The Honorable Sandra Day O’Connor, Associate Justice 

(Retired) of the United States Supreme Court, sitting by designation

In the

United States Court of Appeals

For the Seventh Circuit

No. 09-4051

LUMBERMENS MUTUAL CASUALTY COMPANY,

Plaintiff-Appellee,

v.

BROADSPIRE MANAGEMENT SERVICES, INC. and

PLATINUM EQUITY, LLC,

Defendants-Appellants.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 07 C 00386—Harry D. Leinenweber, Judge.

ARGUED MAY 19, 2010—DECIDED OCTOBER 13, 2010

Before O’CONNOR, Associate Justice, and WILLIAMS 

and SYKES, Circuit Judges.

WILLIAMS, Circuit Judge. This appeal involves a debate

over the arbitrability of four purchase price disputes

arising out of a transaction between Lumbermens
2 No. 09-4051

We use the term “Broadspire” to include Defendant-Appel- 1

lant Platinum Equity, LLC as well. Platinum’s role in the

transaction is not discussed by the parties in their briefs, but

it is characterized in a district court pleading as Broadspire’s

(continued...)

Mutual Casualty Company (“Lumbermens”) and

Broadspire Management Services, Inc. (“Broadspire”).

Lumbermens sold Broadspire an insurance administration business in 2003 pursuant to a purchase agreement

which provided that certain kinds of price disputes

stemming from the transaction would be referred to an

accounting or appraisal firm for arbitration. Four such

price disputes arose, and Lumbermens sought to

resolve them under the purchase price dispute procedure.

Broadspire refused, asserting that Lumbermens had

failed to satisfy certain necessary preconditions set forth

in the purchase agreement; specifically, that Lumbermens’ written notices stating its disagreements with

Broadspire’s price determinations lacked the requisite

detail. The issue before us is whether the court or the

arbitrator should decide this question of whether the

necessary preconditions to arbitration have been satisfied. The district court concluded that the question

was for the arbitrator, and we agree, because the issue

of whether Lumbermens has adequately disputed

Broadspire’s price reports is a procedural question

about a condition precedent to arbitration. We affirm.

I. BACKGROUND

In July 2003, Lumbermens sold Broadspire an insur- 1
No. 09-4051 3

(...continued) 1

“former owner.” Platinum sought to have itself dismissed

from the case before the district court, but the court rejected

that motion and held that the question of whether Platinum

is a proper party is for the arbitrator. That aspect of the

district court’s ruling was not specifically appealed, nor does

Platinum make any separate arguments from those made

by Broadspire.

ance administration business pursuant to a written Purchase Agreement (the “Agreement”). No cash was exchanged at the time of the closing. Instead, the purchase

price was to be based on a series of annual “earnout” and

“lump sum” payments to be made by Broadspire over

the four years following the transaction, which the

parties defined as the “earnout period.” Earnout payments would be based on the financial performance of

the purchased business each year during the earnout

period. Lump sum payments would be made if

Broadspire sold off any parts of the purchased company

during the earnout period, based on an estimate of the

expected performance of the sold asset over the

remainder of the four years.

Article III of the Agreement, titled “Purchase Price,”

set forth the methodology and procedures for determining the amount of the payments due each year.

Broadspire had to calculate the amounts owed pursuant

to a formula set forth in the Agreement, and prepare

and deliver reports to Lumbermens setting forth in

“reasonable detail” the calculations and assumptions on

which its determinations were based. See generally Agreement § 3.3. Upon receiving a report from Broadspire,
4 No. 09-4051

Lumbermens had 90 days to review it, during which

time Broadspire had to make available to Lumbermens

any books and records relevant to the review. If

Lumbermens decided that it agreed with Broadspire’s

determination, it would send an “Acceptance Notice”

so indicating, or do nothing at all, and the amount

Broadspire had set forth would become the binding

payment amount for that year. But if Lumbermens disagreed with Broadspire’s determination, it had to send

Broadspire a “Disagreement Notice” saying so within

the 90-day period. A Disagreement Notice has to “set[]

forth in reasonable detail the basis for such disagreement and [Lumbermens’] determination of the payment

required to be paid to [Lumbermens] under this Section 3.3.” Agreement § 3.3(g).

