Summary
noting that Delaware's public policy favors "resolving disputes through arbitration."
Summary of this case from Soc-SMG, Inc. v. Day Zimmermann, Inc.Opinion
C.A. No. 18783
Submitted: September 17, 2001
Decided: October 1, 2001
Richard D. Allen, Esquire, Jessica Zeldin, Esquire, MORRIS, NICHOLS, ARSHT TUNNELL, Wilmington, Delaware; Mark D. Gately, Esquire, (argued), HOGAN HARTSON, LLP, Baltimore, Maryland, Attorneys for Plaintiff.
P. Clarkson Collins, Jr., Esquire, Lewis H. Lazarus, Esquire, MORRIS, JAMES, HITCHENS WILLIAMS, Wilmington, Delaware; Arthur S. Gabinet, Esquire, (argued), Jay M. Green, Esquire, DECKERT PRICE RHOADS, Philadelphia, Pennsylvania, Attorneys for Defendants.
MEMORANDUM OPINION
I. INTRODUCTION
The defendant, Sierra International, Inc., has filed a motion to dismiss for lack of subject matter jurisdiction. For the reasons that follow, I conclude that the dispute is within the scope of an exclusive arbitration agreement between the parties and, thus, grant the motion to dismiss.
II. FACTUAL BACKGROUND
This action arises from a dispute between Imo Industries, Inc. ("Plaintiff" or "Imo") and Sierra International, Inc. and Teleflex Incorporated (collectively "defendants") over the post-closing adjustment to the purchase price paid pursuant to an Asset Purchase Agreement (the "Agreement"). Under the Agreement, defendants agreed to purchase the assets of the Morse Division ("Morse") of Imo for $135 million. The purchase price was based on Morse's net worth as of September 30, 2000 as shown on a pro forma balance sheet. The parties agreed that there would be a post-closing adjustment based on the net worth of Morse on the closing date. The closing took place on February 13, 2001.
Imo alleges that, after closing, the defendants' actions made it difficult to compute a precise post-closing adjustment amount on a timely basis. Specifically, IMO claims that the financial data provided by the defendants was incomplete, was not provided on a timely basis, and was presented in a manner inconsistent with the September 30, 2000 pro forma balance sheet. Notwithstanding these claims, Imo prepared a Closing Date Balance Sheet which it alleges revealed that defendants owed Imo $9,059,000 in post-closing adjustments to the purchase price. Defendants have refused to make this payment because, they say, the post-closing adjustment amount was improperly calculated.
The Agreement contains two relevant provisions that dictate how certain disputes between the parties shall be resolved. Imo claims that Section 11.01 should apply:
11.01 Default by Buyer. If the buyer shall default in the performance of its obligations under this Agreement in any material respect or if, as a result of Buyer's action or failure to act, the conditions precedent to Seller's obligation to close specified in Article VII are not satisfied, and for such reason or reasons the transactions contemplated by this Agreement are not consummated, and provided that Seller shall not then be in default in the performance of Seller's obligations hereunder, Seller shall be entitled, at Seller's sole option, by written notice to buyer, (a) to require buyer to consummate and specifically perform the purchase in accordance with the terms of this Agreement, if necessary through injunction or other court order or process; or (b) to terminate this Agreement.
In their motion to dismiss, defendants cite Section 12.05 of the Agreement, which states in pertinent part:
12.05 Arbitration. If any dispute arises under or in connection with this Agreement or the performance or enforcement hereof, it shall be decided finally by an arbitrator in an arbitration proceeding conforming to the Rules of the American Arbitration Association applicable to commercial arbitration. . . . The arbitration shall take place in the State of Virginia. The decision of the arbitrator shall be conclusively binding upon the parties, final and non-appealable, and such decision shall be enforceable as a judgment in any court of competent jurisdiction.
Despite the broad agreement to arbitrate, Imo chose to sue for an order of specific performance seeking to enforce the payment of the amount it calculated as the post-closing adjustment. It defends this decision by arguing that such payment is merely one of the transactions contemplated by the Agreement as necessary for consummation of the deal. Defendants argue Section 11.01 is irrelevant and that, in light of the broad arbitration clause, the court lacks subject matter jurisdiction over the dispute.
III. LEGAL ANALYSIS
When presented with a motion to dismiss for lack of subject matter jurisdiction, this court must assess the nature of the wrong alleged and the remedy available in order to determine whether a legal, as opposed to an equitable remedy, is available and fully adequate. This court "will not `accept jurisdiction over' claims that are properly committed to arbitration since in such circumstances arbitration is an adequate legal remedy." This rationale is consistent with Delaware public policy which favors resolving disputes through arbitration.
