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

NEW YORK SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT


February 3, 2009

VIOLIN ENTERTAINMENT ACQUISITION COMPANY, INC., PETITIONER-RESPONDENT,
v.
VIRGIN ENTERTAINMENT HOLDINGS, INC., RESPONDENT-APPELLANT.

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.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Gonzalez, J.P., Buckley, Catterson, McGuire, Acosta, JJ.

601476/08

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 constituted 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.

20090203

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