Seed Holdings, Inc. v. Jiffy Int'l As

• Decision Date: 21 March 2014
• Docket Number: Nos. 13 Civ. 2284(JGK), 13 Civ. 2755(JGK).,s. 13 Civ. 2284(JGK), 13 Civ. 2755(JGK).
• Citation: 5 F.Supp.3d 565
• Court: U.S. District Court — Southern District of New York
• Parties: SEED HOLDINGS, INC., Plaintiff, v. JIFFY INTERNATIONAL AS, et al., Defendants. Jiffy International AS, et al., Plaintiffs, v. Seed Holdings, Inc., et al., Defendants.

5 F.Supp.3d 565

SEED HOLDINGS, INC., Plaintiff,

v.JIFFY INTERNATIONAL AS, et al., Defendants.

Jiffy International AS, et al., Plaintiffs,

v.Seed Holdings, Inc., et al., Defendants.

Nos. 13 Civ. 2284(JGK), 13 Civ. 2755(JGK).

United States District Court,

S.D. New York.

Signed March 21, 2014.

Michael Quinn English, Tony Miodonka, Finn Dixon & Herling LLP, Stamford, CT, for Plaintiff.

Jonathan Martin Landsman, Jonathan M. Landsman, New York, NY, for Defendants.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

The three pending motions in these cases arise out of a purchase price adjustment provision in an agreement between Jiffy International AS (“Jiffy”), Jiffy Canada Inc., Southern Resource Corp., and Northern Resource Corp. (collectively, the “Sellers”), on the one hand, and Seed Holdings, Inc. (“Seed”), FMC Acquisition Corp., and AEM Acquisition ULC (collectively, the “Buyers”), on the other, for the sale of certain assets. The provision calls for disputes relating to the purchase price adjustment to be submitted for binding resolution by independent accountants. When a dispute regarding the purchase price adjustment arose, the parties submitted it for resolution to the Michigan-based accounting firm of Plante & Moran, PLLC (the “IAs”). On April 3, 2013, the IAs issued an award in favor of the Buyers in the amount of $4,240,059.

The Sellers subsequently filed a petition in the Supreme Court of the State of New York, New York County, that sought to vacate or modify the award (the “Jiffy Action”). On the same day, Seed filed a petition in this Court to confirm the award (the “Seed Action”). The Buyers then removed the Jiffy Action to this Court.

The present motions include a motion filed by Seed in the Seed Action to confirm the IAs' award and a motion filed by the Sellers in the Jiffy Action to vacate the IAs' award. Also before the Court is a motion brought by the Sellers to remand the Jiffy Action to state court and to stay or dismiss the Seed Action pending resolution of the Jiffy Action.

I.

There is no dispute with respect to the following facts relevant to these motions.

A.

The Sellers and the Buyers executed an Asset Purchase Agreement (“APA”) as of April 19, 2012, according to which the Buyers agreed to purchase various assets from the Sellers for a combination of cash and equity. (Declaration of Michael Q. English (“English Decl.”), Ex. A.)

Section 2.8 of the APA called for an adjustment to be made to the purchase price based on a series of calculations relating to the working capital of the acquired assets. The provision provided as follows:

(a) On a date that is not less than three (3) Business Days before the Closing Date, Sellers shall provide to Buyers (i) their determination of the Estimated Closing Working Capital, calculated in a manner consistent with the calculation of the Target Working Capital, and (ii) schedules of the then current estimated Inventory and Accounts Receivable as of such date. At Closing, the Cash Purchase Price used to determine the Net Closing Purchase Price paid to Sellers shall be increased or decreased, as applicable, in accordance with this Section 2.8(a). If and to the extent that the Estimated Closing Working Capital is greater than the Target Working Capital and is also greater than $47 million, the Cash Purchase Price shall be increased by the amount by which the Estimated Closing Working Capital is greater than $47 million. If and to the extent that the Estimated Closing Working Capital is less than the Target Working Capital and is also less than $43 million, the Cash Purchase Price shall be decreased by the amount by which the Estimated Closing Working Capital is less than $43 million. For the avoidance of doubt, there will be no adjustment made to the Cash Purchase Price if the Estimated Closing Working Capital is between $43 million and $47 million, inclusive.

