Shubin v. Slate Digital, Inc.

Background

Yury Shubin sued Slate Digital, Inc., Michael Horton, William L. Brooke, and Eric Stark over the alleged loss of vested company shares after Shubin was terminated from Slate and removed from its board. The complaint asserted claims including fraudulent inducement, breach of fiduciary duty, conversion, and violation of New York Labor Law § 193.

Shubin had entered into a Restricted Stock Purchase Agreement with Slate. The agreement provided that unvested shares could be repurchased when he stopped being affiliated with the company, while Shubin alleged that his shares had fully vested. He also alleged that defendants improperly used his signature on an amendment that changed the beginning of his vesting period. Defendants disputed that account and asserted that the company’s co-founders had agreed to modify their vesting schedules as part of a new investment.

The agreement contained a broad arbitration clause covering disputes arising out of, relating to, or resulting from the agreement, including statutory claims. It also permitted a party to seek certain injunctive relief in court under New York arbitration law.

Motion to Compel Arbitration

The defendants moved to compel arbitration under the Federal Arbitration Act and to stay the case. The court found that the parties had entered into a valid arbitration agreement. Shubin did not dispute that the agreement contained a binding arbitration provision.

The court concluded that the agreement’s broad language appeared to cover the claims in the complaint. However, the agreement also delegated questions about arbitrability—the question whether a dispute falls within the arbitration clause—to the arbitrator. The court therefore granted the motion to compel arbitration and left it to the arbitrator to decide whether Shubin’s claims fell within the clause’s scope.

Request for Injunctive Relief

Shubin sought an order preventing defendants from using the amendment and from transferring Slate shares in a way that would further reduce his ownership. The court applied the standards for a preliminary injunction sought to protect an arbitration proceeding, including whether the eventual arbitration award might otherwise be made ineffective.

The court denied the request. It found that Shubin had not shown that a monetary award would be unavailable or inadequate. If Shubin prevailed in arbitration, the court stated, the remedy could be the return of his shares or damages reflecting their value. The court also noted that Shubin had not shown that the defendants’ conduct would make an eventual arbitration award ineffective.

Fees and Costs

The defendants requested attorneys’ fees and costs for moving to compel arbitration and opposing the request for injunctive relief. The court denied that request. It explained that fees and costs generally require conduct that is undertaken in bad faith, vexatiously, wantonly, or for oppressive reasons. Shubin had not contested arbitration itself and had pursued injunctive relief that the agreement allowed him to seek in court. His unsuccessful request was therefore not sufficiently baseless to justify shifting fees and costs.

Disposition

Judge Paul A. Engelmayer granted the motion to compel arbitration, denied Shubin’s request for a preliminary injunction, denied the defendants’ request for fees and costs, and stayed the case pending arbitration. The parties were directed to provide the court with a joint status letter every 90 days. The opinion did not resolve the underlying dispute over whether Shubin’s shares had vested or whether defendants acted unlawfully.