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November 13, 1990


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 proposed adjustments.

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 ...

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