Smith et al v. Altisource Solutions Inc. et al

Filing 20

OPINION AND ORDER Granting in Part and Denying in Part Defendants' 7 MOTION to Compel Arbitration and Stay this Proceeding. Signed by District Judge Matthew F. Leitman. (HMon)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
KEVEN M. SMITH et al.,
Plaintiffs,

Case No. 16-cv-11503
Hon. Matthew F. Leitman

v.
ALTISOURCE SOLUTIONS S.À R.L. et al.,
Defendants.
_________________________________/
OPINION AND ORDER GRANTING IN PART AND DENYING
IN PART DEFENDANTS’ MOTION TO COMPEL ARBITRATION
AND STAY THIS PROCEEDING (ECF #7)
In 2014, Plaintiffs Keven Smith (“Smith”) and Biscayne and Associates, Inc.1,
(“Biscayne”) entered into a purchase and sale agreement (the “Agreement”) with
Defendants Altisource Solutions S.À.R.L. and Altisource Solutions, Inc.
(collectively, “Altisource”). Under the Agreement, Altisource acquired the assets of
a mortgage origination and software servicing business (the “Acquired Business”)
from Biscayne. The Agreement required Altisource to pay Biscayne a base purchase
price at closing and to make additional post-closing payments if certain conditions
were satisfied (the “Earn-out Payments”). In this action, Biscayne and Smith

1

Biscayne and Associates, Inc. was formerly known as Mortgage Builder Software,
Inc.
1

(Biscayne’s owner) seek, among other things, a declaratory judgment that Altisource
wrongly refused to make the first Earn-out Payment due under the Agreement.
Altisource has now filed a Motion to Compel Arbitration and Stay This
Proceeding (the “Motion”). (See ECF #7). In the Motion, Altisource contends that
Smith and Biscayne are required to arbitrate all of their claims pursuant to an
arbitration provision in the Agreement. For the reasons explained below, the Motion
is GRANTED IN PART and DENIED IN PART.
I
A
On July 18, 2014 (the “Closing Date”), the parties entered into two contracts.
First, they executed the Agreement under which Biscayne sold substantially all the
assets of the Acquired Business to Altisource. Second, Smith entered into an
employment agreement (the “Employment Agreement”) with Altisource to perform
certain services to support the Acquired Business. (See Employment Agreement,
ECF #11-5.) Within a year after the Closing Date, the parties terminated the
Employment Agreement, and Smith became a consultant to Altisource under a
separate “Transition and Consulting Agreement” (the “Consulting Agreement”).
(See Consulting Agreement, ECF #11-6.)

2

B
The Agreement required Altisource to make a payment of approximately $15
million at closing and to make three future Earn-out Payments (up to a maximum of
$7 million) if certain conditions were satisfied at the end of three future
Measurement Periods.2 (See Am. Compl. at ¶1, ECF#4 at Pg. ID 448-49.) Section
2.5 of the Agreement governs Altisource’s obligation to make the Earn-out
Payments. In relevant part, that Section provides:
(a) [Biscayne] may be entitled to receive additional contingent payments
(collectively, the Earn-out Payments”) in the manner described in this
Section 2.5. The Earn-out Payments shall be calculated as follows:
(i)

As further described in this Section 2.5,
following the end of each Measurement
Period, [Altisource] shall calculate the
Adjusted Revenue during such Measurement
Period. With respect to those Measurement
Periods set forth on Annex II, in the event that
the Adjusted Revenue equals an amount set
forth in the left-hand column of the chart
attached hereto as Annex II, then [Biscayne]
shall be entitled to an aggregate Earn-out
Payment equal to the amount set forth in the
corresponding row in the right-hand column
of the chart. . . . The Parties acknowledge and
agree that under no circumstance shall the
aggregate amount of the Earn-out Payments
paid or payable hereunder exceed Seven
Million Dollars ($7,000,000).

