ST. LOUIS (LN) — The Eighth Circuit on Tuesday affirmed the denial of venture capital investor Neil Chheda's motion to compel EquipmentShare.com co-founders Jabbok and William Schlacks into arbitration, ruling that neither Delaware equitable estoppel nor agency law could stretch a partnership agreement the brothers never signed into a binding arbitration clause against them.
The dispute traces to a 2020 plan Chheda crafted to establish an EquipmentShare venture capital fund, capitalizing it with shares the Schlacks brothers were set to receive under an Equity Bonus Plan. Each brother signed an option agreement with Chheda's entity, Schlacks 2020 Transfer LLC, giving Transfer the right to acquire one third of those shares. The brothers allege that Chheda later told them a second amendment to those agreements only changed dates — but that it also secretly doubled the number of shares Transfer could claim.
Two months before signing that second amendment, the brothers and Chheda also executed a separate TKF II L.P. partnership agreement establishing the venture fund as a Delaware limited partnership. The signatories to that agreement were four corporate entities — TKF II GP LLC, EquipmentShare, Arken LLC, and RC Opportunity LLC — not the Schlacks brothers themselves.
When Transfer tried to exercise its purchase rights in February 2024, the brothers refused to tender the shares, calling the second amendment invalid. Chheda, Transfer, and RC Opportunity filed for JAMS arbitration under the partnership agreement's arbitration clause, which sweeps in "[a]ny claim, dispute or controversy of whatever nature arising out of or relating to this Agreement." The brothers sued to block it; the defendants moved to compel.
U.S. District Judge Brian C. Wimes of the Western District of Missouri denied all three motions. The Eighth Circuit, in an opinion by Circuit Judge Raymond Gruender, affirmed the denial of the motion to compel.
The defendants' first argument — that the JAMS rules incorporated into the partnership agreement delegated arbitrability questions to the arbitrator, not the court — collapsed at the threshold. The panel acknowledged that incorporating JAMS rules generally constitutes clear and unmistakable evidence of such delegation, but held that such delegation is contingent on the existence of a valid arbitration agreement. Because the Schlacks brothers never signed the partnership agreement, no valid agreement bound them, and the court was not required to hand the question off to an arbitrator.
On equitable estoppel, the defendants argued the brothers accepted a direct benefit from the partnership agreement because it provided for distributions to TKF II GP LLC, a company the brothers manage. The panel rejected that theory under Delaware's Capital Group test, concluding that any benefit flowing to the brothers through TKF II GP LLC's distributions would be indirect — and Delaware law requires that a benefit must actually be received by the non-signatory. The panel cited NAMA Holdings, LLC v. Related World Market Center, LLC for the principle that benefits received through a party's ownership interest in an organization that itself owns a signatory are strictly indirect.
The agency argument fared no better. The defendants contended the brothers were personal or legal representatives of the corporate signatories and thus bound by the agreement's successors-and-assigns clause. The panel turned to Delaware's own definition: a personal or legal representative is a person who manages the legal affairs of another because of incapacity or death. Because all the partnership's signatories are corporate entities, the panel reasoned, they are incapable of being incapacitated or dying like a natural person — making it legally impossible for the Schlacks brothers to serve as their personal or legal representatives.