Omni Tech Corp v. MPC Solutions Sales ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-4340
OMNI TECH CORPORATION, TERRY ANDERSON,
AND NANCY ANDERSON,
Plaintiffs-Appellees,
v.
MPC SOLUTIONS SALES, LLC, AND
MPC COMPUTERS, LLC,
Defendants-Appellants.
____________
Appeal from the United States District Court
for the Eastern District of Wisconsin.
No. 04-C-144—C.N. Clevert, Judge.
____________
ARGUED DECEMBER 7, 2005—DECIDED DECEMBER 30, 2005
____________
Before EASTERBROOK, MANION, and SYKES, Circuit Judges.
EASTERBROOK, Circuit Judge. Omni Tech sold its End
User Division to MPC Solutions. The contract provided for
some post-closing adjustments to the price, including
one for net working capital, a term defined in §3.3(a)(v)
of the contract. If net working capital exceeds $8 million,
then the final purchase price rises by the amount of the
difference; if net working capital is less than $8 million,
then the price is reduced dollar for dollar. After the closing,
Omni Tech told MPC that net working capital was $10.6
2 No. 04-4340
million; MPC replied that by its lights net working capital
was only $6.7 million.
The parties had contemplated the possibility of such a
disagreement and provided how it should be resolved: they
“shall refer their remaining differences to [an accounting
firm that] shall, acting as experts and not as arbitrators,
determine solely on the basis of the standards set forth
in this Section 3.3 . . . whether and to what extent, if any,
the Final Net Working Capital requires adjustment in order
to be prepared in accordance with this Section 3.3. . . . The
determination of the Independent Accountant shall be final,
conclusive and binding upon [Omni Tech] and [MPC Solu-
tions].” The parties agreed that PricewaterhouseCoopers
would serve as the independent accountant, but instead of
submitting the issues for its resolution Omni Tech filed this
suit under the diversity jurisdiction demanding that a judge
determine the Division’s net working capital on the closing
date. MPC asked the court to stay or dismiss the suit so
that the accountant could make the “final, conclusive and
binding decision” for which the contract called, but the
judge refused. He wrote that, because the accountants act
“as experts and not as arbitrators,” this is not an arbitra-
tion clause.
The district court assumed that it may ignore any form of
alternative dispute resolution other than “arbitration.” Why
would that be so? Many contracts have venue or forum-
selection clauses. These do not call for “arbitration” but are
routinely enforced, even when they send the dispute for
resolution outside the court’s jurisdiction. See, e.g., Carni-
val Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991); Publicis
Communication v. True North Communications Inc., 132
F.3d 363 (7th Cir. 1997); Omron Healthcare, Inc. v.
Maclaren Exports Ltd., 28 F.3d 600 (7th Cir. 1994).
Arbitration enjoys special protection under federal law;
states may not adopt anti-arbitration rules for contracts in
No. 04-4340 3
or affecting interstate commerce but must enforce these
agreements except “upon such grounds as exist at law or in
equity for the revocation of any contract.” 9 U.S.C. §2. See
also Perry v. Thomas, 482 U.S. 483, 489-90 (1987). Arbitra-
tors may compel witnesses to attend, see 9 U.S.C. §7; Stolt-
Nielsen SA v. Celanese AG, 2005 U.S. App. LEXIS 25053 (2d
Cir. Nov. 21, 2005), and may have other powers (or duties)
that non-arbitrators lack. When one of these powers or
duties is important, the choice between “arbitration” and
other forms of private dispute resolution matters. But here
none of the federal rules for conducting arbitration supplies
appears to be at issue.
Several Wisconsin decisions enforce clauses that look very
much like this one (and for good measure call the procedure
“arbitration”). See, e.g., Lower Baraboo River Drainage Dis.
v. Schirmer, 199 Wis. 230, 233-35, 225 N.W. 331, 333 (1929)
(construction contract provision stating that engineer’s
determination of disputes as to suitability of work will be
“final and conclusive” is an enforceable agreement to
arbitrate); Depies-Heus Oil Co. v. Sielaff, 246 Wis. 36, 41-
44, 16 N.W. 2d 386, 388-90 (1944) (agreement for appraiser
to set value for exercise of option to purchase property is
enforceable as an agreement to arbitrate). Names are
unimportant, however; what matters is that Wisconsin
respects the parties’ ability to make agreements of this
kind.
The statement that PricewaterhouseCoopers will act as
an expert and not as an arbitrator means that it will resolve
the dispute as accountants do—by examining the corporate
books and applying normal accounting principles plus any
special definitions the parties have adopted— rather than
by entertaining arguments from lawyers and listening to
testimony. It does not imply that the whole section of the
contract committing resolution to an independent private
party is hortatory. Thus the provision for the “final, conclu-
sive and binding” resolution of this dispute by someone
4 No. 04-4340
other than a federal judge must be honored; the judge is no
more entitled to ignore it than he could ignore the contract’s
detailed definition of “net working capital.”
