Agspring, LLC v. NGP X US Holdings, L.P.

IN THE SUPREME COURT OF THE STATE OF DELAWARE

AGSPRING, LLC, §
§ No. 75, 2022
Plaintiff and Counterclaim §
Defendant Below-Appellant, § Court Below—Court of Chancery
§ of the State of Delaware
v. §
§ C.A. No. 2019-1021
NGP X US HOLDINGS, L.P., §
§
Defendant and Counterclaim §
Plaintiff Below-Appellee. §

Submitted: September 21, 2022
Decided: December 2, 2022

Before SEITZ, Chief Justice; VALIHURA, and VAUGHN, Justices.

ORDER

On this 2nd day of December 2022, it appears to the Court that:

(1) This appeal involves a dispute over an arbitration award. The Plaintiff-

Appellant is Agspring, LLC (“Agspring”). The Defendant-Appellee is NGP X US

Holdings, LP (“NGP”). In the arbitration, NGP sought and was awarded

indemnification from Agspring for legal fees and costs it was incurring in litigation

in Delaware and Kansas. In this appeal, Agspring contends that the Court of

Chancery erred: (1) by denying its motion to vacate the award; and (2) by granting

NGP’s motion to confirm the award. Agspring makes two claims. Its first claim has

two parts. First, it claims that the Court of Chancery committed error when it failed

to make a determination as to whether an agreement to arbitrate existed between the
parties. The court, it argues, wrongfully presumed that such an agreement existed.

Second, it claims that the Court of Chancery erred by delegating the question of

arbitrability of the parties’ dispute to an arbitration panel rather than deciding that

question itself. Agspring claims that the Court of Chancery erred by declining to

consider whether quasi-estoppel barred NGP from asserting rights to arbitration and

indemnification. For the reasons that follow, we have concluded that the Court of

Chancery’s judgment should be affirmed.

(2) In 2012, Agspring was formed by NGP, Randal Linville (“Linville”), and

Bradley Clark (“Clark”). Agspring’s activities included “own[ing] and operat[ing]

businesses involved in purchasing, storing, processing, and shipping agricultural

commodities.”1 At the time of Agspring’s formation, NGP held a 98% ownership

share.

(3) Simultaneously with the execution of Agspring’s LLC Agreement (“the

2012 LLC Agreement”), Agspring and NGP entered into an Advisory Services,

Reimbursement and Indemnification Agreement (the “Services Agreement”). Both

the 2012 LLC Agreement and the Services Agreement (together, “the 2012

Agreements”) contained arbitration and indemnification provisions. Arbitration was

set forth in Section 11.9 of the 2012 LLC Agreement, which provided that “Any

dispute arising out of or relating to this Agreement . . . shall be settled exclusively

1
Opening Br. at 6.

2
and finally by arbitration in accordance with this Section 11.9.”2 It further provided

that:

Such arbitration shall be administered by
JAMS/Endispute, Inc., a Delaware corporation and
national dispute resolution company (“JAMS”), pursuant
to . . . the JAMS Comprehensive Arbitration Rules and
Procedures, if the amount in controversy exceeds
$250,000 (. . . the “Rules”). The making, validity,
construction, and interpretation of this Section 11.9, and
all procedural aspects of the arbitration conducted
pursuant hereto, shall be decided by the arbitrator(s).”3

The Services Agreement provided that: “Any dispute arising out of or relating to

this Agreement . . . shall be settled exclusively and finally by arbitration in

accordance with Section 11.9 of that certain Limited Liability Company Agreement,

dated effective as of [August 30], 2012 by the Company and the other persons party

thereto.4” The Services Agreement thus incorporated the arbitration provisions of

the 2012 LLC Agreement by reference. The reference to the JAMS rules in Section

11.9 of the 2012 LLC Agreement incorporates into that agreement and the Services

Agreement the following JAMS Rule 11(b):

Jurisdictional and arbitrability disputes, including disputes
over the formation, existence, validity, interpretation or
scope of the agreement under which Arbitration is sought
. . . shall be submitted to and ruled on by the Arbitrator.