(b) Within thirty (30) days after the Closing, the Buyers shall determine the actual working capital of the Targets as of the Closing (the “Actual Closing Working Capital”), and shall deliver to Sellers their calculations thereof, together with a certificate of the Chief Financial Officer of the Buyers, affirming such calculation. Such amounts shall be determined in good faith by Buyers. Sellers shall have an opportunity to review the Buyers' determination of the Actual Closing Working Capital and, within fifteen (15) days after Sellers' receipt of Buyers' determination, Sellers shall either agree with the calculation or, after negotiation with the Buyers, agree to submit any dispute to the binding determination of a third party accounting firm mutually selected by Buyers and Sellers (the “Independent Accountants”). The cost of such Independent Accountants shall be paid fifty percent (50%) by Buyers and fifty percent (50%) by Sellers. The Independent Accountants so selected will prepare a written report to both parties and will submit a resolution of such unresolved disputes within fifteen (15) days after being retained. The determination of such Independent Accountants of the Actual Closing Working Capital will be conclusive and binding upon all parties to this Agreement and their Affiliates.

(c) If and to the extent that the Actual Closing Working Capital is greater than the Target Working Capital and is also greater than $47 million, the Buyers shall pay the amount by which Actual Closing Working Capital is greater than $47 million to the Sellers by wire transfer of immediately available funds within three (3) Business Days of the earlier of the agreement of the Sellers with such calculation and the final determination by the Independent Accountants. If and to the extent that the Actual Closing Working Capital is less than the Target Working Capital and is also less than $43 million, the Sellers shall pay the amount by which Actual Working Capital is less than $43 million to the Buyers by wire transfer of immediately available funds within three (3) Business Days of the earlier of the agreement of the Sellers with such calculation and the final determination by the Independent Accountants. If a party has already made a payment pursuant to Section 2.8(a), the amount of such payment shall be deducted from any amount such party would otherwise owe pursuant to this Section 2.8(c) and if a party has made a payment pursuant to Section 2.8(a) and is owed a payment pursuant to this Section 2.8(c) the amount paid pursuant to Section 2.8(a) will be refunded to such party. For the avoidance of doubt, any payment made by a party pursuant to Section 2.8(a) will be refunded to that party if the Actual Closing Working Capital is between $43 million and $47 million, inclusive and there otherwise will be no adjustment made to the Cash Purchase Price pursuant to this Section 2.8(c) if the Actual ClosingWorking Capital is between $43 million and $47 million, inclusive.

(English Decl., Ex. A, § 2.8 (emphasis added).)

The APA assigned the following definitions:

—“Working Capital” means “the working capital of the [Sellers] determined at all times in accordance with Schedule 2.8.”

—“Actual Closing Working Capital” has the “meaning set forth in Section 2.8(b) below.”

—“Estimated Closing Working Capital” means “the estimated closing Working Capital of the Targets as of the Closing Date, determined in good faith by the Sellers.”

—“Target Working Capital” means “Working Capital of $45 million, determined in accordance with GAAP.”

—“GAAP” means “United States or Canadian generally accepted accounting principles, as applicable, as in effect from time to time.”

The APA also contained representations and warranties made by the Sellers. In Section 3.7, the Sellers warranted that the “Financial Statements ... have been prepared in accordance with GAAP, applied on a consistent basis throughout the periods covered thereby....” That Section further provided that “[t]he December 31, 2011 and February 29, 2012 unaudited Financial Statements do not include any adjustments that might be necessary to make these unaudited Financial Statements be in accordance with GAAP as a result of the transactions contemplated by this Agreement.” In Section 3.13, the Sellers warranted that to their knowledge, “none of [the inventory of the Sellers] is slow-moving, obsolete, damaged, or defective, subject only to the reserve for inventory write-down set forth in the Financial Statements as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the [Sellers].” Finally, in Section 3.15, the Sellers warranted that

[a]ll Accounts Receivable of the [Sellers] to be included in the Acquired Assets are reflected properly on their books and records, are valid receivables subject to no setoffs or counterclaims, are current and collectible, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserve for bad debts set forth in the Financial Statements as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practices of the [Sellers].

Damages on claims for breaches of representations and warranties of the Sellers were capped at $1 million, minus a $100,000 deductible.¹ (English Decl., Ex. A, § 8.2(d).)

B.

The transaction set forth in the APA closed on May 18, 2012. (Declaration of Arstein Knutson in Supp. of Am. Pet. to Vacate (“Knutson Decl.”), ¶ 4.)

On June 15, 2012, the Buyers informed the Sellers that their calculation of actual working capital pursuant to Section 2.8(b) was $33,548,022. ( See Jiffy's Verified Am. Pet., Ex. 4 at 1.) This amount was less than the estimated working capital of $38,367,171 calculated by the Sellers prior to closing pursuant to Section 2.8(a). Accordingly, the Buyers concluded that the Sellers owed them $4,783,149 ² to remedy the discrepancy. The Buyers explained the discrepancy as arising from the Sellers' failure to account for certain non-salable inventory items ...