BuzzFeed II: Court enforces arbitration clauses in employment agreements with pre-SPAC entity

This case follows a Delaware Court of Chancery decision in 2022 (BuzzFeed, Inc. v. Anderson, No. 2022-0357, 2022 WL 15627216 (Del. Ch. Oct. 28, 2022) (BuzzFeed I)) involving 91 of BuzzFeed’s former employees’ attempt to pursue arbitration against BuzzFeed following its 2021 SPAC transaction and IPO. The former employees alleged that they were damaged because they were unable to convert their stock in time to profitably participate in the BuzzFeed IPO. In BuzzFeed I, the Court of Chancery held that the former employees attempted to arbitrate against the wrong entity because the proper successor-in-interest to the counterparty to the employees’ arbitration agreements (old BuzzFeed, Inc., or OldCo) was BuzzFeed Media Enterprises, Inc. (BME)—not the post-SPAC parent company (890 5th Avenue Partners).

Following BuzzFeed I, in 2024, the employees pursued arbitration against BME. BME responded by pursuing an action in the Court of Chancery that attempted to prevent the employees from proceeding with arbitration. The employees moved to dismiss BME’s suit, which the court granted as to the 85 employees who could supply evidence of their arbitration agreements. However, the court denied the motion as to the six employees who could not find copies of their agreements, as they failed to meet their burden of establishing the existence of an agreement to arbitrate.

BME advanced several arguments to try to avoid mass arbitration, all of which the Court of Chancery rejected.

First, BME argued that certain express carveouts to the broad arbitration clause negated the presumption in favor of an arbitrator deciding arbitrability. The court disagreed, finding that the parties’ agreement to use the American Arbitration Association’s (AAA) employment dispute rules created a “heavy presumption” that the parties intended to delegate substantive arbitrability to an arbitrator. The existence of narrow carveouts from arbitration (e.g., for small claims or workers’ compensation claims) were not broad enough to overcome the “heavy delegation presumption from referencing the AAA rules.”

Second, BME argued that the parties did not consent to mass claims arbitration because the AAA rules providing for mass claims were not in effect at the time the contracts were executed. The court rejected this argument, finding that the agreement’s incorporation of the AAA rules incorporates all future AAA amendments and supplements to those rules that would be in force when the arbitration demand is submitted.

Third, BME argued that stock option agreements with the employees had integration clauses that excluded claims regarding stock options from arbitration. The court declined to rule on this issue, finding that it was delegated to the arbitrator as a question of substantive arbitrability.

The six employees who could not locate arbitration agreements argued that the other 85 employees’ arbitration agreements showed a consistent use of a standard agreement to arbitrate that would have applied to the six employees.  The Court of Chancery noted that it could not find Delaware precedent as to what parol evidence may establish clear and convincing evidence that a missing contract contains an agreement to arbitrate. As persuasive authority, the court consulted Hill v. Employee Resource Group, LLC, 816 Fed. App’x 804, 809 (4th Cir. 2020). In Hill, the court used a formula to assess the likelihood of a lost or missing agreement containing an arbitration clause. It compared a “numerator” of employee arbitration agreements in a particular period against a “denominator” of the total number of employees onboarded during the same period. Applying that test, the Court of Chancery found that the six employees failed to supply evidence of the “denominator” showing how many employees were hired in the same time period as the issuance of the 85 arbitration agreements. As a result, the six employees failed to meet their burden of establishing the existence of an arbitration agreement and their motions to dismiss were denied.

Authored by Allison Wuertz, Jordan Teti, Emily Rishwain, and Adrian Ito.