Yeransian v. Markel Corporation
MEMORANDUM. Signed by Judge Gregory M. Sleet on 7/31/2017. (mdb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
THOMAS YERANSIAN, in his capacity as the
representative of holders of certain Contingent
Value rights under the Contingent Values Rights
Agreement dated October 15, 2010,
a Virginia Corporation,
Civil Action No. 16.c808-GMS
PlaintiffYeransian, in his_ capacity as the representative of holders of certain contingent
value rights under the Contingent Value Rights Agreement, brought this -suit against Markel
Corporation ("Markel") on September 15, 2016.
Yeransian alleges that Markel
breached the Contingent Value Rights Agreement ("the CVR Agreement") by failing to follow
generally .accepted accounting principles ("GAAP") and actuarial standard of practice ("ASOP")
in its calculations of the Adjusted Principal Amount. Id. The Complaint's eight causes of action
essentially arise out of Markel' s alleged failure to properly calculate the loss and expense
reserves, Markel's alleged misrepresentations or misstatements with regard to calculation of
those reserves, and Markel' s failure to provide the correct documentation for its calculations. Id.
Currently before the court is Markel' s Motion to Stay Litigation and Compel Arbitration.
(D.I. 35). Markel moves the court to stay the litigation, pending completion of the dispute
resolution procedures outline in Section 3.2(d) of the CVR. (D.I. 36). For the reasons that
follow, the court grants Markel' s motion.
The_currentactionarises out ofMarkel's 2009 acquisition of Aspen Holdings, Inc., a
workers' compensation insurance underwriter. (DJ.
million in shareholder equity (book value). Id.
In 2009, Aspen reported $81.7
'if 6. Based on that book value, Markel offered to
buy Aspen for $183 million subjectto due diligence.
7. After due diligence, Vice
Chairman ofMarkel's Board of Directors informed the CEO of Aspen, Luke Yeransian, that
Markel found Aspen's book valueto be overstated by $47.3 million as of December 31, 2009.
8. Markel agreed to purchase Aspen but, in orderto account for the possibly overstated
book value, Markel would pay _$135. 7 million in cash at Closing and create a Contingent Value
Rights Agreement. Id. The CVR Agreement would pay $4 7.3 million in additional
consideration to Aspen's shareholders in eight years (with a pre-payment option at year five) if
Aspen's book value as of December 31, 2009 turned out to be correct. Id.
As part of its regular business practice, and important to the company's book value,
Aspen "established loss and expense reserves to pay for claims arising from workers'
Accordingly, the CVR Agreement was intended to capture
changes in Markel's book value-due in part to the reserves-as it affected the compensation
ultimately paid to Asperi' s shareholders.
The CVR would be adjusted upward or downward dollar for dollar following the
.acquisition based on future changes to: (a) Aspen's outstanding loss and expense
reserves ("Reserve Adjustment"), (b) the value of Aspen's commission receivable
("Receivable Adjustment") related to its Managing General Agency Contracts, and
(C) other Offsets, including premmm audit and any adjustments and/or
extraordinary settlements of amounts due to counterparties (reinsurance
companies) that would impact book value as stated on December 31, 2009.
If it turned out that Aspen's book value was higher than the stated value of $81. 7 at
December 31, 2009, then Markel would pay the CVR Holders ·"the corresponding amount dollar
for dollar over the $47.3 million initial CVR value." Id.
To calculate the value of the CVR, and, accordingly, the £nal payment amount, Markel
was to follow the procedures outlined in Section 3.1 of the Agreement. Section 3.1 ofthe CVR
Agreement explains that any prepayment, under Section 3 .5( a) or Section 3 5(b ), or set-off
amounts, under Section 3.4, will be deducted from the Initial Principal Amount. (D.I. 36-2
Section3.1(a)). Further, the Reserve Adjustment is added to the Receivable Adjustment to
determine the Principal Adjustment. Id. The Initial Principal Amount adjusted by the Principal
Amount then _yields the value of the Adjusted Principal Amount. Id. The Adjusted Principal
Amount, "together with interest accrued thereon at the Interest Rate from the Closing Date to the
Payment Date, constitutes the Final Amount. Id. § 3.l(b).
Markel was also required to abide by certain obligations under the CVR Agreement: (1)
"The amounts used to calculate the 'Adjusted Principal Amount' from December 31, 2014
through December 31, 2017 [had to] be adjusted .. : consistent with Actuarial Principles, (D .I.
