A court has confirmed an arbitration award of more than $8 million in damages, attorneys’ fees and costs against Sirona Dental Systems, Inc. and Arges Imaging Inc. (collectively “Respondents”) in favor of Petitioners, who were shareholders of Arges before it merged with Sirona. Respondents asked that the award be vacated because the arbitrator had exceeded his powers and acted in manifest disregard for the law, but the court disagreed.
The merger occurred because of Sirona’s desire to acquire a scanner created by Arges called the Apollo. The arbitration involved Petitioners’ claim that Respondents breached the merger agreement. First, Petitioners alleged that Sirona owed them $3 million that the merger agreement said they would earn if the Apollo product met certain criteria. While those criteria were not met, the tribunal awarded Petitioners the full amount sought after finding that Sirona deprived Petitioners the chance to test the Apollo product by the contractual deadline and that the product met the requisite criteria in informal tests.
Second, Petitioners alleged that they should be paid a “Revenue Earn Out” greater than that provided by the merger agreement based on the revenue actually achieved, because Sirona breached its obligation to conduct the business in good faith and exercise commercially reasonable efforts to promote the business. The tribunal agreed that Sirona had breached this duty and awarded Petitioners more than $4 million based on its calculations of what the revenue would have been without this breach.
The court further stated that, when an arbitrator is alleged to have to exceed his powers, the question “is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong,” and found that the arbitrator had met this standard. The court also rejected the argument that the arbitrator acted in manifest disregard for the law by awarding damages based on revenue estimates for a new product, despite significant Delaware case law rejecting such awards. The court noted that none of these cases explicitly prohibits such an award and found that Respondents had not shown that the arbitrator ignored the law. Bergheim et al. v. Sirona Dental Systems, Inc., et al., No. 16 CV 1692-LTS (S.D.N.Y. Jan. 24, 2017)
This post written by Jason Brost.
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