Kevin Sapp v. Industrial Action Services LLC, 75 F.4th 205

Background

In 2016 Sapp and Hopper sold two companies to IAS under an Asset Purchase Agreement that included an Earn Out: up to $15 million payable based on EBITDA targets over three one‑year periods.
§2.6(c) required IAS to deliver an Earn Out Statement within 90 days; Sellers had 30 days to deliver a "Notice of Disagreement," which the contract defines as limited to claims that the Statement was not prepared in accordance with the section or to mathematical errors.
§2.3(e) (cross‑referenced by §2.6(d)) required the parties to meet and try to resolve disputes for 60 days and then submit remaining disputed matters in the Notice of Disagreement to an independent accounting firm (Ernst & Young by default) for a decision within 30 days; §11.17 separately provided for non‑binding mediation and then litigation.
Sapp and Hopper sued in state court alleging IAS sabotaged performance to avoid Earn Outs; they later filed a Notice of Disagreement under §2.6(d). IAS moved to compel arbitration; the district court compelled arbitration over a magistrate judge’s R&R that the provision called for expert determination.
The parties appointed Eisner (after EY declined); Eisner issued a decision for IAS; the district court denied Sapp and Hopper’s motion to vacate and entered judgment for IAS. The Third Circuit reversed, holding the contract calls for expert determination, not arbitration, vacated the judgment, and remanded.

Issues

Issue	Plaintiff's Argument (Sapp)	Defendant's Argument (IAS)	Held
Whether §2.3(e)/§2.6(d)required arbitration or expert determination by an accounting firm	The language limits the decision maker to narrow accounting questions (preparation in accordance with the Section, math errors), 30‑day decision, no arbitral procedures — indicates expert determination	The provision says the Accounting Firm’s resolution is "final and binding" and uses broad phrasing, implying arbitration	Held: Expert determination. The clause confines the firm to narrow accounting issues; timing and lack of arbitral procedures point to expert role, not arbitration.
Whether the capitalization discrepancy between "Notice of Disagreement" and "notice of disagreement" broadens the types of disputes subject to the Accounting Firm	The two cross‑referenced provisions must be read together; the defined, capitalized term controls and limits scope	The uncapitalized use in §2.6(d) signals ordinary meaning and a broader scope of disputes	Held: Court treated the capitalization variance as a scrivener’s error and read the sections together; the term is limited to accounting‑related disputes.
Whether the district court could enforce the accounting firm’s decision as an arbitral award (and whether vacatur under FAA §10 applies)	Sapp argued challenges to Eisner’s appointment/evident partiality, but FAA vacatur framework does not apply if the parties did not agree to arbitrate	IAS argued the Accounting Firm’s decision was final and enforceable as an arbitral award	Held: Because the parties did not agree to arbitrate, the FAA vacatur framework need not be applied; district court judgment enforcing the award was vacated and the case remanded. The court did not decide Eisner‑specific challenges.

Key Cases Cited

Puleo v. Chase Bank USA, N.A., 605 F.3d 172 (3d Cir. 2010) (de novo review of whether parties agreed to arbitrate)
Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013) (standard for motion to compel when courts consider evidence beyond pleadings)
Flintkote Co. v. Aviva PLC, 769 F.3d 215 (3d Cir. 2014) (two‑step arbitrability framework: existence and scope of arbitration agreement)
Robert D. Mabe, Inc. v. OptumRX, 43 F.4th 307 (3d Cir. 2022) (apply motion‑to‑dismiss standard where court considers only pleadings on arbitrability)
Kuhn Constr. v. Diamond State Port Corp., 990 A.2d 393 (Del. 2010) (contract interpretation rules; ambiguity and intent to arbitrate)
Lorillard Tobacco Co. v. Am. Legacy Found., 903 A.2d 728 (Del. 2006) (courts effectuate parties’ intent under Delaware law)
Chicago Bridge & Iron Co. N.V. v. Westinghouse Elec. Co. LLC, 166 A.3d 912 (Del. 2017) (short decision deadline evidences limited role of an adjudicator)
Budinich v. Becton Dickinson & Co., 486 U.S. 196 (U.S. 1988) (attorney’s fee claims are collateral to the merits for purposes of finality)