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SC&H Group, Inc. v. Altus Group U.S., Inc.

United States District Court, D. Maryland

July 13, 2014

SC&H GROUP, INC. et al.


          William M. Nickerson Senior United States District Judge

         Before the Court is Defendant’s Motion to Dismiss and Compel Arbitration. ECF No. 8. The motion is ripe. Upon review of the parties’ submissions and the applicable law, the Court determines that no hearing is necessary, Local Rule 105.6, and that the motion should be granted.

         Pursuant to an Asset Purchase Agreement dated December 1, 2014, (Agreement) Defendant Altus Group U.S., Inc. agreed to purchase from Plaintiffs (hereinafter Plaintiffs or simply “Vendor”)[1] a number of Vendor’s assets related to its business of providing state and local tax consulting services.[2] The purchase price of the assets was $36, 000, 000, but that price was to be adjusted based upon the difference between two figures as of the closing, once that financial statement became available. Id. ¶ 16. As characterized in the Complaint, “[s]imply stated, if the Closing Working Capital exceeds the Target Working Capital, [Defendant] is required to pay Plaintiffs for the excess Working Capital (the “Excess Working Capital”) to the extent [Defendant] collected Vendor’s Accounts Receivable after the Closing Date.” Id. ¶ 18.

         Vendor alleges in the Complaint that, after the closing of the Agreement, Defendant collected payments of $907, 106.00 from MedImmune LLC, one of Vendor’s clients, and that these payments constituted Excess Working Capital under the terms of the Agreement. Defendant, however, has refused to remit that amount to Vendor. Vendor asserts in Count I of the Complaint that Defendant’s failure to make that remittance is a breach of contract.

         Vendor also alleges that Defendant has been attempting to collect accounts receivable from a different client, International Paper Company, and that, once collected, those receipts would also constitute Excess Working Capital under the terms of the Agreement. Vendor has attempted to have Defendant confirm that, once collected, Defendant would wire those funds to Vendor but Defendant has refused to provide that confirmation. Based upon those allegations, Vendor seeks a declaratory judgment that Defendant has a duty to collect and remit those accounts receivable. Compl., Count II.

         Defendant has moved to dismiss the Complaint pursuant to the Agreement’s arbitration clause. That clause provides:

Any dispute relating to this Agreement, other than pursuant to Section 2.4, will be settled by binding arbitration in accordance with the Rules for Non-Administered Arbitration of the International Institute for Conflict Prevention and Resolution (‘CPR’). The arbitration proceeding, including the rendering of an award, will take place in New York, New York, will be administered by the CPR and the arbitrators will fix the time and place for the purpose of hearing such evidence and representation as any party to the arbitration may present.

Agreement § 11.1 (emphasis added).[3]

         In its Motion to Dismiss, Defendant anticipated, correctly, that Vendor would argue that this suit is brought pursuant to § 2.4 of the Agreement and, therefore, is not subject to arbitration. Section 2.4 is that section of the Agreement that explains the calculation of the “Working Capital Adjustment” described above. Subsections 2.4(a)-(d) set out the timetable for: the production of the financial reports, the production of the Working Capital Report, the raising of any objections thereto by the submission of a written “Adjustment Objection Notice, ” and the submission of any response to those objections. Subsection 2.4(e) provides that,

[i]f the Vendor and [Defendant] cannot resolve all disputed matters arising out of the Working Capital Report, . . . within 10 Business Days after [Defendant] receives the Adjustment Objection Notice, the disputed matters will be referred to a mutually agreed upon nationally or regionally recognized independent accounting firm (the “Independent Accountant”) to fully and finally resolve all unresolved objections (provided, that if the parties are unable to agree, then either party may ask the American Arbitration Association to appoint an Independent Accountant, which will be the deemed mutually-agreed upon Independent Accountant.

         That Subsection also sets out the manner in which the Independent Accountant would be compensated. The remaining Subsections of Section 2.4, Subsections 2.4(f)-(i), detail how and when payments should be made to the Vendor or to the Defendant depending upon whether the Closing Working Capital is greater than or less than the Target Working Capital.

         In its motion, Defendant posits that reference in the arbitration clause to Section 2.4 represents a “narrow carve out, ” which excludes from arbitration only those issues related to the “mathematical calculations” in the Working Capital Report. ECF No. 8-1 at 8. As support, Defendant cites to language in Subsections 2.4(c) and (d). Subsection 2.4(c) provides that the Vendor would have 20 Business Days to review the Working Capital Report “with a view to assessing the correctness of the calculations thereof.” Id. § 2.4(c) (emphasis added). If no objections are received within that time period, that subsection further provides that “the calculation of the Closing Working Capital reflected in the Working Capital Report . . . will be deemed to have been approved.” Id. (emphasis added). Subsection 2.4(d) states that if the Vendor “objects to [] the Closing Working Capital calculation as set out in the Working Capital Report, ” it will provide notice of such objection in the Adjustment Objection Notice. Id. § 2.4(d) (emphasis added).

         Defendant also suggests that, if the Court should interpret the exclusion in the arbitration clause more broadly than just disputes over mathematical calculations such that any dispute in any way related to Section 2.4 would be deemed to fall outside of the arbitration clause, Plaintiffs’ claims would still be subject to dismissal. Under the terms of Section 2.4(e), quoted above, any disputed matter arising out of the Working Capital Report is subject to resolution, not by litigation, but by the Independent Accountant. Thus, if not subject to arbitration by the three members of the arbitral tribunal mandated under Section 11.1, Plaintiffs’ claims must be submitted to arbitration by an Independent Accountant as set forth in Section 2.4.

         In its Motion to Dismiss and Compel Arbitration, Defendant relies on the provisions of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA). ECF No. 8-1 at 3-4. Plaintiffs, citing the “Governing Law” provision in the Agreement (Section 11.8), which provides that the Agreement will be governed by the laws of the State of New York, rely almost exclusively on New York law. ECF No. 12 passim. Plaintiffs do opine, however, that “[t]he FAA, if applicable, ” would lead to the same result. Id. at 10. Although the parties do not seriously address the question as to whether ...

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