The opinion of the court was delivered by: Leval, District Judge.
Petitioner, Melun Industries, Inc. ("Melun"), moves to
confirm an arbitration award of $519,018 in its favor against
respondent Michael A. Strange. Strange crossmoves to vacate the
award on the grounds that the arbitrator exceeded the authority
granted him under an agreement between the parties.
This action concerns disputed adjustments to the purchase
price of stock sold to Melun by Strange in late 1986.
On November 25, 1986, Melun and Strange entered into a Stock
Purchase Agreement (the "Agreement") whereby Melun would
purchase all of the shares of S & C Holding Company, Inc. ("S
& C") from Strange. The purchase price was to be set at 80% of
the "audited book value" of S & C as of August 31, 1986, "as
audited by Harrison H. Halby, independent certified public
accountant for [S & C], and as reviewed and accepted by Coopers
& Lybrand, independent certified public accountant for
[Melun]." Once Coopers & Lybrand had reviewed and accepted
Halby's figures, those figures were to be known as the
"Original Book Value." Agreement ¶ 1(b). Melun was to pay the
purchase price of 80% of Original Book Value at the
closing. If Coopers & Lybrand did not accept the figures
provided by Halby, Melun had the right to decline to close and
to terminate the Agreement. Agreement ¶ 13.
The Agreement provided that after closing an adjustment would
be made to the purchase price to cover "increase[ ] or
decrease[ ] from the Original Book Value during the period from
September 1, 1986 to the Closing Date," to the extent it
exceeded $60,000, according to the following procedures:
(i) As soon as possible after the Closing,
[Strange and S & C] agree to deliver to Coopers
and Lybrand all documents necessary to permit said
accountants to determine the amount, if any, by
which the book value of [S & C] increased or
decreased from the Original Book Value during the
period from September 1, 1986 to the Closing Date.
Within fifteen business days after receipt by said
accountants of all such documents, [Melun] shall
deliver to [Strange] a statement (the
"Post-Closing Statement") prepared by said
accountants either stating that no adjustment to
the Original Book Value is required, or setting
forth the amount of the adjustment, the basis
therefor and the adjusted book value of [S & C] as
of the Closing Date (the "Adjusted Book Value").
(iii) The Post-Closing Statement shall be
binding upon [both parties] for all purposes
unless [Strange] gives written notice of
disagreement with the Adjusted Book Value within
ten days after receipt by [Strange] of the
Post-Closing Statement, specifying in reasonable
detail the nature and extent of such disagreement.
If [the parties] are unable to resolve any such
disagreement within ten days after [Strange] gives
[Melun] notice thereof, the disagreement shall be
referred for final determination to [an accounting
firm acting as arbitrator]. . . . [T]he
determination of such accounting firm shall be
conclusive and binding upon [the parties] for all
purposes. [The parties] agree that judgment may be
entered upon the determination of such accounting
firm in any court having jurisdiction over the
party against which such determination is to be
enforced. . . .*fn1
Agreement ¶ 1(d)(i), (iii).
In late November, 1986, Strange sent the August 31, 1986
financial statements to Melun for Cooper & Lybrand to review.
Coopers & Lybrand apparently had some doubts about the accuracy
of that statement, and informed Melun before the closing, but
Melun neither made objection nor attempted to defer the closing
until its accountants could complete their review. The closing
went ahead on December 19, 1986. The Original Book Value, as
presented to Melun's accountants, resulted in a purchase price
at closing of $670,400, which Melun paid.
On January 5, 1987, Strange sent Coopers & Lybrand a copy of
S & C's November 30, 1986 financial statement, as provided in
¶ 1(d)(i).*fn2 On January 26, 1987, Coopers sent Strange a
document describing the nature and amounts of Melun's proposed
adjustments. This document, which stated an adjustment of
$391,604, was in the form of an internal memorandum from one
Coopers employee to another, and was marked "draft." This was
the only document sent to Strange within fifteen business days
of Strange's provision of the November 30, 1986 financial
statement. On February 2, 1987, within the ten day response
time provided in the Agreement, Strange sent Melun his response
to the Coopers memorandum, objecting to all but a few of the
On May 6, 1987, Melun sent Strange a document purporting to
be the Post-Closing Statement required by the agreement. This
document retained the same categories of proposed adjustments
as had been provided in the January 26 memorandum, but
dramatically increased the amounts demanded by
Melun. It demanded $570,018 over and above the amounts agreed
to by Strange on February 2.*fn3 On May 18, 1987, Strange
rejected these increases as untimely. He sent Melun a check for
$160,498, representing the adjustments in the January 26
memorandum with which he agreed, less the $60,000 exclusion.
Melun acknowledged but did not cash the check, indicating that
it would be held "as a deposit toward amounts due." Melun
contended that its May 6 statement was not untimely, and that
the delay was due to Strange's failure to provide necessary
financial data to evaluate the November financial statement. An
arbitration was held to resolve the disputed adjustment.
The arbitrator, Robert Graham of Peat, Marwick Main & Co.,
issued an award in favor of Melun in the amount of $519,018,
based in large part on the adjustments proposed by Melun in the
May 6 Post-Closing Statement. Strange requested that the
arbitrator modify the award, arguing that the arbitrator had
misunderstood the scope of the authority granted to him by the
Agreement. He contended that the arbitrator erred procedurally
and substantively. His procedural objection is that the
arbitrator considered claims raised by Melun after the deadline
set by the Agreement. The substantive objection is that the
arbitrator went beyond the scope of his authority. Strange
contends that the only question submitted to the arbitrator was
the change in book value resulting from the company's operation
during the quarter from August 31 to November 30 and that the
arbitrator far exceeded his authority by revising the already
accepted Original Book Value as of the August 31 contract date.
The arbitrator's award requires Strange to return to Melun more
than he received in payment for his shares. The arbitrator
refused to modify the award.
Strange now reiterates the same two objections in seeking to
vacate the arbitrator's award. Melun moves to ...