By  on June 15, 2009

The firm that bought the Little Switzerland chain from Tiffany & Co. has taken the jeweler to court, alleging it overcharged on the deal and accusing a third-party arbitrator of having a conflict of interest.

NXP Corp. acquired the Caribbean jewelry business in 2007 through its Oakland, Mich.-based assignee Dhirim Inc. for a target price of $54.7 million, according to a lawsuit filed June 11 in U.S. District Court in Manhattan.

After the close of the sale, court papers show Tiffany and Dhirim disagreed over balance sheet adjustments affecting the final price. The parties took the matter to arbitration, with financial services giant KPMG LLP serving as mediator. On April 27, the firm decided in favor of Tiffany and found Dhirim owed $3.6 million on the deal.

In the suit, Dhirim alleged that, while the case was pending with arbitrator Luke Botica in KPMG’s Chicago office, Richard Siebert, an employee in KPMG’s Detroit office, attempted separately to win Dhirim’s tax and accounting business.

The day after the suit was filed, KPMG spokesman Tim Connolly said the company was troubled and surprised by what it called false allegations. Tiffany did not respond to requests for comment.

According to the suit, Dhirim representatives met with Siebert earlier this year but told him it was inappropriate to hire the firm to conduct its audit because of the pending decision.

In a Feb. 9 letter included as evidence, Botica wrote to both Tiffany and Dhirim and implied Dhirim had initiated the contact and that it did not affect his objectivity.

But Dhirim alleged Botica mischaracterized the meeting in the letter and failed to disclose another meeting at Dhirim’s offices in March 2008. At that meeting, Dhirim said, both Botica and Siebert discussed business opportunities while Dhirim finalized arrangements to engage KPMG as an arbitrator.

On Friday, KPMG’s Connolly reaffirmed his company’s belief in the February letter and said neither side raised objections to it when Botica first wrote it.

“It is only now, months after Dhirim lost the arbitration, that these baseless allegations are being made in an attempt to overturn the decision,” he added.

In the lawsuit, which names only Tiffany as a defendant, Dhirim alleged that KPMG had a bias and asked the court to vacate the award because it was “procured through corruption or fraud.” Dhirim further accused Tiffany of demanding $5 million, despite the arbitrator’s $3.6 million award, and asked that it pay the lower amount should the court not vacate.

According to its Web site, Little Switzerland sells luxury goods through a network of 12 stores in the Caribbean. Tiffany had acquired the chain in 2002.

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