2

There are three “Measurement Periods”: “First Period,” “Second Period,” and
“Third Period.” (Agreement Annex II, ECF #1-2 at Pg. ID 95.) The Parties do not
dispute that the First Period commenced on November 1, 2014, and ended on
October 31, 2015. (See Earn-out Statement, ECF #11-8 at Pg. ID 607.)
3

(ii)

During each Measurement Period, to the
extent [Smith] is employed or engaged by
[Altisource] to perform services, (A) [Smith]
shall ensure his services are performed in
good faith and in the best interest of
[Altisource], including operating the
Acquired Business within the guidelines of
an annual budget approved by [Altisource] . .
..

(iii)

Notwithstanding anything to the contrary
herein, (A) if a Forfeiting Condition[3] occurs
prior to or during the First Period, then
[Biscayne] is not entitled to receive any Earnout Payments with respect to the First Period,
Second Period, or Third Period….

(Agreement §2.5, ECF #1-2 at Pg. ID 33-34.)
Sections 2.5(c)-(f) of the Agreement set forth a detailed process for (1)
communicating about an Earn-out Payment (if any) due at the end of a Measurement
Period and (2) resolving certain disputes between the parties related to an Earn-out
Payment. (See Agreement §§ 2.5(c)-(f), ECF #1-2 at Pg. ID 33-34.) This process is
best understood when separated into the following six steps:
Step One – Altisource prepares an “Earn-out Statement,” which has two
components: a statement of Adjusted Revenue and, if applicable, a statement
“calculating” the Earn-out Payment due based upon that revenue. (Agreement
§2.5(c), ECF #1-2 at Pg. ID 34.)

3

A “Forfeiting Condition” occurs if Smith resigns or is terminated “for Cause (as
such term is defined in [Smith’s] Employment Agreement).” (Agreement Annex I at
§58, ECF #1-2 at Pg. ID 85.)
4

Step Two – Altisource delivers to Biscayne the Earn-out Statement together
with underlying computations and supporting documents. (See id.)
Step Three – Biscayne, along with its accountants and lawyers, have thirty
days to review the Earn-out Statement and supporting work papers. (See id.)
Step Four – If Biscayne disagrees with the Earn-out Statement, it must deliver
a “Notice of Disagreement with Earn-out Statement” to Altisource (explaining
the nature of its disagreement) within the thirty-day review period.
(Agreement §2.5(d), ECF #2-1 at Pg. ID 34.)
Step Five – If Biscayne delivers a Notice of Disagreement with Earn-out
Statement, the parties must spend the next thirty days seeking to resolve in
writing the issues identified in the notice. (See Agreement §2.5(f), ECF #2-1
at Pg. ID 34.)
Step Six – If the parties have not resolved the issues identified in the notice
within the thirty-day time period, they shall submit the issues to the designated
arbitrator for binding resolution. The designated arbitrator is the Boston
office of Ernst & Young LLP. (See id.; Agreement Annex I §12, ECF #1-2 at
57, referencing definition of Arbitrator in Section 2.4(c) of Agreement.)
C
On December 15, 2015, Altisource delivered to Plaintiffs the Earn-out
Statement for the First Measurement Period (the “First Earn-out Statement”). (See
Earn-out Statement Cover Letter, ECF #11-7 at Pg. ID 605.) According to the First
Earn-out Statement, Altisource had an Adjusted Revenue of $11,844,395. (See Earnout Statement Spreadsheet, ECF #11-8 at Pg. ID 608.) Under Annex II of the
Agreement, that level of Adjusted Revenue entitled to Biscayne to a first Earn-out
Payment of $933,000. (See Agreement Annex II, ECF #1-2 at Pg. ID 95.)

5

But Altisource declined to make that payment. In a cover letter accompanying
the First Earn-out Statement, Altisource contended that it was not required to make
the first Earn-out Payment because Smith, in his capacity as employee and
consultant, had failed to satisfy the “condition[] in the Agreement” that required him
to “operate the Acquired Business within the guidelines of [the] annual budget.”
(Earn-out Statement Cover Letter, ECF #11-7 at Pg. ID 605.) Altisource further
asserted that even if Biscayne was “entitled to an Earn-out Payment for the First
Measurement Period, [Altisource] would be entitled to set-off against any such Earnout Payment any damages [Biscayne] owe[s] [Altisource] due to breaches of the
Agreement, such as the failure to file all Tax Returns, as detailed in [Altisource’s]
letter dated August 7, 2015.”4 (ECF #11-7 at Pg. ID 605.) Altisource said that its
right to a set-off warranted its refusal to make the first Earn-out Payment because its
claimed set-off exceeded any Earn-out Payment to which Biscayne could possibly
be entitled. (See id.)
One week after receiving the First Earn-out Statement, Plaintiffs sent
Altisource a letter objecting to Altisource’s assertions. (See ECF #7-2 at Pg. ID 50809.) Plaintiffs wrote that Altisource’s position with respect to Smith’s alleged non-