2
App. to Opening Br. at A-0495.
3
Id. at A-0495.
4
Id. at A-0512.

3
 The Arbitrator has the authority to determine jurisdiction
and arbitrability issues as a preliminary matter.5

(4) In 2015, NGP and the other Agspring members sold their interests in

Agspring to a group of investors led by American Infrastructure MLP Funds. The

investors took ownership of Agspring through a limited partnership, Agspring LP,

which purchased and held all of Agspring’s membership interests. The transaction

was settled in accordance with a Membership Interest Purchase and Contribution

Agreement (“MIPCA”). Section 10.9 of MIPCA specifies:

The Parties hereby irrevocably submit to the exclusive
jurisdiction of any state or federal court sitting in
Wilmington, Delaware with respect to any dispute arising
out of or relating to this Agreement or any of the
transactions contemplated hereby, and each Party
irrevocably agrees that all claims in respect of such dispute
or proceeding shall be heard and determined exclusively
in such courts.6

The MIPCA’s Section 10.2 contained an integration clause, which states, in relevant

part: “This Agreement and the Related Agreements constitute the entire Agreement

between the Parties hereto pertaining to the subject matter hereof and supersede all

prior negotiations, agreements, and understandings of the Parties with respect to the

subject matter hereof.”7 Agspring and NGP were both parties to the MIPCA.

Following settlement, Agspring LP adopted a superseding Limited Liability

5
JAMS Comprehensive Arbitration Rules & Procedures R. 11(b).
6
App. to Opening Br. at A-0578.
7
Id. at A-0575.

4
Agreement for Agspring (“the 2015 LLC Agreement”). The 2015 LLC Agreement

removed the arbitration clause that had been in the 2012 LLC Agreement. In 2017,

Agspring LP was converted to Agspring Holdco, LLC (“Holdco”). Ultimately, all

ownership interests held in Agspring LP were converted to Holdco units. Holdco

now owns 100% of Agspring.

(5) In January 2019, Clark and Linville brought suit against Agspring in

Kansas over matters related to their employment. While NGP was not a party to this

suit, it claims to have suffered “significant expense”8 as a result of a third-party

subpoena served upon it by Agspring.

(6) In April of 2019, Holdco brought suit in the Superior Court of Delaware

against NGP, Clark, and Linville, alleging fraudulent inducement and unjust

enrichment in connection with the sale of their interests in Agspring (“the MIPCA

lawsuit”). It sought damages and indemnification under the MIPCA.

(7) As a result of the MIPCA lawsuit and the expenses incurred from the

third-party subpoena in the Kansas suit, NGP requested indemnification from

Agspring in accordance with the 2012 LLC Agreements. When Agspring refused,

NGP filed a demand for arbitration with JAMS. In the demand, NGP alleged that

Agspring had breached the Services Agreement by failing to provide advancement

for all costs and expenses NGP was incurring in the Delaware and Kansas litigation.

8
Answering Br. at 11.

5
It sought indemnification for all such fees and costs. Agspring responded by filing

this action to enjoin the arbitration. It argued that the MIPCA superseded the

Services Agreement, and that under the MIPCA, NGP was required to bring its

claims in a Delaware court. The Court of Chancery denied Agspring’s Motion for a

Preliminary Injunction. The court recognized that the question of arbitrability is a

question for the court to decide “[u]nless the parties clearly and unmistakably

provide otherwise.”9 It ruled that under the 2012 Agreements, Agspring and NGP

clearly and unmistakably had agreed to delegate the question of arbitrability to the

arbitrator and that it was “up to the arbitrator to resolve any challenge to the validity

of either of those contracts as a whole[,] . . . [including] whether either the 2012 LLC

