Sound Inpatient Physicians, Inc. v. Carr

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF TENNESSEE

WESTERN DIVISION

SOUND INPATIENT PHYSICIANS, INC. )

and M.D. ROBERT A. BESSLER, )

)

Plaintiffs, )

) No. 2:19-cv-02034-TLP

v. )

)

M.D. T.M. CARR, )

)

Defendant. )

ORDER GRANTING MOTION TO CONFIRM ARBITRATION AWARD AND

ORDER DENYING MOTION TO VACATE ARBITRATION AWARD AND

ORDER GRANTING MOTION TO STAY JUDGMENT

The Court has competing motions here. Defendant, T.M. Carr, M.D. (“Dr. Carr”), moves

to confirm the Neutral Accountant’s arbitration award. (ECF No. 57.) Sound Inpatient

Physicians, Inc. (“Sound Inpatient”) and Robert A. Bessler, M.D. (“Dr. Bessler”) (collectively,

“Plaintiffs”), oppose that motion (ECF No. 63), and move to vacate the arbitration award. (ECF

No. 67.) Dr. Carr timely replied in favor of his own motion (ECF No. 72) but opposes

Plaintiffs’. (ECF No. 73.)

Plaintiffs also move to stay judgment of this claim until the Court resolves Plaintiffs’

indemnity and breach of warranty claims. (ECF No. 67.)

At Plaintiffs’ request (ECF No. 67 at PageID 846), the Court held a hearing last month

(ECF No. 81). After careful consideration of the parties’ written material, statements of

counsel, and the entire record here, the Court GRANTS Defendant’s motion to confirm the

arbitration award and DENIES Plaintiffs’ motion to vacate the arbitration award. The Court

also GRANTS Plaintiffs’ motion to stay judgment until the Court resolves their claims for

breach of warranty and indemnity.

BACKGROUND

In March 2016 Plaintiffs branched out from their core business of operating hospitals and

acquired ownership of Defendant’s emergency medicine practice in Memphis, Tennessee.

(ECF No. 18 at PageID 200.) They entered into an LLC interest and stock purchase agreement

(the “Agreement”) with Defendant to buy the entire membership interest in two Tennessee

professional LLCs and all the stock of a Tennessee professional corporation (the “Companies”).

Defendant was the sole member of the LLCs and the sole shareholder of the corporation. (Id.)

The Companies were, and continue to be, in the business of providing emergency medicine

physicians and other staff to emergency departments at five Memphis-area hospitals. (Id. at

PageID 200.) After the transaction closed, Sound Inpatient began operating the Companies.

(Id.)

I. The Agreement—Purchase and Calculation of the Final Purchase Price

Under the Agreement, the purchase agreement price (“Purchase Price”) would equal 7.37

times the earnings before overhead “generated” from operation of the Companies during a

twelve-month period ending March 31, 2018 (the “Calculation Period”). (Id.) The Purchase

Price, however, could not be less than $30 million nor greater than $59 million. (Id.) At

closing, Plaintiff paid the first payment of $30 million. (Id.) The second payment was

determinable at the end of the Calculation Period. (Id.)

At the end of the Calculation Period, Plaintiffs computed a total purchase price of

$26,605,885, and, because the total was less than $30 million, determined that it owed no

further payment to Defendant. (Id. at PageID 201.) Defendant contested Plaintiff’s calculation,

objecting that (1) it included $1,844,541.94 of bad debt (“Bad Debt Expenses”) from before the

Calculation Period and (2) it should have included certain non-medical compensation expenses

when calculating earnings before overhead. (Id. at PageID 201–02.)

As for the first objection, Defendant argued Plaintiff should not have deducted the

$1,844,541.94 in Bad Debt Expenses from the Earnings Before Overhead in the final Purchase

Price calculation because, although realized during the Calculation Period (June 30, 2017), the

expenses applied to the period between March 2016 and December 2016. (ECF Nos. 58 at

PageID 587; 58-1 at PageID 621–22.) Plaintiffs counter that it properly included the

$1,844,541.94 in Bad Debt Expenses in calculating the final Purchase Price because the

expenses were in fact realized during the Calculation Period. (ECF Nos. 58 at PageID 587; 58-

1 at PageID 608–09.)

The parties, thus, disagreed on whether Plaintiffs properly calculated the price with these

Bad Debt Expenses. To deduct the $1,844,541.94 in accordance with Plaintiffs’ theory leads to

a final Purchase Price of $26,605,885 and no further payments to Defendant. But if

Defendant’s theory prevails, the calculation will include that $1,844,541.94. This leads to a

final purchase price of $40,734,142 and a Second Payment to Defendant of $10,734,142. The

parties could not resolve their dispute.

II. The Agreement—Section 1.4(d)

Under § 1.4(d) of the Agreement, Plaintiff had 30 days after the Calculation period within

which to calculate the Purchase Price and communicate it to Defendant. If Defendant objected

to part of the Purchase Price calculation and the parties did not resolve the disagreement, the

parties may arbitrate that dispute. It says the parties “may immediately engage [a] Neutral

Accountant to resolve any items that remain in dispute.” (ECF No. 19-1 at PageID 232.) So

when Defendant objected and the parties did not resolve it, he sought to submit his objections to

a Neutral Accountant under the Agreement. (ECF No. 18 at PageID 202–03.)

Plaintiffs chose a different route. They sought a declaratory judgment about the proper

construction of the Agreement, the role of the Neutral Accountant, and the calculation of the

Purchase Price. (Id. at PageID 208–09.) Defendant moved to dismiss, arguing that Plaintiffs’

declaratory judgment claim is subject to arbitration because the Agreement’s Neutral

Accountant provision is an agreement to arbitrate. (ECF No. 22 at PageID 311–12.) In October

2019, this Court found that § 1.4(d) of the Agreement was a valid agreement to arbitrate. (See

ECF No. 36.) The Court added that the arbitration agreement called for the Neutral Account to

decide only the issues raised by Defendant’s objections. (See ECF No. 36.) And so the Court

granted the motion to compel arbitration. (ECF No. 36 at PageID 422–23.)

Although § 1.4(d) says that the Neutral Accountant will “act[] as an expert and not an

arbitrator,” the Court gave effect to the entirety of the provision and held that the parties’

Agreement reflected an agreement to arbitrate. (Id. at PageID 416–20.) In doing so, the Court

looked to the substance of the Agreement over its form and found that the substance of § 1.4(d)

amounts to “arbitration in everything but name.” (See id. at PageID 418.)

Following that order, the parties engaged Stephen A. Wolf, CPA, to resolve Defendant’s

objection to Plaintiffs’ inclusion of prior Bad Debt Expenses in its Purchase Price calculation.

(See ECF No. 64-2.) Under Section 1.4(d) of the Agreement, each party filed memoranda with

the Neutral Accountant in support of their respective positions. (ECF No. 64-2 at PageID 722–

55.) Mr. Wolf then rendered a decision that Plaintiffs’ $1,844,541.94 Bad Debt Expenses

charge in June 2017 “related to prior period operations [and thus] was not appropriate because

the timing of the expense does not match the revenue during the Calculation Period.” (Id. at

PageID 720.)

Defendant now moves for the Court to confirm the Neutral Accountant’s opinion and to

enter a judgment that Plaintiffs’ inclusion of prior period Bad Debt Expenses in the Purchase

Price calculation was improper. What is more, Defendant argues that the Purchase Price under

the Agreement is $40,734,142, and that Sound Inpatient owes Defendant a second payment of

$10,734,142 plus interest from the date of the decision. (See ECF No. 58.) At the same time,

Plaintiffs move the Court to vacate the Neutral Accountant’s award. (See ECF No. 67.)

LEGAL STANDARD

I. Motions to Reconsider

Although Plaintiffs do not couch their motion as one for reconsideration of the order

compelling arbitration, they in effect ask the Court to reverse its prior holding by finding that §

1.4(d) was not an arbitration clause. (See ECF No. 63.) The Court therefore finds it necessary

to begin its analysis by addressing the standards for reconsidering a prior order.

The Sixth Circuit treats a motion for reconsideration as a motion to alter or amend the

judgment in districts that do not have local rules on such a motion. In re Greektown Holdings,

LLC, 728 F.3d 567, 574 (6th Cir. 2013) (“Treating a motion for reconsideration as a motion to

alter or amend the judgment makes sense when a party files a document titled ‘Motion for

Reconsideration’ in a district that does not have a local rule providing for such a motion.”). A

district court may grant a motion for reconsideration or a motion to alter or amend a judgment

only when there is “(1) a clear error of law; (2) newly discovered evidence; (3) an intervening

change in controlling law; or (4) a need to prevent manifest injustice.” Henderson v. Walled

Lake Consol. Sch., 469 F.3d 479, 496 (6th Cir. 2005).