4

In the August 7, 2015, letter, Altisource asserted that Plaintiffs had breached
Section 2.1(e) and Section 3.5(a) of the Agreement when they failed to file timely
tax returns on behalf of the Acquired Business’ clients prior to the Closing Date.
(See August 7, 2015 Letter, ECF #11-9.) For the alleged breach, Altisource sought
indemnification in the amount of $10,502,340. (See id.)
6

compliance with the budget was “inappropriate” because “Smith was denied any
operational control or information about what was happening within [Altisource]”
and because Altisource’s calculations relied on inappropriate criteria.5 (Id.)
Plaintiffs added that they “object[ed] to all claims for which [Altisource is] claiming
a setoff.”6 (Id.) Plaintiffs concluded their letter by warning that if Altisource did not
revise its position and make the first Earn-out Payment, Plaintiffs would “be required
to issue a Notice of Disagreement with Earn-Out Statement” under the Agreement’s
dispute resolution provisions. (Id.)
Throughout early 2016, the parties attempted to informally resolve the Budget
Compliance Dispute and the Tax Set-off Dispute, but they were not able to do so.
Plaintiffs filed this action on April 26, 2016.7 (See Compl., ECF #1.) Plaintiffs later
filed an Amended Complaint on August 15, 2016. (See Am. Compl., ECF #4.)

5

For ease of reference, the Court will use the term “Budget Compliance Dispute” to
refer to the parties’ disagreement over (1) whether Smith breached any obligation to
comply with the budget and (2) whether that alleged non-compliance with the budget
extinguished Altisource’s obligation to make an Earn-out Payment.
6

The Court will use the term “Tax Set-off Dispute” to refer to the parties’
disagreement over (1) whether Biscayne has any liability for failing to file tax returns
prior to the Closing Date and (2) if so, whether Altisource may set-off that liability
against any Earn-out Payment to which Biscayne is entitled.
7

As noted above, Plaintiffs previously told Altisource that they would file a Notice
of Disagreement with Earn-out Statement. In the end, Plaintiffs did not deliver such
a notice because, after giving the matter further consideration, Plaintiffs decided that,
in their opinion, (1) the Budget Compliance Dispute and Tax Set-off Dispute did not
7

D
The Amended Complaint contains five counts. Three of the counts relate to
whether Altisource owes the Earn-out Payment for the First Measurement Period.
(Id.) The remaining counts relate to other matters.
Count One seeks “a judicial declaration that neither the [Budget Compliance
Dispute] nor the [Tax Set-off Dispute] excuse Altisource’s refusal to pay [an] Earnout Payment pursuant to the terms of the [Agreement].” (Id. at ¶¶ 57-64, ECF #4 at
Pg. ID 466-67.)
Count Two seeks $933,000 in damages because “Altisource repudiated and
breached the [Agreement] by stating, clearly and unequivocally, that it would not
pay an Earn-out Payment to Biscayne under any circumstance.” (Id. at ¶¶65-69, ECF
#4 at Pg. ID 468.)
Count Three seeks “a judicial declaration that Plaintiffs do not have any
indemnity obligation to Altisource related to the [Tax Set-off Dispute] pursuant to
the terms of the [Agreement].” (Id. at ¶¶ 70-78, ECF #4 at Pg. ID 468-70.)
Count Four alleges that Altisource breached a March 2015 amendment (the
“2015 Amendment”) to the Agreement that granted Plaintiffs certain rights in “Aged

fall within the Agreement’s dispute resolution provisions and, thus, (2) they could
proceed directly to litigation without filing the notice and without arbitrating those
disputes.
8