A. The Purchase Price Dispute Arbitration Clause

If Lumbermens submitted a timely Disagreement

Notice to Broadspire indicating disagreement with a

given earnout or lump sum report, the parties first had

30 days to try and resolve the differences themselves.

Failing that, the dispute would be submitted to an accounting or appraisal firm for arbitration:

Purchase Price Disputes. If a party delivers a

Disagreement Notice to the other party in a

timely manner, then Buyer and Seller shall

attempt in good faith to resolve such dispute

within 30 days from the date of such notice. If

Buyer and Seller cannot reach agreement . . . then

the dispute shall be promptly referred to an inde-
No. 09-4051 5

pendent accounting or appraisal firm of national

reputation mutually acceptable to Buyer

and Seller, or if the parties are unable to agree

on such a firm within 10 days . . . to

PricewaterhouseCoopers LLP (the “Accounting/Appraisal Firm”) for binding resolution.

The Accounting/Appraisal Firm may conduct

such proceedings as the Accounting/Appraisal

Firm, in its sole discretion, determines will assist

in resolving the dispute and shall, within 60

days . . . deliver . . . a written report setting forth

its determination of all disputed amounts . . . and

its determinations will be conclusive and binding

upon the parties.

Agreement § 3.4.

B. The General Arbitration Clause

In addition to the § 3.4 arbitration procedure intended

specifically for Article III price disputes, the Agreement

also contains a catch-all arbitration provision for all

other disputes. It provides:

Dispute Resolution. Except as otherwise provided

for in Article III, the following shall constitute

the exclusive procedures and remedies for all

disputes arising out of or relating to this Agreement.

Agreement § 14.11. Section 14.11 requires that the parties

attempt in good faith to resolve disputes arising out of the
6 No. 09-4051

Our use of the term “Disagreement Notice” in referring to 2

Lumbermens’ objections should not be taken as reflecting

any conclusion as to their sufficiency. As we explain herein,

that is a question for the § 3.4 arbitrator. Clearly, however,

Lumbermens meant for them to be Disagreement Notices;

the first objection was obviously disputing Broadspire’s December 7, 2005 price report and made reference to Agreement § 3.3(g), and each of the latter three actually bore the

heading “Disagreement Notice.”

Agreement, but if they cannot, it provides for binding

arbitration by a three-arbitrator panel in accordance

with the International Institute for Conflict Prevention

& Resolution (“CPR”) Rules for Non-Administered Arbitration, and governed by the Federal Arbitration Act,

9 U.S.C. § 1 et seq. (“FAA”).

C. The Four Purchase Price Disputes

The full history of the transaction and dispute between

the parties is somewhat complex, but all of those details

are not necessary to resolve question before us. At

issue here are disputes over four price reports—three

lump sum reports dated December 7, 2005, March 16,

2006, and October 16, 2006, and one earnout report

dated June 22, 2006—that Broadspire provided to

Lumbermens under the above-described process and

Lumbermens then timely disputed. On each occasion,

Lumbermens sent a Disagreement Notice regarding

Broadspire’s price determination. Each was relatively 2

general. Broadspire disputed the sufficiency of the Dis-
No. 09-4051 7

agreement Notices, arguing that they did not meet

§ 3.3(g)’s requirement that they contain (1) “reasonable

detail” and (2) Lumbermens alternative “determination

of the payment required.” Lumbermens claimed that it

could not provide the requisite level of detail called

for by § 3.3(g), because Broadspire’s price reports

were themselves lacking in details that would enable

Lumbermens to do so. Lumbermens also claimed in its

Disagreement Notices that it had not been given sufficient access to the books and records necessary to properly evaluate Broadspire’s determinations.

Lumbermens sought arbitration of each of these

four disputes under the Purchase Price Dispute procedures set forth in § 3.4 of the Agreement, but

Broadspire refused to arbitrate on the basis that

Lumbermens had not met the precondition of filing

adequate Disagreement Notices. Instead, Broadspire

sought to commence panel arbitration of the disputes

under the more general § 14.11 procedures. Eventually,

on January 19, 2007, Lumbermens filed a Petition in

Aid of Arbitration in the United States District Court

for the Northern District of Illinois, seeking to compel

arbitration under the § 3.4 provision and to compel

Broadspire to produce certain documents and information to which it had not given Lumbermens access.