We have not overlooked the possibility that appellate
jurisdiction—even if not the district judge’s duty—turns
on whether this clause provides for “arbitration.” Because
the case is ongoing in the district court, our jurisdiction
comes not from 28 U.S.C. §1291 but from 9 U.S.C.
§16(a)(1)(A), which authorizes an appeal whenever a
district judge refuses a motion for stay under §3 of the
Federal Arbitration Act, 9 U.S.C. §3. Section 3 in turn says
that “[i]f any suit or proceeding be brought in any of the
courts of the United States upon any issue referable to
arbitration under an agreement in writing for such arbitra-
tion, the court in which such suit is pending . . . shall on
application of one of the parties stay the trial of the action
until such arbitration has been had in accordance with the
terms of the agreement, providing the applicant for the stay
is not in default in proceeding with such arbitration.” A
motion under §3 depends on a contention that the contract
provides for “arbitration,” and MPC Solutions made just
that argument in the district court. Its motion cannot be
called frivolous, as cases such as Lower Baraboo River (and
others cited below) demonstrate.
Appellate jurisdiction under §16(a)(1)(A) depends on the
existence (and denial) of a motion for stay pending arbitra-
tion, not on the movant being correct. If a §3 motion is
made and denied, then appellate jurisdiction exists to
determine whether the denial was proper. And once
an interlocutory order is before the court for review, we may
resolve the appeal on any proper legal ground—for it is the
order, and not the district judge’s opinion, that is on appeal.
See Yamaha Motor Corp. v. Calhoun, 516 U.S. 199, 204-05
(1996). So we have jurisdiction, and we exercise that
jurisdiction to hold that the suit should have been stayed
whether or not the contract provides for “arbitration” as
No. 04-4340 5
opposed to some other form of alternative dispute resolu-
tion.
It is accordingly unnecessary to decide whether state
or federal law governs the characterization of a dispute-
resolution process as one for “arbitration,” and, if the
question is federal, whether every provision for a “final and
binding” decision should be called an agreement to arbi-
trate. Compare Progressive Casualty Insurance Co. v. C.A.
Reaseguradora Nacional de Venezuela, 991 F.2d 42, 45 (2d
Cir. 1993) (state law supplies definition), with Salt Lake
Tribune Publishing Co. v. Management Planning, Inc., 390
F.3d 684, 688-89 (10th Cir. 2004) (definition of “arbitration”
comes from federal law and includes every agreement under
which a private party renders a binding disposition). See
also McDonnell Douglas Finance Corp. v. Pennsylvania
Power & Light Co., 858 F.2d 825, 830-31 (2d Cir. 1988)
(appointment of independent tax counsel is agreement to
“arbitrate” because the counsel’s decision binds the parties);
Apex Fountain Sales, Inc. v. Kleinfeld, 818 F.2d 1089, 1092
(3d Cir. 1987) (appointment of a third person to make a
decision that will be binding on the parties is “arbitration”
regardless of contract’s nomenclature). Cf. Butler Products
Co. v. Unistrut Corp., 367 F.2d 733, 735 (7th Cir. 1966) (use
of an accounting firm to make a determination “binding on
the parties” is arbitration whether Illinois or federal law
supplies the definition). Because this agreement is valid
under Wisconsin law, whether or not it carries the label
“arbitration,” it must be implemented in full.
Full implementation means that the district judge must
stay the litigation and permit PricewaterhouseCoopers
to make a decision. Omni Tech contends that a judge is
as capable as an accountant of interpreting the terms in the
parties’ detailed definition of “net working capital.” That
may or may not be true, but Omni Tech agreed with MPC
that an accountant would make the decision, so arguments
about judicial knowledge and aptitude are beside the point.
6 No. 04-4340
The parties are enmeshed in an accounting dispute; they
have appointed an accountant to resolve it. The accountant
may reach its own conclusion independent of the parties’
calculations: Omni Tech’s proposal to confine the accoun-
tant to selecting one of the parties’ numbers is untenable.
The parties agreed that the independent accountant would
reach a decision as an expert does, not as the umpire in a
final-offer arbitration does.
Because the suit will be stayed rather than dismissed,
Omni Tech will have an opportunity later to ask the
court to decide whether PricewaterhouseCoopers has stayed
within its contractually prescribed role. Such a post-deci-
sion dispute could in principle bring to the fore the question
whether one of the grounds in 9 U.S.C. §10(a) permits a
court to upset the award, which is possible only if “arbitra-
tion” has occurred. But if Wisconsin law provides for
equivalent review of decisions by other private decision-
makers, or if none of the grounds in §10(a) is asserted to be
present, again there will be no need to decide whether this
contract calls for “arbitration.”
The district court’s decision is vacated, and the case
is remanded with instructions to stay the litigation while
the independent accountant resolves the dispute about
net working capital at closing.
No. 04-4340 7
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-30-05