The opinion of the court was delivered by: PIERRE N. LEVAL
PIERRE N. LEVAL, U.S.D.J.
Plaintiff, Melun Industries, Inc. ("Melun"), applies to confirm an arbitration award of $ 185,142 in its favor dated July 3, 1991 (the "Third Award"), to vacate an arbitration award of $ 28,564 in its favor dated March 27, 1991 (the "Second Award"), and moves to dismiss defendant Michael A. Strange's counterclaims against Melun. Strange applies to confirm the Second Award, to vacate the Third Award, and moves for summary judgment on his second counterclaim against Melun.
This action concerns a dispute over adjustments to the purchase price of stock sold to Melun by Strange in 1986. On November 25, 1986, Melun and Strange entered into a Stock Purchase Agreement (the "Agreement") whereby Melun would purchase from Strange all the shares of S&C Holding Company ("S&C"). The purchase price was to be set at 80% of the audited book value of S&C as of August 31, 1986, as audited by Harrison H. Halby, independent certified public accountant for S&C, and as reviewed and accepted by Coopers & Lybrand ("C&L"), independent certified public accountant for Melun. The agreed upon figures were to be known as the "Original Book Value." Agreement para. 1(b). Melun was to pay 80% of the Original Book Value as the purchase price of S&C at closing. If C&L did not accept the figures provided by Halby, Melun had the right to terminate the Agreement. Agreement para. 13.
The Agreement provided that after closing an adjustment would be made to the purchase price to cover increase or decrease from the Original Book Value during the period from September 1, 1986 to the closing date, to the extent that the adjustment exceeded $ 60,000, according to the following procedures:
(i) As soon as possible after the Closing, [Strange and S&C] agree to deliver to [C&L] all documents necessary to permit said accountants to determine the amount, if any, by which the book value of [S&C] increased or decreased from the Original Book Value during the period from September 1, 1986 to the Closing Date. Within fifteen business days after receipt by said accountants of all such documents, [Melun] shall deliver to [Strange] a statement (the "Post-Closing Statement") prepared by said accountants either stating that no adjustment is required, or setting forth the amount of the adjustment, the basis therefor and the adjusted book value of [S&C] as of the Closing Date (the "Adjusted Book Value").
Agreement para. 1(d)(i), (iii).
In late November, 1986, Strange sent the August 31, 1986 financial statements to Melun's accountant, C&L, for review. Although C&L had doubts regarding the accuracy of the statement the closing took place on December 19, 1986.
The Original Book Value, as presented to Melun's accountants, yielded a purchase price for S&C at closing of $ 670,400.
On January 5, 1987, Strange sent C&L a copy of S&C's November 30, 1986 financial statement. On January 26, 1987, C&L sent Strange a document identified as a draft of an internal memorandum describing the nature and amounts of Melun's proposed adjustments ("January 26 memorandum"). The adjustments included "unadjusted book loss" in the amount of $ 83,676 ("Unadjusted Book Loss"). The memorandum did not explain the source of the figure for the Unadjusted Book Loss. The parties agree, however, that it was based on the difference between the total stockholder's equity as listed in the August 31, 1986 and in the November 30, 1986, financial statements. Melun asserts that $ 26,914 of the Unadjusted Book Loss was attributable to the loss of profitability of three contracts -- "Amoco 6188CA," "Georgia Gulf 6901CA," and "Accurate 6129CL" (the "Three Contracts") -- as between August and November.
On February 2, 1987, Strange responded to the C&L memorandum, objecting to all but a few of the proposed adjustments.
On May 6, 1987, Melun sent Strange a document purporting to be the "Post-Closing Statement" provided for by the Agreement ("Post-Closing Statement"). The categories of adjustments were largely the same as those in the earlier C&L memorandum, but several of the adjustments were increased dramatically in Melun's favor. The categories of adjustments in the Post-Closing Statement did, however, differ from the earlier memorandum in two respects. First, "Unadjusted Book Loss" was not listed as a category of adjustment. Second, an adjustment of $ 264,307 in Melun's favor was added for anticipated losses on long-term construction contracts.
In a letter to Melun dated May 18, 1987 (the "May 18 letter"), Strange rejected the Post-Closing Statement as untimely under the terms of the Agreement and took the position that the January 26 memoranda was the post-closing statement called for by the Agreement. Strange accepted certain proposed adjustments that were in the January 26 memorandum (with slight modification), including the $ 83,676 Unadjusted Book Loss. Strange tendered to Melun a check in the amount of $ 160,458, which represented adjustments to which he agreed, less the $ 60,000 exclusion.
In a May 29, 1987 letter, Melun acknowledged that it had received but did not cash the check, indicating that it would be held "as a deposit towards amounts due." Melun contended that its Post-Closing Statement was timely, and that the delay in its issuance was due to Strange's failure to provide the financial information necessary to evaluate the November financial statement.
On February 27, 1990, the arbitrator issued an award in favor of Melun in the amount of $ 519,018 (the "First Award"). After unsuccessfully seeking to have the arbitrator modify the First Award, Strange moved in this court to vacate the First Award on the grounds that (1) the arbitrator considered claims that were not timely raised under the adjustment provisions of the Agreement, and (2) the arbitrator exceeded the scope of his authority.
By Memorandum and Order dated November 9, 1990, this court held: (1) the May 6, 1987 Post-Closing Statement was timely and was properly considered by the arbitrator, but (2) the arbitrator exceeded the scope of his authority in rendering the First Award. The latter holding was based on the finding that the arbitrator had not limited himself to an examination of changes resulting from the events between August 31, 1986 and the closing, as required by the Agreement. Rather the arbitrator had undertaken to determine the true value of S&C at closing. Consequently, the First Award was vacated and the action was remanded to the arbitrator "to make findings as to increase or decreases in the book value resulting solely from the events of the period from August 31 to closing."
On March 27, 1991, Mr. Graham of Peat Marwick issued the Second Award in Melun's favor in the amount of $ 28,564. Of this amount, $ 26,914 was based on estimates of loss of profitability on the Three Contracts that Melun contends were accounted for in the Unadjusted Book Loss, namely, "Amoco 6188CA," "Georgia Gulf 6901CA," and "Accurate 6129CL." The arbitrator stated that "we were presented with no convincing evidence that the profitability of any other contracts deteriorated solely from the events of the period from August 31, 1986 to closing."
In response to the Second Award, in a letter to Peat Marwick dated April 8, 1991, counsel for Melun stated:
Please be advised that our client, Melun Industries, Inc. is reviewing the award issued by Peat Marwick on March 27, 1991 and reserves the right to seek clarification and possible adjustment of several of the findings therein, in particular, the findings with respect to the contract profitability estimates, since our client is of the opinion that the evidence previously submitted supports a larger adjustment in favor of Melun.
The accountants for our client are reviewing the documents and, upon completion, we will be in contact with you.
On April 15, 1991, Strange's arbitration counsel wrote to Peat Marwick objecting to Melun's purported reservation of a right to seek modification of the Second Award and contended that the findings were unequivocal and supported by the evidence. On April 16, counsel for Strange wrote to Melun's counsel asserting the position that Melun's time to apply for modification of the Second Award had expired ...