Reinsurance Focus

In 2005, Chronimed purchased DiCello’s retail pharmacy business. The purchase agreement contained an additional purchase price payment based on the business’ 2006 earnings before interest, taxes, depreciation and amortization. The agreement provided that if the parties disagreed as to the calculation, accounting firm KPMG would arbitrate the dispute. A dispute arose as to the calculation, and DiCello invoked the arbitration clause, alleging that the business underperformed due to Chronimed’s management practices. Chronimed disputed DiCello’s position, contending that DiCello had failed to contest the calculation in sufficient detail to invoke the arbitration clause. DiCello sued, and Chronimed moved to compel arbitration. The district court held that Chronimed had waived the right to arbitrate by its pre-litigation conduct.

On appeal, the issues revolved around whether the court or the arbitrator should determine certain issues, with guidance drawn from the Supreme Court's decision of Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002). Not all courts have agreed as to the implementation of Howsam. The Sixth Circuit affirmed the holding that the court, rather than the arbitrator, should determine whether the dispute was within the arbitration clause, and agreed that the language of the broad arbitration clause encompassed the dispute. The Court further held that whether Chronimed failed to satisfy a contractual precondition to arbitration relating to the required documentation of the tax calculation was an issue for the arbitrator to decide. Finally, the Court held that the issue of whether Chronimed’s pre-litigation conduct waived the right to arbitrate was an issue for the court, not the arbitrator, and that the conduct here was not so “completely inconsistent” with the later arbitration demand as to constitute a waiver. The Court found that Chronimed’s conduct could be interpreted as a disagreement with DiCello’s position rather than a repudiation of arbitration as a process for resolving the dispute. JPD, Inc., et al. v. Chronimed Holdings, Inc., No. 07-4427 (6th Cir. Aug. 22 2008).

This post written by Dan Crisp.