The district court ruled in favor of Lumbermens. With

regard to which arbitration clause governed the dispute,

§ 3.4 or the broader § 14.11, the district judge concluded that “Lumbermens is clearly right” and that the

Article III purchase price dispute procedure applied. The
8 No. 09-4051

At the time, the parties were in § 3.4 arbitration regarding 3

a fifth price dispute, over Broadspire’s 2004 Earnout Report.

That report is not at issue in this litigation. We do note, however, that Broadspire did not challenge the arbitrability of

that dispute, despite the fact that Lumbermens’ Disagreement Notice for that report arguably had the same flaws

Broadspire found in the later notices.

court concluded that the question of whether Lumbermens’ Disagreement Notices were adequate was

“certainly within the purview of the arbitrator” and that

the question was one that was “peculiarly within the

competence” of an accounting/appraisal firm. The

district judge ordered the parties to arbitrate the

disputes under the § 3.4 procedures, and to each submit

within ten days of his ruling the names of two

potential accounting or appraisal firms to act as

arbitrator to replace PricewaterhouseCoopers, which

was already acting as an arbitrator in an unrelated

Article III price dispute arbitration. The court also 3

ordered Broadspire to produce certain documents.

Broadspire appealed.

II. ANALYSIS

The question before us is whether a court or an

arbitrator should decide the question of whether the

parties’ disputes are arbitrable under § 3.4 of the Agreement. Broadspire contends that Lumbermens did not

file valid Disagreement Notices and has thus failed to

satisfy a necessary precondition to bringing the
No. 09-4051 9

Although it argued it before the district court, Broadspire

4

does not take the position on appeal that the § 14.11 arbitration procedure should apply instead.

dispute within the scope of § 3.4 arbitration, and that

a court, not the § 3.4 arbitrator, should determine

whether this is in fact the case. Lumbermens responds

4

that the § 3.4 procedure encompasses all disputes

relating to purchase price, including any disputes over

the sufficiency of Disagreement Notices themselves, and

that it is for the § 3.4 arbitrator, not a court, to

evaluate their sufficiency. Like the district court, we

agree with Lumbermens and conclude that the

sufficiency of the Disagreement Notices is a question to

be answered by the § 3.4 arbitrator.

We review a district court’s decision to compel arbitration de novo, and any findings of fact for clear error.

Zurich Am. Ins. Co. v. Watts Indus., Inc., 466 F.3d 577, 580

(7th Cir. 2006). “Whether or not [a] company [is] bound

to arbitrate, as well as what issues it must arbitrate, is

a matter to be determined by the court on the basis of

the contract entered into by the parties.” John Wiley & Sons,

Inc. v. Livingston, 376 U.S. 543, 547 (1964) (citations omitted). In ruling on a motion to compel arbitration,

we “determine whether the parties’ grievance belongs

in arbitration, not rule on the potential merits of the

underlying dispute between the parties.” Zurich Am. Ins.

Co., 466 F.3d at 581.
10 No. 09-4051

A. The Howsam Framework

The Supreme Court’s decision in Howsam v. Dean

Witter Reynolds, Inc., 537 U.S. 79, 84 (2002), clarified the

division of labor between arbitrators and judges in

cases like this one and provides the framework for our

analysis. In Howsam, the Court determined that the question of whether a grievance has been brought within a time period set by a National Association of

Securities Dealers rule is a “gateway procedural dispute”

for the arbitrator, not a court, to decide. 537 U.S. at 85.

