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Tailwind Management LP v. Akorn, Inc.

United States District Court, S.D. New York

June 24, 2015

TAILWIND MANAGEMENT LP, Plaintiff,
v.
AKORN, INC., Defendant.

MEMORANDUM AND ORDER

P. KEVIN CASTEL, District Judge.

Plaintiff Tailwind Management LP ("Tailwind") brings two claims related to an Agreement and Plan of Merger (the "Agreement") that it entered into with defendant Akorn, Inc. ("Akorn"). Under the Agreement, Akorn agreed to pay $440, 000, 000 for Tailwind's ownership interest in a pharmaceutical company, VPI Holdings Corp. ("VPI"), subject to post-closing adjustments. The parties have since disagreed as to the appropriate post-closing adjustments and the methodology used for calculating them.

Tailwind and Akorn both agree that an expert accountant (described in the Agreement as the "Accounting Arbitrator") and not this Court must review their competing calculations and resolve the disputes' merits. However, in its Amended Complaint (the "Complaint"), Tailwind seeks relief directed to the parties' obligations to exchange information prior to presenting their claims to the accountant. The Complaint alleges that Akorn has failed to provide Tailwind with access to certain books and records, as required by the Agreement, and seeks an order specifically requiring Tailwind to disclose these materials. Tailwind also seeks declaratory judgment requiring Akorn to submit a post-closing adjustment calculation in a manner that is purportedly consistent with the Agreement's accounting standards.

Akorn moves to stay Tailwind's claims pending the resolution of the post-closing adjustment dispute. In the alternative, Akorn argues that the action should be dismissed pursuant to Rule 12(b)(6), Fed. R. Civ. P., on the grounds that Tailwind has breached the Agreement, and therefore is equitably estopped from bringing its claims.

For the reasons explained, the Court concludes that Tailwind's claims fall within the Agreement's narrow provision requiring the "Accounting Arbitrator" to resolve the parties' disputes over post-closing adjustments. They are properly brought before the accountant and not to this Court. Akorn's motion is granted, and the action is stayed pursuant to 9 U.S.C. § 3.

BACKGROUND

Tailwind is a limited partnership with members that include citizens of New York, Connecticut and New Jersey. (Compl't ¶ 2.) Akorn is a Louisiana corporation with its principal place of business in Illinois. (Compl't ¶ 3.) Subject matter jurisdiction is premised on diversity of citizenship. (Compl't ¶ 4.)

Akorn and Tailwind entered into the Agreement on May 9, 2014. (Compl't ¶¶ 1, 7.) VPI and Akorn's acquisition subsidiary, Akorn Enterprises II, Inc., were also parties to the Agreement. (Compl't ¶ 7.) Under the Agreement, Tailwind was to receive a cash payment of $440, 000, 000 in exchange for all of its equity interest in VPI, with the resulting entity owned and controlled by Akorn. (Compl't ¶ 8 & Agrmt. § 1.6(a)(i).) New York law governs the Agreement. (Agrmt. § 12.10.)

Sections 1.6 and 1.8 of the Agreement provide for a post-closing adjustment to the purchase price, based on a calculation of Final Working Capital. (Compl't ¶ 9; Agrmt. § 1.8(b).) The Agreement establishes four steps to resolve any differences in the parties' postclosing adjustment calculations.

Step One. Within 45 days of the closing date, Akorn is required to deliver to Tailwind a Final Closing Statement. (Agrmt. § 1.8(a).) The Final Closing Statement is to be prepared in accordance with GAAP, and contain "certain information set forth in financial statements prepared by VPI and attached as exhibits to the [Agreement]...." (Compl't ¶ 10 & Agrmt. § 1.8(e).)

On September 26, 2014, Akorn submitted the Final Closing Statement to Tailwind. (Compl't ¶ 12.) According to Tailwind, it "provided for a large payment to Akorn." (Compl't ¶ 12.) Tailwind alleges that the Final Closing Statement was not prepared in a manner consistent with section 1.8(e) of the Merger Agreement, and that Akorn has admitted as much in a telephone conversation. (Compl't ¶ 13.) Specifically, Tailwind alleges that Akorn did not use "the same accounting principles, practices, classifications, procedures, policies and methods" that VPI used in preparing its financial statements. (Compl't ¶ 13.) Tailwind alleges that Akorn has, as a consequence, understated Net Working Capital by $7, 248, 535. (Compl't ¶ 13.)

Step Two. Within 45 days of receiving the Final Closing Statement, Tailwind may deliver a Dispute Notice explaining "in reasonable detail" the basis for any dispute over the Final Closing Statement. (Agrmt. § 1.8(b).) Under the Agreement, Akorn is to provide Tailwind with access to VPI's books and records in order to facilitate review of the accounting methodology of the Final Closing Statement. (Compl't ¶ 11 & Agrmt. § 1.8(c).) Specifically, section 1.8(c) states that Akorn will permit Tailwind to review:

(i) the books and records of [VPI and its subsidiaries], (ii) the working papers related to the preparation of the Final Closing Statement (including the determinations included therein) and (iii) the financial records, accounting personnel and advisors of [VPI and its subsidiaries], in each case in order to facilitate... [Tailwind's] review of the Final Closing Statement.

(Compl't ¶ 11 & Agrmt. § 1.8(c).) If Akorn "does not provide any material papers or documents relating to the calculations underlying the Final Closing Statement that are reasonably requested" by Tailwind, the 45-day period is automatically ...


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