Bergheim v. Sirona Dental Systems, Inc.
711 F. App'x 43
2d Cir.2017Background
- Sirona Dental Systems acquired Arges Imaging under a May 5, 2011 merger agreement that included two earn-out provisions tied to Arges’s Apollo product: an Accuracy Earn-Out ($3M if Apollo met Product Finalization requirements and a Key Accuracy Number ≥75 within 18 months) and a Revenue Earn-Out (10% of revenues and 25% of license fees for six years, contingent on Sirona using commercially reasonable efforts to promote Apollo).
- Dispute: Sirona declined to certify Apollo’s Product Finalization within 18 months and contested revenue calculations; former Arges shareholders (Petitioners) sought arbitration claiming breach and damages (including interest, fees, costs).
- An arbitrator awarded Petitioners the $3M Accuracy Earn-Out and ~ $4M for lost revenues under the Revenue Earn-Out, plus interest, attorneys’ fees, and costs.
- Sirona sought vacatur in district court arguing the arbitrator (1) ignored the Agreement’s plain terms regarding the Accuracy Earn-Out and (2) manifestly disregarded Delaware law by awarding speculative damages for the Revenue Earn-Out.
- The district court confirmed the award; Sirona appealed to the Second Circuit. The Second Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did arbitrator exceed authority by awarding $3M Accuracy Earn‑Out contrary to the Agreement’s plain terms? | Petitioners: Arbitrator properly found Apollo met accuracy and that Sirona improperly withheld certification, excusing the condition. | Sirona: Certification was an express condition precedent; arbitrator misread the contract and substituted equity for contract. | Arbitrator’s interpretation had a "barely colorable justification"; award confirmed. |
| Did arbitrator manifestly disregard Delaware law by awarding ~$4M Revenue damages as speculative? | Petitioners: Damages were based on expert calculations and Sirona’s own projections; proved with reasonable certainty under Delaware law. | Sirona: Damages were speculative and barred by Delaware’s rule against expected profits for new tech/business. | Arbitrator applied Delaware law, found damages shown with reasonable certainty; award not vacated. |
| Did arbitrator ignore governing legal standards when assessing damages? | Petitioners: Arbitrator cited Delaware precedent and applied the reasonable‑certainty standard. | Sirona: Arbitrator failed to apply well‑defined Delaware limits on speculative damages. | Court found no refusal to apply governing law; Sirona failed heavy burden for vacatur. |
| Are arbitrator’s factual findings on damages reviewable? | Petitioners: Arbitrator’s factual findings are binding and supported by record. | Sirona: Challenges factual basis, argues calculations unreliable. | Factual findings by arbitrator are generally not reviewable; accepted. |
Key Cases Cited
- Stolt‑Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) (arbitrator error does not justify vacatur absent exceeding authority)
- Jock v. Sterling Jewelers Inc., 646 F.3d 113 (2d Cir. 2011) (standards for vacatur of arbitration awards)
- Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2065 (2013) (arbitrator’s interpretation stands if it draws its essence from the contract)
- Leeward Constr. Co., Ltd. v. Am. Univ. of Antigua–Coll. of Med., 826 F.3d 634 (2d Cir. 2016) ("barely colorable justification" suffices to confirm award)
- Seven Invs., LLC v. AD Capital, LLC, 32 A.3d 391 (Del. Ch. 2011) (a party cannot rely on a failed condition precedent if it wrongfully prevented performance)
- Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584 (2d Cir. 2016) (heavy burden to show arbitrator manifestly disregarded governing law)
- Siga Techs., Inc. v. PharmAthene, Inc., 132 A.3d 1108 (Del. 2015) (expectation damages must be proven with reasonable certainty, not precise certainty)
- Re v. Gannett Co., 480 A.2d 662 (Del. Super. Ct. 1984) (general rule disfavoring damages for expected profits of new business/technology)
- Westerbeke Corp. v. Daihatsu Motor Co., Ltd., 304 F.3d 200 (2d Cir. 2002) (arbitrator’s factual findings generally not open to judicial challenge)
- Harry Hoffman Printing, Inc. v. Graphic Commc’ns Int’l Union Local 261, 950 F.2d 95 (2d Cir. 1991) (vacatur where arbitrator relied on extracontractual notions)
- In re Marine Pollution Serv., Inc., 857 F.2d 91 (2d Cir. 1988) (vacatur where arbitrator acted based on equity absent contract authorization)