McMahon v. New Castle Assocs., Del. Ch., 532 A.2d 601, 603 (1987).
Dresser Indus., Inc. v. Global Indus. Techs., Inc., Del. Ch., C. A. No. 16967, mem. op. at 11, Strine, V.C. (June 9, 1999).
Graham v. State Farm Mutual Automobile Ins. Co., Del. Supr., 565 A.2d 908, 910 (1989).
Here, the parties agreed to a broad arbitration clause. It encompasses "any dispute aris[ing] under or in connection with this Agreement or the performance or enforcement hereof." Clearly, the dispute over the post-closing adjustment meets this description. Consequently, arbitration is an available and fully adequate remedy that could rectify the alleged wrongs committed by defendants. If this were the only relevant provision in the Agreement, there would be no doubt that the dispute is arbitrable and this court is without jurisdiction to entertain suit.
The question, then, is whether the presence of Section 11.01 changes the result. The plaintiff has advanced two principle arguments suggesting that it is within this court's jurisdiction to enforce the payment of the post-closing adjustment.
First, the plaintiff argues that the Agreement contemplated a series of transactions and that the deal was not consummated because the final transaction, payment of the post-closing adjustment, was never completed. While it is possible to read the post-closing adjustment as a "transaction" that has not been "consummated," the better and more natural reading of Section 11.01 is that it refers to the transactions occurring at closing. This became evident at oral argument when plaintiffs counsel conceded that the failure to pay the post-closing adjustment does not give the plaintiff the right to "terminate" the agreement at this late date. Since the right to terminate found in Section 11.01 is the correlative of the right to require performance, this suggests that neither right survived beyond the closing date.
A reading of Section 3.04 also suggests that Section 11.01 applies only to pre-closing disputes:
3.04. Shares to be Transferred. Except as set forth on Schedule 3.04, the Seller is the record and beneficial owner of all the shares and has valid title to all of the Shares, free and clear of all Liens, rights of first refusal, preemptive and similar rights, or voting restrictions. Upon the consummation of the transactions contemplated by this Agreement in accordance with the terms hereof, Buyer will acquire title to the Shares, free and clear of all Liens, rights of first refusal, preemptive or similar rights, or voting restrictions.
Section 3.04 clearly states that defendant would not acquire title to Morse shares until the transactions were consummated. Given that the shares were transferred at closing, it is logical to conclude that the transactions contemplated by the Agreement as necessary to close the deal had been, in the eyes of both parties, consummated at that time.
Even if I were to find that the payment of the post-closing adjustment might be construed as a condition precedent to consummation, I would be hard pressed to find that Section 11.01 of the Agreement trumps the broad language of the arbitration clause. Defendants have correctly pointed out that, to determine whether a dispute over the post-closing adjustment is subject to arbitration, "all the court need decide is whether the contract may reasonably be interpreted to require arbitration." Furthermore, any doubt as to arbitrability is to be resolved in favor of arbitration. This presumption in favor of arbitration has been found to be particularly powerful if there is a "broad arbitration clause." For the court to conclude that an arbitration provision does not cover the dispute, either "an "express provision' excluding the dispute from the coverage of the arbitration clause," or "the most forceful evidence of purpose to exclude" is required.
SBC Interactive, Inc. v. Corporate Media Partners, Del. Ch., C.A. No. 15987, slip op. at 6, Jacobs, V.C. (Dec. 24, 1997).
Id.
Id.
The plaintiff has not met this standard. There is neither an "express provision" excluding this dispute from the coverage of the arbitration clause, nor any "forceful evidence of purpose to exclude." Consequently, the plaintiff has not overcome the strong burden in favor of arbitration.
The plaintiff has also argued that defendants' reading of the arbitration clause greatly expands the actual agreement to arbitrate and renders Section 11.01 superfluous. This argument is without merit. Section 11.01 of the Agreement would clearly apply to disputes arising prior to closing. For example, if defendants had refused to tender the purchase price and, as a result, the transactions were not consummated, Section 11.01 would apply. The fact that Section 11.01 does not apply to the post-closing adjustment payment does not render that clause superfluous.
IV. CONCLUSION
For the foregoing reasons, defendants' motion to dismiss is GRANTED. IT IS SO ORDERED.