## Facts

- Mirror Image Internet, Inc., a Delaware corporation, sought capital and entered a 1999 underwriting/financing agreement with investors including Xcelera.com, Inc. and Plenteous Corp.
- The agreement provided roughly $2 million in funding, gave Xcelera a controlling equity position (about 62%), and granted investor governance rights, including board-appointment rights.
- The agreement contained a broad arbitration clause requiring arbitration in Sweden for disputes “arising out of or in connection with” the agreement or its breach, termination, or invalidity.
- Minority stockholders later alleged that Xcelera and affiliated directors caused Mirror Image to engage in a course of dilutive and self-interested transactions, including issuing stock to Xcelera at below-market value and excluding minority holders from participation.
- Before suing in Delaware, certain minority holders initiated Swedish arbitration asserting contract-based claims under the agreement; the tribunal awarded damages on a consent-related promise but did not decide Delaware fiduciary duty claims.
- Minority stockholders then filed a Delaware Court of Chancery action asserting derivative claims including breach of fiduciary duty, fraud, civil conspiracy, breach of contract, and interference with contract, based on the alleged dilutive/self-dealing conduct.
- The Court of Chancery treated the arbitration clause as sufficiently broad to cover the fiduciary duty and related claims and dismissed or stayed the Delaware action in favor of arbitration.
- The plaintiffs appealed, contesting arbitrability of the fiduciary duty claims.

## Issues

1. Whether Delaware fiduciary duty claims based on alleged controller-led dilution and self-dealing must be arbitrated under a financing agreement’s clause covering disputes “arising out of or in connection with” that agreement.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery.
- The court held the fiduciary duty claims were not within the scope of the arbitration clause.
- The court remanded for further proceedings in the Court of Chancery on those fiduciary duty claims.

## Legal Principles

- The scope of an arbitration clause turns on the legal nature of the claims, not merely factual overlap with a contract covered by the clause.
- Delaware fiduciary duty claims generally are not arbitrable under an agreement’s arbitration provision when the asserted duties exist independently of the contract and do not depend on enforcing or construing the contract’s terms.
- A “but-for” relationship—i.e., that a contract transaction placed a party in a control position—does not, by itself, make later fiduciary duty disputes “arise out of or in connection with” the contract.
- Determining the scope of an arbitration clause is a question of law subject to independent appellate review, even where the clause uses broad language.

## Conclusion

The Delaware Supreme Court held that a broad arbitration provision in a financing agreement did not compel arbitration of claims alleging breaches of Delaware fiduciary duties by a controlling stockholder and directors, because those duties and claims existed independent of the contract and were not grounded in contractual rights or obligations.


Parfi Holding AB v. Mirror Image Internet, Inc., 817 A.2d 149 (Del. 2002)