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Declining to hear a commercial dispute, a Tennessee federal court held that an arbitrator should decide who resolves a dispute, where the arbitration agreement is valid and the dispute only concerns interpretation of the contract generally, rather than the arbitration provision specifically.
In Gone to the Beach, LLC v. Choicepoint Services, Inc., No. 05-2715 JPM, 2007 WL 2768256 (W.D. Tenn. Sep. 21, 2007), Gone to the Beach sold all its business assets to Choicepoint. The agreement stipulated that Gone to the Beach would receive a $20,400,000 base price and an earnout amount not to exceed $15,000,000 based on the business’ financial performance in 2004. Choicepoint agreed to operate the business consistent with past practices.
On June 10, 2005, Choicepoint informed Gone to the Beach that the earnout amount would only be $27,858. Gone to the Beach asserted that Choicepoint did not operate the business pursuant to the agreement’s terms, which diminished the earnout amount.
The parties’ agreement contained an arbitration clause specifying that the parties must arbitrate, “any controversy, claim, or question of interpretation in dispute…arising out of or relating to this Agreement.” Further, the agreement mandated that a Birmingham, Alabama audit firm must resolve any calculations relating to the earnout amount. Gone to the Beach sought a declaratory judgment on the dispute’s arbitrability.
The Court held that the arbitrator must decide whether the arbitrator or the audit company should resolve the dispute. Under the Supreme Court’s holding in Buckeye Check Cashing, Inc. v. Cardegna et al., 546 U.S. 440 (2006), a court’s review of arbitrability is limited to whether the arbitration clause is enforceable. Further, the Buckeye court concluded that when a valid arbitration clause exists, the broader question as to the contract’s enforceability is for the arbitrator’s determination.
Here, the only disputed issue is what kind of arbitration is appropriate under the contract rather than whether the dispute is arbitrable. Consequently, the Court found that the arbitrator should decide who should hear the dispute because the parties’ arbitration clause is similar to the one in Buckeye.
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