***This blog posting is one in a series that we anticipate posting specifically regarding the importance of spending additional time to carefully review and to write–with precision–the various clauses in business documents in general, and specifically in contracts.***
In FFS Data Corp. v. The OLB Group, Inc., 2023 NY Slip Op 30968(U), the court was asked to interpret two separate clauses in a contract governing how to resolve disputes regarding the sale/purchase of a business (M&A deal). One party argued that one clause (Section 6.9—see below) required the parties to resolve their dispute by arbitration and the other party argued that another clause (Section 6.15—see below) required the parties to resolve their dispute in court.
Based on the wording of those two Sections, the court found that the wording in Section 6.15 was more direct regarding the issue of whether disputes are required to be resolved in court. In contrast, the court found that the wording in Section 6.9 was not clear, explicit, and unequivocal regarding whether disputes are required to be resolved by arbitration.
Specifically, after the court carefully analyzed the wording in Sections 6.9 and 6.15, the court stated that “[p]ulling together the various provisions [within Section 6.9], and seeking to avoid negating any [other] unequivocal contractual language [referring to Section 6.15], the Court finds that the most natural and harmonious reading is that the arbitration sentence at the end of Section 6.9 is triggered if, and only if, the parties first elected the option of pursuing mediation in lieu of a court proceeding.”
Conclusion
This case highlights the importance of writing clauses in a precise manner and avoiding potentially conflicting clauses in separate sections within contracts, particularly in M&A deals.
The contract would have been more precise and understandable by combining—in a single, cohesive paragraph—the concepts of mediation, arbitration, and/or litigation. Thus, as a simple example of how the paragraph regarding resolving disputes could have been written, see below:
“Dispute Resolution. Before any party initiates any legal proceeding against the other party in connection with any dispute arising from the interpretation or enforcement of this Agreement, the parties shall cooperate in good faith to resolve the dispute through mediation. If the parties (i) are unable to agree on a mediator within [__] calendar days after the initiating party delivers written notice of such mediation request or (ii) are unable to resolve such dispute by such mediation within [__] calendar days after the parties agree on a mediator for such dispute, either party may initiate a legal proceeding—either (A) in a court having jurisdiction or (B) by binding arbitration [details regarding which arbitration body to be used (such as AMA or JAMS) is intentionally omitted for purpose of this blog]. If a party validly initiates a legal proceeding in court, the parties agree to [insert detailed ‘waiver of jury trial’ language here—such detailed language is intentionally omitted for purposes of this blog].”
Notice how all the concepts regarding the dispute resolution procedure are in a single paragraph and separate from other, albeit related concepts—such as venue and choice of law. If the contract clauses regarding dispute resolution written in concise and precise manner, both parties likely could have avoided the significantly more costly and time-consuming undertaking of litigating their dispute.
APA clauses – Sections 6.9 and 6.15
Section 6.9 states (in relevant part):
Choice of Law; Venue. [ . . . .] The parties agree to enter into mediation prior to trial in any suit, action, or proceeding arising out of or relating to this agreement. Purchaser and Seller each irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any and all rights to trial by jury in connection with any litigation or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. Any and all disputes may be resolved by means of mediation between the parties. Foregoing [sic] this or in the absence of reaching an agreement through mediation, the parties shall agree to binding arbitration with the prevailing party entitled to recovery of all cost including but not limited to attorney fees. Venue shall be New York.
Section 6.15 states (in relevant part):
Waiver of Jury Trial. [. . . .] EACH OF THE PARTIES HERETO AGREES THAT ALL SUCH CLAIMS SHALL BE TRIED BEFORE A JUDGE OF A COURT HAVING JURISDICTION WITHOUT A JURY.