Violin Entertainment Acquisition Co. v. Virgin Entertainment Holdings, Inc.

Appellate Division of the Supreme Court of New York

Violin Entertainment Acquisition Co. v. Virgin Entertainment Holdings, Inc.

59 A.D.3d 171, 871 N.Y.S.2d 613

CourtAppellate Division of the Supreme Court of the State of New York

DecidedFebruary 3, 2009

StatusPublished

Cited by4 cases

This text of 59 A.D.3d 171 (Violin Entertainment Acquisition Co. v. Virgin Entertainment Holdings, Inc.) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook

Violin Entertainment Acquisition Co. v. Virgin Entertainment Holdings, Inc., 59 A.D.3d 171, 871 N.Y.S.2d 613 (N.Y. Ct. App. 2009).

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Opinion

Order, Supreme Court, New York County (Helen E. Freedman, J.), entered June 17, 2008, which granted the petition to compel arbitration, unanimously affirmed, with costs.

Petitioner properly sought to invoke the accounting arbitration provision to obtain a purchase price adjustment where respondent’s financials contained a long-standing understatement of accounts payable. While this understatement consti[172]*172tuted a breach of the seller’s representation and warranty in failing to comply with generally accepted accounting principles (GAAP), it is not subject to resolution via the agreement’s indemnification provision. The indemnification provision of the stock purchase agreement specifically excludes (at § 11.6 [b]) “items . . . considered through the August 4 Net Working Capital [schedule] or for which an Indemnified Party has otherwise been compensated pursuant to the Purchase Price adjustment,” and further provides (§ 11.8) that it “will not, however, prevent or limit a cause of action ... to enforce any decision or determination of the Accounting Arbitrator.” This language can only be interpreted, consistent with the accounting arbitration provision, to exclude financial misrepresentations or deviations from GAAP that are contained in the final net working capital schedule, that affect that schedule, and that can be resolved by a purchase price adjustment.

Matter of Westmoreland Coal Co. v Entech, Inc. (100 NY2d 352 [2003]) does not compel a different result, as the Court of Appeals there “merely construed the agreement before it and did not prohibit sophisticated business parties from agreeing to varying means of resolving disputes over adjustments to purchase price” (McGraw-Hill Cos., Inc. v School Specialty, Inc., 42 AD3d 360, 361 [2007]).

We have considered respondent’s remaining arguments and find them unavailing. Concur—Gonzalez, J.P, Buckley, Catterson, McGuire and Acosta, JJ.

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Order, Supreme Court, New York County (Helen E. Freedman, J.), entered June 17, 2008, which granted the petition to compel arbitration, unanimously affirmed, with costs.

Petitioner properly sought to invoke the accounting arbitration provision to obtain a purchase price adjustment where respondent’s financials contained a long-standing understatement of accounts payable. While this understatement consti[172]*172tuted a breach of the seller’s representation and warranty in failing to comply with generally accepted accounting principles (GAAP), it is not subject to resolution via the agreement’s indemnification provision. The indemnification provision of the stock purchase agreement specifically excludes (at § 11.6 [b]) “items . . . considered through the August 4 Net Working Capital [schedule] or for which an Indemnified Party has otherwise been compensated pursuant to the Purchase Price adjustment,” and further provides (§ 11.8) that it “will not, however, prevent or limit a cause of action ... to enforce any decision or determination of the Accounting Arbitrator.” This language can only be interpreted, consistent with the accounting arbitration provision, to exclude financial misrepresentations or deviations from GAAP that are contained in the final net working capital schedule, that affect that schedule, and that can be resolved by a purchase price adjustment.

Matter of Westmoreland Coal Co. v Entech, Inc. (100 NY2d 352 [2003]) does not compel a different result, as the Court of Appeals there “merely construed the agreement before it and did not prohibit sophisticated business parties from agreeing to varying means of resolving disputes over adjustments to purchase price” (McGraw-Hill Cos., Inc. v School Specialty, Inc., 42 AD3d 360, 361 [2007]).

We have considered respondent’s remaining arguments and find them unavailing. Concur—Gonzalez, J.P, Buckley, Catterson, McGuire and Acosta, JJ.

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Bluebook (online)

59 A.D.3d 171, 871 N.Y.S.2d 613, Counsel Stack Legal Research, https://law.counselstack.com/opinion/violin-entertainment-acquisition-co-v-virgin-entertainment-holdings-inc-nyappdiv-2009.

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