36-2 Section 3.l(c)); (2) The Holders had to receive annual accountings, and supporting
documentation, demonstrating in reasonable detail how such amounts were determined, id.
Section 3.2(a); and (3) the actuarial assumptions had to incorporate a 50% confidence interval,
and the reserves had to be calculated in accordance with "commonly accepted actuarial
standards." Id. at Annex A.
The CVR Agreement predicted possible disagreements over calculation and valuation of
In order to resolve such disagreements, the CVR Agreement lays out a detailed
process in Section 3 .2. According to Section 3.2(d), "[u]pon delivery of a Disagreement Notice,
the Holder Representative and Parent [would] attempt in good faith to reach agreement" over the
calculation of the Adjusted Principal Amount. In the event that they could not reach agreement
within fifteen days of service of the Disagreement Notice, the Holder Representative could
request that the .calculation of the Adjusted Principal Amount be referred to an "Independent
Actuary" and an ~'Independent Claims Expert."
The Independent Claims Expert will independently review and evaluate -the Net
Loss and Expense Reserves with respect to the claims reported as of the
Calculations Date on a case-by-case basis and provide the results of his evaluation
to the Independent Actuary. The Independent Actuary will then determine the
Adjusted Principal Amount based, in the case of Net Loss and Expense Reserves
with respect to claims reported as of the Calculation Date, solely on the results of
the Independent Claims Expert's review, and otherwise in accordance with GAAP
(in the case of-the Receivable Adjustment) or SAP (in the case of the Reserve
Adjustment) and the Actuarial Principles. The scope of the Independent
Actuary's and the Independent Claims Expert's review will be limited to those
matters over which there is disagreement between the parties as reflected in the
Disagreement Notice. With respect to the review and evaluation of any
Adjustment Statement, the Independent Actuary's determination of the Adjusted
Principal Amount set forth therein will be final and binding on the parties.
Id. Section (d).
The current litigation is not the first time suit has been filed over the CVR Agreement. In
2015, the CVR Holders questioned the validity of the information in Markel's annual
Adjustment Statement dated December 31, 2014. (D.I. 1 if 21). The Holders engaged Huggins
Actuarial Services, Inc. to calculate any necessary adjustments and the value of the CVRs. Id.
22. Markel, believing that the Holders planned to request an independent valuation, filed suit
against the previous CVR Holder Representative. Id. ·ir 24. Markel sought declaratory judgment
that the previous CVR Holder Representative "had made no prepayment election and was
therefore not entitled to an independent audit and .a prepayment of the CVR value at year five."
Id. That prior suit ended in settlement between the parties.
The parties executed the 2015
Settlement Agreement, which limited the prepayment rights of the CVR Holders with regard to
the Five-Year Adjustment Statement. Id.
Inapplicable to the current motion pending
before the court, the CVR Holders contest the validity and enforceability of that settlement
agreement. Id. 'if 27.
Markel also filed suit in this court alleging that Y eransian breached the 2015 Settlement
Agreement, and requesting specific performance of that agreement.
Markel also seeks a
declaratory judgment that the Settlement Agreement is valid and enforceable. On February 21,
2017, the court issued an oral order consolidating that case with Y eransiari' s case.
STANDARD OF REVIEW
Because this arbitrability dispute is connected with a transaction involving interstate
commerce, the analysis is governed by the Federal Arbitration Act ("FAA"). Trippe Mfg. Co. v.
Niles Audio Corp., 401F.3d529, 532 (3d Cir. 2005). The FAA provides that written agreements
to arbitrate disputes "shall be valid, irrevocable, and enforceable:" 9 U.S.C. § 2. Pursuantto the
FAA, the court should stay an action and compel arbitration when, in a pending suit, "any issue
is referable to arbitration." 9 U.S.C. §§ 3, 4. A district court also has the discretion to dismiss an
action if all the issues raised are arbitrable and must be submitted to arbitration. See BAE Sys.
