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Murchison Capital Partners, L.P. v. Nuance Communs., Inc.

United States Court of Appeals, Fifth Circuit

July 25, 2014


Appeal from the United States District Court for the Northern District of Texas.

For Murchison Capital Partners, L.P., Robert Murchison, Dr. Alan Hull, M.D., Back Nine Investments, Limited, Douglas Keller, Et al, Plaintiffs - Appellees: Peter Dermot Marketos, Leslie Renee Chaggaris, Kendal Catherine Simpson, Attorney, Reese Gordon Marketos, L.L.P., Dallas, TX.

For Nuance Communications, Incorporated, Defendant - Appellant: Gregory Stuart Silbert, Adam Baker Banks, Weil, Gotshal & Manges, L.L.P., New York, NY; T. Ray Guy, Weil, Gotshal & Manges, L.L.P., Dallas, TX.

Before REAVLEY, JONES, and GRAVES, Circuit Judges. JONES, Circuit Judge, dissenting.


Page 419

JAMES E. GRAVES, JR., Circuit Judge

This appeal arises from a lawsuit to clarify an arbitration award concerning an alleged breach of a corporate merger agreement. Nuance Communications now appeals the district court's order remanding this case back to the arbitration panel for clarification of the arbitration award. Since we have previously stated that a district court order remanding a case back to an arbitration panel for clarification is not a final order, we DISMISS this appeal for lack of jurisdiction.


Plaintiff-Appellees are stockholders of a Texas-based startup software company called Vocada, Inc. (" Vocada" ). Defendant-appellant Nuance Communications, Inc. (" Nuance" ) is a publicly traded global computer software company located in Massachusetts. Vocada's sole product was a software program called Veriphy, which documents patients' medical test results in radiology departments and hospitals. Nuance produces a software product called PowerScribe, a speech recognition software used in medical care facilities that allows users to convert spoken word into text appearing on computer screens. Veriphy worked well with Nuance's PowerScribe program and eventually Nuance approached Vocada about a merger. Vocada and Nuance believed that the sales of both PowerScribe and Veriphy would increase if sold together as one software suite.

Nuance acquired 100 percent of Vocada's stock through a merger agreement in 2007. Pursuant to the agreement, Nuance paid $24 million as the upfront purchase price and agreed to pay up to an additional $21 million in " Earnout Consideration," contingent upon Veriphy sales producing specified levels of revenue in the years after the merger. The merger agreement contained a binding arbitration clause for disputes relating to the Earnout Consideration.

Three years after the merger the Vocada stockholders had not received any Earnout Consideration, so their stockholder representative filed a demand for arbitration alleging that Nuance had defrauded the Vocada stockholders. Vocada asserted that it was entitled to the $21 million Earnout Consideration as its benefit-of-the-bargain damages, and that in the alternative, it was entitled to out-of-pocket damages that would be measured by the difference between the $24 million Nuance paid as the up-front purchase price for Vocada's stock and the actual value of Vocada at the time of the merger.

After a two week arbitration hearing the arbitration panel returned an award finding that Nuance committed fraud in inducing Vocada into the merger agreement by making materially false statements about Nuance's intentions to sell the Veriphy software product, but that Vocada was not entitled to damages because Nuance's fraudulent representations were not the cause of Veriphy's poor revenue in the years after the merger. Instead, the panel found that Vocada's own salesforce, who joined Nuance after the merger, performed

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poorly, the Veriphy product did not have " buy-in" from the medical profession, the 2008 economic recession impacted Veriphy's sales, and Veriphy's pre-merger customer base had been substantially overstated by Vocada.

The arbitration clause in the merger agreement required the arbitration panel to support its award by " written findings of fact and conclusions." Accordingly, the arbitration panel issued a thirty-page award in which it described its " Findings of Fact" and " Conclusions of Law." The arbitration award did not differentiate between Vocada's claims for out-of-pocket and benefit-of-the-bargain damages, but rather, stated that " Vocada is not entitled to any portion of the $21 Million Earnout Consideration on account of its statutory fraud claim."

On November 1, 2012, Plaintiff-Appellees filed an application in Texas state court on behalf of the Vocada shareholders to vacate and remand the arbitration award. The Vocada shareholders argued that the arbitration panel exceeded its authority by failing to issue specific findings of fact and conclusions of law on Vocada's request for out-of-pocket damages. Specifically, Vocada asserted that the $21 million Earnout Consideration was related only to its benefit-of-the-bargain damages request. Therefore, Vocada argues, the arbitration panel's award stating that Vocada was not entitled to any of the $21 million did not address the out-of-pocket losses. Nuance removed the action to the U.S. District Court for the Northern District of Texas, Dallas Division under diversity jurisdiction.

The district court found that the arbitration panel exceeded its authority under the arbitration agreement by failing to provide sufficient findings of fact and conclusions of law regarding Vocada's out-of-pocket damages claim. Accordingly, the district court remanded the case back to the arbitration panel for consideration of the issue of out-of-pocket damages. The district court made clear that it was remanding the award for further consideration but was not vacating the award. Nuance appealed the district court's remand order to this Court.


" We review questions of subject matter jurisdiction de novo." Wagner v. United States, 545 F.3d 298, 300 (5th Cir. 2008). We review a district court's order confirming or vacating an arbitration award de novo, " but the review of the underlying award is exceedingly deferential." Rain CII Carbon, ...

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