Receivables” that Altisource collected. (Id. at ¶ 20, 79-83, ECF #4 at Pg. ID 453,
470-71.)
Count Five alleges that Altisource breached the Consulting Agreement that it
entered into with Smith “by failing to pay Smith the required $3000 per month fee.”
(Id. at ¶¶ 84-88, ECF #4 at Pg. ID 471-72.)
E
On October 5, 2016, Altisource filed the Motion. (See ECF #7.) Altisource
asks the Court to compel Plaintiffs to arbitrate all of the claims in the Amended
Complaint and to stay this proceeding. (See id.) Plaintiffs responded to the Motion
on October 24, 2016. (See ECF #11.) Altisource filed a reply on November 3, 2016.
(See ECF #13.) The Court held a hearing on the Motion on January 5, 2017.
II
A
The Federal Arbitration Act (“FAA”) governs arbitration provisions in
contracts, like the Agreement, “that involve interstate commerce.” Vimar Seguros y
Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528 (1995). “The FAA applies even
when the agreement [to arbitrate] is limited to a particular class of disputes.” Shy v.
Navistar Int’l Corp, 781 F.3d 820, 825 (6th Cir. 2015).
Under Section 2 of the FAA, a “written [contractual] provision” that provides
for “settle[ment] by arbitration [of] a controversy thereafter arising out of such

9

contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as
exist at law or in equity for the revocation of any contract.” 9 U.S.C. §2. The FAA
reflects “both a liberal federal policy favoring arbitration and the fundamental
principle that arbitration is a matter of contract.” AT&T Mobility LLC v. Concepcion,
563 U.S. 333, 339 (2011) (internal quotations marks and citations omitted). Thus,
“in applying general state-law principles of contract interpretation to the
interpretation of an arbitration agreement within the scope of the [FAA], due regard
must be given to the federal policy favoring arbitration, and ambiguities as to the
scope of the arbitration clause itself [are to be] resolved in favor of arbitration.” Volt
Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468,
475-76 (1989); see also Nestle Waters N. Am. Inc. v. Bollman, 505 F.3d 498, 503
(6th Cir. 2007) (“We examine arbitration language in a contract in light of a strong
federal policy in favor of arbitration, resolving any doubts as to the parties’
intentions in favor of arbitration.”).
However, “arbitration under the [FAA] is a matter of consent, not coercion.”
Volt, 489 U.S. at 479. “While ambiguities in the language of the agreement should
be resolved in favor of arbitration, [the Court] [will] not override the clear intent of
the parties, or reach a result inconsistent with the plain text of the contract, simply
because the policy favoring arbitration is implicated.” E.E.O.C. v. Waffle House,
Inc., 534 U.S. 279, 294 (2002). Put differently, a court should decline to compel

10

arbitration of a dispute if “it may be said with positive assurance that the arbitration
clause is not susceptible of an interpretation that covers the asserted dispute.”
Teamsters Local Union 480 v. United Parcel Service, Inc., 748 F.3d 281, 288 (6th
Cir. 2014) (quoting AT&T Technologies, Inc. v. Communication Workers of
America, 475 U.S. 643, 650 (1986)).
B
The Court will compel arbitration of the Budget Compliance Dispute because
it cannot say “with positive assurance” that the dispute falls outside of the
Agreement’s arbitration provision. Teamsters, 748 F.3d at 288. As explained below,
there is an ambiguity in the Agreement concerning whether the parties must arbitrate
the Budget Compliance Dispute, and that ambiguity requires the Court to order
arbitration.
Plaintiffs contend that (1) the Agreement requires the parties to arbitrate “only
disputes concerning the calculation of Adjusted Revenue and the corresponding
[Earn-out Payment]” and (2) the Budget Compliance Dispute is not subject to
arbitration because it relates to “operational” issues, not the calculation of Adjusted
Revenue and the Earn-out Payment. (Pl.’s Resp., ECF #11 at Pg. ID 542-50.)
Plaintiffs’ multi-step argument is as follows:
1.