This interpretation limits parties from raising legal arguments that they could have raised

beforehand, rearguing a case, or introducing new evidence for the first time when the party

should have presented that evidence earlier. See Shah v. NXP Semiconductors USA, Inc., 507 F.

App’x 483, 495 (6th Cir. 2012); see also Hamilton v. Gansheimer, 536 F. Supp. 2d 825, 842

(N.D. Ohio 2007) (stating that “[c]ourts should not reconsider prior decisions where the motion

for reconsideration either renews arguments already considered or proffers new arguments that

could, with due diligence, have been discovered and offered during the initial consideration of

the issue”).

II. Motions to Confirm or Vacate an Arbitration Award

The Federal Arbitration Act (“FAA”) expresses a presumption that Courts will confirm

arbitration awards. 9 U.S.C. § 9; Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 328 (6th

Cir. 1998). When parties have agreed to arbitrate, courts must confirm the award “unless the

award is vacated, modified, or corrected.” 9 U.S.C. § 9. So federal courts are limited to a

narrow review of arbitration awards under the FAA. Hall Street Assoc., LLC v. Mattel, Inc.,

552 U.S. 576, 588 (2008). This limited judicial review “maintain[s] arbitration’s essential

virtue of resolving disputes straightaway.” Id. This is because if the parties could take “full-

bore legal and evidentiary appeals,” arbitration would become “merely a prelude to a more

cumbersome and time-consuming judicial review process.” Id.

Under § 10 of the FAA, an award may be vacated only:

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in the arbitrators, or either

of them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the

hearing, upon sufficient cause shown, or in refusing to hear evidence

pertinent and material to the controversy; or of any other misbehavior by

which the rights of any party have been prejudiced; or

(4) where the arbitrators exceeded their powers, or so imperfectly executed

them that a mutual, final, and definite award upon the subject matter

submitted was not made.

9 U.S.C. § 10(a)(1)–(4).

When a party has agreed to arbitrate, the award will be set aside only in narrow

circumstances. First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995). Parties seeking

to vacate an arbitration award under 9 U.S.C. § 10 bear a heavy burden. Oxford Health Plans,

LLC v. Sutter, 569 U.S. 564, 569 (2013). “It is not enough to . . . show that the [arbitrator]

committed an error—or even a serious error.” Id. (quoting Stolt-Nielsen S.A. v. AnimalFeeds

Int’l Corp., 559 U.S. 662, 671 (2010)). When the parties have “bargained for the arbitrator’s

construction of their agreement,” arbitral decisions that “even arguably construe or apply a

contract” must stand, regardless of a court’s view of their merits. Id. (quoting Eastern Assoc.

Coal Corp. v. Mine Workers, 531 U.S. 57, 62 (2000)). Courts may only overturn an arbitral

decision if the arbitrator acts outside the scope of their contractually delegated authority, such as

by issuing an award reflecting their own notions of economic justice, instead of “draw[ing] its

essence from the contract.” Id. (citing Eastern Assoc. Coal Corp., 531 U.S. at 62). Thus, the

sole question is whether the arbitrator interpreted the parties’ contract, not whether he got its

meaning right or wrong. Id.

ANALYSIS

I. The Court Properly Ordered the Parties to Submit to Arbitration

A. Section 1.4(d) of the Agreement is a Valid Agreement to Arbitrate

Plaintiffs spend the bulk of their arguments here alleging that the Court should not have

compelled them to arbitrate their dispute in the first place because § 1.4(d) is not an arbitration

agreement. They argue that the parties never intended for this dispute to be subject to binding

arbitration, and that Sound Inpatient did not intend to waive its right to adjudicate this dispute in

an Article III court. (ECF No. 63 at PageID 665.) In asking this Court to revisit its earlier

finding, Plaintiffs do not allege newly discovered evidence or an intervening change in law.

Instead, they appear to maintain that the Court made a clear error of law and that

reconsideration of this previous ruling would prevent manifest injustice. See Henderson, 469

F.3d at 496. For the reasons below, the Court finds that it did not make a clear error of law and

that it will not reconsider its previous order compelling the parties to arbitration with the

Neutral Accountant.

i. The language of § 1.4(d)

Recognizing that § 1.4(d) of the Agreement says the Neutral Accountant should “act[] as

an expert and not an arbitrator,” the Court held before that the plain language of the rest of that

section provides for “arbitration in everything but name.” (ECF No. 36 at PageID 418–20.)

Plaintiffs assert that the Court ignored the clear intent of the parties and the plain text of the

Agreement by compelling arbitration despite that language in § 1.4(d). (ECF No. 63 at PageID

675.) Let’s look at the section.

Section 1.4(d) of the Agreement provides for the engagement of a Neutral Accountant to

settle any disputes surrounding the Purchase Price to which Defendant objects and which

remain unresolved by the parties. (ECF No. 19-1 at PageID 232–33.) The entire section is 555

words long and provides, in full:

Within thirty (30) days following the end of the Calculation Period, Sound

Physicians, at its expense, shall prepare and deliver to Dr. Carr its determination

of the amount of the Purchase Price (the "Purchase Price Schedule") setting forth

all components (and the amounts thereof) necessary to compute the Purchase

Price. The Purchase Price reflected on the Purchase Price Schedule will be

determined in good faith on a basis consistent with Schedule B hereto. Dr. Carr

shall have the right to review the Purchase Price Schedule for a period of thirty

(30) days following the delivery of the Purchase Price Schedule by Sound

Physicians (the "Purchase Price Review Period"). Sound Physicians shall make

the work papers, back-up materials and books and records used in preparing the

Purchase Price Schedule available to Dr. Carr and his accountants at reasonable

times and upon reasonable notice following the delivery of the Purchase Price

Schedule by Sound Physicians to Dr. Carr hereunder, and any delay in making

such documents and materials available shall result in an automatic extension of

the Purchase Price Review Period by a number of days equal to the delay. Dr.

Carr shall have the right to object to any amount or computation appearing in the

Purchase Price Schedule by notifying Sound Physicians in writing of such

objections prior to the expiration of the Purchase Price Review Period. If Dr. Carr

does not make any such objection prior to the expiration of the Purchase Price

Review Period, the Purchase Price as set forth on the Purchase Price Schedule

shall be determinative for purposes of this Agreement and final and binding on all

of the parties to this Agreement. If Dr. Carr timely objects to any item or

computation appearing in the Purchase Price Schedule prior to the expiration of

the Purchase Price Review Period, Dr. Carr and Sound Physicians shall, during

the thirty (30) day period following the delivery of Dr. Carr's objection, attempt in

good faith jointly to resolve the matters on the Purchase Price Schedule to which

Dr. Carr objected. In the event Dr. Carr and Sound Physicians cannot resolve all

of such matters by the end of such thirty (30) day period, either Dr. Carr or Sound

Physicians may immediately engage the Neutral Accountant to resolve any items

that remain in dispute. Each of Sound Physicians and Dr. Carr shall present its

position on the disputed items to the Neutral Accountant in writing, and the

parties shall require the Neutral Accountant, within thirty (30) days thereafter,

acting as an expert and not an arbitrator, to resolve only the matters objected to by

Dr. Carr and not resolved by Dr. Carr and Sound Physicians with respect to the

determination of the Purchase Price. The resolution by the Neutral Accountant of

such matters shall be within the range of the amounts claimed by Dr. Carr and

Sound Physicians in their written submissions to the Neutral Accountant. All fees

and expenses of the Neutral Accountant in connection with any dispute under this

Section l.4(d) shall be paid fifty percent (50%) by Sound Physicians and fifty

percent (50%) by Dr. Carr. The Purchase Price finally determined pursuant to

this Section l.4(d) shall be determinative for purposes of calculating the amount of

the Second Payment and shall be final and binding on all of the parties to this

Agreement.

(Id.)

By asking that the Court hold that § 1.4(d) is not a binding arbitration clause, Plaintiffs

are, in effect, asking the Court to ignore the meaning and effect of the other 547 words in that

section in favor of 8 words: “acting as an expert and not an arbitrator.” But the Court will not.

