Marchison Capital Partners, L.P. v. Nuance Communications, Inc.

760 F.3d 418, 2014 WL 3703868, 2014 U.S. App. LEXIS 14237
CourtCourt of Appeals for the Fifth Circuit
DecidedJuly 25, 2014
Docket13-10852
StatusPublished
Cited by18 cases

This text of 760 F.3d 418 (Marchison Capital Partners, L.P. v. Nuance Communications, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Marchison Capital Partners, L.P. v. Nuance Communications, Inc., 760 F.3d 418, 2014 WL 3703868, 2014 U.S. App. LEXIS 14237 (5th Cir. 2014).

Opinions

JAMES E. GRAVES, JR., Circuit Judge:

This appeal arises from a lawsuit to clarify an arbitration award concerning an alleged breach of a corporate merger agreement. Nuance Communications now appeals the district court’s order remanding this case back to the arbitration panel for clarification of the arbitration award. Since we have previously stated that a district court order remanding a case back to an arbitration panel for clarification is not a final order, we DISMISS this appeal for lack of jurisdiction.

FACTS AND PROCEDURAL HISTORY

Plaintiff-Appellees are stockholders of a Texas-based startup software company called Vocada, Inc. (‘Vocada”). Defendant-appellant Nuance Communications, Inc. (“Nuance”) is a publicly traded global computer software company located in Massachusetts. Vocada’s sole product was a software program called Veriphy, which documents patients’ medical test results in radiology departments and hospitals. Nuance produces a software product called PowerScribe, a speech recognition software used in medical care facilities that allows users to convert spoken word into text appearing on computer screens. Ver-iphy worked well with Nuance’s Power-Scribe program and eventually Nuance approached Vocada about a merger. Vocada and Nuance believed that the sales of both PowerScribe and Veriphy would increase if sold together as one software suite.

Nuance acquired 100 percent of Voca-da’s stock through a merger agreement in 2007. Pursuant to the agreement, Nuance paid $24 million as the upfront purchase price and agreed to pay up to an additional $21 million in “Earnout Consideration,” contingent upon Veriphy sales producing specified levels of revenue in the years after the merger. The merger agreement contained a binding arbitration clause for disputes relating to the Earnout Consideration.

Three years after the merger the Voca-da stockholders had not received any Earnout Consideration, so their stockholder representative filed a demand for arbitration alleging that Nuance had defrauded the Vocada stockholders. Vocada asserted that it was entitled to the $21 million Earnout Consideration as its benefit-of-the-bargain damages, and that in the alternative, it was entitled to out-of-pocket damages that would be measured by the difference between the $24 million Nuance paid as the up-front purchase price for Vocada’s stock and the actual value of Vocada at the time of the merger.

After a two week arbitration hearing the arbitration panel returned an award finding that Nuance committed fraud in inducing Vocada into the merger agreement by making materially false statements about Nuance’s intentions to sell the Veriphy software product, but that Vocada was not entitled to damages because Nuance’s fraudulent representations were not the cause of Veriphy’s poor revenue in the years after the merger. Instead, the panel found that Vocada’s own salesforce, who joined Nuance after the merger, per[420]*420formed poorly, the Veriphy product did not have “buy-in” from the medical profession, the 2008 economic recession impacted Ver-iphy’s sales, and Veriphy’s pre-merger customer base had been substantially overstated by Vocada.

The arbitration clause in the merger agreement required the arbitration panel to support its award by “written findings of fact and conclusions.” Accordingly, the arbitration panel issued a thirty-page award in which it described its “Findings of Fact” and “Conclusions of Law.” The arbitration award did not differentiate between Vocada’s claims for out-of-pocket and benefit-of-the-bargain damages, but rather, stated that “Vocada is not entitled to any portion of the $21 Million Earnout Consideration on account of its statutory fraud claim.”

On November 1, 2012, Plaintiff-Appel-lees filed an application in Texas state court on behalf of the Vocada shareholders to vacate and remand the arbitration award. The Vocada shareholders argued that the arbitration panel exceeded its authority by failing to issue specific findings of fact and conclusions of law on Vocada’s request for out-of-pocket damages. Specifically, Vocada asserted that the $21 million Earnout Consideration was related only to its benefit-of-the-bargain damages request. Therefore, Vocada argues, the arbitration panel’s award stating that Vo-cada was not entitled to any of the $21 million did not address the out-of-pocket losses. Nuance removed the action to the U.S. District Court for the Northern District of Texas, Dallas Division under diversity jurisdiction.

The district court found that the arbitration panel exceeded its authority under the arbitration agreement by failing to provide sufficient findings of fact and conclusions of law regarding Vocada’s out-of-pocket damages claim. Accordingly, the district court remanded the case back to the arbitration panel for consideration of the issue of out-of-pocket damages. The district court made clear that it was remanding the award for further consideration but was not vacating the award. Nuance appealed the district court’s remand order to this Court.

STANDARD OF REVIEW

“We review questions of subject matter jurisdiction de novo.” Wagner v. United States, 545 F.3d 298, 300 (5th Cir.2008). We review a district court’s order confirming or vacating an arbitration award de novo, “but the review of the underlying award is exceedingly deferential.” Rain CII Carbon, LLC v. Conoco-Phillips Co., 674 F.3d 469, 472 (5th Cir.2012).

DISCUSSION

Nuance appeals the propriety of the district court’s remand order, but Plaintiff-Appellees assert that appellate jurisdiction is lacking here and that this appeal should be dismissed accordingly. We must first address the issue of our appellate jurisdiction. See Castaneda v. Falcon, 166 F.3d 799, 801 (5th Cir.1999) (“We must always be sure of our appellate jurisdiction and, if there is doubt, we must address it, sua sponte if necessary.” (citation omitted)).

Section 16 of the Federal Arbitration Act (FAA) allows for appeals from, inter alia, orders confirming or denying confirmation of an award or partial award, orders modifying, correcting, or vacating an award, and a final decision with respect to an arbitration that is subject to the FAA. 9 U.S.C. § 16(a). It is well established that an order confirming an arbitration award is a final appealable order. Id. § 16(a)(1)(D). It is also well established that an order vacating an award and remanding the case back to arbitration for a [421]*421rehearing is a final appealable order. See Atl. Aviation, Inc. v. EBM Grp., Inc., 11 F.3d 1276, 1280 (5th Cir.1994) overruled on other grounds by Action Indus., Inc. v. U.S. Fid. & Guar. Co., 358 F.3d 337, 341 n. 10 (5th Cir.2004) (noting that under the FAA “orders which vacate awards and direct a rehearing of the arbitration dispute ... are appealable”).

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760 F.3d 418, 2014 WL 3703868, 2014 U.S. App. LEXIS 14237, Counsel Stack Legal Research, https://law.counselstack.com/opinion/marchison-capital-partners-lp-v-nuance-communications-inc-ca5-2014.