## Facts

- Gone to the Beach, LLC sold substantially all assets of its background-check business to ChoicePoint Services, Inc. under a March 31, 2004 asset purchase agreement.
- The agreement provided a base purchase price of about $20.4 million plus a contingent earn-out of up to $15 million tied to 2004 financial performance.
- ChoicePoint agreed to operate the acquired business for the remainder of 2004 in the ordinary course consistent with the seller’s past practice.
- The agreement included (1) a broad arbitration clause for any controversy, claim, or question of interpretation arising out of or relating to the agreement, requiring arbitration in Atlanta, Georgia, and (2) a separate procedure assigning disputes over earn-out calculations to a designated independent audit firm in Birmingham, Alabama.
- In June 2005, ChoicePoint advised that the earn-out would be $27,858; the seller contended the earn-out was depressed by ChoicePoint’s failure to operate the business in the required manner.
- The seller demanded arbitration in Atlanta, asserting breach and contract-interpretation disputes; ChoicePoint argued the dispute was primarily an earn-out calculation reserved to the audit firm.
- The seller filed a federal action seeking declaratory relief on whether the dispute belonged in arbitration or with the audit firm; an earlier order in the case rejected dismissal and treated the dispute as committed to arbitration rather than the court.

## Issues

1. Whether claims that the buyer breached operational covenants and thereby reduced the earn-out are disputes “arising out of or relating to” the agreement subject to arbitration, or instead “calculation” disputes committed to an independent accountant.
2. Whether the district court should decide any merits of the earn-out dispute or limit its role to enforcing the parties’ agreed non-judicial dispute-resolution process.

## Decision

- The court enforced the agreement’s dispute-resolution structure and declined to adjudicate the merits of the earn-out controversy.
- The court directed that substantive disputes involving contract interpretation and alleged breaches of operational covenants proceed in arbitration under the broad arbitration clause.
- The court treated the audit-firm mechanism as limited to discrete, mechanical disputes over numerical earn-out calculations, after resolution of substantive interpretation and liability questions.
- The court rejected the effort to characterize the entire controversy as a calculation dispute solely because the remedy concerned an earn-out number.

## Legal Principles

- Under the Federal Arbitration Act, a court’s role is generally limited to determining the proper contractually selected forum and compelling compliance with that forum, not resolving the underlying contractual merits.
- A broad arbitration clause covering controversies “arising out of or relating to” an agreement encompasses claims alleging breach of operational covenants and disputes requiring contract interpretation.
- An accountant or audit-firm clause directed to “calculations” typically covers mechanical application of agreed accounting formulas to agreed inputs, not disputes about whether conduct breached covenants or whether certain amounts should exist in the first place.
- Where an agreement contains both a broad arbitration clause and a narrower technical carve-out, ambiguities are commonly resolved in favor of arbitration for interpretive and breach disputes.

## Conclusion

The court required the parties to follow their contract’s two-track process: arbitration for disputes over contractual duties and alleged operational breaches affecting the earn-out, and referral to the designated audit firm only for limited, mechanical disagreements about the earn-out calculations.


Gone to the Beach, LLC v. ChoicePoint Servs., Inc., No. 05-2748-M1, 2007 WL 2768256 (W.D. Tenn. Sept. 21, 2007)