5 F. Supp. 3d 565
S.D.N.Y.2014Background
- Buyers purchased assets from Sellers under an APA with a Section 2.8 purchase-price adjustment tied to working capital, specifying submission of disputes to "Independent Accountants" for a binding determination.
- Target Working Capital was $45M (GAAP); Buyers calculated Actual Closing Working Capital post-closing and sought an adjustment; Sellers disputed methodology and timeliness of some claims.
- Parties submitted the dispute to Michigan accounting firm Plante & Moran (IAs); after submissions, calls, and a draft report, the IAs issued a final award on April 3, 2013 in favor of Buyers for $4,240,059.
- Sellers filed a petition in New York state court to vacate the award; Buyers filed in federal court to confirm. Buyers removed the state action to federal court.
- Court addressed (1) whether removal and federal jurisdiction under the Convention/FAA were proper, and (2) whether the award should be vacated for exceeding scope, improper procedure, or manifest disregard of law.
Issues
| Issue | Plaintiff's Argument (Sellers) | Defendant's Argument (Buyers) | Held |
|---|---|---|---|
| Whether federal jurisdiction under the Convention/FAA exists and removal was proper | APA does not specify arbitration in a signatory territory; proceedings were an appraisal, not arbitration, so §205 removal improper | The award was rendered in the U.S. (a signatory); Section 2.8 submitted disputes to a binding third-party determination — functionally arbitration; removal proper | Removal and federal jurisdiction under the Convention/FAA satisfied; remand denied |
| Whether issues the IAs decided (timeliness of adjustments) were for the court or arbitrator | Buyers’ late-raised claims exceeded the APA’s 30-day deadline and thus were not arbitrable | Timeliness is a procedural gateway question presumptively for the arbitrator | Timeliness disputes are procedural and for the arbitrator; not arbitrability; IA decision stands |
| Whether IAs exceeded authority by applying GAAP rather than Sellers’ historic accounting practice | Section 2.8 and warranties show parties intended Sellers’ historic practice to govern; GAAP adjustments were beyond IAs’ scope | Section 2.8 and definitions tie Target Working Capital to GAAP; resolving accounting methodology was squarely within the working-capital dispute submitted to IAs | Issue of accounting methodology fell within narrow arbitration clause and was arbitrable; IAs did not exceed powers; no vacatur |
| Whether IAs refused to consider evidence or committed misconduct (§10(a)(3)) | IAs failed to consider specified post-closing documents and agreed testing | IAs provided parties opportunity to submit documents, had calls, issued draft report and considered submissions; they need not adopt every piece of evidence | No misconduct shown; adequate opportunity to present evidence; vacatur denied |
Key Cases Cited
- Smith/Enron Cogeneration Ltd. P’ship v. Smith Cogeneration Int’l, Inc., 198 F.3d 88 (2d Cir.) (four-factor test for Convention coverage)
- Ledee v. Ceramiche Ragno, 684 F.2d 184 (1st Cir.) (territory reciprocity rationale under the Convention)
- Lander Co. v. MMP Investments, Inc., 107 F.3d 476 (7th Cir.) (Convention enforces awards made in signatory countries)
- Yusuf Ahmed Alghanim & Sons v. Toys "R" Us, Inc., 126 F.3d 15 (2d Cir.) (Article V(1)(e) permits domestic vacatur standards to apply)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (procedural gateway questions presumptively for arbitrators)
- McDonnell Douglas Fin. Corp. v. Pa. Power & Light Co., 858 F.2d 825 (2d Cir.) (substance over labels: non-"arbitration" language can still create arbitration agreement)
- Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (U.S.) (distinguishes judicial review of arbitrability)
- Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 548 F.3d 85 (2d Cir.) (manifest disregard standard described as narrow and deferential)
- D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95 (2d Cir.) (high burden to vacate arbitration award)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (federal policy favoring arbitration)