The Sixth Circuit “does not exalt form over function in determining whether an arbitration

award is ‘final’ for purposes of judicial review.” Savers Prop. & Cas. Ins. Co. v. Nat’l Union

Fire Ins. Co., 748 F.3d 708, 722 (6th Cir. 2014) (citing Island Creek Coal Sales Co. v. City of

Gainesville, Fla., 729 F.2d 1046, 1049 (6th Cir. 1984)).

Plaintiffs question the Court’s statement that “the parties did not expressly label § 1.4(d)

an arbitration provision.” (ECF Nos. 63 at PageID 675; 36 at PageID 416.) They rightly point

out that part of § 1.4(d) purports to provide explicitly the parties’ intent not to arbitrate. (ECF

No. 63 at PageID 675.) According to Plaintiffs, the Court incorrectly then struck those 8

words—“acting as an expert and not an arbitrator”—from the meaning of the Agreement. (Id.)

But the Court did not do so. There is much more to that section than those 8 words. The Court

was not, and is not, persuaded by Plaintiffs’ attempts to invalidate an otherwise valid arbitration

clause with eight magic words by ignoring the meaning and effect of the other 547 words in §

1.4(d). That section of the Agreement sets up a process by which the Neutral Accountant hears

from both sides and issues a binding opinion that is final.

“No particular language is required to evidence an agreement to arbitrate.” Widmer

Enterprises LLC v. Falck, USA, Inc., No. 13-cv-11138, 2019 WL 1057422, at *3 (E.D. Mich.

Mar. 6, 2019) (quoting Perceptics Corp. v. Societe Electronique et Sys. Trindel, 901 F. Supp.

1139, 1142 (E.D. Tenn. 1992)). Plaintiffs challenge this principle as applied to this matter—

stating that their Agreement “‘had particular language . . . to evidence an agreement’ NOT ‘to

arbitrate.’” (ECF No. 63 at PageID 676 (emphasis in original).)

ii. Widmer Enterprises LLC v. Falck USA, Inc.

The facts of Widmer Enterprises LLC v. Falck USA, Inc., No. 18-cv-11138, 2019 WL

1057422, at *4 (W.D. Mich. Mar. 6, 2019), are strikingly similar to the operative facts of this

case.

There, the parties agreed to a purchase price within a range based on a formula described

in the agreement. Id. at *1. That purchase price was calculated based on a multiple of 4.83

times the normalized earnings before interest, taxes, depreciation, and amortization of the

business for the twelve-month calculation period. Id. In the event of an unresolvable dispute,

Falck could promptly refer the dispute for resolution to an Accounting Expert. Id. at *2.

According to the parties’ agreement, the Accounting Expert would act “as an expert and not as a

mediator.” Id. In any event, the expert would render their opinion under the agreement and

make a final and binding decision. Id.

Despite phrasing the neutral’s role as “an expert and not a mediator,” the Widmer court

followed the Sixth Circuit’s direction to resolve ambiguity in favor of arbitration and held that

the Accounting Expert provision amounted to “arbitration in everything but name.” Id. at *3.

The Accounting Expert provision there provided for all four requirements laid out by the Sixth

Circuit in Shy:

(i) finality (“is decision shall (in the absence of manifest error) be final and

binding on the parties”); (ii) an independent adjudicator (PricewaterhouseCoopers

LLP); and (iii) substantive standards (“shall render its opinion in accordance with

the definition and terms of this Agreement”). . . . While the clause does not

specifically call for an opportunity for each side to present its case, it does require

that the Accounting Expert have access to the relevant evidence if necessary to

reach a resolution in this case.

Id. (internal citations omitted). The Widmer court also noted that the “most important”

factors—finality of the decision and independence of the adjudicator—were present in the clear

language of the agreement. Id. (citing Evanston Ins. Co. v. Cogswell Properties, LLC, 683 F.3d

684, 693 (6th Cir. 2012) (stressing that “[c]entral to any conception of classic arbitration is that

the disputants empowered a third party to render a decision settling their dispute”) (internal

quotation marks omitted)).

Like Widmer, the parties here phrased the Neutral Accountant’s role as “an expert and

not an arbitrator,” § 1.4(d) of the agreement “amounts to ‘arbitration in everything but name.’”

(ECF No. 36 at PageID 418–20.) Here all four Shy requirements are met: (1) finality (“[t]he

Purchase Price finally determined pursuant to this Section 1.4(d) shall be determinative for the

purposes of calculating the amount of the Second Payment . . . “); (2) an independent

adjudicator (Ernst & Young—a firm not associated with either party); (3) substantive standards

(“[t]he Purchase Price will be equal to (i) a multiple determined in the manner described in

Schedule B hereto times (ii) the Companies’ consolidated “Earnings Before Overhead”

generated during the twelve (12) month period ending March 31, 2018 (the “Calculation

Period”); provided, however, that in no event shall the Purchase Price be less than THIRTY

MILLION DOLLARS ($30,000,000) or greater than FIFTY-NINE MILLION DOLLARS

($59,000,000)”) (emphasis in original); and (4) “an opportunity for each side to present its case

(“[e]ach of Sound Physicians and Dr. Carr shall present its position on the disputed items to the

Neutral Accountant . . . .”). Accordingly, looking to the substance of the Agreement over its

form, § 1.4(d) is a valid agreement to arbitrate. See Shy, 781 F.3d at 825, and Widmer

Enterprises, 2019 WL 1057422.

The Court recognizes that the parties here provided that the Neutral Accountant would

act “as an expert and not an arbitrator” while the Widmer parties provided that the Accounting

Expert would act “as an expert and not a mediator.” But the simple substitution of one word

does not require a different outcome in the Sixth Circuit. The Sixth Circuit in Shy makes clear

that we look to the substance of the provision, not just the form. See Shy v. Navistar Int’l Corp.,

781 F.3d 820, 825 (6th Cir. 2015). That is exactly what the district court did in Widmer, and

exactly what the Court did here. Had the district court in Widmer addressed the language “as an

expert and not an arbitrator,” most likely the result there would match this Court’s holding

here.1

What is more, in the Court’s opinion, it stands to reason that the opposite of the rule

espoused in Widmer is true. Just as there is no requirement for particular language to evidence

an agreement to arbitrate, there is likewise no “magic language” the parties can insert to

wholesale invalidate what is otherwise an agreement to establish a valid, binding, arbitration

clause. To do so would be to ignore the plain language and meaning of 547 words in § 1.4(d)

which reflects a clear intent to arbitrate to isolate and give meaning to the other 8 words.

In sum, by giving meaning and effect to all the language of § 1.4(d), the Court found that

the entire provision evidenced the parties’ intent that the result of the Neutral Accountant

procedure be final and binding. (ECF No. 36 at PageID 416–20.) Under Sixth Circuit

precedent, parties agree to “arbitration in everything but name” when they include these

features: (1) finality, (2) an independent adjudicator, (3) substantive standards (the contract

terms), and (4) an opportunity for each side to present its case. Shy v. Navistar Int’l Corp., 781

F.3d 820, 825 (6th Cir. 2015) (quoting Fit Tech, Inc. v. Bally Total Fitness Holding Corp., 374

F.3d 1, 7 (1st Cir. 2004)). As the Sixth Circuit said in Cogswell “[c]entral to any conception of

classic arbitration is that the disputants empowered a third party to render a decision settling

1 This is true, especially, considering the federal courts’ strong presumption in favor of

arbitration. O.J. Distrib., Inc. v. Hornell Brewing Co., 340 F.3d 345, 355 (6th Cir. 2003).

their dispute.” Cogswell Props., 683 F.3d at 693 (quoting Salt Lake Tribune Pub. Co., LLC v.

Mgmt. Planning, Inc., 390 F.3d 684 (10th Cir. 2004)). The Court held that, while the parties did

not label § 1.4(d) an arbitration provision, it met each of the four Shy factors, had all the

hallmarks of an “arbitration in everything but name,” and that the plain language of the entire

provision evidenced an intent to arbitrate. (ECF No. 36 at PageID 416–20.)

iii. Shy v. Navistar Int’l Corp. and Other case law

Next, Plaintiffs contend that the Court incorrectly applied Shy v. Navistar Int’l Corp., 781

F.3d 820, 825 (6th Cir. 2015), in finding that the Court should look to the substance of the

agreement over its form. (ECF No. 63 at PageID 676.) But the Court disagrees.