The only disputes subject to arbitration are those “specified in [a]
Notice of Disagreement with Earn-out Statement.” (Agreement §2.5(f),
ECF #1-2 at Pg. ID 35.)

11

2.

The Agreement defines an Earn-out Statement as “a statement
calculating the Earn-out Payment.” (Agreement §2.5(c), ECF #1-2 at
Pg. ID 34, emphasis added.)

3.

Because an Earn-out Statement does nothing more than reflect a
“calculation” of the Earn-out Payment, the only disputes that may be
“specified” in a Notice of Disagreement with Earn-Out Statement (and
later sent to arbitration) are those relating to the “calculation” of the
Earn-out Payment.

4.

The “calculation” of the Earn-out Payment involves only two steps: (1)
the calculation of Adjusted Revenue and (2) a determination of whether
that revenue corresponds to an Earn-out Payment listed on Annex II of
the Agreement. (Agreement §2.5(a)(i), ECF #1-2 at Pg. ID 34.)

5.

Therefore, the only issues subject to arbitration are those that relate to
the calculation of Adjusted Revenue and whether the Adjusted Revenue
corresponds to an Earn-out Payment listed on Annex II.

6.

Since the Budget Compliance Dispute does not relate to the calculation
of Adjusted Revenue and the corresponding Earn-out Payment, it is not
subject to arbitration.

The Court agrees with Plaintiffs that the Agreement requires the parties to
arbitrate only disputes concerning the “calculation” of the Earn-out Payments. The
problem for Plaintiffs, however, is that the Agreement contains language suggesting
that the “calculation” of the Earn-out Payment may involve more than merely
comparing the mathematical tabulation of Adjusted Revenue to a corresponding
column on Annex II. Indeed, there is language indicating that the “calculation” of
the Earn-out Payment may include a consideration of whether Smith has fulfilled
several of his contractual obligations. More specifically, Section 2.5(a) begins by

12

stating that “[t]he Earn-out Payments shall be calculated as follows:” (Agreement
§2.5(a), ECF #1-2 at Pg. ID 34, emphasis added), and one of the immediately
following subsections, 2.5(a)(ii), refers to Smith’s obligations to, among other
things, operate the Acquired Business in compliance with an annual budget approved
by Altisource.8 The listing of Smith’s budget compliance obligations under the
section concerning the “calculation” of the Earn-out Payments creates an ambiguity
as to whether the required “calculation” includes an assessment of Smith’s
fulfillment of his budget compliance obligation. That ambiguity requires the Court
to compel arbitration of the Budget Compliance Dispute.9

8

In relevant part, Sub-Section 2.5(a)(ii) provides as follows: “During each
Measurement Period, to the extent [Smith] is employed or engaged by [Altisource]
to perform services, (A) [Smith] shall ensure his services are performed in good faith
and in the best interest of [Altisource], including operating the Acquired Business
within the guidelines of an annual budget approved by [Altisource]. . ..” (Agreement
§2.5(a)(ii), ECF #1-2 at Pg. ID 33.)
9

Plaintiffs argue that the Agreement, as a whole, cannot be read to condition
Plaintiffs’ right to the Earn-out Payment upon Smith’s compliance with the budget.
Plaintiffs note that the Agreement contains specific Forfeiting Conditions, the
occurrence of which relieves Altisource from its obligation to make an Earn-out
Payment, and Plaintiffs stress that non-compliance with the budget is not such a
condition. (See Pl.’s Resp., ECF #11 at Pg. ID 550.) Plaintiffs’ reading of the
Agreement may well be correct (and, candidly, appears to be the better reading of
the Agreement), but the Court cannot say that the plain language of the Agreement
compels their reading. Simply put, the Agreement lacks precision with respect to
the “calculation” of the Earn-out Payments, and that lack of precision is what
compels the Court to order arbitration.
13

