Murchison Capital Partners, L.P. v. Nuance Communications, Inc.
625 F. App'x 617
| 5th Cir. | 2015Background
- Vocada (former Vocada stockholders) sold its Veriphy software to Nuance in a 2007 merger that included $21 million in contingent earnout payments tied to revenue targets; the merger agreement required arbitration of “any . . . dispute relating to the Earnout Consideration.”
- Nuance reported that earnout targets were not met for the first two tranches; Vocada demanded arbitration in New York alleging breach, breach of the covenant of good faith, and statutory fraud under the Texas Securities Act seeking both benefit‑of‑the‑bargain and out‑of‑pocket damages.
- A three‑member arbitration panel found Nuance fraudulently induced the merger via the side letter but concluded Vocada was not entitled to statutory fraud damages because the misrepresentations did not cause attainment of the earnouts; the panel awarded no compensatory damages and stated the award resolved all claims submitted.
- Vocada filed (1) a proceeding to vacate/remand the arbitration award and (2) a Texas securities fraud suit in state court; both were removed to federal court. The remand action prompted a district court remand to the arbitrators for clarification on out‑of‑pocket damages; that remand was not a final, appealable vacatur and remains pending on arbitrators’ reconsideration.
- In the separate securities fraud suit, the Texas district court dismissed Vocada’s claim with prejudice under Rule 12(b)(6), holding res judicata barred the claim; Vocada appealed and the Fifth Circuit reviews the preclusion issues de novo.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the arbitration award was a "final judgment on the merits" for res judicata | Award is not final because district court remanded to arbitrators for findings on out‑of‑pocket damages | Award is final: arbitration panel stated full and final settlement; merger agreement makes arbitrators’ decision "final, binding, and conclusive" | Court declines to decide finality definitively and leaves the complex question for another case (resolves appeal on other grounds) |
| Whether the arbitration panel was a "court of competent jurisdiction" for purposes of claim preclusion | Arbitration lacked authority over Texas Securities Act claim; Vocada could not have raised that claim in arbitration | The securities fraud claim "relates to" the earnout and thus falls within the arbitration clause’s scope | Held that the arbitration panel was a court of competent jurisdiction because the securities fraud dispute related to the earnout and therefore must be arbitrated; dismissal affirmed on arbitrability grounds |
| Scope of the arbitration clause (broad vs. narrow) | Clause is narrow and limited to calculation/distribution/process disputes over earnout payments | Although clause is narrow in form, the words "any" and "relating to" create an expansive scope that covers disputes connected to representations about achieving earnouts | Court interprets clause to cover disputes relating to the earnout (favoring arbitration) |
| Proper procedural remedy/finality of district court disposition | Vocada contends dismissal with prejudice via res judicata was improper given arbitration remand proceedings | Nuance argues dismissal was appropriate because arbitration covers the dispute and forum selection requires New York arbitration | Court affirms dismissal on alternative ground that Vocada must pursue claim in arbitration (district court in Texas was not proper forum) |
Key Cases Cited
- Comer v. Murphy Oil USA, Inc., 718 F.3d 460 (5th Cir. 2013) (res judicata standard review de novo)
- Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d 559 (5th Cir. 2005) (elements of claim preclusion)
- Murchison Capital Partners, L.P. v. Nuance Commc’ns, Inc., 760 F.3d 418 (5th Cir. 2014) (order remanding arbitration award is not appealable when not vacated)
- Grimes v. BNSF Ry. Co., 746 F.3d 184 (5th Cir. 2014) (arbitral proceedings can have preclusive effect)
- BNSF Ry. Co. v. Alstom Transp., Inc., 777 F.3d 785 (5th Cir. 2015) (arbitrator authority derives from parties’ agreement)
- Gelboim v. Bank of Am. Corp., 135 S. Ct. 897 (2015) (definition of a final decision that disassociates the court from the case)
- Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614 (1985) (court must enforce arbitration bargains)
- State v. Philip Morris Inc., 869 N.E.2d 636 (N.Y. 2007) ("any...relating to" language interpreted expansively for arbitral scope)