TBA Global, LLC v. Fidus Partners, LLC
| Decision Date | 01 September 2015 |
| Docket Number | 13625N, 650161/13 |
| Citation | 15 N.Y.S.3d 769,132 A.D.3d 195,2015 N.Y. Slip Op. 06698 |
| Parties | In re TBA Global, LLC, Petitioner–Appellant, TBA Global Holdings, Inc., Petitioner, v. FIDUS PARTNERS, LLC, Respondent–Respondent. |
| Court | New York Supreme Court — Appellate Division |
Winston & Strawn LLP, New York (Luke A. Connelly and Zachary L. Spencer of counsel), for appellant.
Mintz Levin Cohn Ferris Glovsky & Popeo, P.C., New York (Seth R. Goldman of counsel), for respondent.
DAVID FRIEDMAN, J.P., DIANNE RENWICK, KARLA MOSKOWITZ, ROSALYN H. RICHTER, SALLIE MANZANET–DANIELS, JJ.
FRIEDMAN, J.P.
Petitioner acquired a failing business pursuant to an asset purchase agreement that specifically excludes from the assets and liabilities being transferred to the buyer any “brokerage or finders' fees ... or other similar payments” owed by the seller. The asset purchase agreement further specifically provides that the seller and the buyer will each bear its own “Transaction Costs,” which are defined to “includ[e] the fees, costs and expenses of ... financial advisors.” At issue on this appeal is whether, notwithstanding the foregoing express and specific provisions of the asset purchase agreement, respondent Fidus Partners, LLC (Fidus), which never entered into any agreement with the buyer, may force the buyer into arbitration over Fidus's claim to a fee allegedly owed to it by the seller under Fidus's agreement to act as the seller's “exclusive financial advisor” in efforts to sell the business. We hold that the buyer has no obligation to submit to arbitration of Fidus's claim.
Because the asset purchase agreement unambiguously provides that the buyer did not assume the seller's liabilities to pay the fees of brokers, finders, or financial advisors retained in connection with the contemplated sale of the business, the buyer did not assume the seller's obligations under its agreement with Fidus, and therefore is not bound by the arbitration provision in that agreement. Neither has Fidus, as the proponent of arbitration, carried its burden of proof in support of its alternative arguments that the seller's contractual obligation to arbitrate disputes with Fidus passed to the buyer under common-law principles of successor liability and estoppel. Accordingly, the buyer is entitled to the relief sought by its petition, namely, a stay of the arbitration that Fidus has commenced against it to recover the fee allegedly owed to Fidus by the seller. We therefore reverse and grant the buyer's petition for a permanent stay of the arbitration.
This dispute arises from the financial difficulties of an entity formerly known as TBA Global, LLC (TBA Seller), which was in the business of designing and producing live-event engagements for clients.1 In January 2012, TBA Seller retained respondent Fidus to serve as TBA Seller's “exclusive financial advisor” in connection with efforts to identify a new investor to rescue the company. Under a letter agreement between Fidus and TBA Seller, dated January 11, 2012 (the Fidus/Seller agreement), Fidus undertook to “serve as the exclusive financial advisor of [TBA Seller] with respect to any sale or similar transaction involving the assets or equity securities of [TBA Seller]; any merger or consolidation involving [TBA Seller]; or any recapitalization or reorganization of [TBA Seller] (hereinafter collectively referred to as a ‘Transaction’)” (emphasis added). More specifically, the Fidus/TBA agreement obligated Fidus to provide the following services to TBA Seller:
In consideration of these services, Fidus was to receive an “Advisory Fee” of $50,000 and, in the event a “Transaction” within the meaning of the agreement were consummated during its term or within one year thereafter (subject to specified conditions), a “Transaction Fee” of $500,000 (against which the Advisory Fee would be credited).2
Fidus did not succeed in finding a transaction partner for TBA Seller. According to its chairman, Fidus “contacted and managed discussions with more than 30 prospective partners, and distributed confidential marketing material to approximately 25 prospective partners.” In July 2012, two prospective transaction partners that Fidus had located (Cognitive Capital Partners and Eastwood Capital Partners) signed a preliminary letter of intent for a possible acquisition of TBA Seller's assets. This deal never came to fruition, however, because Cognitive and Eastwood were unable to provide sufficient new investment in TBA Seller to persuade TBA Seller's primary lender, Webster Bank, to agree to renegotiate TBA Seller's credit agreement.
