Court Opinion

ID: 4210703
Source: CourtListenerOpinion
Date Created: 2017-10-11 15:00:46.150504+00
Date Added: 2024-06-11T14:40:49.076558
License: Public Domain

17-548-cv
Bergheim v. Sirona Dental Sys., Inc.

                                   UNITED STATES COURT OF APPEALS
                                       FOR THE SECOND CIRCUIT

                                          SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 11th day of October, two thousand seventeen.

PRESENT: ROBERT D. SACK,
                 REENA RAGGI,
                 SUSAN L. CARNEY,
                                 Circuit Judges.
----------------------------------------------------------------------
OLAV BERGHEIM, GHARIB MORTEZA,
                         Petitioners-Appellees,

                                 v.                                      No. 17-548-cv

SIRONA DENTAL SYSTEMS, INC., ARGES
IMAGING INC.,
                         Respondents-Appellants.*
----------------------------------------------------------------------
APPEARING FOR APPELLANTS:                         KELSI        BROWN     CORKRAN,       Orrick,
                                                  Herrington & Sutcliffe LLP, Washington, D.C.
                                                  (Mark A. Robertson, Norton Rose Fulbright US
                                                  LLP, New York, New York; Joy M. Soloway,
                                                  Norton Rose Fulbright US LLP, Houston,
                                                  Texas, on the brief).

APPEARING FOR APPELLEES:                         JOHN D. ROESSER, Dechert LLP, New York,
                                                 New York.

*
    The Clerk of Court is directed to amend the case caption as set forth above.
       Appeal from a judgment of the United States District Court for the Southern

District of New York (Laura Taylor Swain, Judge).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

AND DECREED that the judgment entered on January 26, 2017, is AFFIRMED.

       Sirona Dental Systems, Inc., and Arges Imaging Inc. (“Sirona”) appeal from a

judgment confirming an arbitral award of damages for Sirona’s breach of a May 5, 2011

merger agreement (the “Agreement”) with Petitioners, the former shareholders of Arges

Imaging Inc.    Sirona argues that the district court should have vacated the award

because the arbitrator (1) disregarded the plain terms of the Agreement in concluding that

Petitioners were entitled to recover a $3 million bonus (the “Accuracy Earn-Out

Provision”) based on the proven accuracy of Apollo, their dental-imaging product; and

(2) manifestly disregarded Delaware’s prohibition on speculative damages in awarding

Petitioners approximately $4 million under a provision tied to Apollo’s expected

revenues (the “Revenue Earn-Out Provision”).1 On appeal from the confirmation of an

arbitration award pursuant to the Federal Arbitration Act (“FAA”), see 9 U.S.C. § 1 et

seq., we review the district court’s legal conclusions de novo and its factual findings for

clear error, see Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Tr., 729

F.3d 99, 103 (2d Cir. 2013). In so doing, we assume the parties’ familiarity with the

facts and record of prior proceedings, which we reference only as necessary to explain

our decision to affirm.

1
  Sirona advances no independent argument for vacating the arbitrator’s award of
interest, attorneys’ fees, or costs, which we will not address further.

                                            2
1.     Arbitrator’s Interpretation of the Accuracy Earn-Out Provision

      Sirona argues that the arbitration award cannot be reconciled with “the plain

terms” of the Agreement’s Accuracy Earn-Out Provision.          Appellants’ Br. 19.    To

secure vacatur on this ground, Sirona must do more than show that the arbitrator

“committed an error—or even a serious error.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l

Corp., 559 U.S. 662, 671 (2010); accord Jock v. Sterling Jewelers Inc., 646 F.3d 113,

122 (2d Cir. 2011). Rather, it must show that the arbitrator acted “outside the scope of

his contractually delegated authority—issuing an award that simply reflects his own

notions of economic justice rather than drawing its essence from the contract.” Oxford

Health Plans LLC v. Sutter, 133 S. Ct. 2065, 2068 (2013) (internal quotation marks and

alterations omitted). As long as “the arbitrator (even arguably) interpreted the parties’

contract,” then “whether he got its meaning right or wrong,” id., confirmation is required

if there is a “barely colorable justification for the outcome reached,” Leeward Constr.

Co., Ltd. v. Am. Univ. of Antigua–Coll. of Med., 826 F.3d 634, 638 (2d Cir. 2016)

(internal quotation marks omitted). The arbitrator here satisfied this standard.

      Under the Accuracy Earn-Out Provision, Petitioners were “entitled to receive” $3

million “[i]f, and only if,” within 18 months of the merger’s closing, Apollo satisfied a

negotiated list of “Product Finalization” requirements and secured a “Key Accuracy

Number” score of 75 or greater during controlled testing. App’x 93. There is no

question that Sirona declined to certify Apollo’s compliance with the Product

Finalization requirements during the 18-month period.         The arbitrator determined,

                                            3
however, that (1) such testing as was conducted indicated that Apollo had achieved a Key

Accuracy Number score of 77 during the 18-month threshold, and (2) Sirona improperly

withheld Product Finalization certification pending satisfaction of non-contractual

criteria, some of which the parties had specifically negotiated to exclude from the

Agreement. Thus, the arbitrator did not disregard the Agreement and base the award on

extracontractual considerations, as in the cases Sirona cites.       Cf. Harry Hoffman

Printing, Inc. v. Graphic Commc’ns Int’l Union Local 261, 950 F.2d 95, 99 (2d Cir.

