Creative Solutions Group v. Pentzer Corp.

Creative Solutions Group (CSG) (plaintiff) through its predecessor Heritage Fund II Investment (Heritage) purchased company stock from Pentzer Corporation (Pentzer) (defendant) on March 31, 1999. The purchase agreement stipulated that the purchase price was subject to post-closing adjustment after Pentzer delivered certain financial information referred to as purchase-price financials (PPF). CSG also had a right to review Pentzer’s related paperwork held by its auditor, Deloitte & Touche. The purchase agreement had an arbitration provision that required the parties to subject to arbitration any unresolved dispute related to Pentzer’s PPF calculations. Following the closing, Pentzer delivered the PPF to Heritage in August 1999 and advised that following an audit by Deloitte & Touche, Heritage was entitled to adjustment of the purchase price. Heritage then sought access to Deloitte & Touche’s work papers, but this did not happen as the parties could not agree on terms of access. CSG filed suit against Pentzer in April 2000 stating various breach-of-contract and tort claims. Pentzer waived formal service of the complaint for 60 days and at the end of that period obtained an extension to plead to July 6, 2000, when it moved to dismiss four of the six counts of the complaint. CSG filed partial initial disclosures but did not include its calculations. Pentzer requested the calculations. On August 11, 2000, Pentzer moved to compel discovery. The district court denied the motion, holding that most of CSG’s claims related not to the PPF but to Pentzer’s representations before the purchase agreement was signed. On Pentzer’s motion to reconsider, the district court affirmed and additionally found that to the extent that Pentzer had a right to arbitration on one of the claims, it waived that right by refusing to turn over documents to CSG. The court also found that CSG’s auditor Deloitte and Douche’s failure to provide the requested documents prejudiced CSG in time and cost of litigation. Pentzer appealed.