February 21, 2019

Post-Closing Disputes: Arbitration v. Expert Determination (Again)

Last summer, I blogged about a Delaware case addressing the distinction between a dispute resolution provision that requires a third party to act as an “arbitrator” & one that merely calls for that party to make an “expert determination” with respect to an issue. To make a long story short, if your agreement calls for “arbitration” you’re giving that third party powers equivalent to those of a judge; but if your agreement calls for an “expert determination,” that third party’s powers will be much more limited.

At that time, I cited a blog by Weil’s Glenn West cautioning deal professionals that because of these differences, they needed contractual language “clearly describing the third-party dispute resolution process they are contemplating for any post-closing purchase price adjustments.” Two recent Delaware Chancery cases – Agiliance v. Resolver SOAR (Del. Ch.; 1/19) & Ray Beyond v. Trimaran Fund Management (Del. Ch.; 1/19) suggest that people still aren’t getting Glenn’s message.

In the Agiliance case, the Court refused to countenance arguments that the agreement called for an “expert determination” given the unambiguous use of word “arbitration” in the agreement. Accordingly, the court ordered that a disputed matter be resolved solely by the accounting firm as an arbitration. In contrast, the Ray Beyond case involved a clear designation that the third party would as an “expert,” not an arbitrator – so the court gave effect to that language.

Glenn West is back again with another blog addressing these two cases. His conclusion isn’t surprising:

The distinction between Agiliance and Ray Beyond, then, is the existence, vel non, of a clear designation of the accounting firm as an expert, not an arbitrator, in the agreement. If you call your designated accounting firm a zebra, it will be a zebra (with potentially uncontrollable authority), and if you call your designated accounting firm a horse, even a striped one, it will be a horse (with controllable and limited authority). Say what you mean.

So, are we gonna listen this time or is Glenn going to have to come back again and beat a dead horse – or maybe a dead zebra?

John Jenkins