Aircraft Controls, Inc. v. Eclipse Aviation Corp., 224 F.R.D. 581, 585 (D. Del. 2004) (collecting
In the Third Circuit, there exists caselaw supporting both the application of a motion-'todismiss standard and a summary-judgment standard to motions to compel arbitration. Compare
Palcko v. Airborne Express, Inc., 372 F.3d 588, 597 (3d Cir. 2004) ("Our prior decisions support
the traditional practice oftreating a motion to compel arbitration as a motion to dismiss for
failure to state a claim upon which relief can be granted."), with Kane.ff v. Delaware Title Loans,
Inc., 587 F.3d 616, 620 (3d Cir. 2009) ("A district court decides a motion to compel arbitration
under the same standard it applies to a motion for summary judgment."). The Third Circuit
clarified that motions to compel arbitration are analyzed using the summaryjudgment standard
"if matters beyond the pleadings are considered." Nationwide Ins. Co. of Columbus, Ohio v.
Patterson, 953 F.2d 44, 45 (3d Cir. 1991). Further, if the complaint is unclear, "or if the plaintiff
has responded to a motion to compel arbitration with additional facts sufficient to place the
agreement to arbitrate in issue, then 'the parties should be entitled to discovery on the question of
arbitrability,"' and a summary judgment. standard will be applied to the renewed motions postdiscovery. Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 776 (3d Cir. 2013).
By contrast, "when it is apparent, based on 'the face of a complaint, and documents relied upon
in the complaint,' that certain of a party's claims 'are subject to an enforceable arbitration clause,
a motion to compel arbitration should be considered .under a Rule 12(b)( 6) standard without
discovery's delay."' Id.
Before a court can compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§
1-16 (2003 ), the court must determine: (1) whether the parties entered into a valid arbitration
agreement, and (2) whether the relevant dispute is arbitrable, meaning that it falls within the
language of the arbitration agreement. See John Hancock Mutual Life Insurance Co. v. Olick,
151 F.3d 132, 137 (3d Cir. 1998) (stating that where a dispute regarding an arbitration agreement
is brought before a district court, the scope of the court's authority to become involved is defined
by the FAA). In conducting its review, a court sbou1d apply the ordinary state-law principles of
contract law. See 9 U.S.C. § 2; First Options of Chicago v. Kaplan, 514 U.S. 938, 945 (1995)
(stating that when considering "whether the parties agreed to arbitrate a certain matter ... ,
courts generally ... should apply ordinary state-law principles that govern formation of
contracts"). "[W]here the contract contains an arbitration clause, there is a presumption of
arbitrability in the sense that [aJn order to arbitrate the particular grievance should not be denied
unless it may be said with positive assurance that the arbitration clause is not susceptible of an
interpretation that covers the asserted dispute." AT & T Techs., Inc. v. Commc'ns Workers of
Am., 475 U.S. 643, 650 (1986) (internal quotation and citations omitted). SubsequenLcases have
clarified, however, that while a broad arbitration clause carries a substantial presumption of
arbitrability_, a narrow clause does not. See In re FBI Wind Down, Inc., 557 B.R. 310, 317
(Bankr. D. Del. 2016), ajf'd, No. AP 15-51899 (CSS), 2017 WL 2125757 (D. Del. May 16,
2017). When an arbitration clause is construed as narrow, collateral matters are generally not
arbitrable. Id. (quoting 1 Thomas H. Oehmke, Commercial Arbitration§ 20:6, Westlaw (May
The right to arbitrate is also one that can be waived. The Third Circuit has explained that
"prejudice is the touchstone for determining whether the right to arbitrate has been waived."
Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925 (3d Cir. 1992). Consequently, if a
party has actively litigated the case-engaging in actions like motions practice and discovery, or
assenting to the court's pretrial orders-waiver will likely be found. See id.
As a preliminary matter, the court will applythe motion to dismiss standard to its
consideration ofMarkel's motion to compel arbitration. This is so because the court only
considers the Complaint, its exhibits, and the CVR Agreement-a document intimately
associated with the Complaint. See In re Burlington Coat Factory Sec. Litig., 114 F3d 1410,
1426 (3d Cir. 1997) ("[A] 'document integra1 to or explicitly relied upon in the complaint' may
be considered 'without converting the motion [to dismiss] into one for summaryjudgment."')
(citing Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)). Further, it is apparent
from the face of the Complaint that the dispute over value of the CVR and the calculation of the
Adjusted Principal Amount are issues subject to an enforceable arbitration clause. Yeransian has
not responded to Markel's motion with additional facts sufficient to place the agreement to
arbitrate in issue. Thus, the motion to dismiss standard is applicable here.