The Court held that “procedural questions which grow

out of the dispute and bear on its final disposition are

presumptively not for the judge, but for an arbitrator,

to decide. So, too, the presumption is that the

arbitrator should decide allegations of waiver, delay, or

a like defense to arbitrability.” Id. at 84-85 (emphasis

in original) (internal citations and quotations omitted). The Howsam Court noted that the Revised Uniform

Arbitration Act (“RUAA”), which “incorporate[s] the

holdings of the vast majority of state courts and the law

that has developed under the FAA” supported its conclusion. Howsam, 537 U.S. at 84-85 (citing RUAA § 6(c)

and comment 2). The RUAA provides that “an

arbitrator shall decide whether a condition precedent

to arbitrability has been fulfilled.” RUAA § 6(c). Under

Howsam, questions such as whether prerequisites to

arbitration have been met, or questions of waiver, delay,

or other defenses to arbitrability, should be determined

by the arbitrator. See Howsam, 537 U.S. at 84-85; see also

John Wiley, 376 U.S. at 557 (arbitrator, not court, should

decide whether the party seeking arbitration had
No. 09-4051 11

properly completed grievance procedure that was prerequisite to arbitration under parties’agreement); Moses H.

Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25

(1983) (“waiver, delay, or a like defense” are questions

for arbitrator).

Our circuit has followed Howsam in distinguishing

between “substantive” and “procedural” arbitrability

questions, and in holding that the latter are presumptively for an arbitrator to decide. In Employers Insurance

Co. of Wausau v. Century Indemnity Co., 443 F.3d 573, 581

(7th Cir. 2006), for example, we held that the question

of whether an arbitration agreement forbade consolidated arbitration was a procedural one for the arbitrator

to answer, noting that “[t]he Supreme Court made

clear in Howsam that procedural issues are presumptively for the arbitrator to decide.” (citation omitted). And

in Zurich American Insurance Co., we found that questions

about the preclusive effect of a California state judgment on the scope of the parties’ arbitrable disputes

were similarly an issue for the arbitrator. 466 F.3d at 581.

We concluded that because the issue of preclusion was

being raised by a party as a defense to arbitration, it was

a procedural question under Howsam that fell to the

arbitrator to decide. Id.

B. The Disagreement Notice Dispute Is a Question

for the Arbitrator

Just like the questions in Howsam, Zurich American,

or Employers Insurance, the adequacy of Lumbermens’
12 No. 09-4051

Disagreement Notices is a procedural question about a

condition precedent to arbitration under § 3.4 of the

parties’ agreement and is for the arbitrator to address.

See Howsam, 537 U.S. at 84-85; Zurich Am. Ins. Co., 466 F.3d

at 581; Employers Ins., 443 F.3d at 577. Lumbermens’ and

Broadspire’s disagreements over whether the preconditions have been met grow out of the dispute between

the parties and bear directly on the arbitrator’s final

disposition of what the purchase price should be. See

John Wiley, 376 U.S. at 557. In determining whether a

Disagreement Notice contains sufficient detail, the § 3.4

arbitrator will be examining the same documents and

assessing the same issues relevant to the actual substantive resolution of the parties’ price dispute. It would

be strange to divide these largely overlapping tasks between the court and the arbitrator. See id. (“It would be a

curious rule which required that intertwined issues . . .

growing out of a single dispute and raising the same

questions on the same facts had to be carved up between

two different forums, one deciding after the other.

Neither logic nor considerations of policy compel such a

result.”). This is particularly true in a case like this one,

when the determination being made is one within the

particular expertise of the arbitrator, not a court. See

Howsam, 537 U.S. at 85 (law assumes “expectation that

aligns (1) decisionmaker with (2) comparative expertise”);

see also JPD, Inc. v. Chronimed Holdings, Inc., 539 F.3d 388,

393 (6th Cir. 2008) (accounting firm “undoubtedly possesses greater expertise in determining how much disclosure an EBITDA audit requires”). In evaluating

whether Lumbermens’ Disagreement Notices provide
No. 09-4051 13

the “reasonable detail” required by § 3.3(g), the arbitrator

will necessarily be engaging in a fact-intensive,

specialized inquiry very similar to the inquiry it would

undertake in order to actually determine what the

proper purchase price should be.

“In certain contexts, it is appropriate to presume

that parties that enter into an arbitration agreement

implicitly authorize the arbitrator to adopt such procedures as are necessary to give effect to the parties’

agreement. Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., - - -

U.S. - - - -, 130 S. Ct. 1758, 1775 (2010) (citing Howsam,

537 U.S. at 84). The Agreement here presents one such

context. It is appropriate to presume that the parties

have implicitly authorized the § 3.4 arbitrator to adopt

procedures necessary to give effect to their agreement.

