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Posted: September 4, 2015

Buyer Did Not Assume Seller’s Obligation to Arbitrate Dispute With Seller’s Broker

On September 1, 2015, the First Department issued a decision in Matter of TBA Global, LLC v. Fidus Partners, LLC, 2015 NY Slip Op. 06698, reversing an order refusing to stay an arbitration.

In Matter of TBA Global, LLC, the “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 . . . [and] that the seller and the buyer will each bear its own . . . fees, costs and expenses of financial advisors.” The respondent, which claimed that the seller owed it a broker’s fee in connection with the transaction, moved to compel petitioner (the buyer) to be part of the arbitration of the respondent’s fee dispute, notwithstanding that the petitioner “never entered into any agreement with the buyer.” The trial court denied the petitioner’s motion to stay the arbitration, holding that the petitioner had assumed the seller’s obligations to the respondent. The First Department reversed, explaining:

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. Thus, the obligation to arbitrate remains a creature of contract, and where, as here, the parties dispute not the scope of an arbitration clause but whether an obligation to arbitrate exists, the general presumption in favor of arbitration does not apply. Here, it is undisputed that the Fidus/Seller agreement, which TBA Buyer never signed, contains an arbitration clause covering the subject matter of the instant dispute. What is in dispute is whether the [Asset Purchase Agreement (“APA”)], which TBA Buyer did sign, provides for TBA Buyer’s assumption of TBA Seller’s obligations under the Fidus/Seller agreement, including the obligation to arbitrate thereunder. To that question we now turn.

Section 3.14 of the APA establishes, as a matter of law, that TBA Buyer did not assume TBA Seller’s liability to Fidus, if any, under the Fidus/Seller agreement. The provision of section 3.14 that TBA Seller will pay the fees of its own “financial advisors,” among other professionals, “incurred in connection with . . . the transactions contemplated by this Agreement,” plainly excludes any liability to Fidus from the liabilities transferred to TBA Buyer, inasmuch as the Fidus/Seller agreement expressly characterizes Fidus as TBA Seller’s “exclusive financial advisor” in connection with any contemplated transaction. While Fidus, seeking to avoid the effect of section 3.14, points to that section’s exclusion from the scope of the liabilities retained by TBA Seller those “comprising a portion of the Assumed Liabilities described in Sections 1.3(a), 1.3(b) and 1.3(c),” the schedules of assumed liabilities referred to in those subsections (quoted in footnote 5 above) do not mention the Fidus/Seller agreement in particular or financial advisors’ fees in general.

(Internal quotations and citations omitted). In dissent, Justice Manzanet-Daniels argued that the APA obligated the petitioner to arbitrate because the among the seller’s liabilities transferred to the petitioner were its obligations to the respondent broker.

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