[A]greement or the [S]ervices [A]greement . . . are no longer legally binding as a

whole and have been superseded.”10 It reasoned that Agspring’s challenge to

arbitration was not a specific challenge to the arbitration provisions involved, but

was instead a broader, general claim that the 2012 Agreements were superseded

entirely by MIPCA. It also specifically noted Section 11(b) of the JAMS rules and

its provision that “Jurisdictional and arbitrability disputes, including disputes over

the . . . existence . . . of the agreement under which Arbitration is sought . . . shall

be submitted to and ruled on by the Arbitrator.”11

9
App. to Opening Br. at A-0271 (quoting Howsam v. Dean Witter Reynolds, Inc. 537 U.S. 79, 83
(2002)) (internal quotation marks omitted).
10
App. to Opening Br. at A-0280.
11
Id. at A-0273 (quoting JAMS Comprehensive Arbitration Rules & Procedures R. 11(b)).

6
 (8) The parties then moved forward with arbitration. The JAMS Arbitration

Panel (“the Panel”) determined that “NGP’s arbitration rights under the 2012

Services Agreement and the 2012 LLC Agreement survived the signing of the

MIPCA and the 2015 LLC Agreement.”12 Ultimately, the Panel entered an award

entitling Agspring to indemnification of its fees and expenses. As of November

2021, the Panel’s award required Agspring to advance $5,893,000 to NGP.

(9) Following the Panel’s award, Agspring filed a Motion in the Court of

Chancery for Summary Judgment asking the Court to enter an order vacating the

arbitration award on the grounds that NGP was contractually obligated to assert its

claims in accordance with the procedures set forth in the MIPCA; that NGP was

estopped from enforcing the arbitration provisions in the 2012 Agreements because

it failed to disclose the Services Agreement in violation of warranties and

representations contained in the MIPCA agreement; and that JAMS had no

jurisdiction over the parties’ dispute under the 2012 Agreements in light of the

MIPCA. NGP moved for an order confirming the award. The Court of Chancery

denied Agspring’s motion and granted NGP’s motion. This appeal followed.

(10) This Court “review[s] a grant [or denial] of summary judgment de novo

to determine whether, viewing the facts in the light most favorable to the nonmoving

party, the moving party has demonstrated that there are no material issues of fact in

12
App. to Opening Br. at A-0700.

7
dispute and that the moving party is entitled to judgment as a matter of law.”13

(11) In James & Jackson, LLC v. Willie Gary, this Court recognized that the

threshold question regarding the validity of an arbitration agreement, known as

substantive arbitrability, is a question for the courts to decide unless the parties’

contract shows “clear and unmistakable evidence” that the parties agreed to submit

the question to arbitration.14 This Court explained that the question of substantive

arbitrability is a “gateway question[]” and may be delegated to arbitration by

contract.15 The Court also noted that substantive arbitrability will generally be a

question to be determined through arbitration “in those cases where the arbitration

clause generally provides for arbitration of all disputes and also incorporates a set of

arbitration rules that empower arbitrators to decide arbitrability.”16 In this case, the

Court of Chancery below found that the 2012 LLC Agreement and the Services

Agreement showed a “clear and unmistakable intention to arbitrate the issue of

arbitrability.”17

(12) In Rent-A-Center West, Inc. v. Jackson, the United States Supreme Court

also found that “parties can agree to arbitrate ‘gateway’ questions of

13
Homeland Ins. Co. of N.Y. v. CorVel Corp., 197 A.3d 1042, 1046 (Del. 2018) (en banc) (quoting
GMC Cap. Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d 776, 779 (Del. 2012) (en
banc)) (internal quotation marks omitted).
14
James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76, 78 (Del. 2006) (internal quotation
marks omitted).
15
Id. at 79.
16
Id. at 80.
17
App. to Opening Br. A-0274.