In August 2012, Cognitive and Eastwood terminated their negotiations with TBA Seller. At that point, the company was effectively insolvent—bereft of cash and millions of dollars in debt to Webster Bank, with payments coming due that the company could not make. Facing this dire situation, TBA Seller's CEO, Robert Geddes, made efforts of his own to find new investors to save the business. Ultimately, two finance companies that Geddes had located (SLC Capital and Post Capital) agreed to purchase the bulk of TBA Seller's assets through a newly formed entity now named TBA Global, LLC (TBA Buyer), which is the petitioner in this proceeding.3
TBA Seller and TBA Buyer entered into an asset purchase agreement dated November 7, 2012 (the APA), under which TBA Buyer acquired TBA Seller's assets (subject to specified exceptions, as more fully discussed below) in exchange for: (1) the assumption of TBA Seller's liabilities (subject, again, to specified exceptions, as more fully discussed below); (2) a cash payment of $20,000, most of which was distributed to the United States Small Business Administration (SBA) as the receiver of the largest shareholder of TBA Seller's corporate parent; and (3) a further cash payment of $100,000 to the SBA to reimburse it for its expenses relating to the future winding up of TBA Seller. Upon the closing, TBA Buyer's owners (SLC Capital, Post Capital and a handful of individuals) invested $4.265 million in the business. This infusion of new capital ($4 million of which came from SLC and Post) enabled the company to refinance its debt to Webster Bank and to continue operations.
Although most of the assets and liabilities of TBA Seller were transferred to TBA Buyer pursuant to the APA, the agreement specified particular assets and liabilities to be retained by TBA Seller. As relevant here, two separate sections of the APA expressly exclude from the assets (section 1.2[c] ) and liabilities (section 1.3[d] ) that were transferred to TBA Buyer “brokerage or finders' fees or agents' commissions or other similar payments ” (emphasis added).4 Further, section 3.14 of the APA expressly provides that TBA Seller “shall pay the fees, costs and expenses of [TBA Seller] incurred in connection with this Agreement and the transactions contemplated by this Agreement, including the fees, costs and expenses of [its] financial advisors, accountants and counsel” (emphasis added).5
After TBA Buyer purchased TBA Seller's assets, Fidus asked TBA Buyer to pay it $450,000 as the outstanding balance (after giving credit for TBA Seller's initial $50,000 payment) of the Transaction Fee provided by the Fidus/ Seller Agreement, to which Fidus claimed to have become entitled upon the closing of the transaction.6 TBA Buyer declined, taking the position that, under the APA, it had not assumed TBA Seller's liability for any amounts due Fidus under the Fidus/Seller agreement. Fidus subsequently served upon TBA Buyer a demand for arbitration of its claim pursuant to the Fidus/Seller agreement's arbitration clause.7
In response to the demand for arbitration, TBA Buyer commenced this proceeding under article 75 of the CPLR, seeking a permanent stay of the arbitration pursuant to CPLR 7503(b). Fidus opposed TBA Buyer's petition. Supreme Court denied the petition, essentially accepting Fidus's arguments that, under the APA, TBA Buyer had assumed TBA Seller's liability to Fidus for any Transaction Fee or expense reimbursement due under the Fidus/Seller agreement. The court did not reach Fidus's alternative arguments that liability under the Fidus/Seller agreement could be imposed on TBA Buyer pursuant to principles of successor liability even in the absence of an express assumption. As noted above, upon TBA Buyer's appeal, we reverse.8
We begin our analysis with a review of certain basic principles. “Although arbitration is favored as a matter of public policy, equally important is the policy that seeks to avoid the unintentional waiver of the benefits and safeguards which a court of law may provide in resolving disputes” (TNS Holdings v. MKI Sec. Corp., 92 N.Y.2d 335, 339, 680 N.Y.S.2d 891, 703 N.E.2d 749 [1998] [citation omitted] ). Thus, “the obligation to arbitrate remains a creature of...
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