1991) (affirming vacatur of award in which arbitrator relied on notions of “elementary

due process” rather than on contract); In re Marine Pollution Serv., Inc., 857 F.2d 91, 93,

96 (2d Cir. 1988) (reversing confirmation of award premised on “practical effect[s]” and

“guiding principle of equity” where no contract language authorized arbitrator’s actions).

Rather, she found the terms of the Agreement satisfied. Whether or not we would

ourselves construe the Agreement to preclude Sirona from withholding certification in

this manner, the arbitrator’s interpretation was supported by at least a “barely colorable

justification,” which suffices to confirm the award. Leeward Constr. Co. Ltd. v. Am.

Univ. of Antigua–Coll. of Med., 826 F.3d at 638.

      Sirona’s argument that its certification was an express condition precedent merits

little discussion, as the arbitrator concluded that Sirona’s improper withholding of

certification excused Petitioners’ compliance with the condition. See, e.g., Seven Invs.,

LLC v. AD Capital, LLC, 32 A.3d 391, 400 (Del. Ch. 2011) (explaining that party “may

not escape contractual liability by reliance upon the failure of a condition precedent

                                            4
where the party wrongfully prevented performance of that condition precedent” (internal

quotation marks omitted)). Sirona’s claim that the arbitrator found it not to have acted

wrongfully, but to have engaged in good-faith commercially reasonable actions, is belied

by the record.    The arbitrator’s good-faith finding related to Petitioners’ Revenue

Earn-Out claims, not its Accuracy Earn-Out claims. Indeed, the arbitrator explained

that Sirona’s breaches of these respective provisions were “two fundamentally different

things.” App’x 26.

2.     Application of Delaware Law to the Revenue Earn-Out Provision

       Sirona concedes the arbitrator’s authority to find that it breached its obligation to

make “commercially reasonable efforts” to promote Apollo pursuant to the Revenue

Earn-Out Provision, under which Petitioners were entitled to 10% of Apollo’s revenues

and 25% of its license fees for six years. Sirona argues only that the damages awarded

for its breach were so speculative as to manifest disregard for Delaware law. To secure

vacatur on this ground, Sirona bears a “heavy burden” because a court must “find[] both

that (1) the arbitrator[] knew of a governing legal principle yet refused to apply it or

ignored it altogether, and (2) the law ignored by the arbitrator[] was well defined,

explicit, and clearly applicable to the case.” Zurich Am. Ins. Co. v. Team Tankers A.S.,

811 F.3d 584, 589 (2d Cir. 2016) (internal quotation marks omitted). Because Sirona

fails to satisfy the first requirement, we need not consider the second.

       The arbitrator here did not ignore or refuse to apply Delaware law. To the

contrary, she cited Delaware precedent proscribing awards of “speculative” damages,

                                              5
App’x 52, and specifically concluded that Petitioners’ damages calculations met

Delaware’s requirement that “damages be shown with reasonable certainty,” id. at 53.

Nothing more was required. See, e.g., Siga Techs., Inc. v. PharmAthene, Inc., 132 A.3d

1108, 1131 (Del. 2015) (explaining that Delaware law requires that expectation damages

be proven “with reasonable certainty,” not “precise certainty”). The arbitrator also did

not disregard the “general rule” in Delaware prohibiting damages based on evidence of

expected profits from a new business or technology. Re v. Gannett Co., 480 A.2d 662,

668 (Del. Super. Ct. 1984). A general rule is, by definition, not an absolute bar, and

Petitioners cite no caw law establishing that Delaware prohibits such damages.

      Nor was the factual basis for the arbitrator’s $4 million damages award

speculative, as it was based on calculations performed by Petitioners’ expert witness, who

“relied on projections developed by Sirona itself.” App’x 53; see id. at 53 n.10 (noting

that Sirona’s expert “did not offer” an alternative proposal and claimed that damages

were “impossible” to calculate). To the extent Sirona disputes the arbitrator’s factual

findings on damages, they are beyond our review. See Westerbeke Corp. v. Daihatsu

Motor Co., Ltd., 304 F.3d 200, 213 (2d Cir. 2002) (“An arbitrator’s factual findings are

generally not open to judicial challenge, and we accept the facts as the arbitrator found

them.”) (internal quotation marks omitted).

                                              6
3.    Conclusion

      We have considered Sirona’s other arguments and conclude that they are without

merit. Accordingly, we AFFIRM the judgment of the district court.

                                       FOR THE COURT:
                                       Catherine O’Hagan Wolfe, Clerk of Court

                                         7