As further support for their argument that the Budget Compliance Dispute is
not subject to arbitration, Plaintiffs highlight that the dispute resolution provisions
of the Agreement “repeated[ly]” use “words and phrases like ‘financial review,’
‘statement,’ ‘calculating,’ and ‘computations.’” (Pl’s Resp., ECF #11 at Pg. ID 543.)
According to Plaintiffs, the use of these words underscores that the Agreement’s
arbitration provision covers only disputes related to the mathematical/accounting
calculation of Adjusted Revenue, not operational disagreements like the Budget
Compliance Dispute. (See id.)
But the dispute resolution provisions also include language indicating that the
process may address more than mathematical/accounting issues related to Adjusted
Revenue. For instance, the provisions authorize Plaintiffs’ “legal counsel” to review
materials relating to Altisource’s determination of the Earn-out Payment,
(Agreement §2.5(c), ECF #1-2 at Pg. ID 34), and the involvement of counsel
arguably suggests a process that involves more than just a mathematical review of
Adjusted Revenue. Likewise, the dispute resolution provisions authorize Plaintiffs
to interview Altisource’s personnel as part of the Earn-out Payment inquiry, (see
id.), and that, too, arguably suggests that the dispute resolution process – including
arbitration – is not limited to mathematical/accounting tabulations. Simply put, the
Court is not persuaded that the references to mathematical and accounting terms in

14

the dispute resolution provisions compel the conclusion that those provisions are
limited to the mathematical/accounting calculation of Adjusted Revenue.
Finally, Plaintiffs stress that the parties’ choice of arbitrator – the accounting
firm Ernst & Young – confirms that they intended to limit arbitration to matters
concerning the mathematical calculation of Adjusted Revenue. (Pl.’s Resp., ECF
#11 at Pg. ID 544.) Plaintiffs note that, as accountants, the arbitrators would not be
suited to address operational and other non-mathematical disputes, and thus it would
not make sense to conclude that the parties intended to submit those matters to the
arbitrators. (See id.) While there is certainly merit in this argument – indeed, it has
been accepted by the United States Court of Appeals for the First Circuit,10 – the
United States Court of Appeals for the Sixth Circuit has rejected the notion that the
choice of accountants as arbitrators compels the conclusion that the parties intended
to arbitrate only accounting/mathematical issues. See PureWorks Inc. v. Unique
Software Solutions, Inc., 554 Fed. App’x 376, 379 (6th Cir. 2014) (“[T]he fact that
the parties have selected an accountant as their arbitrator does not foreclose the
arbitrability of operational disputes.”).
In sum, for all of the reasons explained above, the Court concludes that the
Agreement is ambiguous with respect to whether the parties must arbitrate the

10

See Fit Tech, Inc. v. Bally Total Fitness Holding Corp., 374 F.3d 1, 8 (1st Cir.
2004).
15

Budget Compliance Dispute, and, in light of that ambiguity, the Court must compel
the parties to arbitrate that dispute.11 The Court’s conclusion is consistent with the
most relevant Sixth Circuit decisions affirming orders compelling parties to arbitrate
similar disputes under similar arbitration provisions. See Shy v. Navistar Intern.
Corp, 781 F.3d 820, 827 (6th Cir. 2015); PureWorks, 554 Fed. App’x at 379.
C
The Court will not compel the parties to arbitrate the Tax Set-off Dispute. As
noted above, the Court shares Plaintiffs’ view that the Agreement’s arbitration
provision requires the parties to arbitrate only disputes relating to the “calculation”
of the Earn-out Payments (as the parties used that term in the Agreement), and the
Tax Set-off Dispute does not even arguably relate to that “calculation.” No aspect
of the Tax Set-off Dispute relates in any way to the manner in which the Earn-out
Payments are “calculated” under the Agreement. Instead, the premise of the Tax
Set-off Dispute is that – wholly apart from the “calculation” of the Earn-out Payment

11

Notably, Plaintiffs once appeared to believe that the Budget Compliance Dispute
was subject to the Agreement’s dispute resolution provisions, including the
arbitration provision. In their letter dated December 22, 2015, Plaintiffs warned
Altisource that if it did not change its position regarding the Budget Compliance
Dispute, they (Plaintiffs) would initiate the Agreement’s dispute resolution process
by sending Altisource a Notice of Disagreement with Earn-out Statement, as
required by Section 2.5(d) of the Agreement. (See ECF #7-2 at Pg. ID 508-09.)
While Plaintiffs have now changed their mind concerning whether the Budget
Compliance Dispute is subject to arbitration, their initial position on this issue is
further evidence that the Agreement is ambiguous with respect to whether the
Budget Compliance Dispute is subject to arbitration.
16

