LUMBERMENS MUTUAL CASUALTY CO. v. BROADSPIRE MANAGEMENT SERVICES (October 13, 2010)

Broadspire Management Services purchased an insurance administration business from Lumbermens Mutual Casualty Co. The parties agreed on a purchase price formula tied to the business’ success over the following four years. Under the contract, Broadspire calculated a proposed payment each year and submitted a report to Lumbermens. It used a different contract formula to calculate the expected earnings of any business sold during the first four years and submitted a similar report to Lumbermens. Lumbermens had 90 days to accept the calculation or submit a "Disagreement Notice" with a reasonably detailed basis for its disagreement. The agreement provided for binding arbitration in the event of a disagreement. Lumbermens ultimately disagreed with four Broadspire reports and sought arbitration. Broadspire claimed that the "Disagreement Notices" were deficient and refused to arbitrate. Lumbermens filed a Petition in Aid of Arbitration. Judge Leinenweber (N.D. Ill.) ordered arbitration, concluding that the sufficiency of the notice was a question for the arbitrator. Broadspire appeals.

In their opinion, Justice O'Connor and Judges Williams and Sykes affirmed. The only question before the Court was whether a court or an arbitrator should rule on Broadspire's "insufficient notice" argument. The Court concluded that the Supreme Court's decision in Howsam provided the answer. There, the Supreme Court held that a question relating to a grievance’s timeliness was a "gateway procedural dispute" for the arbitrator. The Seventh Circuit, following Howsam, has distinguished between substantive and procedural questions – the latter being questions for the arbitrator. Employers Insurance held that a consolidation question was a procedural one for the arbitrator.Zürich American likewise held that a question regarding the preclusive effect of a state court judgment was a procedural question for the arbitrator. Here, there is no disagreement regarding the existence of an agreement to arbitrate, which would be decided by a judge. The only disagreement is a procedural one and is properly in the hands of the arbitrator.