Pureworks, Inc. v. Unique Software Solutions, Inc.

554 F. App'x 376
CourtCourt of Appeals for the Sixth Circuit
DecidedJanuary 21, 2014
Docket13-5115
StatusUnpublished
Cited by5 cases

This text of 554 F. App'x 376 (Pureworks, Inc. v. Unique Software Solutions, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Pureworks, Inc. v. Unique Software Solutions, Inc., 554 F. App'x 376 (6th Cir. 2014).

Opinions

ROGERS, Circuit Judge.

This appeal concerns the arbitrability of earn-out covenants in an asset purchase agreement. Because the disputed issues arguably fall within the scope of the parties’ arbitration agreement, the district court properly determined that the dispute was arbitrable. For similar reasons, the district court committed no error in confirming the arbitration award.

In 2008, Unique Software Solutions, Inc. sold its primary business to PureWorks, Inc. The consideration included an “earn-out,” a form' of payment the parties linked to revenues from the buyer’s operation of the business. In connection with the earn-out, the parties negotiated operational covenants, including the requirement in § 1.3(c)(vii) of the purchase agreement that PureWorks “operate and fund the [b]usiness with a view towards maximizing revenues (consistent with [Unique Software’s] past practices).”

Interlocking sections of the agreement addressed earn-out disputes. First, § 1.3(c)(v) required PureWorks to prepare regular earn-out reports detailing the revenues of the transferred business:

For each month during 2009 and 2010, the Buyer shall prepare and deliver to the Seller ... reasonably detailed reports as to the monthly Revenue for the Business ... In addition, no later than sixty (60) days following the end of the [378]*3782009 calendar year and the end of the 2010 calendar year, the Buyer shall deliver to the Seller a reasonably detailed report as to the Revenue of the Business for the applicable year.

Section l.S(e)(v) also addressed disputes related to the earn-out report:

With respect to the process for finalizing the Earn-out Report and resolving disputes regarding the Earn-out Report, the parties agree that each shall have the rights, and each shall follow the procedures, set forth in Section 1.5(b), (c) and (d).

Section 1.5(b) provided that the earn-out report would become final unless Unique Software “deliver[ed] written notice to [PureWorks] of its disagreement as to any item included in the [earn-out report].” In the event the parties were unable to resolve a dispute, § 1.5(c) provided for arbitration by an accounting firm:

The Accounting Firm shall be engaged jointly by the parties to decide the dispute with respect to the [Earn-Out Report] ... The decision of the Accounting Firm shall be final and binding upon the parties, and, accordingly, a judgment by a court of competent jurisdiction may be entered in accordance therewith.

Following allegations that PureWorks had violated the earn-out covenants, the district court ordered arbitration. The court reasoned, first, that any doubts concerning the scope of the arbitration agreement should be resolved in favor of arbitration, see Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25 [103 S.Ct. 927, 74 L.Ed.2d 765] (1988), and, second, that operational disagreements affecting the earn-out report — including allegations that PureWorks had failed to comply with the earn-out covenants — fell within the scope of §§ l.S(c)(v) and 1.5(c). Arbitration resulted in an award for Unique Software, which the district court confirmed. Pure-Works appealed, arguing that the dispute resolution procedures in §§ 1.3(c)(v) and 1.5(c) reached only issues of accounting, not operational disagreements.

The district court properly assigned operational issues to arbitration, because performance of the earn-out covenants fell within the scope of the arbitration agreement. We review arbitrability de novo, evaluating the language of the contract and considering the law’s strong presumption of arbitrability. Nestle Waters N. Am., Inc. v. Bollman, 505 F.3d 498, 502-04 (6th Cir.2007). Sections 1.3(c)(v) and 1.5(c) of the purchase agreement provided broadly for arbitration of “disputes regarding the [e]arn-out [r]eport,” and, considering the presumption of arbitrability, operational disagreements affecting the earn-out report — including disputes about performance of the earn-out covenants— qualified as disputes regarding the earn-out report. Therefore, the operational disputes raised by Unique Software fell within the arbitration provisions of §§ 1.3(c)(v) and 1.5(c). Moreover, nothing in the purchase agreement expressly foreclosed arbitration of operational disputes, and no text explicitly required the parties to arbitrate only disagreements related to accounting.

Although PureWorks offers a reasonable alternative construction of the contract, for the reasons that follow, its arguments do not preclude the interpretation of the arbitration clauses adopted by the district court. Accordingly, the district court properly concluded the dispute was arbitrable. See Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 627 (6th Cir.2004).

First, contrary to arguments by Pure-Works, the general dispute resolution provisions within the agreement do not establish that the parties intended to litigate— and not to arbitrate — all disagreements re[379]*379lated to the performance of the earn-out covenants. Instead, one could reasonably construe the sections to suggest that the parties contemplated the possibility of litigation related to issues outside the scope of the earn-out report. This interpretation is supported by the fact that the parties are bound by a number of obligations unrelated to the earn-out payment, e.g., non-competition agreements.

Second, the fact that the parties have selected an accountant as their arbitrator does not foreclose the arbitrability of operational disputes. In similar cases, we have recognized the arbitrability of operational disputes where the parties appointed accountant-arbitrators. See JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388, 390-91 (6th Cir.2008).

Third, the absence of extensive procedural guidance for the arbitrator does not establish that PureWorks and Unique Software intended to arbitrate only accounting disputes. The relevant provision of the purchase agreement, § 1.5(c), provides that the parties agree to “use their best efforts to cooperate with the Accounting Firm, including providing (or providing access to) any documents or personnel reasonably requested.” Contrary to Pure-Works’ arguments, it cannot be the case that the absence of detailed procedures in § 1.5(c) definitively signals an intent to avoid arbitration. As PureWorks agrees, accounting disputes are arbitrable, and even accounting disputes might require the arbitrator’s use of procedures not specifically listed in § 1.5(c). Moreover, no section of the purchase agreement limits the arbitrator’s authority to determine a reasonable means of resolving disputes between the parties. This absence of detailed contractual guidance is unsurprising: in general, once a disagreement is arbitra-ble, “procedural questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator, to decide.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84, 123 S.Ct.

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554 F. App'x 376, Counsel Stack Legal Research, https://law.counselstack.com/opinion/pureworks-inc-v-unique-software-solutions-inc-ca6-2014.