8
‘arbitrability[.]”18 The Court drew a distinction between a specific challenge to an

agreement’s arbitration provision, and a challenge to another provision of the

agreement or a challenge to the agreement as a whole.19 Under the Federal

Arbitration Act, the Court reasoned, a specific challenge to an agreement’s

arbitration provision should be decided by the court, whereas challenges to other

provisions of the agreement or the agreement as a whole are to be decided by the

arbitrators if the arbitration provision delegates such disputes to arbitration.20

(13) The Court of Chancery applied Willie Gary and Rent-A-Center in

arriving at the conclusion that the 2012 Agreements delegate the question of

arbitrability of disputes between Agspring and NGP to the arbitrator.

(14) Agspring argues that neither Willie Gary nor Rent-A-Center hold that if

two parties agree to arbitration in one agreement, they cannot revoke that agreement

in a later agreement.21 It also argues that neither case “removes from courts the

initial responsibility to determine that an agreement to arbitrate exists.”22 It further

argues that its challenge is not merely to the validity of the arbitration clauses in the

2012 Agreements, but to their very existence;23 that the Court of Chancery should

have determined and found that the MIPCA superseded the arbitration clauses in the

18
Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010).
19
Id. at 70.
20
Id. at 71-72.
21
Opening Br. at 23.
22
Id.
23
Id.

9
2012 Agreements such that they stopped existing altogether;24 and that its claim is a

specific challenge to the arbitration clauses, as the MIPCA agreement contains its

own dispute resolution and forum-selection clauses which nullify the arbitration

provisions.25 It distinguishes Rent-A-Center and Willie Gary as cases involving

valid, existing arbitration agreements, unlike this case, which involves a question as

to whether the arbitration clauses continue to exist at all.26 This question, it argues,

should have been decided by the court.27

(15) Agspring relies in part upon the recent Eleventh Circuit case of

Reiterman v. Abid. In that case, the parties entered into a settlement agreement

which settled certain disputes between them.28 The agreement contained a provision

that any disputes arising out of the agreement would be settled by arbitration.29

Subsequently, the parties appeared to have rescinded the agreement.30 One of the

parties thereafter brought suit against the other, and the defendant in that action

moved for an order compelling arbitration of the dispute under the settlement

agreement.31 She claimed that whether the parties had mutually rescinded the

24
Id. at 31.
25
Id. at 38-39.
26
Id. at 28.
27
Opening Br. at 29.
28
26 F.4th 1226, 1230 (11th Cir. 2022).
29
Id.
30
Id.
31
Id. at 1231.

10
settlement agreement should be decided by an arbitrator.32 The court denied her

motion, reasoning that whether a new contract had been formed rescinding the

settlement agreement (and with it, the arbitration clause) was a question to be

decided by the court.33

(16) It appears that it is undisputed that the 2012 Agreements were valid and

enforceable when they were made. Whether a later in time agreement, in this case

the MIPCA, superseded the 2012 Agreements, causing them no longer to exist,

would, in our view, be a question to be decided by the court, unless the 2012

Agreements show that the parties clearly and unmistakably agreed that such a

question would be decided by arbitration. We find no error in the Court of

Chancery’s decision that the arbitration provisions in the 2012 Agreements clearly

and unmistakably showed an intention to submit substantive arbitrability disputes to

the arbitrator. We also find no error in the court’s finding that Agspring’s challenge

goes to the 2012 agreements generally, and not specifically to the arbitration clauses

in those agreements. We also find no error in the court’s decision that the scope of

the disputes subject to arbitration include the question involved here, that is, whether

the MIPCA superseded the 2012 Agreements. It seems to us that this result follows

from the parties’ agreement that the JAMS rules would apply, and the provision in

32
Id. at 1231-32.
33
Id. at 1232-33.

11
Rule 11(b) of those rules that “disputes, including disputes over the . . . existence . .

. of the agreement under which arbitration is sought . . . shall be submitted to and

ruled on by the Arbitrator.”34 An agreement that JAMS rules would apply was

apparently not part of the arbitration agreement in Reiterman, because no mention

of the rules is made in the opinion in that case. We reject Agspring’s contention that

the Court of Chancery erred in finding that the MIPCA’s legal effect on the

arbitration provisions of the 2012 Agreements was a question to be decided by the

arbitrator, not the court.