Y eransian advances three main arguments in support of its contention that litigation
should proceed and arbitration is not warranted. First, Y eransian argues that Section 3 .2(d) is not
a valid agreement to arbitrate. Second, Y eransian avers that the present dispute is not covered by
Section 3.2(d). Yeransian contends that Markel either waived its right to invoke arbitration, or,
alternatively, Markel should be estopped from doing so. The court will first address Yeransian's
estoppel and waiver arguments, and then analyze Yeransian's remaining arguments in tum.
A. Waiver and Estoppel
Y eransian contends that Markel waived its right to invoke arbitration because it filed suit
against the Holder Representative on two occasions, and on neither of those occasions did
Markel seek to compel arbitration. Y eransian also argues that, in the event the court declines to
find waiver, it should judicially or equitably estop Markel from compelling arbitration. To
support that argument, Yeransian claims that it is inconsistent for Markel to now .invoke the
terms of Section 3 .2(d) by its pending motion when, in 2015, it asserted that the Holder
Representative failed to meet the conditions necessary to invoke those same terms. (D.I. 39 at
14). The court finds both arguments unpersuasive.
Markel did not waive its right to arbitrate.by its 2015 declaratoryjudgment action or the
2016 action it filed in this court. Those actions deal with separate legal and factual issues;
namely, issues regarding whether the Section 3 .2( d) valuation process was necessary at year five
when "the Holder Representative failed to serve a prepayment election notice," and whether
Y eransian breached the 2016 Settlement Agreement, respectively. See Commercial Arbitration
§ 23:6 (Aug. 2016 Update) ("Only prior litigation of the same legal and factual issues as those
the party now wants to arbitrate results in waiver of the right to.arbitrate."). Further, the court
does not find that Y eransian has been prejudiced by Markel' s delay in filing its motion.
Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925 (3d Cir. 1992). The court, in fact, does
not believe that Markel delayed in filing its motion to compel arbitration. The court is aware
from prior discussions with the parties that Markel tried to come to an agreement with Y eransian
in order to obviate the need for any motion. The court concludes that any delay in filing the
motion to compel arbitration was the result ofMarkel's and Yeransiari's attempt to agree to
Y eransian next argues that Markel should be equitably or judicially estopped from
compelling arbitration. Judicial estoppel is a judge-made doctrine that serves to "prevent a
litigant from asserting a position inconsistent with one that [was] previously asserted in the
same or in a previous proceeding. Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81
F.3d 355, 358 (3d Cir. 1996). The doctrine of equitable estoppel is available when: (1) a party
misrepresents some fact to another party, and (2) the other party reasonably relies on that
misrepresentation, (3)to the other party's detriment. Leese v. Adelphoi Vil!., Inc.,516 F. App'x
192, 194 (3d Cir. 2013) (internal citations omitted). The court finds both doctrines inapplicable
to the facts ofthis case.
Y eransian contends that following delivery of the December 31, 2014 Adjustment
Statement, the Holder Representative reserved the rightto invoke the procedures outlined in
Section 3.2(d). (D.I.39 at 17). According to Yeransian, Markel, instead of following the
requirements of Section 3 .2(d), filed suit against the Holder Representative, claiming that a
prepayment demand was required to be made before Section 3.2(d) could be invoked. Id. To
settle that suit, the Holder Representative entered into a Settlement Agreement whereby the
holders would be barred from utilizing the remedy provided by Section 3 .2~ d) until after issuance
of the December 31, 2017 Adjustment Statement. Id. Y eransian argues that Markel now takes
the inconsistent position that Section 3 .2(d) "is an arbitration clause that requires all disputes
between Markel and the CVR Holders to be resolved through the terms set out in Section
As the court already mentioned, the prior litigation that Markel filed in 2015 was about a
separate issue-prepayment of the full balance of the Adjusted Principal Amount set forth in the
Five-Year Adjustment Statement when no Prepayment Election Notice was delivered to Markel.
Further, Markel has represented that it "has the willingness and ability to deliver a Maturity Date
Adjustment Statement at this time," as opposed to waiting until the December 31, 201 7 CVR
maturity date. 1 Thus; Markel' s current position is not directly at odds with the Settlement
Agreement because that Agreement only barred utilization of 3.2(d)'s dispute resolution process
until after issuance of the Adjustment Statement.
The court recogriizes Markel's -previous statements that a prepayment demand was
required before Section 3.2(d) could be invoked. Clearly, Markel now claims-that a formal
Disagreement Notice is not necessary to institute the dispute resolution procedures of that
section. Regardless, it is within the court's discretion to apply the doctrines of equitable and
judicial estoppel. For the reasons further outlined below, the court does not find persuasive
Y eransian:' s argument regarding conditions precedent, necessary to trigger the independent
valuation process. Additionally, the court finds the circumstances of the prior litigation over
prepayment to be different enough that the equitable doctrines are inapplicable.