In Shy, under a settlement agreement and consent decree resolving a class action lawsuit

relating to employee benefits, Navistar made annual contributions to a trust managed by a

Supplemental Benefit Committee (“SBC”). See Shy, 781F.3d at 822–23. The agreement

provided for arbitration with an accounting firm if SBC disputed the “information and

calculation[s]” provided by Navistar. Id. at 823. A dispute arose about Navistar's alleged

manipulation of its corporate structure and misclassification of aspects of its business to avoid

its profit-sharing obligations. See id. at 824–25.

The Shy court looked into the substance of the agreement and observed that the

“accountant-based” nature of the arbitration provision “at most creates some ambiguity as to

whether the scope of the disputes over ‘information and calculation[s]’ was intended to be

restricted to disputes in which no legal analysis whatsoever might be necessary.” Id. at 825.

That said, the majority concluded that “the otherwise unqualified language of the agreement

trumps any assumption that the parties would not have committed legal disputes to an

accountant's resolution” and the ambiguity, if any, “must be resolved in favor of arbitration.”

Id. at 826. And although the Sixth Circuit focused largely on the scope of the arbitration

agreement, the Shy court cited approvingly the four Fit Tech factors district courts should apply

to determine whether an agreement to arbitrate exists. Shy, 781 F.3d at 825 (quoting Fit Tech,

Inc. v. Bally Total Fitness Holding Corp., 374 F.3d 1, 7 (1st Cir. 2004)).

Plaintiff points out that the parties did not dispute that the subject section was an

arbitration agreement upon appeal. (ECF No. 63 at PageID 676.) And although Shy is

distinguishable in that regard, the Court still finds that the lessons of Shy still apply to this case.

As in Shy, the language of § 1.4(d), as a whole, is unqualified about what the Neutral

Accountant may resolve. Although the scope of his decision is limited to Defendant’s

objections, there is no limit under § 1.4(d) to the objections Defendant could assert. (See ECF

No. 19-1 at PageID 232–33.) In like manner to Shy, this Court looked to the substance of §

1.4(d) in rendering its decision. Although the language “acting as an expert and not an

arbitrator” is straightforward, the Court finds that the rest of § 1.4(d) is also straightforward. It

shows an intent to arbitrate Defendant’s objections about the calculation of the proposed

Purchase Price. Applying Fit Tech’s factors—which the Sixth Circuit held to be persuasive—to

this case, § 1.4(d) meets all the requirements for “arbitration in everything but name”: finality,

an independent adjudicator, substantive standards, and an opportunity for each side to present

its case. And, in any event, any ambiguity over the limitations and scope of the Neutral

Accountant’s decision should be “resolved in favor of arbitration.” Shy, 781 F.3d at 826.

Plaintiffs cite a case from Delaware in support of their proposition that “acting as an

expert and not an arbitrator” explicitly shows they did not want to resolve disputes through

arbitration. Penton Bus. Media Holdings, LLC v. Informa PLC, No. CV 2017-0847-JTL, 2018

WL 3343495, at *3 (Del. Ch. July 9, 2018). In that case, the Delaware Court of Chancery held

that the language “acting as an expert not an arbitrator” showed a clear intent not to arbitrate.

Id. So that court found the dispute resolution procedure there required the parties to retain an

appraiser, not an arbitrator. Id. Yet that court also noted “[i]t is even possible to envision a

setting where the parties include ‘expert not arbitrator’ language, but then constructed a dispute

resolution provision that had numerous features associated with commercial arbitration.” Id. at

*13.

For all that, this Court finds Widmer, a district court opinion in this Circuit more

persuasive. See Widmer, 2019 WL 1057422, at *4. The striking similarities between the facts

of Widmer and the facts of this case, as well as Widmer’s application of binding Sixth Circuit

precedent, leads this Court to find that Widmer is highly persuasive—much more so than

Plaintiff’s cited cases out of the Delaware Chancery Courts. Accordingly, because of the

binding Sixth Circuit precedent and persuasive authority out of this Circuit holding that the

Court should look to the substance of the agreement to determine whether the parties agreed to

arbitrate, the Delaware case does not change this Court’s holding that the intent of the parties

under § 1.4(d) is to arbitrate.

At bottom, Plaintiffs have not convinced this Court that § 1.4(d) is anything but a valid

arbitration provision.

iv. Intent to arbitrate

Next, Plaintiffs ask the Court to find that there are new facts, now in evidence, to suggest

that the parties never intended to arbitrate. (ECF No. 63 at PageID 666.) And so, Plaintiffs ask

the Court to peer behind the language of the contract to receive more evidence about Plaintiffs’

intent during the drafting of § 1.4(d) of the Agreement. What is more, Plaintiffs argue that

Defendant’s actions before the Neutral Accountant suggest that Defendant also did not consider

§ 1.4(d) to be an arbitration clause. (ECF Nos. 63 at PageID 666; 64-1 at PageID 687–713; 64-

2 at PageID 714–65.)

Under Tennessee law, the Court should determine the intention of the parties to an

agreement by “first looking to the plain language of the contract” to “ascertain and effectuate

the parties’ intent as reflected in that language.” West v. Shelby Cnty. Healthcare Corp., 459

S.W.3d 33, 41 (Tenn. 2014) (citing Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999)). If

a court finds that the language of the contract is clear and unambiguous, the literal meaning

controls the dispute. Id. at 42. Courts apply other rules of contract construction to “determine

the parties’ intent” only if some ambiguity exists. Id. (citing Dick Broad Co., Inc. of Tenn. v.

Oak Ridge FM, Inc., 395 S.W.3d 653, 659 (Tenn. 2013)).

But here the Court did not, and does not, find that the language of § 1.4(d) is ambiguous.

(See ECF No. 36 at PageID 418.) Rather, the Court found that § 1.4(d), despite the “expert not

arbitrator” language, still called for arbitration of the issues objected to by Defendant through a

final, binding opinion of a Neutral Accountant. The Court, therefore, finds it inappropriate to

address any extrinsic evidence of the parties’ motives at the time of contract or Defendant’s

actions while engaging with the Neutral Accountant.

Even if this Court were to consider the extrinsic evidence, Plaintiffs attach declarations of

their corporate counsel as evidence that they never intended to arbitrate under § 1.4(d). (ECF

Nos. 64–66.) This evidence was available to Plaintiffs when they argued against Defendant’s

motion to compel arbitration. The Sixth Circuit makes clear that it is improper to reconsider

orders when a party submits evidence for the first time when the party should have presented

that evidence earlier. See Shah, 507 F. App’x at 495; see also Hamilton, 536 F. Supp. 2d at 842

(N.D. Ohio 2007) (stating that “[c]ourts should not reconsider prior decisions where the motion

for reconsideration either renews arguments already considered or proffers new arguments that

could, with due diligence, have been discovered and offered during the initial consideration of

the issue”). Besides, these declarations contain extrinsic evidence of intent that the Court will

not consider because the contract is not ambiguous. And so the Court will not consider these

declarations as “newly discovered evidence” sufficient to justify reconsideration of the Court’s

previous order.

In the end, the Court finds that the plain language of § 1.4(d), as a whole, shows the

parties’ intent that the Neutral Accountant’s decision be final and binding among them. This

amounts to a “classic” arbitration clause. Section § 1.4(d) contains all the hallmarks of a

provision constituting “arbitration in everything but name,” and the Court finds that it is not

appropriate to delve into extraneous evidence of the parties’ intent.

B. Each Party had a Chance to Present their Case

Plaintiffs next argue that they did not have a chance to present their case on the

nonaccounting issues put forth by Defendant and so this Court should not confirm the award.

(Id. at PageID 679.) Plaintiffs submitted a concise, 7-page submission to the Neutral

Accountant over the inclusion of the Bad Debt Expenses into the final Purchase Price. (ECF

No. 64-2 at PageID 722–28.) And in response, Defendant submitted a 24-page position paper

that included some discussion of nonaccounting issues. (ECF No. 64-2 at PageID 731–55.)

Because they did not respond to those nonaccounting issues, Plaintiffs now argue they

did not have a chance to present their case. The Court is unpersuaded. In their February 21,

2020, letter to the Neutral Accountant, Stephen Wolf, Plaintiffs agreed that he could ask for

more information if he needed it. And then Plaintiffs stated, “we welcome the opportunity to

respond in writing to provide any additional information that you, as the expert, may require.”

(ECF No. 64-3 at PageID 768.) But the Neutral Accountant did not request any additional

information from the parties to make his determination.

