228 F. Supp. 3d 244
S.D.N.Y.2017Background
- In Nov. 2014 GE agreed to sell its rail-signaling business to Alstom for $800 million; the Agreement included a post-closing purchase price adjustment process governed by Transaction Accounting Principles (TAPs).
- Section 3.05: GE must deliver Proposed Working Capital and Net Debt statements; Alstom may deliver a Dispute Notice; disputes not resolved within a 30-day Resolution Period are to be "finally and conclusively determined" by an Independent Accounting Firm (IAF) (Deloitte), acting "as an expert and not as an arbitrator," based solely on written submissions and the TAPs.
- Section 15.13: a broad ICC arbitration clause resolves "any Transaction Dispute," except as carved out by Section 3.05.
- GE delivered proposed statements in Jan. 2016; Alstom filed a 112‑page Dispute Notice challenging 38 items. GE conceded 19 items were for the IAF but sought ICC arbitration that the other 19 were outside the IAF scope or that the Dispute Notice lacked "reasonable detail."
- Alstom sued to compel determination by the IAF and moved for summary judgment; GE cross-moved to compel ICC arbitration or to stay proceedings pending ICC arbitration.
- The Court held the question of arbitrability is for the court (not the ICC) because the Agreement contains both a broad arbitration clause and a specific IAF clause; it ordered the disputes submitted in the first instance to the IAF and stayed the case pending the IAF determination.
Issues
| Issue | Plaintiff's Argument (Alstom) | Defendant's Argument (GE) | Held |
|---|---|---|---|
| Who decides arbitrability (who decides which forum decides) | Court should decide arbitrability; Section 15.13 carves out IAF matters so arbitrability not plainly delegated | ICC should decide arbitrability because Section 15.13 broadly covers "any Transaction Dispute" and incorporates ICC Rules | Court decides arbitrability: presence of both a specific IAF clause and broad ICC clause creates ambiguity, so court resolves arbitrability (Howsam, Katz) |
| Whether disputed items must be submitted to the IAF | All items in Alstom's Dispute Notice fall within Section 3.05 and must go to the IAF first | Half the items challenge GE's business/engineering judgments and are for ICC arbitration under Section 15.13 | Held for Alstom: Section 3.05(d)'s unqualified language committing "any matters" in the Dispute Notice that remain in dispute to the IAF controls; submit to IAF first |
| Whether Alstom's Dispute Notice was sufficiently detailed to trigger IAF process | Dispute Notice adequately specifies items and accounting bases; procedural sufficiency is for IAF to decide | Notice allegedly lacked "reasonable detail," so IAF process not triggered | Court: sufficiency/preconditions are for the IAF to decide in the first instance; submit to IAF |
| Whether disputes are really rep & warranty/legal claims disguised as accounting issues | Alstom: disputes concern application of TAPs and accounting methodology tied to calculation of working capital | GE: disputes implicate reps & warranties or legal issues, so not for IAF | Court: argument goes to merits; there is a plausible interpretation that Section 3.05 covers the disputes, so they are for the IAF first; GE may raise merits before IAF and seek review for manifest error/gross negligence afterward |
Key Cases Cited
- Howsam v. Dean Witter Reynolds, 537 U.S. 79 (2002) (courts decide threshold questions of arbitrability unless parties clearly and unmistakably delegate them)
- PaineWebber, Inc. v. Bybyk, 81 F.3d 1193 (2d Cir. 1996) (broad arbitration clauses normally satisfy delegation requirement)
- Katz v. Feinberg, 290 F.3d 95 (2d Cir. 2002) (presence of both a broad arbitration clause and a specific accountant clause creates ambiguity on arbitrability)
- NASDAQ OMX Grp., Inc. v. UBS Securities, LLC, 770 F.3d 1010 (2d Cir. 2014) (incorporation of arbitration rules does not necessarily clearly and unmistakably delegate arbitrability when agreement contains carve-outs)
- Louis Dreyfus Negoce S.A. v. Blystad Shipping & Trading, 252 F.3d 218 (2d Cir. 2001) (framework for analyzing whether a specific clause governs a dispute)
- Feifer v. Prudential Ins. Co. of Am., 306 F.3d 1202 (2d Cir. 2002) (unambiguous contract language governs parties' intent)
- Chung & President Enters. Corp. v. Smith, 943 F.2d 225 (2d Cir. 1991) (distinguishing arbitrability from merits; merits-based arguments do not defeat arbitrability)
- Salim Oleochemicals v. M/V Shropshire, 278 F.3d 90 (2d Cir. 2002) (district court may dismiss rather than stay where all issues must be arbitrated)