Jay-Z Can't Halt Arbitration Over Bacardi Venture, Judge Says

Source: https://www.law360.com/ December 4, 2022

A New York judge declined Friday to block arbitration over JPMorgan Chase & Co.'s appraisal of a joint cognac venture between Shawn "Jay-Z" Carter and Bacardi Ltd., rejecting arguments from the rap icon's lawyer that a "completely biased" arbitral panel lacks jurisdiction over the dispute.

New York Supreme Court Justice Andrea Masley refused to issue a temporary restraining order ahead of a scheduled American Arbitration Association hearing between Jay-Z-controlled SCLiquor LLC and Empire Investments Inc., a wholly owned subsidiary of Bacardi.

The two companies have been feuding for more than a year over the value of D'Ussé LLC, a cognac joint venture in which each owns a 50% stake. Jay-Z is attempting to exit the business under a "put option" in the 2012 joint venture agreement requiring Bacardi to buy out his stake.

Jay-Z exercised the option in October 2021, valuing his 50% interest at $2.5 billion, but the parties reached an impasse after Bacardi came back with a $460 million valuation. A series of AAA arbitrations followed, as well as four related lawsuits split between Delaware and New York.

Friday's order revolved around JPMorgan's independent appraisal of D'Ussé and the bank's recent request for a consultant to prepare a five-year forecast of the business. Jay-Z says Bacardi has improperly brought the issue to the AAA, even though its engagement letter with JPMorgan specifically names New York state court as the forum of choice for disputes.

A lawyer for Jay-Z, Alex Spiro of Quinn Emanuel Urquhart & Sullivan LLP, said during a hearing Thursday that Bacardi ignored that contract in order to "run back in front of the tribunal that they know is completely biased in their favor."

Spiro said the arbitration panel is "hostile" to Jay-Z, pointing out that one of its members was involved in the rapper's previous diversity fight with the AAA and that another was recently the subject of an "issue of racial animus" involving a process server in the case.

Bacardi's counsel, Gary Bornstein of Cravath Swaine & Moore LLP, countered that Spiro has few facts to back up the bias allegations. Bornstein said Jay-Z was happy to arbitrate other disputes involving JPMorgan's appraisal in the past, but he changed his mind after losing a different AAA case over materials requested by the bank.

"They got an adverse decision they didn't like, and ever since that decision came down, they've been trying to burn the arbitration to the ground," Bornstein told Justice Masley. "They should not be rewarded for that behavior."

Justice Masley sided with Bacardi, saying an arbitration clause in the parties' 2012 operating agreement controls here. This means the AAA should decide whether the issue of hiring a consultant is arbitrable, the judge said, declining to stop a hearing scheduled before the panel Friday.

"This is not one of the limited circumstances where courts are compelled to enjoin an arbitration," Justice Masley wrote. "Rather, the parties have entered an arbitration agreement and whether any of [the issues] fall within the scope of that agreement is for the arbitrators to decide."

Spiro and Bornstein could not be immediately reached for comment on the ruling.

The decision came a day after a different hearing before Vice Chancellor Paul A. Fioravanti Jr. of Delaware Chancery Court on Jay-Z's related request to keep his books and records action against D'Ussé away from the arbitral panel.

Bacardi had argued that the dispute belongs in arbitration, and in late November asked the AAA tribunal to award injunctive relief preventing litigation in any other forum. But the vice chancellor said Thursday that Empire has since withdrawn the request, making argument on the matter no longer necessary.

"This court expresses no view on the merits of this action," Vice Chancellor Fioravanti said.

The Delaware litigation, in which Jay-Z's SCLiquor is seeking to inspect D'Ussé's records under Title 6, Section 18-305 of the Delaware LLC Act, is slated for a dismissal hearing on Dec. 16. It could go to trial as early as January.

SCLiquor is represented by Reed Brodsky, Rahim Moloo, Gabriel Herrmann, Amer S. Ahmed, Charline Yim, Michael L. Nadler, Zachary Kady and David Salant of Gibson Dunn & Crutcher LLP, Alex Spiro, Andrew J. Rossman, Christopher D. Kercher, David S. Mader and Peter Fountain of Quinn Emanuel Urquhart & Sullivan LLP, and Elena C. Norman and Richard J. Thomas of Young Conaway Stargatt & Taylor LLP.

Empire Investments is represented by Gary A. Bornstein, Justin C. Clarke and Helam Gebremariam of Cravath Swaine & Moore LLP, and Blake K. Rohrbacher, Andrew L. Milam and Samuel J. Gray of Richards Layton & Finger PA.

D'Ussé LLC is represented by William M. Lafferty, Ryan D. Stottmann and Evan D. Sweeney of Morris Nichols Arsht & Tunnell LLP.

The Delaware cases are SCLiquor LLC v. Empire Investments Inc., case number 2022-1077, and SCLiquor LLC v. D'Ussé LLC, case number 2022-0931, both in the Court of Chancery of the State of Delaware.

The New York cases are both SCLiquor LLC v. Empire Investment Inc., case numbers 653680/2022 and 654466/2022, in the Supreme Court of the State of New York, County of New York.

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