                                                                                                                           Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-7-2008

Millennium v. Thompson
Precedential or Non-Precedential: Non-Precedential

Docket No. 07-1189




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Recommended Citation
"Millennium v. Thompson" (2008). 2008 Decisions. Paper 701.
http://digitalcommons.law.villanova.edu/thirdcircuit_2008/701


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                                                               NOT PRECEDENTIAL

                     UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT


                                    No. 07-1189


                  MILLENNIUM VALIDATION SERVICES INC.,

                                                  Appellant.

                                          v.

                               ALFRED THOMPSON

                                          v.

                       GARY NIENABER; JOSEPH MUSIKE,

                                                  Third-Party Defendants.




                   On Appeal from the United States District Court
                             for the District of Delaware
                               (D. C. No. 02-cv-01430)
                       District Judge: Hon. Gregory M. Sleet


                     Submitted under Third Circuit LAR 34.1(a)
                                 on May 12, 2008

                     Before: McKEE and ROTH, Circuit Judges
                             O’NEILL*, District Judge

                               (Filed August 7, 2008)


              *Honorable Thomas N. O’Neill, Jr., United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
                                      OPINION


ROTH, Circuit Judge:

        Millennium Validation Services, Inc. (Millennium) appeals the order of the United

States District Court for the District of Delaware denying Millennium’s motion to vacate or

modify an arbitration award, as well as the District Court’s order denying Millennium’s

subsequent motion for reconsideration. The issue on appeal is whether the Arbitrator

exceeded his power in rejecting the valuation of Alfred Thompson’s shares as determined

by Millennium’s accountant.1 For the reasons set forth below, we will affirm the judgment

of the District Court.

I. Background and Procedural History

        Because the facts are well known to the parties, we will discuss them only briefly

here.

        Thompson, Joseph Musike, and Gary Nienaber founded Millennium in 1999 to

perform validation services. All three individuals were Millennium shareholders and signed



  1
   Millennium also argues that the Arbitrator exceeded his power by ordering the parties to
conduct a subsequent hearing on the issue of Thompson’s claim for attorneys’ fees and costs.
Because this issue appeared to be pending, we questioned whether there was a final,
appealable order in this case and directed the parties to respond regarding the possible
dismissal of the case. The parties responded as requested, both asserting that the District
Court’s order was final notwithstanding the attorneys’ fees issue. However, in his brief,
Thompson states that he has waived his right to seek attorneys’ fees and costs. As such, we
need not consider this issue in rendering this opinion.

                                             2
a Shareholders’ Agreement (SA) in November 1999.

        The present dispute is the result of Thompson’s withdrawal from Millennium in 2001.

Thompson refused to withdraw at a special meeting of the three shareholders held on

November 20, 2001. After Thompson left the meeting, Musike and Nienaber voted that good

cause existed pursuant to the SA to compel Thompson to withdraw. Thompson rejected this

attempt to remove him as a shareholder and asserted that it constituted a breach of fiduciary

duty.

        Millennium nevertheless proceeded with a buy-out of Thompson’s shares. Paragraph

12 of the SA provided that, upon a shareholder’s withdrawal, Millennium “shall purchase,”

and the withdrawing shareholder “shall sell,” “such Shareholder’s entire interest in the

Company.” Paragraph 12 provided further that the purchase price was the Share Value, as

defined by the SA, multiplied by the total number of shares held by the withdrawing

shareholder.

        Millennium asked an independent certified public accountant, Anthony D’Amato, to

compute the fair value of the company’s shares. Under Paragraph 11 of the SA,

                     The fair value of shares (“Share Value”)
                     for each share issued and outstanding shall
                     be calculated as an amount equal to (1) the
                     total book value of all the Company’s
                     assets and property divided by (2) the
                     number of shares of stock then issued and
                     outstanding. Said Share Value shall be
                     computed by the independent certified
                     public accountant or firm then servicing
                     the Company, in accordance with

                                             3
                      Generally Accepted Accounting Principles
                      and the guidelines of the American
                      Institute of Certified Public Accountants,
                      and shall be binding upon all Shareholders
                      absent a showing of fraud

       D’Amato revised the valuation of Millennium multiple times, and Thompson hired

his own accountant who produced yet another book value. In Millennium’s final calculation,

dated May 8, 2002, the price of Thompson’s shares was $115,643, which Millennium

proposed to pay over an extended period.

