Hoeft v. MVL Group, Inc.

Richard Hoeft and his wife Carol Hoeft (plaintiffs) had shares in two companies founded by Richard. The Hoefts sold their shares to MVL Group, Inc. (MVL) (defendant). The purchase agreement provided that if the value of the companies subsequently increased, the Hoefts would receive a purchase-price adjustment based on a calculation of earnings before interest, taxes, depreciation, and amortization (EBITDA). The purchase agreement described how EBITDA would be calculated and provided that if the parties disagreed regarding the amount of the adjustment, Steven Sherrill would resolve the dispute. Sherrill’s decision would be binding and not subject to appeal or judicial review. Following a dispute about the calculation of EBITDA, Sherrill arbitrated the dispute, awarding $1.4 million to the Hoefts. The Hoefts petitioned the district court to confirm the award, and MVL moved to vacate the award. The district court issued an order permitting MVL to depose the arbitrator. Sherrill was questioned regarding the application of generally accepted accounting principles (GAAP), but he stated that GAAP provided more than one way to present categories of expenses and was not determinative of EBITDA. The district court vacated the award on the basis that the arbitrator manifestly disregarded the law. The Hoefts appealed, arguing that because the purchase agreement prohibited judicial review, the court could not consider whether the arbitrator had manifestly disregarded the law. Alternatively, the Hoefts argued that the arbitrator should not have been deposed and that the arbitrator did not disregard the law.