## Facts

- A private equity buyer (through Heritage) bought from Pentzer the stock of five companies under a stock purchase agreement with a purchase price subject to post-closing adjustment.
- The agreement required Pentzer to deliver “Purchase Price Financials” (PPF) showing the companies’ financial position as of the closing date, and granted the buyer review rights to the auditor’s work papers.
- The agreement provided that if the buyer (or its accountants) disputed any portion of Pentzer’s PPF calculations, notice would be given and unresolved disputes “shall be submitted to arbitration.”
- After closing, Pentzer delivered the PPF and reported that the audit supported an additional purchase-price adjustment in the buyer’s favor.
- The buyer sought access to the auditor’s work papers; the parties could not agree on terms for access.
- The buyer sued in federal district court asserting contract and tort-based theories tied to the transaction.
- Pentzer engaged in early litigation steps (waiver of formal service, extensions, a motion to dismiss several counts) and pursued discovery; disputes arose over production of purchase-price calculations and related materials.
- The district court declined to compel arbitration for most claims as outside the PPF-related clause and found waiver (at least as to one claim), relying in part on document-access disputes and asserted litigation prejudice to the buyer.

## Issues

1. Which claims, based on their substance, fall within an arbitration clause limited to disputes over calculations in the Purchase Price Financials and related post-closing adjustments?
2. Whether Pentzer waived any contractual right to arbitrate by participating in the litigation and by its positions in discovery and document-access disputes.

## Decision

- The court of appeals held that the arbitration clause applies to disputes substantively concerning Pentzer’s PPF calculations and the contractual purchase-price adjustment mechanism, even if pleaded in tort or as misrepresentation.
- The court rejected the district court’s finding of waiver, concluding Pentzer’s conduct was not a clear, decisive relinquishment of arbitration and did not create sufficient prejudice to bar arbitration.
- The order was reversed to the extent it denied enforcement of arbitration and found waiver, and the case was remanded with instructions to send arbitrable claims to arbitration.

## Legal Principles

- In determining the scope of an arbitration clause, courts look to the substance (“gravamen”) of the dispute rather than the labels attached to claims.
- Where a contract creates a specific technical mechanism (e.g., post-closing purchase-price adjustments based on defined financial calculations) and directs disputes about that mechanism to arbitration, related disputes are generally arbitrable.
- Under the Federal Arbitration Act, doubts about the scope of arbitration are generally resolved in favor of arbitration when the contract language reasonably supports that reading.
- Waiver of the right to arbitrate is disfavored and typically requires both (a) conduct inconsistent with arbitration and (b) prejudice to the opposing party.
- Early motion practice and discovery activity, without a clear intent to forgo arbitration and without substantial prejudice, ordinarily do not establish waiver.

## Conclusion

The court required arbitration of claims centered on post-closing purchase-price calculations under the parties’ agreement and held that the seller’s preliminary litigation activity and discovery disputes did not waive the contractual right to arbitrate.


Creative Solutions Grp., Inc. v. Pentzer Corp., 252 F.3d 28 (1st Cir. 2001)