B. Arbitration Agreement
The court's next task is to determine whether there exists a valid arbitration clause in the
Contingent Value Rights Agreement. Plaintiffs do not argue that Section 3 .2(d) of the CVR
Agreement is invalid or that the CVR itself is invalid. Instead, they argue that Section 3.2(d)
cannot be interpreted as an arbitration clause. To decide whether the parties agreed to arbitrate a
certain matter, courts should apply ordinary state-law contract interpretation principles. First
Options of Chicago, Inc. v. Kaplan, 514 u~s. 938, 944 (1995). Delaware law instructs the court
The court notes-without analyzing-that, had Markel not agreed to furnish the Maturity Date Adjustment
Statement, there could have been a ripeness issue. The ripeness doctrine attempts "to prevent courts, through
avoidance of premature litigation, from entangling themselves in abstract disagreements." Abbott Labs. v. Gardner,
387 U.S. 136, 148 (1967), abrogated on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). Under that
doctrine, the court is tasked with determining whether the issues are fit for judicial decision and the level of hardship
caused by withholding court consideration. Id. at 149. Because the maturity date contemplated by the contract is in
the future-and because the Complaint essentially asks the court to determine the Final Amount in order to award
damages-it is at least plausible that the case would not have been ripe if Markel did not accelerate the process.
to "give priority to the parties' intentions as reflected in the four comers of the agreement;" and
to "interpret clear and unambiguous terms according to their ordinary meaning." GMG Capital
Investments, LLC v. Athenian Venture Partners L L.P., 36 A.3d 776, 780 (Del. 2012).
While not a traditional arbitration agreement-in that it never mentions an arbitrator or
the term arbitrate-Section 3.2(d) of the CVR is still a contractually agreed upon dispute
resolution process by which an Independent Actuary determines the final and binding Adjusted
Principal Amount. See (D.I. 36-2 Section 3.2(d)) ("With respect to the review and evaluation of
any Adjustment Statement, the Independent Actuary's determination of the Adjusted Principal
Amount set forth therein will be final and binding on the parties.") (emphasis added). Other
courts have recognized similar .contractual agreements as agreements to arbitrate. See Seed
Holdings, Inc. v. Jiffy Int'l AS, 5 F. Supp. 3d 565, 576 (S.D.N.Y. 2014) ("While Section 2.8 does
not use the term 'arbitration,' it requires the parties-to.submit their dispute with respect to
working capital 't? the binding determination of a third party accounting firm."'); AMF Inc. v.
Brunsw.ick Corp., 621 F. Supp. 456, 460 (E.D.N.Y. 1985) ("No magic words such as 'arbitrate'
or 'binding arbitration' or 'final dispute resolution:' are needed to obtain the benefits of the
[Federal Arbitration] Act"); McDonnell Douglas Fin. Corp. v. Pennsylvania Power & Light Co.,
858 F.2d 825, 830 (2d Cir. 1988) (citing with approval cases where submission of disputes to
independent appraisers and accountants qualified as arbitrations).
The parties' intentions are clearly and unambiguously laid out in the CVR agreement; an
Independent Actuary and an Independent Claims Expert will calculate the Adjusted Principal
Amount when the parties fail to reach agreement as to that Amount. (D.I. 36-2 Section 3.2(d)).
Plaintiffs take issue with the fact that Section 3 .2( d) does not say the Independent Actuary and
Claims Expert will .calculate the Amount, but instead that "the Holder Representative may
request ... calculation of the Adjusted Principal Amount" by those experts in the event that the
parties fail to reach agreement fifteen days after delivery of the.Disagreement Notice. Id.
(emphasis added). According to Yeransian's argument, disputes over calculations ofthe
Adjusted Principal Amount are only resolved by the Independent Actuary and Claims Expert
when the Holder Representative requests such resolution; therefore, they cannot be compelled to
undergo the process outlined in Section 3 .2(d) against their will. Y eransian further argues that
there are a number of conditions precedent that must occur before Section 3 .2(d) is triggered.
