Accordingly, Polychain’s

application to vacate the form of the Final Award is denied.

This conclusion is consistent with the general review principles embodied in

the FAA. The United States Supreme Court has read Sections 9 through 11 of the

FAA:

as substantiating a national policy favoring arbitration with just the
limited review needed to maintain arbitration’s essential virtue of
resolving disputes straightaway. Any other reading opens the door to
the full-bore legal and evidentiary appeals that can render informal
arbitration merely a prelude to a more cumbersome and time-
consuming judicial review process, and bring arbitration theory to grief
in post-arbitration process.

Cat Charter, 646 F.3d at 845 (quoting Hall St. Assocs., 552 U.S. at 588

(citations and internal quotation marks omitted)). In addition, any doubt as to

whether the arbitrator exceeded his authority must be resolved in favor of the

arbitrator. TD Ameritrade, 953 A.2d at 732; accord Carl Zeiss, 2017 WL 3635568,

at *5–6.

Accordingly, Polychain’s motion for summary judgment seeking to vacate the

Final Award must be denied. Therefore, the court is obliged to grant Respondents’

cross-motion for summary judgment to confirm the Final Award. 9 U.S.C. § 9.
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E. Respondents’ Fees and Expenses

As the prevailing party, Respondents seek an award of their fees and expenses

in this action. The LLC Agreement provides that a prevailing party in any dispute

under the agreement is entitled to an award of its fees and expenses.61 Polychain

does not dispute that the prevailing party in this action is entitled to its fees and

expenses. Accordingly, Respondents are awarded their reasonable fees and

expenses incurred in this action.

In addition, Respondents request pre- and post-judgment interest on the Final

Award at the legal rate, compounded quarterly. Polychain did not contest

Respondents’ application for pre-judgment or post-judgment interest. In Delaware,

pre-judgment interest is awarded at 5% over the federal discount rate. See 6 Del. C.

§ 2301(a). Interest is ordinarily compounded quarterly. See Narayanan v.

Sutherland Glob. Hldgs. Inc., 2016 WL 3682617, at *15 (Del. Ch. July 5, 2016) (“In

Delaware, pre-judgment interest accrues at the legal rate set forth in 6 Del. C. §

2301(a) and is compounded quarterly.”); accord Giesecke+Devrient Mobile Sec.

Am., Inc. v. Nxt-ID, Inc., 2021 WL 982597, at *12 (Del. Ch. Mar. 16, 2021).

Respondents are entitled to post-judgment interest at the legal rate from the date of

61
LLC Agreement § 13.5.
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judgment, compounded quarterly. See Noranda Aluminum Hldg. Corp. v. XL Ins.

Am., Inc., 269 A.3d 974, 979 (Del. 2021) (“Section 2301(a) unambiguously requires

that post-judgment interest accrue at the legal rate that was in effect on the date of

judgment.”).

III. CONCLUSION

For the foregoing reasons, Petitioners’ motion for summary judgment is

DENIED. Respondents’ motion for summary judgment is GRANTED. The Final

Award is confirmed. Respondents are awarded their reasonable attorneys’ fees and

expenses incurred in this action along with pre- and post-judgment interest on the

Final Award at the legal rate, compounded quarterly.

Very truly yours,

/s/ Paul A. Fioravanti, Jr.

Vice Chancellor