SmileDirectClub (Nasdaq:SDC) intends to appeal an arbitration decision ordering it to pay $63 million to Align Technology (Nasdaq:ALGN).
Align Technology announced this week that the Superior Court, State of California, County of Santa Clara, issued an order granting a petition from Align. It confirmed and denied SmileDirectClub’s petition to vacate the $63 million arbitration award in Align’s favor.
In August 2020, Align initiated a confidential arbitration proceeding against SmileDirectClub. It related to a supply agreement entered into between the parties in 2016. Align became an investor, strategic partner and exclusive third-party supplier of aligners through this agreement. It purchased a 19% ownership stake in SmileDirectClub in 2016.
The companies dissolved their partnership in March 2019 when an arbitrator found that Align violated the terms of its agreement with SmileDirectClub. According to the latter, Align attempted to replicate its business model through its own Invisalign retail concept. The arbitrator ordered Align to close its retail locations, return its stake and it barred the company from competing until August 2020.
However, Align alleged in August 2020 that SmileDirectClub breached the agreement’s terms, causing the company damages.
SmileDirectClub in 2021 filed a counterclaim alleging breaches by Align, with a further counterclaim alleging the same thing coming in May 2022.
In October 2022, the arbitrator issued an interim award on Align’s claims and SmileDirectClub’s first counterclaim. It found that SmileDirectClub breached the supply agreement and Align did not, awarding Align $63 million. The company filed a petition in March of this year to confirm this interim award.
On Aug. 21, after multiple petitions from both sides regarding the final award, the court confirmed Align’s award this week.
SmileDirectClub intends to appeal
In response to the award’s confirmation, SmileDirectClub announced its intent to appeal. The company says it “looks forward to its opportunity to present the facts of the dispute during the appeals process.”
“SmileDirectClub is disappointed with the California trial court’s recent rulings denying our petition to vacate and granting the petition to confirm the final award in an arbitration Align brought against SmileDirectClub for alleged breaches of a supply agreement between the parties that expired in 2019,” said Susan Greenspon Rammelt, chief legal officer and EVP of business affairs at SmileDirectClub. “It remains the company’s position that Align procured the final award through undue means, denying SmileDirectClub of a full and fair hearing, and that the arbitrator exceeded his authority when issuing the award. The company intends to appeal this decision.”
SmileDirectClub intends to file an appeal within a 60-day time frame permitted under local law. The company plans to submit once an actual judgment has been entered and is considering options for posting a litigation bond.
If the company prevails on appeal, it expects Align to bear liability for all costs incurred associated with the appeal. That includes interest expenses on any bond SmileDirectClub may have to post.
According to Align, an appeal requires SmileDirectClub to obtain a bond of 150% of the judgment, or over $94 million. If the appeal fails, the obligation falls on SmileDirectClub to pay Align the judgment plus interest. That includes a rate of 10% per annum (approximately $17,000 per day).