Those conditions include: (1) the end of the December 31, 2017 fiscal year; (2) the issuance of
the Maturity Date Adjustment Statement no later than May 1, 2018; (3) Yeransian's delivery of
the Disagreement Notice; (4) Yeransian's and Markel's attempt to resolve the dispute; (5) and
Yeransian's request for the Independent Valuation procedure in Section 3.2(d). (D.I. 39 at 13).
Plaintiffs logic leads inevitably to an impasse-Markel issues the Maturity Date Adjustment
Statement, the Parent .and the Holder Representative cannot reach an agreement as to the
calculation or value of the Adjusted Principle Amount, but, because the Holder Representative
refuses to furnish a Disagreement Notice, the disagreement becomes a never-ending story.
By his argument, Y eransian seeks to elevate the procedural aspects of Section 3 .2 over
the substance of that section. The parties presumably created Section 3 .2, and specifically
3.2(d), to resolve disputes over the calculation of the Adjusted Principal Amount, not to create a
chicken and egg scenario. Markel represented that is has the "willingness and ability to deliver a
Maturity Date Adjustment Statement at this time." (D.I. 36 at 13). Accordingly, the first two
"conditions precedent" are now rendered moot. Though there is clear disagreement here over the
valuation of that Amount-as evidenced by the commencement of this lawsuit-Yeransian
would like the court to believe that Section 3 .2(d) is inapplicable because the Holder
Representative must take certain discretionary actions, which, at least theoretically, he could
decline to take. While the court respects the parties' freedom to contract, Y eransian cannot now
claim the protection of certain sections of Section 3 .2 that it seeks to undermine by the filing of
this suit and its conduct in its prosecution. To vindicate the parties' intentions at the time they
entered into the CVR Agreement, it is clear that the court must view Section 3 .2(d) as an
arbitration clause. Yet, even if the court were to find the other conditions discussed in
Yeransian's brief to be "conditions precedent," Yeransian filing this lawsuit satisfies them.
Yeransian's Complaint essentially served the exact same function as the Disagreement
Notice contemplated by the CVR agreement-"written notice ... setting forth in reasonable
detail the nature of each ofthe objections to the calculations." (D.I. 36-2 Section 3.2(c)).
Among other things, Y eransian' s Complaint objects to the fact that Markel allegedly set reserves
at a confidence level in excess of 95%, in violation of GAAP AND ASOP. (D.I. l 'if 29). Such
an objection is similar, if not the same, as what would appear in the Disagreement Notice.
Further, if the court did not viewYeransian's Complaint as akin to a Disagreement Notice
triggering arbitration, Yeransian and the Holders of the Contingent Value Right could skirt their
contractual obligations by filing suit in federal court-the very thing arbitration seeks to avoid.
Moreover, the parties have engaged in attempts at mediation since initiation of this
action. No doubt such mediation attempts qualify as attempts to resolve disagreements over the
calculation of the Adjusted Principal Amount in good faith, as allegedly required before Section
3 .2(d) is triggered. As such, Plaintiffs cannot avoid the dispute resolution provisions of Section
3 .2(d) by filing suit when, in fact, doing so functionally accomplishes the conditions triggering
Y eransian attempts to bolster his argument by citing to procedurally inapplicable,
nonbinding caselaw. In Ferguson v. Lion Holding, Inc., 478 F. Supp. 2d 455 (S.D.N.Y. 2007),
the court analyzed a section of a Stock Purchase Agreement that laid out the procedure relevant
to disputes over the level of reserves carried by the parent company or its subsidiaries. 4 78 F.
Supp. 2d at 4 77. Though at first glance the facts seem to mirror, at least in part, the current
dispute here, the court's analysis was focused on waiver. The plaintiffs in Ferguson did not
demand independent calculations by third-party experts under the.contract atthe time they
objected to the level of carried reserves. Id. Under the contract, however, if-the plaintiffs
wanted their objection to have any effect on the company's calculation of the.carried reserves,
they needed to demand a neutral determination at the time they objected-demanding neutral
determination was a "condition precedent" to effectuating an objection. See id. C'?laintiffs' right
to have a neutral determination of the appropriate level of carried reserves is surely conditional;
it only arises after, and 'if,' plaintiffs first disagree with the level of reserves being carried, which
consideration it informs defendant ofQy demand for a neutral determination."). _Instead, the
plaintiffs demanded independent determination .at the summary judgment stage of trial. Id. The
court found that they could not defeat summaryjudgment because they waived their right under
the contract to request a neutral determination at the relevant time; thus, the company's carried
reserve calculations would stand. Id. 477-78.
