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XL Capital, Ltd. v. Kronenberg
Citation: 145 F. App'x 384Docket: Docket No. 04-5774
Court: Court of Appeals for the Second Circuit; August 18, 2005; Federal Appellate Court
The judgment of the district court is affirmed, denying XL Capital, Ltd.'s motions to stay arbitration before the American Arbitration Association (AAA) and to compel referral of the dispute to Ernst & Young LLP (E&Y). The court reviews the scope of the arbitration clause de novo and finds that the contract requires E&Y to arbitrate pure accounting issues, while the AAA handles all other disputes. The arbitration clause's language indicates that Section 8(a) pertains to all questions arising under the agreement, while Section 8(b) specifically addresses disputes related to the calculations of the Earned Payout Amount. The court interprets this to mean that issues must be closely related to accounting to fall under E&Y's jurisdiction. XL Capital's arguments that claims for fraud, negligent misrepresentation, and breach of contract are merely accounting issues are rejected, as these claims focus on the introduction of a new business line and the misrepresentation regarding its exclusion from the earnout calculation. The claims are based on operational failures rather than calculation errors, distinguishing them from the precedent set in Ivax Corp. v. B. Braun of America, Inc. The court clarifies that claims filed with the AAA concerning accounting must be clearly linked to the operational facts influencing the Worksheets. Any disputes strictly related to objections about the Worksheets themselves must be referred to E&Y. The ruling emphasizes that while the claims before the AAA are appropriately categorized under Section 8(a), this interpretation does not open the door for unrelated accounting issues to be arbitrated by the AAA. The affirmation of the district court's decision underscores the need for clarity in the arbitration process, particularly concerning the delineation of accounting-related disputes and their appropriate resolution channels.