Sound Inpatient Physicians, Inc. v. Carr
| Decision Date | 20 August 2020 |
| Docket Number | No. 2:19-cv-02034-TLP,2:19-cv-02034-TLP |
| Parties | SOUND INPATIENT PHYSICIANS, INC. and M.D. ROBERT A. BESSLER, Plaintiffs, v. M.D. T.M. CARR, Defendant. |
| Court | U.S. District Court — Western District of Tennessee |
The Court has competing motions here. Defendant, T.M. Carr, M.D. ("Dr. Carr"), moves to confirm the Neutral Accountant's arbitration award. (ECF No. 57.) Sound Inpatient Physicians, Inc. ("Sound Inpatient") and Robert A. Bessler, M.D. ("Dr. Bessler") (collectively, "Plaintiffs"), oppose that motion (ECF No. 63), and move to vacate the arbitration award. (ECF No. 67.) Dr. Carr timely replied in favor of his own motion (ECF No. 72) but opposes Plaintiffs'. (ECF No. 73.)
Plaintiffs also move to stay judgment of this claim until the Court resolves Plaintiffs' indemnity and breach of warranty claims. (ECF No. 67.)
At Plaintiffs' request (ECF No. 67 at PageID 846), the Court held a hearing last month (ECF No. 81). After careful consideration of the parties' written material, statements of counsel, and the entire record here, the Court GRANTS Defendant's motion to confirm the arbitration award and DENIES Plaintiffs' motion to vacate the arbitration award. The Court also GRANTS Plaintiffs' motion to stay judgment until the Court resolves their claims for breach of warranty and indemnity.
In March 2016 Plaintiffs branched out from their core business of operating hospitals and acquired ownership of Defendant's emergency medicine practice in Memphis, Tennessee. (ECF No. 18 at PageID 200.) They entered into an LLC interest and stock purchase agreement (the "Agreement") with Defendant to buy the entire membership interest in two Tennessee professional LLCs and all the stock of a Tennessee professional corporation (the "Companies"). Defendant was the sole member of the LLCs and the sole shareholder of the corporation. (Id.) The Companies were, and continue to be, in the business of providing emergency medicine physicians and other staff to emergency departments at five Memphis-area hospitals. (Id. at PageID 200.) After the transaction closed, Sound Inpatient began operating the Companies. (Id.)
Under the Agreement, the purchase agreement price ("Purchase Price") would equal 7.37 times the earnings before overhead "generated" from operation of the Companies during a twelve-month period ending March 31, 2018 (the "Calculation Period"). (Id.) The Purchase Price, however, could not be less than $30 million nor greater than $59 million. (Id.) At closing, Plaintiff paid the first payment of $30 million. (Id.) The second payment was determinable at the end of the Calculation Period. (Id.)
At the end of the Calculation Period, Plaintiffs computed a total purchase price of $26,605,885, and, because the total was less than $30 million, determined that it owed no further payment to Defendant. (Id. at PageID 201.) Defendant contested Plaintiff's calculation,objecting that (1) it included $1,844,541.94 of bad debt ("Bad Debt Expenses") from before the Calculation Period and (2) it should have included certain non-medical compensation expenses when calculating earnings before overhead. (Id. at PageID 201-02.)
As for the first objection, Defendant argued Plaintiff should not have deducted the $1,844,541.94 in Bad Debt Expenses from the Earnings Before Overhead in the final Purchase Price calculation because, although realized during the Calculation Period (June 30, 2017), the expenses applied to the period between March 2016 and December 2016. (ECF Nos. 58 at PageID 587; 58-1 at PageID 621-22.) Plaintiffs counter that it properly included the $1,844,541.94 in Bad Debt Expenses in calculating the final Purchase Price because the expenses were in fact realized during the Calculation Period. (ECF Nos. 58 at PageID 587; 58-1 at PageID 608-09.)
The parties, thus, disagreed on whether Plaintiffs properly calculated the price with these Bad Debt Expenses. To deduct the $1,844,541.94 in accordance with Plaintiffs' theory leads to a final Purchase Price of $26,605,885 and no further payments to Defendant. But if Defendant's theory prevails, the calculation will include that $1,844,541.94. This leads to a final purchase price of $40,734,142 and a Second Payment to Defendant of $10,734,142. The parties could not resolve their dispute.
