In a summary order, the Second Circuit affirmed a judgment confirming an arbitral award of damages for breach of a merger agreement between respondents Sirona Dental Systems, Inc. and Arges Imaging Inc. (“Sirona”) and petitioners, former shareholders of Arges Imaging Inc. On appeal, Sirona argued that the lower court should have vacated the award because the arbitrator (1) disregarded the plain terms of the agreement when it concluded that petitioners were entitled to recover a $3 million bonus based on the proven accuracy of their dental-imaging product and (2) manifestly disregarded Delaware’s prohibition on speculative damages in awarding petitioners approximately $4 million under a provision tied to the dental-imaging product’s expected revenues.
The Second Circuit found that the arbitrator did not disregard the plain terms of the agreement and similarly did not manifestly disregard Delaware law in its damages calculation. On the first issue, the Second Circuit found that “[w]hether or not we would ourselves construe the Agreement” as the arbitrator did was inapposite; “the arbitrator’s interpretation was supported by at least a ‘barely colorable justification,’ which suffices to confirm the award.” On the second issue, the Second Circuit rejected Sirona’s argument that the arbitrator ignored Delaware law, instead finding that the arbitrator cited Delaware precedent proscribing awards of “speculative” damages and concluding that petitioners’ damages calculations met Delaware’s requirement that “damages be shown with reasonable certainty.” Moreover, the Second Circuit found that the arbitrator did not disregard the general rule in Delaware prohibiting damages based on evidence of expected profits from a new business or technology. Bergheim v. Sirona Dental Systems Inc., Case No. 17-548-cv (2d Cir. Oct. 11, 2017).
This post written by Gail Jankowski.
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