Y eransian uses Ferguson to argue that the CVR Agreement contains "condition
precedents," which must be satisfied before independent-expert evaluation is triggered. (D.I. 39
at 13). The most important among those conditions, according to Yeransian, is: "[I]fthe
[Holder and Parent] are unable to [reach agreement] within 15 days ofreceipt of the
Disagreement Notice, then. the Holder Representative may request that the calculation ofthe
Adjusted Principal Amount be referred to an actuary ... and an independent Claims expert."
(D.I. 36-2 Section 3.2(d)) (emphasis added). Because the CVR Agreement explains that the
Holders "may request" the calculation of independent experts, according to Y eransian, the court
cannot compel the Holders to submit to the calculation when they have not satisfied that
"condition precedent." (D.I. 39 at 13). Ferguson does not support thatargument; in fact,
Ferguson undermines that point. While the CVR agreement says the Holder "may request"
independent review, the result of the Holders not-making such a request is that their
Disagreement Notice is ineffectual. Like in Ferguson, the result of failing to request
independent .calculation is that Markel' s calculations in the Maturity Date Adjustment Statement
stand. If the court were considering a motion for summary judgment here-as the District Court
for the Southern District of New York was in Ferguson-and Holders failed to request
independent calculation after disagreeing with the Adjustment Statement's calculations, the court
would find-just as the court did in Ferguson-that the Markel's calculations must stand.
Plaintiffs would have waived their right to any other calculation.
Here, unlike in Ferguson, the relevant time to institute Section 3.2(d)'s procedures is
now. The court is considering Markel's motion to compel arbitration, not a request for summary
judgment. The plaintiffs in Ferguson tried to defeat summary judgment by arguing that,
according to the contract, they were entitled to independent review of the company's
calculations, long after the company made those calculations. Here, Y eransian argues that, after
Markel's delivery of the Maturity Date Adjustment ·Statement-a future act-the Holders could
technically decide not to request the procedures outlined in Section 3 .2(d)-also a future act.
Certainly, the contract language explicitly allows for the Holders to decide against requesting
calculation by independent experts. But, as previously mentioned, the result of such action is
that the Holders are paid out according to Markel' s calculations in the Maturity Date Adjustment
Statement. As such, regardless of discretionary language in the CVR Agreement, the Holders
have two choices after the Maturity Date Adjustment Statement is delivered: elect to undergo the
procedures outlined in Section 3.2( d), or live with the calculations in the Adjustment Statement.
Y eransian attempts to fashion a third choice by filing suit in this court. The court will not allow
Markel plans to deliverthe Maturity Date Adjustment Statement now, as opposed to
December 31, 201 7. It is abundant! y clear from the Complaint that Y eransian will disagree with
the calculations in that st_atement, and declineto be bound by them. The parties intended for
independent experts, not.the court, to resolve such a dispute. Section 3.2(d) has thus been
C. Scope of the Arbitration Agreement
Finally, the court must determine whether the current dispute falls within the language of
the arbitration agreement. Section 3 .2(d) is certainly a narrow arbitration clause in that it lays
out a dispute resolution process solely for disagreements regarding valuations of the Adjusted
Principal Amount. (D.I. 39-2 Section 3.2(d)). 2 The section further limits the role of the
Yeransian contends that "the parties recognized that Section 3 .2(d) [was] not the exclusive method to resolve
disputes" because Section 8 .6(b) of the CVR Agreement references a final determination by a court of competent
jurisdiction. (D.I. 36-1 Section 8.6(b)). He further supported that argument by citing to Section 11.6, which grants
independent experts by stating that "[t]he scope ofthe Independent Actuary's and the
Independent Claims Expert's review will be limited to those matters over which there is
disagreement between the parties." Id.; see United Steelworkers ofAm., AFL-CIO-CLC v. Rohm
& Haas Co., :522 F.3d 324, 331 (3d Cir. 2008) ("Cases holding that the arbitration clauses at
issue are narrow have generally relied on language expressly limiting the scope of the clause to
specific subject matter."); Compucom Sys., Inc. v. Getronics Fin. Holdings B. V, 635 F. Supp. 2d
371, 378 (D. Del. 2009) (finding that the arbitration clause was narrow because it was limited to
the review of whether the "Proposed Purchase Agreement Price Calculation contained
mathematical errors"). Even though the arbitration agreement is narrow, the core of the present
dispute still falls within its scope.