Under § 1.4(d) of the Agreement, Plaintiff had 30 days after the Calculation period within which to calculate the Purchase Price and communicate it to Defendant. If Defendant objected to part of the Purchase Price calculation and the parties did not resolve the disagreement, the parties may arbitrate that dispute. It says the parties "may immediately engage [a] Neutral Accountant to resolve any items that remain in dispute." (ECF No. 19-1 at PageID 232.) Sowhen Defendant objected and the parties did not resolve it, he sought to submit his objections to a Neutral Accountant under the Agreement. (ECF No. 18 at PageID 202-03.)
Plaintiffs chose a different route. They sought a declaratory judgment about the proper construction of the Agreement, the role of the Neutral Accountant, and the calculation of the Purchase Price. (Id. at PageID 208-09.) Defendant moved to dismiss, arguing that Plaintiffs' declaratory judgment claim is subject to arbitration because the Agreement's Neutral Accountant provision is an agreement to arbitrate. (ECF No. 22 at PageID 311-12.) In October 2019, this Court found that § 1.4(d) of the Agreement was a valid agreement to arbitrate. (See ECF No. 36.) The Court added that the arbitration agreement called for the Neutral Account to decide only the issues raised by Defendant's objections. (See ECF No. 36.) And so the Court granted the motion to compel arbitration. (ECF No. 36 at PageID 422-23.)
Although § 1.4(d) says that the Neutral Accountant will "act[] as an expert and not an arbitrator," the Court gave effect to the entirety of the provision and held that the parties' Agreement reflected an agreement to arbitrate. (Id. at PageID 416-20.) In doing so, the Court looked to the substance of the Agreement over its form and found that the substance of § 1.4(d) amounts to "arbitration in everything but name." (See id. at PageID 418.)
Following that order, the parties engaged Stephen A. Wolf, CPA, to resolve Defendant's objection to Plaintiffs' inclusion of prior Bad Debt Expenses in its Purchase Price calculation. (See ECF No. 64-2.) Under Section 1.4(d) of the Agreement, each party filed memoranda with the Neutral Accountant in support of their respective positions. (ECF No. 64-2 at PageID 722-55.) Mr. Wolf then rendered a decision that Plaintiffs' $1,844,541.94 Bad Debt Expenses charge in June 2017 "related to prior period operations [and thus] was not appropriate becausethe timing of the expense does not match the revenue during the Calculation Period." (Id. at PageID 720.)
Defendant now moves for the Court to confirm the Neutral Accountant's opinion and to enter a judgment that Plaintiffs' inclusion of prior period Bad Debt Expenses in the Purchase Price calculation was improper. What is more, Defendant argues that the Purchase Price under the Agreement is $40,734,142, and that Sound Inpatient owes Defendant a second payment of $10,734,142 plus interest from the date of the decision. (See ECF No. 58.) At the same time, Plaintiffs move the Court to vacate the Neutral Accountant's award. (See ECF No. 67.)
Although Plaintiffs do not couch their motion as one for reconsideration of the order compelling arbitration, they in effect ask the Court to reverse its prior holding by finding that § 1.4(d) was not an arbitration clause. (See ECF No. 63.) The Court therefore finds it necessary to begin its analysis by addressing the standards for reconsidering a prior order.
The Sixth Circuit treats a motion for reconsideration as a motion to alter or amend the judgment in districts that do not have local rules on such a motion. In re Greektown Holdings, LLC, 728 F.3d 567, 574 (6th Cir. 2013) (). A district court may grant a motion for reconsideration or a motion to alter or amend a judgment only when there is "(1) a clear error of law; (2) newly discovered evidence; (3) an intervening change in controlling law; or (4) a need to prevent manifest injustice." Henderson v. Walled Lake Consol. Sch., 469 F.3d 479, 496 (6th Cir. 2005).
This interpretation limits parties from raising legal arguments that they could have raised beforehand, rearguing a case, or introducing new evidence for the first time when the party should have presented that evidence earlier. See Shah v. NXP Semiconductors USA, Inc., 507 F. App'x 483, 495 (6th Cir. 2012); see also Hamilton v. Gansheimer, 536 F. Supp. 2d 825, 842 (N.D. Ohio 2007) ().
The Federal Arbitration Act ("FAA") expresses a presumption that Courts will confirm arbitration awards. 9 U.S.C. § 9; Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 328 (6th Cir. 1998). When parties have agreed to arbitrate, courts must confirm the award "unless the award is vacated, modified, or corrected." 9 U.S.C. § 9. So federal courts are limited to a narrow review of arbitration awards under the FAA. Hall Street Assoc., ...
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