It is also well established in this Circuit that “[a]rbitrators are not bound by formal rules

of procedure and evidence, and the standard for judicial review of arbitration procedures is

merely whether a party to arbitration has been denied a fundamentally fair hearing.” Barrick

Enters., Inc. v. Crescent Petro., Inc., 496 F. App’x 614, 620 (6th Cir. 2012) (alteration in

original) (quoting Nat’l Post Office Mailhandlers v. U.S. Postal Serv., 751 F.2d 834 (6th Cir.

1985)). “Arbitrators are not bound to hear all the evidence tendered by the parties; they only

need to afford each party the opportunity to present their arguments and evidence.” Urban

Assocs., Inc. v. Standex Electronics, Inc., No. 04-CV-40059, 2012 WL 1079720, at *4 (E.D.

Mich. Mar. 30, 2012) (quoting Terk Techs. Corp. v. Dockery, 86 F. Supp. 2d 706, 709 (E.D.

Mich. 2000)). For these reasons, not every failure to receive evidence constitutes misconduct

under § 10(a)(3). Instead, the question is simply whether the parties had a fundamentally fair

proceeding. See Urban Assocs., 2012 WL 1079723, at *11 (referencing Century Indem. Co. v.

Certain Underwriters at Lloyd’s, London, 584 F.3d 513, 557 (3d Cir. 2009) and Fairchild Corp.

v. Alcoa, Inc., 510 F. Supp. 2d 280, 287 (S.D.N.Y. 2007)).

The Court cannot say that the parties here did not have a fundamentally fair proceeding

simply because Plaintiffs did not respond to Defendant’s nonaccounting issues. The parties

each had a chance to—and did—submit written submissions to the Neutral Accountant to aid

him in deciding the sole issue presented to him. (ECF No. 64-2 at PageID 722–55.) Likewise,

Plaintiffs failed to raise their objections to Defendant’s improper submissions during arbitration.

See Singh Mgmt. Co., LLC v. Singh Dev. Co., Inc., 774 F. App’x 921, (6th Cir. 2019) (citing

Nationwide Mut. Ins. Co. v. Home Ins. Co., 330 F.3d 843, 846 (6th Cir. 2003) (“A party may

waive its objection to the jurisdiction of the arbitrators by acquiescing in the arbitration with

knowledge of the possible defect.”)).

What is more, at no point in the Neutral Accountant’s decision did he purport to rely on

Defendant’s submitted nonaccounting issues. (ECF No. 64-2.) Instead, the Neutral Accountant

confined his decision to the sole issue presented—whether it was proper for Sound Inpatient to

include the June 2017 Bad Debt Expense journal entry deduction of $1,844,541.94. (Id.) In the

end, Plaintiffs have not submitted anything but conjecture that Defendant’s purported improper

submissions swayed the Neutral Accountant’s decision based solely on the accounting issue.

C. The Neutral Accountant Issued an Arbitration Award

Plaintiffs also assert that the Court cannot confirm the award because the Neutral

Accountant did not provide a final, binding remedy.2 (ECF No. 63 at PageID 674, 680.) In

particular, Plaintiffs argue that the Neutral Accountant did not render an arbitration award

because the Neutral Accountant did not recalculate the Purchase Price. (Id. at PageID 680.)

But § 1.4(d) of the Agreement does not require the Neutral Accountant to calculate the

final Purchase Price. Instead, “either Dr. Carr or Sound [Inpatient] Physicians [had a right to]

immediately engage the Neutral Accountant to resolve any items that remain in dispute” to

which Defendant objected. (ECF No. 19-1 at PageID 232) (emphasis added). Although the

Neutral Accountant’s decision to restore the $1,844,541 in the calculation all but determines the

2 Plaintiffs also assert that the Neutral Accountant himself described his decision as an “expert

opinion” and not an “arbitration award.” (ECF No. 63 at PageID 673.) So, according to

Plaintiffs, his opinion is not an arbitration award and it cannot be confirmed by this Court. (Id. at

PageID 673–74.) But how Mr. Wolf describes his decision is of no consequence here because

the parties’ agreement provided that he would make a final, binding decision on Dr. Carr’s

objections. As the Court addressed in great detail above, § 1.4(d) was an arbitration provision

meeting all four of the Fit Tech factors evidencing that § 1.4(d) amounts to “arbitration in

everything but name.” See supra pp. 8–20.

final Purchase Price, the parties did not contract for the Neutral Accountant to tell them that

price. Instead, the parties, in § 1.4(d) of the Agreement, explicitly agreed that the Neutral

Accountant would resolve any unresolved issue to which Defendant objected . (ECF No. 19-1

at PageID 232.) And so, the Court ordered the Neutral Accountant to determine whether

Plaintiffs’ including the deduction of Bad Debt Expenses from 2016 in the earnings before

overhead calculation was proper. Besides, the plain language of § 1.4(d) shows the parties

intended to limit the scope of arbitration to Defendant’s objections. (ECF No. 36 at PageID

418–19.)

Finally, even if an award does not finally dispose of all claims which may have been

submitted to arbitration, the Court may confirm an interim award which finally and definitively

disposes of separate, independent claims. Island Creek Coal Sales, 729 F.2d at 1049. The

Neutral Accountant’s decision here finally and definitely disposes of the issue over the Bad

Debt Expenses. (See ECF No. 64-2.) Resolving this dispute in accordance with § 1.4(d) of the

Agreement determines the final and binding Purchase Price. And so, Plaintiffs’ argument that

no arbitration award has been rendered because the Neutral Accountant failed to recalculate the

Purchase Price is not persuasive.3

Because the Court finds that Neutral Accountant issued an arbitration award, the parties

may now enforce the decision under 9 U.S.C. § 9 if there are no other grounds to vacate that

decision. The Court addresses those issues next.

3 In fact, under § 1.4(d) of the Agreement, the Purchase Price should be calculated just as

originally presented by Sound Inpatient to Defendant, but without the bad debt expense

deduction in the earnings before overhead calculation. (ECF No. 19-1 at PageID 232–33.)

II. The Validity of the Arbitration Award

A. Evident Partiality

Plaintiffs next argue that the Court must vacate the Neutral Accountant’s opinion under 9

U.S.C. § 10(a)(2) because there was evident partiality in his decision. (ECF No. 67-1 at PageID

851.) Evident partiality “will only be found where a reasonable person would have to conclude

that an arbitrator was partial to one party to the arbitration.” Nationwide Mut. Ins. Co. v. Home

Ins. Co., 278 F.3d 621, 626 (6th Cir. 2002) (quoting Andersons, Inc., 166 F.3d at 328–29); see

also Schmitz v. Zilveti, 20 F.3d 1043, 1048 (9th Cir. 1994) (citing Commonwealth Coatings

Corp. v. Continental Gas Co., 393 U.S. 145, 149 (1968) (finding that the legal standard for

evident partiality is whether there are “facts showing a reasonable impression of partiality.”). In

particular, an arbitrator must “not only be unbiased[,] but also must avoid even the appearance

of bias.” Commonwealth Coatings, 393 U.S. at 150.

Plaintiffs first argue that Defendant submitted “irrelevant, harmful allegations” about

Plaintiff’s motives and accounting practices to the Neutral Accountant. (Id.) Second, Plaintiffs

contend Defendant’s “one-sided version of the ‘facts’ . . . created a false picture . . . of

malfeasance on the part of Sound [Inpatient],” and “the fact that [the Neutral Accountant]

‘carefully considered [the information in both submissions]’ shows . . . his impartiality was

affected.” (Id. at PageID 855.) The Court addresses each argument in turn.

i. Defendant’s “irrelevant, harmful allegations” about their motives and

accounting practices did not create evident partiality in the Neutral

Accountant’s decision

Plaintiffs assert that “Defendant submitted page upon page of inflammatory rhetoric,”

which attacked their motives in calculating the Purchase Price and changing billing companies,

while also questioning their accounting practices. (ECF No. 67-1 at PageID 851.) They further

claim that “there was no procedure whatsoever for rebuttal” of Defendant’s statements, which

the Court has already addressed above. See supra pp. 18–20.

But Plaintiffs make no showing about how Defendant’s submissions cause evident

partiality or create “even [an] appearance of bias” on the part of the Neutral Accountant.

Commonwealth Coatings, 393 U.S. at 150. Instead, Plaintiffs imply that the Neutral Accountant

cannot discern legitimate arguments from inflammatory language. They also imply that the

Neutral Accountant—with over 30 years of accounting experience—cannot distinguish between

accounting-related and nonaccounting issues.4

What is more, Plaintiffs’ argument focuses solely on Defendant’s conduct. This does not,

by itself, create any reasonable impression of bias on the part of the Neutral Accountant.