(17) Agspring’s second claim is that the Court of Chancery committed error

when it declined to consider Agspring’s argument that “quasi-estoppel barred NGP

from asserting rights to arbitration and advancement[.]”35 The quasi-estoppel claim

is based on Agspring’s argument that NGP failed to disclose the Services Agreement

when it signed MIPCA, but then raised it in an effort to obtain advancement and

indemnification when it was sued by Holdco.36 Agspring claims that allowing NGP

to enforce the Services Agreement in support of its advancement and arbitration

rights would be unconscionable and allow NGP to gain an advantage at Agspring's

detriment.37 Quasi-estoppel, Agspring argues, would prevent NGP “from accepting

a benefit from a representation and then acting inconsistent with that representation

34
JAMS Comprehensive Arbitration Rules & Procedures R. 11(b).
35
Opening Br. at 41.
36
Id. at 41-42.
37
Id. at 42.

12
to another party's detriment.”38

(18) The Arbitration Panel did not address quasi-estoppel. It decided that

“The Panel, having decided that NGP is entitled to advancement, rules that

advancement procedures should be summary in nature because ‘a delay in

recognizing advancement rights may ultimately render those rights illusory.’”39 The

Panel also reasoned that Agspring could “claw back” advancements if NGP was

“culpable of ‘bad faith, gross negligence, or willful misconduct.’”40 It further noted

that “The Delaware courts have also required advancement while the parties litigate

the validity of the underlying agreements that provide for advancement and

indemnification.”41

(19) The Court of Chancery rejected Agspring’s quasi-estoppel argument. In

doing so, it correctly stated that:

Delaware courts condone vacatur only “where the
arbitrator acts in ‘manifest disregard’ of the law,”[42]
meaning that “the arbitrator (1) knew of the relevant legal
principle[s], (2) appreciated that this principle controlled
the outcome of the disputed issue, and (3) nonetheless

38
Id. at 41 (citing Pers. Decisions, Inc. v. Bus. Plan. Sys., Inc., 2008 WL 1932404, at *6 (Del.
Ch. May 5, 2008)).
39
App. to Opening Br. at A-0709 (quoting Perryman v. Stimwave Techs. Inc., 2020 WL 2465720,
at *4 (Del. Ch. May 13, 2020)).
40
App. to Opening Br. at A-0709 (quoting id. at A-0509).
41
App. to Answering Br. at B209.
42
Agspring, LLC v. NGP X US Holdings, L.P., 2022 WL 170068, at *3 (Del. Ch. Jan. 19, 2022)
(quoting SPX Corp. v. Garda USA, Inc., 94 A.3d 745, 750 (Del. 2014) (en banc)) (citation omitted).

13
 willfully flouted the governing law by refusing to apply
it.”43

Applying that standard to the facts, it reasoned that the Panel’s decision to limit “its

decision to the advancement stage and the terms of the 2012 Agreements”44 was not

“tantamount to ignor[ing] the law.”45

(20) We find no error in the Court of Chancery’s rejection of the quasi-

estoppel claim. Whether the Panel committed error or even serious error is not the

issue. The issue is whether the Panel manifestly disregarded the law, and its decision

not to address the defense of quasi-estoppel does not rise to that level.

NOW, THEREFORE, it is the order of the Court that the judgement of the

Court of Chancery is AFFIRMED.

BY THE COURT:

/s/ James T. Vaughn, Jr.
Justice

43
Agspring, 2022 WL 170068, at *3 (brackets added) (quoting SPX Corp., 94 A.3d at 750) (citing
Paul Green Sch. Of Rock Music Franchising, LLC. v. Smith, 389 Fed.Appx. 172, 177 (3rd Cir.
2010)).
44
Agspring, 2022 WL 170068, at *5.
45
Id. (internal quotation marks omitted) (quoting App. to Opening Br. at A-0334).

14