252 F. Supp. 3d 405
D. Del.2017Background
- Debtors sold substantially all assets to Heritage Home Group (HHG) under an APA with Amendment No. 2 creating post-closing "cash component" and "accounts payable" adjustment mechanisms to preserve a fixed purchase price.
- Amendment No. 2 required that any unresolved "disputed items" in those post-closing adjustments be submitted to a mutually acceptable "Big Four" accounting firm for resolution.
- The Sale Order approving the transaction expressly retained the bankruptcy court’s jurisdiction to interpret, implement, and enforce the APA and related documents.
- Post-closing, parties disputed (1) whether Auction Clearing House electronic receipts/deposits (ACHE‑R/D) are "cash and cash equivalents" (Excluded Assets) and (2) whether Accounts Payable Obligations must be calculated using GAAP or the Debtors’ historical accounting practices.
- Trustee filed an adversary proceeding asking the bankruptcy court to decide those threshold interpretive questions before any accounting arbitration; HHG moved to compel arbitration of the disputes per Amendment No. 2.
- The bankruptcy court denied the motion, holding the arbitration clause is narrow (limited to accounting "items") and that core disputes are contract‑interpretation issues reserved for the court; the district court affirmed.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (HHG) | Held |
|---|---|---|---|
| 1. Does federal policy favoring arbitration require arbitration here? | Presumption of arbitrability is inapplicable because clause is narrow; court should decide interpretive disputes. | FAA policy requires doubts be resolved for arbitration; "any disputed items" covers these disputes. | Court: Clause is unambiguous and narrow; presumption of arbitrability does not apply. |
| 2. Does the plain language "any disputed items" require arbitration of interpretive questions (e.g., whether ACHE‑R/D are excluded)? | "Disputed items" means accounting entries; interpretive issues fall outside and are for the court. | "Any disputed items" should be read broadly to include disputes that affect adjustment amounts, including interpretation. | Court: "Items" read in context refers to accounting ledger entries; interpretation of defined terms is for the court. |
| 3. If interpretive issues "touch" post‑closing adjustments, must they nevertheless be arbitrated? | No — allowing that rule swallows the parties’ agreed forum selection and the Sale Order reservation; interpretive disputes can be decided by court. | Yes — Third Circuit rule ("touch matters") requires arbitration where claims relate to arbitration clause subject matter. | Court: "Touching" is too broad here; Brayman is distinguishable and does not compel arbitration given the specific Reservation of Jurisdiction. |
| 4. Does the Sale Order’s reservation of jurisdiction limit/override the arbitration clause? | Sale Order expressly reserves APA interpretation to the bankruptcy court; that agreement must be harmonized with the arbitration clause. | Arbitration clause is the specific forum for these post‑closing disputes and should control over the Sale Order’s general reservation. | Court: No conflict; read together — arbitration covers accounting "items," while the Sale Order reserves court resolution of contract interpretation. |
Key Cases Cited
- Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574 (1960) (arbitration is a matter of contract; cannot compel arbitration beyond parties' agreement)
- AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643 (1986) (scope of arbitration clause controls arbitrability; interpret clause first)
- Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983) (any doubts about arbitrability should generally be resolved in favor of arbitration)
- Brayman Constr. Corp. v. Home Ins. Co., 319 F.3d 622 (3d Cir. 2003) (if allegations "touch matters" covered by arbitration clause, claims may be arbitrable)
- Granite Rock Co. v. Int'l Broth. of Teamsters, 561 U.S. 287 (2010) (presumption of arbitrability arises only where arbitration agreement is ambiguous about coverage)
- Battaglia v. McKendry, 233 F.3d 720 (3d Cir. 2000) (addressing presumption of arbitrability and scope analysis)