Commonwealth Coatings, 393 U.S. at 150; see also, Uhl v. Komatsu Forklift Co., 512 F.3d 294,

307 (6th Cir. 2008) (“[A] party asserting evident partiality must establish specific facts that

indicate improper motives on the part of the arbitrator.”). And as this Court has already noted,

at no point in the Neutral Accountant’s decision did he purport to rely on Defendant’s submitted

nonaccounting issues or inflammatory rhetoric. (ECF No. 64-2.) Instead, the Neutral

Accountant confined his decision to the sole issue presented. (Id.) This is precisely what the

parties bargained for in their Agreement.

4 Plaintiffs and Defendant agreed to use this Neutral Accountant because of his expertise.

Although Plaintiffs now argue that this Neutral Accountant was their ninth choice because of

conflicts of interest for other Accountants, the Court finds that this, alone, will not invalidate his

decision. As Plaintiffs’ counsel noted during the hearing on this motion, Plaintiffs are

sophisticated. They have substantial financial resources and they operate a portfolio of

hospitals. And so Plaintiffs and Defendant have many relationships with accountants and

accounting firms. It is unsurprising that it was hard for them to settle on an accounting firm

with no prior dealings with either side here.

In the end, Plaintiffs have just speculated that Defendant’s purported improper

submissions created evident partiality in the Neutral Accountant’s decision. “The alleged

partiality must be direct, definite, and capable of demonstration, and ‘the party asserting [it] . . .

must establish specific facts that indicate improper motives on the part of the arbitrator.”

Dawahare v. Spencer, 210 F.3d 666, 699 (6th Cir. 2000) (citing Andersons, Inc. v. Horton

Farms, Inc., 166 F.3d 308, 328 (6th Cir. 1998)). Plaintiffs fail to do so here.

Plaintiffs also complain that the Neutral Accountant did not address each argument in his

opinion. (Id. at PageID 855.) But a decisionmaker does not err simply because he does not

address every single argument raised by one of the parties. See Samaan v. Gen. Dynamics Land

Sys., 835 F.3d 593 (6th Cir. 2016) (citing United States v. Collazo, 818 F.3d 247, 260 (6th Cir.

2016) (finding that the district court’s failure to address a non-dispositive issue raised by a party

was not error)). Again, not every failure to receive evidence constitutes misconduct under §

10(a)(3). Instead, the question is simply whether the process deprived a party of a

fundamentally fair proceeding. See Urban Assocs., 2012 WL 1079723, at *11. Plaintiffs have

not convinced the Court here that either the Neutral Accountant or the dispute procedure they

agreed to have deprived them of a fundamentally fair proceeding.

ii. The Neutral Accountant considered both parties’ submissions

Plaintiffs point to the Neutral Accountant’s statement that he “carefully considered the

information included in both submissions” as proof that Defendant’s allegedly improper

advocacy affected his impartiality. (ECF No. 67-1 at PageID 855.) They claim that

Defendant’s submission “create[d] a false picture for [the Neutral Accountant] of malfeasance

on the part of Sound Inpatient.]” (Id.) This argument also implies that the Neutral Accountant

cannot discern legitimate arguments from inflammatory language. And for the reasons this

Court has already given, this argument lacks merit.

Plaintiffs also fail to cite any authority to support their claim that submissions from a

party can constitute “evident partiality” on the Neutral Accountant’s part. Evident partiality

necessarily requires the arbitrator to engage in some improper conduct. See Commonwealth

Coatings, 393 U.S. at 147–48 (finding evident partiality when an arbitrator failed to disclose a

close financial relationship that had existed between him and a party for many years). The

conduct of one’s opposing party alone cannot establish evident partiality unless there is a

showing that it influenced the decision. See ARMA, S.R.O. v. BAE Sys., Inc., 961 F. Supp. 2d

245, 260–62 (D.C. Cir. 2013) (denying a motion to vacate in part because petitioner lacked any

evidence that improper correspondence sent by respondent after the record closed actually

influenced the arbitrator). “The alleged partiality must be direct, definite, and capable of

demonstration, and ‘the party asserting [it] . . . must establish specific facts that indicate

improper motives on the part of the arbitrator.” Dawahare, 210 F.3d at 699 (citing Andersons,

166 F.3d at 328).

Plaintiffs have not met their burden here. They provide no evidence giving this Court an

impression of partiality or even an appearance of bias on the part of the Neutral Accountant. In

fact, the Neutral Accountant confined his decision to the issue presented. (ECF No. 64-2.) And

factual allegations made by one party against another, which the arbitrator relies on when

making an award, amount to no more than an attack on the witness’s credibility and the

arbitrator’s assessment of it—they cannot establish fraud and corruption so as to cast doubt on

the arbitrator’s award. Switzer v. Credit Acceptance Corp., No. 5:09cv00075, 2010 WL 424573,

*17 (W.D. Va. Jan. 29, 2010). If they were, every finding of fact based on conflicting testimony

would be subject to review in court. Id. Plaintiffs have failed to show evident partiality here.

As a result, the Court will not vacate the arbitration award on this basis.

B. Exceeded Powers

Plaintiffs next argue that the Court must vacate the Neutral Accountant’s opinion because

he exceeded his powers under the Agreement. (ECF No. 67-1 at PageID 855.) “‘[A]s long as

an arbitrator is even arguably construing or applying the contract and acting within the scope of

his authority,’ the fact that ‘a court is convinced he committed a serious error does not suffice to

overturn his decision.’” Eastern Assoc. Coal Corp., 531 U.S. at 62 (quoting Misco, 484 U.S. at

38). It is well-settled in the Sixth Circuit, however, that a reviewing Court may vacate an award

where the arbitrator has “manifestly disregarded the law.” Dawahare, 210 F.3d at 699 (citing

Glennon v. Dean Witter Reynolds, Inc., 83 F.3d 132, 136 (6th Cir. 1996)); see also, PoolRe Ins.

Corp. v. Organizational Strategies, Inc., 783 F.3d 256, 262 (5th Cir. 2016) (holding that judicial

deference does not extend to circumstances where “the arbitrator exceeds the express limits of

his contractual mandate”).

First, Plaintiffs allege that the Neutral Accountant improperly interpreted provisions in

the Agreement when the parties only agreed that he would act within his area of expertise—

accounting. (ECF No. 67-1 at PageID 855.) Next, Plaintiffs allege that the Neutral Accountant

failed to apply Generally Accepted Accounting Principles (“GAAP”), and instead devised his

own accounting methods “reflecting his own notion of economic justice[.]” (Id. at PageID

857.) Third, Plaintiffs claim the Neutral Accountant violates the Financial Accounting

Standards Board’s (“FASB”) Consistency Principle in favor of his own preferred methodology.

(Id. at PageID 858.) Plaintiffs argue that the Neutral Accountant’s adherence to the Matching

Principle rather than the Consistency Principle is flawed and violates GAAP. (Id. at PageID

861.) Fourth, Plaintiffs argue that the Neutral Accountant’s applying the Matching Principle

was internally inconsistent, leaving an accounting gap. (ECF No. 67-1 at PageID 859.) Finally,

Plaintiffs argue that the Neutral Accountant exceeded his powers by applying a conclusion

inconsistent with Sound Inpatient’s actual revenues. (Id. at PageID 862.) The Court addresses

each argument in turn.

At the outset, the Court reminds the parties that the plain language of § 1.4(d) of the

Agreement provides the Neutral Accountant would “resolve only the matters objected to by Dr.

Carr and not resolved by Dr. Carr and Sound [Inpatient] Physicians with respect to the

determination of the Purchase Price.” (ECF No. 19-1 at PageID 232.) And so the Court has

already determined that the scope of the Neutral Accountant’s review under the Agreement is

limited only to issues to which Defendant objected that remain unresolved by the parties. (ECF

No. 36 at PageID 423.)

i. The Neutral Accountant’s interpretation of “Net Revenue” as “Net

Patient Service Revenue”

Plaintiffs contend that the Neutral Accountant exceeded his powers under the Agreement

when he interpreted “Net Revenue” as “Net Patient Service Revenue.” (ECF No. 67-1 at

PageID 856- 857.) Plaintiffs fail to clarify, however, how this interpretation affected the

Neutral Accountant’s decision. What is more, the parties’ agreement undeniably permits the

Neutral Accountant to review the Agreement. See Babock & Wilson Co. v. Asist Corp., No. 90-

cv-71532-DT, 1990 U.S. Dist. LEXIS 19544, at *11 (E.D. Mich. Sept. 6, 1990) (“It is a well-

established principle that an arbitrator may construe ambiguous contract language.”).

