Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Smith v. Altisource Solutions S.À R.L.

United States District Court, E.D. Michigan, Southern Division

April 18, 2017

KEVEN M. SMITH et al., Plaintiffs,
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)

          MATTHEW F. LEITMAN UNITED STATES DISTRICT JUDGE.

         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 (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.)

         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).
(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 Earn-out 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.)
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 Earn-out 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.)

         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 Earn-out 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 508-09.) Plaintiffs wrote that Altisource's position with respect to Smith's alleged non- 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 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.