Section 3.4 itself provides that the arbitrator may “conduct such proceedings as [it] . . . determines will assist

in resolving the dispute. . . .” Determining the adequacy of

Disagreement Notices logically falls within this grant

of authority. Indeed, evaluating such documents is inextricably related to the core function that the arbitrator

performs under the Agreement—reaching a conclusion

as to “all disputed amounts” at issue. Agreement § 3.4.

An analogous case from the Sixth Circuit buttresses

our conclusion here. In JPD, Inc. v. Chronimed Holdings,

Inc., the parties signed a purchase agreement for the sale

of a pharmacy that involved a price dispute arbitration

process nearly identical to the one set forth in Article III

here. 539 F.3d at 392-93. The purchaser, Chronimed, had

to send an earnings before interest, taxes, depreciation,
14 No. 09-4051

and amortization (“EBITDA”) calculation to the seller,

DiCello, for the purposes of determining an “additional

purchase price payment” to be made to DiCello after

the transaction based on the pharmacy’s 2006 earnings.

Id. at 390. If DiCello disagreed with the calculation, he

had to file an objection setting forth in “reasonable detail” the basis for his disagreement, and if the parties

could not settle the dispute in good faith, it would be

referred to an accounting firm for resolution just as

in the case before us. See id. DiCello did object to

Chronimed’s EBITDA calculation, but instead of

pursuing arbitration, sued for an accounting and damages. Id. Chronimed moved to stay the suit and

compel arbitration, which the district court denied

on a waiver theory. Id. On appeal, DiCello argued that

arbitration before the accounting firm was not proper

because Chronimed had failed to sufficiently document

its EBITDA calculation, thus waiving its right to

arbitrate the dispute under the purchase agreement. Id.

at 391-92. Applying Howsam, the Sixth Circuit vacated

the district court’s ruling, concluding, inter alia, that the

question of whether Chronimed had sufficiently documented the pharmacy’s finances was “exactly the type

of condition [] precedent to an obligation to arbitrate

that Howsam presumptively allocated to the arbitrator.”

Id. at 392-93 (internal quotation omitted). The same conclusion is appropriate here. Just as questions over the

sufficiency of an EBITDA calculation were issues about

a condition precedent allocated to the arbitrator in

JPD, questions over the sufficiency of Lumbermens’

Disagreement Notices—similarly a condition precedent
No. 09-4051 15

to price dispute arbitration—are questions for the § 3.4

arbitrator here. See id.; see also Dealer Computer Servs., Inc. v.

Old Colony Motors, Inc., 588 F.3d 884, 887 (5th Cir. 2009)

(payment of fees is question of procedural condition

precedent to arbitration that is for arbitrator, not a court,

to decide).

Broadspire cites our decision in R.J. Corman Derailment Services, LLC v. International Union of Operating

Engineers, 422 F.3d 522, 528 (7th Cir. 2005), in support of

its argument to the contrary, but that case is inapposite.

In Corman, the parties disputed whether a grievance

was timely under the terms of an expired collective

bargaining agreement. 422 F.3d at 527. The dispute involved a question of “whether there was an agreement

to arbitrate this set of grievances at all,” a fundamental

question of arbitrability properly answered by a court.

Id.; see Howsam, 537 U.S. at 84. The dispute in this case

is different, and falls on the other side of the Howsam

divide for a key reason. Here, there is no dispute as to

the existence of an agreement to arbitrate itself. Instead,

this is a procedural dispute over preconditions to that

arbitration. See Employers Ins., 443 F.3d at 577 (procedural

question of arbitrability was for arbitrator because it

“does not involve whether Wausau and Century are

bound by an arbitration clause or whether the arbitration clause covers the Aqua-Chem policies.”); see also

Dealer, 588 F.3d at 887. For us to accept Broadspire’s

argument “would require a court to delve too deeply

into questions of the parties’ compliance with the terms

of the agreement, which are more properly for the arbitrator.” Corman, 422 F.3d at 528.
16 No. 09-4051

III. CONCLUSION

The district court’s ruling is AFFIRMED.

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