Arbitrators are expected to interpret the Agreement as part of the decision-making process, and

even an incorrect interpretation does not vacate an arbitration award. Mich. Family Resources,

Inc. v. Serv. Employees Int’l Union Local 517M, 475 F.3d 746, 749 (6th Cir. 2007). If the

arbitrator makes a good-faith interpretation of the contract, the Court cannot say that he has so

exceeded his powers as to implement his own brand of industrial justice and vacate his award.

Id. at 754–55.

The parties’ only limitation to the scope of the Neutral Accountant’s review was that he

could only resolve issues to which Defendant objected and which remain unresolved by the

parties. (ECF No. 19-1 at PageID 232–33.) In seeking to resolve the parties’ dispute, the

Neutral Accountant construed the Agreement to assist his application of accounting principles

to the dispute. Whether he properly or improperly construed the meaning of “Net Revenue,”

Plaintiffs provide no proof that he did so in contravention of his powers under § 1.4(d) of the

Agreement. The Court finds that this, alone, is not enough to vacate the Neutral Accountant’s

decision. Stolt-Nielsen S.A., 559 U.S. at 67.

ii. The Neutral Accountant’s decision did not reflect his own notions of

economic justice

Next, Plaintiffs argue that the Neutral Accountant exceeded his powers because he failed

to apply GAAP accounting methods, and instead applied his own methods that reflect his own

notion of economic justice. (ECF No. 67-1 at PageID 857.) They claim that although the

Neutral Accountant stated that the parties should calculate Net Revenue according to GAAP, he

“argues for an exception to GAAP” because including the Bad Debt Expenses from the period

ending in 2016 would not be appropriate for calculating the Purchase Price here. (Id.)

While true that the Neutral Accountant recognized that “GAAP requires expenses to be

recognized once known,” he also provided a specific rationale for how the Bad Debt Expenses

should have been recorded in accordance with the “matching principle.” (ECF No. 64-2 at

PageID 719.) His decision does not arbitrarily determine that including the Bad Debt Expenses

from 2016 was improper.

Instead, the Neutral Accountant provided a well-reasoned and logical application of

accounting principles supporting his decision. He explained that “[t]he appropriate accounting

treatment for this [prior period] adjustment . . . would be to adjust the carrying amounts . . . as

of the first accounting period presented, with an offset to the beginning retained earnings

balance in that same accounting period.” (Id.) This result, according to the Neutral Accountant,

allows “revenues and any related expenses [to] be recognized together in the same reporting

period so that the financial performance during a specific period can be measured. . . .” (Id. at

PageID 719.) And because the parties agree that the June 2017 Bad Debt Expense journal entry

relates to Sound Inpatient’s operations between March 2016 and December 2016 (id. at PageID

715 n.2), the Neutral Accountant’s decision provides for a more consistent accounting of a

business’s financial performance.

Even assuming the arbitrator erred, Plaintiffs have not shown that the Neutral

Accountant’s decision reflects his own notions of economic justice, especially given the

reasoned nature of his decision. And the Court will not substitute its own judgment for that of

the Neutral Accountant, who the parties agreed to have resolve this dispute. United

Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 40 n.10 (1987). The Court remains

unpersuaded that the Neutral Accountant applied his own notions of economic justice here.

iii. The Neutral Accountant’s applying the Matching Principle instead of

FASB’s Consistency Principle

Plaintiffs next argue that the Neutral Accountant exceeded his powers by violating

FASB’s consistency principle in favor of his own preferred methodology, the matching

principle. (ECF No. 67-1 at PageID 858.) To support this argument, Plaintiffs rely on a report

by Simon Consulting (“Simon Report”) they sought after the Neutral Accountant rendered his

decision. (ECF No. 64-5 at PageID 781.) The Simon Report notes that “Sound [Inpatient]

applies GAAP to all of its financial transaction[,]” and “it is inconsistent for [the Neutral

Accountant] to apply a non-GAAP methodology to a single entry.” (Id. at PageID 792.)

Plaintiffs therefore claim that the Neutral Accountant exceeded his powers by failing to apply

consistently his methodology to journal entries to which Defendant did not object.

First, the parties did not agree for the Simon Report to resolve the parties’ dispute. (ECF

No. 19-1 at PageID 232–33.) Instead, the parties mutually agreed on a Neutral Accountant with

more than 30 years’ experience to resolve the matter. And, in the Court’s view, the contents of

the Simon Report simply highlight that the Neutral Accountant reasonably chose between two

competing accounting methods in making his decision. Even if the Court disagreed with the

Neutral Accountant’s use of the Matching Principle, that is not enough to disturb his opinion.

See Oxford Health, 569 U.S. at 569 (“It is not enough to show that the [arbitrator] committed an

error—or even a serious error” for courts to vacate a valid arbitration award.)

“It is the arbitrator’s construction [of the Agreement] which was bargained for,

and so far as the arbitrator’s decision concerns construction of the contract, the

courts have no business overruling him because their interpretation of the contract

is different from his.” The arbitrator’s construction holds, however good bad, or

ugly.

Id. at 573 (alteration omitted) (citation omitted). The parties here bargained for the Neutral

Accountant to decide disputes raised by Defendant which they could not resolve. And absent

specific proof that the Neutral Accountant exceeded the express limits of his contractual

mandate or manifestly disregarded the law, the Court will not disturb his construction of the

applicable accounting principles under the Agreement.

Second, the Court has already found that the scope of the Neutral Accountant’s authority

was to “resolve only the matters objected to by Dr. Carr and not resolved by Dr. Carr and Sound

[Inpatient] Physicians with respect to the determination of the Purchase Price.” (ECF No. 36 at

PageID 422.) Because Defendant only objected to one Bad Debt Expenses journal entry, the

Neutral Accountant could only determine whether that specific journal entry was proper. The

Court will not expand the scope of the Agreement which the parties have already bargained for

in this way.

Again, Plaintiffs fail to identify how the Neutral Accountant has exceeded his authority

or manifestly disregarded the law. See Dawahare, 210 F.3d at 69. The Court, therefore, will

not vacate the Neutral Accountant’s award on this ground, regardless of the Court’s view of its

merits. Id.; see also United Paperworkers, 484 U.S. at 40 n.10.

iv. The Neutral Accountant’s applying the Matching Principle

Next, Plaintiffs claim the Neutral Accountant “[made] a material error by failing to apply

the same methodology to all of Sound [Inpatient]’s adjusting entries relating to changes in bad

debt estimates pertaining to the Calculation Period.” (ECF No. 67-1 at PageID 859.)

In oral arguments, Plaintiffs pointed out that the Court cannot wholesale accept the

Neutral Accountant’s opinion without the result being internally inconsistent. Plaintiffs claim if

the Court accepts the Neutral Accountant’s analysis—that Plaintiffs improperly included the

$1.8 million Bad Debt Expense arising in 2016 —then the Court must replace that amount with

the Bad Debt Expense generated during the Calculation Period. That amount is $3,095,416.60.

If the Court were to accept this approach, the resulting total Purchase Price would be even lower

than its original calculation. Thus, according to Plaintiffs, to apply the Neutral Accountant’s

opinion without then replacing the Bad Debt Expense with the journal entry from December

2018 leaves an accounting gap through which Defendant walks away with about a $10 million

windfall.

The Court understands this concern and this seemingly unfair result. But, unfortunately

for Plaintiffs, hindsight truly is 20-20. The problem for Plaintiffs is that this $3 million figure

was not realized until the end of 2018, well beyond the time it had to arrive at the Purchase

Price under the Agreement. Under § 1.4(d) of the Agreement,

Within thirty (30) days following the end of the Calculation Period, Sound

[Inpatient] Physicians, at its expense, shall prepare and deliver to Dr. Carr its

determination of the amount of the Purchase Price . . . setting forth all

components (and the amounts thereof) necessary to compute the Purchase Price.

(ECF No. 19-1 at PageID 232.) This is the deal Plaintiffs negotiated. Plaintiff should have

known when they negotiated the Agreement that it was going to be difficult—if not

impossible—to calculate the Purchase Price within 30 days of the end of the Calculation Period.

