Reed Smith Client Alerts

A recent decision from the Delaware Court of Chancery, Stone v. Nationstar Mortgage, LLC, represents the latest development under Delaware law analyzing “expert-not-arbitrator” dispute-resolution provisions. The Court of Chancery’s decision in Stone builds on other recent Court of Chancery decisions, including Penton Business Media Holdings, LLC v. Informa PLC; Agiliance, Inc. v. Resolver SOAR, LLC; and Ray Beyond Corp. v. Trimaran Fund Management, LLC. Commercial parties contemplating dispute-resolution provisions should consider the Court of Chancery’s analysis in Stone – which relies on the earlier decisions in Penton, Agiliance, and Ray Beyond – and, to avoid any ambiguity, should include clear contractual language that expressly articulates (1) whether the third party who is designated to resolve contractual disputes is serving as an “expert” or an “arbitrator” and (2) the scope of the third party’s authority to resolve disputes, including the extent to which the third party has the authority to resolve legal disputes.


Approximately one-half of the states within the United States of America, including Delaware, “recognize a distinction between experts and arbitrators…. At the federal level, the United States Courts of Appeals have split on whether an expert determination constitutes an arbitration under the FAA.” For decades, Delaware courts applying Delaware law have maintained the distinction between an arbitration and an expert determination. Recent Delaware state court decisions – including Agiliance, Ray Beyond, Penton, and, most recently, Stone – demonstrate that the distinction between an arbitration and expert determination is well established under Delaware law. The Court of Chancery’s decision in Stone provides substantial guidance to commercial parties and practitioners.

Case background

In Stone, the plaintiff, as sellers’ representative, filed suit to compel a buyer under a purchase agreement to submit the parties’ price-adjustment dispute to an accountant, as allegedly required under the governing purchase agreement. The purchase agreement contained a set of “closing payment provisions” governing price calculation, under which the “closing payment amount” would be calculated based on the “closing date members’ equity.” “Closing date members’ equity” was defined under the purchase agreement as “the members’ equity of the Company as of immediately prior to the Closing determined in accordance with the accounting practices, policies[,] and methodologies [set forth in an ‘Accounting Principles’ exhibit to the Agreement.]” Five days before closing, the company was to deliver a “closing statement” to the buyer, setting forth its estimated closing payment amount, with supporting calculations (the “estimated closing payment amount”). The buyer was required to pay the estimated closing payment amount at closing, and then to deliver an adjustment statement within 60 days, setting forth its own calculation of the closing payment amount.

The purchase agreement contained a set of dispute-resolution provisions to govern price disagreements. In the event that the sellers “disagree with any item set forth in the adjustment statement,” they were to deliver a notice of adjustment disagreement, which was to “set forth in reasonable detail, on a line item by line item basis,...the disputed items…and the basis of any disagreement asserted.” Section 2.3(d) of the purchase agreement stated that after 30 days of negotiation, any unresolved disputed items “shall be referred to and resolved by Richey May & Co. LLP (the ‘Independent Accountant’); provided that in the event that Richey May & Co. LLP refuses or is otherwise unable to act as the Independent Accountant, the Sellers’ Representative and [Nationstar] shall cooperate in good faith to appoint an independent registered public accounting firm….” The purchase agreement provided that the independent accountant would make a “final written determination” as to the “Final Closing Payment Amount,” to be “based on the relevant definitions and other applicable provisions” of the purchase agreement, and to be binding “as if a final, non-appealable arbitral decision or award.”

The company submitted its closing statement five days before closing; however, just before the closing, the buyer asserted that the estimated closing date members’ equity had not been prepared in good faith and was not determined in accordance with the agreement’s accounting principles. The buyer then submitted a purported “revised Closing Statement” with its own estimated closing payment amount, which sellers agreed to accept pending resolution of the dispute, with the disputed amount to be held in escrow.

The buyer delivered its adjustment statement in April 2019 with its closing payment amount calculation. The sellers then delivered their notice of adjustment disagreement in May, asserting that the buyer’s calculations resulted from (1) the use of incorrect closing and reference dates, (2) the use of methods inconsistent with the agreement and the accounting principles, and (3) erroneous exclusion of transaction expenses. The buyer initially acknowledged that the disagreements were “required to be resolved by the Independent Accountant,” but later objected to Richey May & Co. serving as the independent accountant on the ground that the firm did not meet the purchase agreement’s independence requirement.

The sellers’ representative filed suit in the Delaware Court of Chancery in November 2019, seeking in part a declaration that “Richey May is the appropriate arbitrator for the parties’ accounting dispute” and seeking specific performance of the agreement’s dispute-resolution provisions. The buyer counterclaimed, alleging that the sellers miscalculated the closing payment amount and seeking an order requiring (1) the sellers to submit new conforming calculations, (2) a declaration that Richey May could not serve as independent accountant, and (3) the sellers to cooperate in finding a replacement. The buyer also sought a declaration that the Court of Chancery “is the exclusive forum for adjudicating [the buyer’s] specific performance claims and all other claims requiring a construction of the Purchase Agreement.” The parties cross-moved for partial judgment on the pleadings.