       Millennium subsequently suspended the buy-out after discovering that Thompson was

working for Global Turnkey Services, thereby, in Millennium’s view, violating the SA’s

covenant not to compete. On July 24, 2002, Millennium filed a Complaint in Delaware’s

Chancery Court, alleging breach of contract and tortious interference with prospective

contractual relations. Thompson counterclaimed, alleging, among other claims, breach of

the covenant of good faith and fair dealing and breach of the SA based on Millennium’s

failure to pay him for the value of his shares. Thompson alleged further that Millennium had

failed to negotiate the valuation issue in good faith. He sought, among other relief, a

declaratory judgment as to his compensation for his shares in Millennium.

       The case was removed to the U.S. District Court for the District of Delaware. On

October 25, 2004, the parties filed a stipulation providing, “The [captioned] matter is

referred, in its entirety, to a binding arbitration hearing which will be governed by the parties

[sic] agreement entered into on October 7 and October 8, 2004.”                The October 7



                                               4
correspondence, in turn, provided, “The issues raised in the pleadings in the captioned action

(Complaint, Answer, Counterclaim, Third Party Complaint, Reply to Counterclaim and

Answer to Third Party Complaint) will be submitted to binding arbitration . . ..”

         On March 7, 2005, the Arbitrator issued an Award, denying Millenium’s claims for

breach and for tortious interference. The Arbitrator allowed Thompson’s claim for share

value in the amount of $214,667, plus $41,981 in interest.           The Arbitrator denied

Millennium’s subsequent request for clarification.

         On April 12, 2005, Millennium filed a motion with the District Court to vacate or

modify the arbitration Award.2 The District Court denied the motion, concluding that

Millennium had voluntarily agreed to arbitrate the entire dispute, including the valuation

issue. Millennium filed a motion for reconsideration, which the District Court also denied.

Millennium appealed.

II. Analysis

         The District Court had jurisdiction pursuant to 28 U.S.C. § 1332.          We have

jurisdiction under 28 U.S.C. § 1291.

         Millennium argues that the Arbitrator exceeded his power in awarding Thompson a

share value other than that calculated by D’Amato. In its briefing before the Arbitrator,

Millennium asserted that, pursuant to the SA, D’Amato’s share valuation was binding absent




   2
       Thompson filed an application to confirm the Award on April 12, 2005.

                                              5
fraud.    Accordingly, Millennium claims that the only arbitrable issue with respect to

valuation was whether it was fraudulent.

         Whether the valuation issue is arbitrable, and, in turn, whether the Arbitrator exceeded

his power, is a matter of contract interpretation; contract interpretation is a question of law

over which we exercise plenary review. Brayman Constr. Corp. v. Home Ins. Co., 319 F.3d

622, 624-25 (3d Cir. 2003). However, a party may not challenge an arbitrator’s authority to

resolve a claim once the parties have mutually agreed to arbitrate the matter. United Indus.

Workers v. Government of the Virgin Islands, 987 F.2d 162, 168 (3d Cir. 1993). “The

parties, therefore, define the scope of the arbitrator’s jurisdiction by agreement.” Id. “An

arbitration agreement . . . need not be express, but may also be inferred from the conduct of

the parties.” Id.

         In this case, Millennium and Thompson agreed to arbitrate “[t]he issues raised in the

pleadings in the captioned action (Complaint, Answer, Counterclaim, Third Party Complaint,

Reply to Counterclaim and Answer to Third Party Complaint).” These issues included

Thompson’s claims that Millennium had failed to negotiate in good faith, breached the

covenant of good faith and fair dealing by offering a “take-it-or-leave-it” buy-out offer

outside of the mediation process, and refused to allow Thompson to inspect Millennium’s

books and records to determine the value of his shares. Thompson specifically requested a

declaratory judgment as to compensation for his shares. While it is true that Paragraph 11

of the SA provides that Share Value, as determined pursuant to the SA is “binding upon all



                                                6
Shareholders absent a showing of fraud,” Millennium expressly agreed to arbitrate the issues

raised in the pleadings. Those issues included compensation for Thompson’s shares.3 As

such, Millennium may not now challenge the Arbitrator’s authority to determine that issue.

III. Conclusion

       For the reasons set forth above, we will affirm the judgment of the District Court.




  3
    This case is distinguishable from Katz v. Feinberg, 290 F.3d 95 (2d Cir. 2002), in which
the Second Circuit held that a separate valuation provision in a Purchase Agreement removed
determination of the share price from the arbitrator. In Katz, the arbitration clause and the
valuation provision were both part of the same agreement; the valuation provision being
more specific, the Second Circuit held that it governed. Id. at 97-98. In this case, in contrast,
the arbitration agreement is separate from the SA and represents an independent agreement
to arbitrate all of the issues included in the pleadings.

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