– Altisource need not make the Earn-out Payment because Plaintiffs’ debt to
Altisource exceeds the Earn-out Payment. Because the tax set-off claimed by
Altisource and the “calculation” of the Earn-out Payments are entirely independent
of one another, the Tax Set-off Dispute is not subject to arbitration.
D
The Court will not compel the parties to arbitrate Plaintiffs’ claims in Counts
Four and Five of the Amended Complaint. Count Four concerns Plaintiffs’ rights in
Aged Receivables, and Count Five seeks payments under the Consulting Agreement.
Neither even arguably relates to the “calculation” of the Earn-out Payments (as that
term in used in the Agreement), and thus neither is subject to arbitration.
III
In the Motion, Altisource asks the Court to stay all of Plaintiffs’ claims
pending arbitration. (See Motion, ECF #7 at Pg. ID 504.) The Court will stay the
claims that it is compelling the parties to arbitrate but will not stay the remaining
claims.
The FAA provides that that when a valid arbitration agreement requires the
parties to submit a dispute to arbitration, a federal court shall “on application of one
of the parties stay the trial of the action until such arbitration has been had in
accordance with the terms of the agreement.” 9 U.S.C. § 3. This provision of the
FAA requires the Court to stay proceedings on the claims that it is sending to

17

arbitration – i.e., Counts One and Two of the Amended Complaint to the extent that
they rest upon the Budget Compliance Dispute. See Shearson/American Exp., Inc.
v. McMahon, 482 U.S. 220, 226 (1987).
But the Court will not stay proceedings on the remaining claims that it has
determined are not subject to arbitration. The question of whether to stay litigation
of Plaintiffs’ non-arbitrable claims is left to the Court as a matter of “discretion to
control its docket.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S.
1, 20 n. 23 (1983); see also, Volkswagen of America Inc. v. Sud’s of Peoria, Inc.,
474 F.3d 966 (7th Cir. 2007), Klay v. Pacificare Health Sys., Inc., 389 F.3d 1191,
1204 (11th Cir. 2004); Spartech CMD, LLC v. International Automotive
Components Group North America, Inc., 2009 WL 440905 at *12-13 (E.D. Mich.
February 23, 2009). “[C]ourts generally refuse to stay proceedings of non-arbitrable
claims when it is feasible to proceed with the litigation.” Klay, 389 F.3d at 1204
(citing Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 225 (White, J., concurring)
(noting that the “heavy presumption should be that the arbitration and the lawsuit
will each proceed in its normal course”)). Here, it is feasible to proceed with
litigation on the non-arbitrable claims while the parties arbitrate the other claims.
While there is some overlap between the two sets of claims, the claims involve
different subjects and different evidence, and the Court believes that the parties can
proceed in both forums – here and in arbitration – without substantial overlap in

18

effort and without sacrificing efficiency. Accordingly, the Court will not stay the
claims that remain here to be litigated.
IV
For the reasons state above, the Motion is GRANTED IN PART and
DENIED IN PART as follows:


The Court GRANTS the Motion with respect to the claims in Counts
One and Two of the Amended Complaint to the extent that such claims
rest upon the Budget Compliance Dispute, as defined by the Court
above. The parties are directed to arbitrate the claims in Counts One
and Two to the extent that they rest upon the Budget Compliance
Dispute. The claims in Counts One and Two are stayed pending the
completion of arbitration to the extent that such claims rest upon the
Budget Compliance Dispute.



In all other respects, the Motion is DENIED.

IT IS SO ORDERED.

Dated: April 18, 2017

s/Matthew F. Leitman
MATTHEW F. LEITMAN
UNITED STATES DISTRICT JUDGE

19

I hereby certify that a copy of the foregoing document was served upon the
parties and/or counsel of record on April 18, 2017, by electronic means and/or
ordinary mail.
s/Holly A. Monda
Case Manager
[phone]

20