Yeransian admits that, at least facially, the dispute is over the value of the CVRs. (D.I.
39 at 14). He argues, however, that the core of the dispute is over Markel's failure to maintain
reserves at 50% confidence levels, Markel's failure ''to follow GAAP and Standard Actuarial
Practices in setting the reserves," and Markel' s failure "to include [aJ premium audit in the net
gains/losses." Id. Yeransian concludes that, because there are other ancillary issues not directly
related to the valuation ofthe Adjusted Principal Amount, this suit is not properly within the
scope of Section 3.2(d). Regardless of whether the nexus of the dispute is the value of the CVRs
or Markel's alleged failures, the court cannot determine ifMarkel's actions or calculations were
exclusive jurisdiction to the courts in Delaware. Id. Section l 1.6(b). Markel does not contend, however, that
Section 3.2(d) is an all-encompassing arbitration clause. Instead, as the court recognizes above, it is clear that
Section 3.2(d) is a narrow arbitration clause that only submits disagreements regarding valuations of the Adjusted
Principal Amount to the independent experts. Section 8.6(b) in no way undermines Section 3.2(d)'s limited
arbitration clause because it envisions courts resolving disputes "related to the enforcement of the provisions
contained in [the CVR] Agreement or the Merger Agreement." Id. Section 8.6(b). Enforcing provisions of the
contract is different than calculating the Adjusted Principal Amount in accordance with certain actuarial and
accounting principles. Courts routinely undertake one of those tasks, yet are ill-equipped to tackle the other.
wrong without knowing what is "right."
The court is not an expert in the fields of accounting or actuarial science. Even our
esteemed colleagues at the Bankruptcy Court-who have much more experience dealing with
disputes of this type-aknow1edge that they are "not Oexpert[s] in the principles of any
accounting methodology;" nor do they "know what the principles of GAAP accounting are."
FBI Wind Down, 557 B.R. at 323. As the parties clearly acknowledged during formation ofthe
CVR agreement, one way to figure out the correct calculation of the Adjusted Principal Amount
is to refer the matter to unbiased experts in the -field. Courts routinely do the same thing-defer
to the knowledge of experts when considering disputes over the method used for a calculation
such as this one. See id. at 325 ([i]f the Trustee succeeds in showing that the [Asset P.urchase
Agreement] requires the use of the Sellers' historical accounting practices, it will be up to the
Accounting Arbitrator to determine what the Sellers·' historical practices were and whether the
Trustee has correctly applies them."); see also Compucom Sys., 635 F.
2d at 378 (finding
that arbitration was "''appropriate to resolve disputes over 'the Proposed Purchase Price
Calculation,"' because, regardless of the legal theory the parties asserted, "the focal point of the
conflict [was] the propriety of using a six-year inventory life"). Yeransian proposes no
alternative resolution of the disputes over calculations. Because the parties here do not appear to
dispute the methodology required by the CVR-but instead whether Markel correctly applied
that methodology-it is up to the independent experts, not the court, to determine whether
Markel's calculations are consistent with that required methodology.
Plaintiffs also argue that "[s]imply taking numbers provided by Markel and giving them
to an independent third party would not be sufficient for the third party to accurately determine if
Markel's calculations ineluded appropriate elements or how Markel's calculations were
reached." (D.I. 39 at 14). The court, however, finds no support for that argument in the context
ofSection3.2. Section 3.2(d) explains that·"[t]he Independent Claims Expert will.independently
review and evaluate the Net Loss .and Expense Reserves with respect to the claims reported as of
the Calculation Date on a case-by-case basis ..,, (D.I. 36-2 if 3.2(d)). Thereafter, the Independent
Actuary determines the Adjusted Principal Amountbased "solely on the results of the
Independent Claims Expert's review, and otherwise in accordance with GAAP ... or SAP ...
and the Actuarial Principles:" Id. The court does not see how the independent expert's analyses
relies on numbers provided by Markel. Thus, Y eransian offers no persuasive arguments that the
value ofthe CVR should be .determined by the court, as opposed to independent experts, as
.contemplated by the CVR Agreement.
For the foregoing reasons, the court will grant Markel' s Motion to Stay Litigation and
Compel Arbitration, thereby enforcing-Section 3.2(d) of the CVR Agreement. 3
Despite the stay, the court will retain jurisdiction over any document production disputes that may arise during the
independent experts' evaluation. The parties should notify the court of such disputes through the normal discovery
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