Heritage Home Group LLC ("Heritage"), purchased
substantially all of the Debtors' assets pursuant to a Sale
Order. The Second Amendment to the Asset Purchase Agreement (the
"Second Amendment" and the "APA") required
Heritage and the Sellers to engage in a purchase price
reconciliation process in the sixty days after Closing. The parties
were unable to agree on the proper purchase price reconciliations.
Thus, the Trustee, as successor-in-interest to the Sellers, filed
the instant adversary proceeding. The Trustee asserted that, under
the purchase price reconciliation provisions in the APA, Heritage
owes the Liquidating Trust approximately $13,000,000. Heritage
denied the Trustee's accounting and asserts that the
Liquidating Trust owes Heritage approximately $8,000,000. The
merits of the parties' dispute has not yet been adjudicated
because § 3(a) and § 3(b) of the Second Amendment, which
govern the reconciliation process, each contain an Accounting
Arbitration Clause (the "Arbitration Clause").
The parties have raised two disputes that might be subject to
mandatory arbitration: (i) whether Heritage has the right to retain
"Auction Clearing House Electronic Receipts &
Deposits" ("ACHE-R/D") earned by the Sellers shortly
before Closing; and (ii) what accounting method—GAAP or the
Sellers' traditional practices—must be applied in
calculating the purchase price reconciliations.
The parties disputed whether under §§ 3(a) and 3(b) of
the Second Amendment, the disputes must be submitted to the
Accounting Arbitrator for resolution. In objecting to the motion,
the Trustee argued that the Court must first determine several
"threshold legal issues" before these claims may be
submitted to arbitration. The Trustee asserted that the issues
raised in his Complaint (1) are outside the scope of the
Arbitration Clause and (2) are issues over which the Court
expressly retained jurisdiction in the Sale Order.
The Court interpreted the Arbitration Clause as follows: (1)
disputes over the calculation of reconciliation items, including
disputes over how a set of accounting principles must be applied,
are arbitrable while (2) disputes over the interpretation of the
APA, including disputes over what rules the APA places on the
Accounting Arbitrator, are not arbitrable. The Court has determined
that this interpretation is the most reasonable—and only
reasonable—interpretation after engaging in a three-step
The Court examined the parties' disputes to determine if
either dispute falls within the narrow scope of the Arbitration
Clause. The Court found that because both disputes are clearly
disputes over the proper interpretation of the APA, the Court finds
that neither dispute is arbitrable. As a result, the Court denied
Heritage's motion to compel arbitration.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
A number of towage and bunker suppliers have requested the intervention of a district court judge to clarify whether the U.S. Bankruptcy Court has authority to "effectively extinguish... maritime liens" on chartered vessels.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).