This is because, according to Plaintiff, there is a natural lag in the accounting process between

budgeting and realizing these Bad Debt Expenses.

The Court sympathizes with Plaintiffs. But, unfortunately for Plaintiffs, they essentially

contracted themselves into a box here. They did not give themselves enough time to calculate

an accurate Purchase Price with the Bad Debt Expenses arising during that period. Because

they failed to give themselves enough time to account for the Bad Debt Expenses during the

Calculation Period, Plaintiffs tried to plug in a $1,844,541.94 Bad Debt Expense number from

the prior period to offset those potential losses. And even more unfortunately for Plaintiffs, that

figure—which the Neutral Accountant reviewed and found to be inappropriately applied—falls

far short of the actual losses incurred during the Calculation Period.

Now, Plaintiffs argue that it is unfair that Defendant will walk away with a Purchase

Price without any deduction for Bad Debt Expense, much less the $3,095,416.60 incurred

during the Calculation. In essence, Plaintiffs ask the Court to enter the fray and remedy a flaw

in the Agreement’s construction and apply Bad Debt Expenses realized months after the

Calculation Period closed and after the agreed-upon 30-day window to deliver the Final

Purchase Price. They ask the Court to replace one error in their calculation—including Bad

Debt Expenses for 2016—with another error—allowing them to include Bad Debt Expenses

from the Calculation Period that it did not realize until about eight months after Plaintiffs

needed to calculate its Final Purchase Price.

In this sense, Plaintiffs want the Court to rewrite the Agreement. But the Court is

unwilling to do so. And absent a finding of cause to invalidate the entire Agreement, the Court

will not invalidate the parties’ Agreement—the result of negotiations by sophisticated parties

represented by capable attorneys on both sides.

At bottom, Plaintiffs seek a finding that falls outside the scope of the Neutral

Accountant’s decision. As this Court has already held, § 1.4(d) limits the scope of arbitration

only to matters objected to by Defendant and unresolved by the parties. (ECF No. 36 at PageID

422–23.) This means that the only Bad Debt Expense journal entry properly before the Neutral

Accountant was the one from June 2017 totaling $1,844,541.94. The Court will not now step

outside the parties’ express agreement in § 1.4(d)—calling for strict Purchase Price calculation

time limits—and apply a $3,095,416.60 Bad Debt Expense. That issue was not properly before

the Neutral Accountant. And this Court finds no basis to invalidate his opinion.

v. Plaintiffs’ argument that the Neutral Accountant exceeded his powers

by reaching a result inconsistent with actual revenues collected by

Sound Inpatient

Finally, Plaintiffs argue that the Neutral Accountant’s own notion of economic justice

impermissibly ignores economic reality and does not reflect economics because “the result

derived by applying [the Neutral Accountant]’s conclusion is inconsistent with the actual

revenues collected by Sound [Inpatient.]” (ECF No. 67-1 at PageID 862.) They claim that the

Neutral Accountant’s methodology produces an average net patient service revenue per patient

of $124.23, which exceeds Sound [Inpatient]’s actual cash collections of $114.07 by 8.9%. (Id.

at PageID 863.)

And again, “[i]t is not enough to show that the [arbitrator] committed an error—or even a

serious error” for courts to vacate a valid arbitration award. Oxford Health, 569 U.S. at 569.

Even if the Court believes the Neutral Accountant’s decision is incorrect, that is not a proper

basis for the Court to find that he exceeded his powers so that his decision should be vacated.

Id.; see also, Mich Family Res., 475 F.3d at 752 (citing United Paperworkers, 484 U.S. at 36

(“[C]ourts are not authorized to reconsider the merits of an award even though the parties may

allege that the award rests on errors of fact or in misinterpretation of the contract,” and even

where such awards involve “improvident, even silly, decision-making”.)). Without some proof

that this decision exceeded his powers as defined by the parties in the Agreement, the Court will

not disturb the Neutral Accountant’s decision. The Court concludes here that the Neutral

Accountant did not exceed his powers under the Agreement and that he has construed the

Agreement in reaching his final determination.

In the end, Plaintiffs have not shown evident partiality by the Neutral Accountant or that

he exceeded his powers under the Agreement. Parties seeking to vacate an arbitration award

must clear a “high hurdle,” which Plaintiffs fail to do here. Stolt-Nielsen S.A., 559 U.S. at 67.

Plaintiffs therefore articulate no basis on which the Court may vacate the arbitration award. The

Court therefore DENIES Plaintiff’s motion to vacate the Neutral Accountant’s arbitration

award and GRANTS Defendant’s motion to confirm the arbitration award.

At the hearing, Plaintiffs agreed5 that confirmation of the Neutral Accountant’s award

excluding $1,844,541.94 in Bad Debt Expenses from the June 2017 journal entry necessarily

leads to an ending final Purchase Price of $40,734,142. Because the parties agree that the final

Purchase Price after excluding the disputed Bad Debt Expenses leads to Defendant’s proposed

calculation, the Court finds that the final Purchase Price is in fact $40,734,142. This calculation

leads to a Second Payment to Defendant totaling $10,734,1426 plus interest from the date of the

Neutral Accountant’s decision.

III. Stay of the Claim Pending Resolution of the Remaining Claims

Finally, and in the alternative, Plaintiffs contend that the Court should stay judgment on

this claim until it resolves Plaintiffs’ indemnity and warranty claims. (ECF No. 67-1 at PageID

864.) They claim that there is “just reason for delay” because each claim is intertwined and has

to do with the parties’ rights under the Agreement, so the Court may not yet render a final

judgment for this claim over the Purchase Price. (Id.)

In oral arguments, Plaintiffs reasoned that the entire case revolves around the amount of

money owed to Defendant; so, it makes sense to stay judgment on this claim pending the

resolution of Plaintiff’s independent indemnity claims relating to undisclosed Physician

Agreement Liabilities and medical scribe losses. According to Plaintiffs, if the Court upholds

the Neutral Accountant’s opinion and enforces a final Purchase Price of $40,734,142, then

5 Plaintiffs purported to provide a conditional agreement as to that final Purchase Price—in

effect, that $40,734,142 is the proper final Purchase Price assuming the Court both confirms the

arbitration award and that the Court does not then apply the additional $3,095,416.60 Bad Debt

Expense journal entry from December 2018. The Court has already dispensed with both

conditions, leaving Plaintiffs’ agreement that the final Purchase Price is, in fact, $40,734,142.

6 The Court derives this second payment amount from the terms of § 1.4(b)(ii) of the Agreement,

under which the Second Payment is “equal to the amount by which (A) the Purchase Price . . .

exceeds (B) $30,000,000.” (ECF No. 19-1 at PageID 231.)

Plaintiffs prevail on their other claims, the Court should subtract that amount from the final

Purchase Price to prevent duplicative transfers of funds. Defendant, on the other hand, argues

that staying judgment on this claim would deprive them of the advantages of submitting issues

to arbitration in the first place—efficiency and quick resolution of the issue.

There is just reason for delay whenever claims are so closely related that a court might

have to revisit the same facts under a different legal theory. Lowery v. Fed. Express Corp., 426

F.3d 817, 821 (6th Cir. 2005). A judgment must represent an “ultimate disposition of an

individual claim entered in the course of a multiple claims action.” Curtiss-Wright Corp. v.

Gen. Elec. Co., 446, U.S. 1, 7 (1980).

Although the Court sympathizes with Defendant that delay of judgment deprives him of

the benefits of arbitration, the Court will stay judgment in this claim until the Court resolves the

rest of the claims. And given the complexity of the claims under the Agreement, and the

possibility that monies will change hands back and forth if Plaintiffs prevail on their breach of

warranty and indemnity claims, the Court finds just reason to stay judgment on this claim until

it resolves the other claims. The bench trial here is currently set in February 2021, meaning that

this Court should resolve the case shortly.

The Court therefore GRANTS Plaintiffs’ motion to stay judgment on this claim until the

resolution of Plaintiff’s indemnity and breach of warranty claims.

CONCLUSION

For all the reasons above, the Court GRANTS Defendant’s motion to confirm the

arbitration award (ECF No. 57), DENIES Plaintiffs’ motion to vacate the arbitration award (ECF

No. 67), and GRANTS Plaintiffs’ motion to stay judgment on this issue until the Court resolves

the remaining claims.

SO ORDERED, this 20th day of August, 2020.

s/Thomas L. Parker

THOMAS L. PARKER

UNITED STATES DISTRICT JUDGE