News Corporation v. CB Neptune Holdings, LLC

Background

News Corporation and CB Neptune Holdings, LLC and CB Neptune Promotions Inc. entered into a Share and Asset Purchase Agreement for the defendants to purchase the News America Market business. The agreement required the defendants to prepare a final closing statement containing calculations for Closing Net Working Capital. Those calculations had to follow the agreement’s accounting principles and be based on facts and circumstances existing as of the day before closing.

The agreement created a process for challenging the calculations. After receiving the final statement, News Corporation sent a Notice of Disagreement. The parties negotiated and resolved most issues, but two revenue-recognition disputes remained. News Corporation refused to submit the defendants’ revised calculations to the independent accounting firm, including a dispute about recognized revenue for one cycle and whether the revised calculations were timely.

The agreement authorized the independent accounting firm to correct mathematical errors and determine whether disputed items and amounts were calculated according to the agreement. It also stated that the firm could consider only items and amounts identified as disputed. Once resolved, the firm’s written determination would be conclusive and binding. Separately, the agreement required legal actions relating to the agreement to be brought in specified New York courts.

Motion and arguments

News Corporation’s complaint sought a declaration that the independent accounting firm could not consider allegedly untimely revenue. The defendants moved to compel arbitration under the Federal Arbitration Act, or alternatively to dismiss the complaint for failure to state a claim.

The parties did not dispute that they had entered into a valid and enforceable agreement, that the agreement was governed by the Federal Arbitration Act, or that News Corporation refused to submit the dispute to the independent accounting firm. News Corporation argued that whether the defendants’ values were timely and valid was a legal question for the court. The defendants argued that those issues fell within the accounting firm’s authority to determine whether disputed amounts complied with the agreement.

Court’s analysis

The court treated the accounting-firm provision as a narrow arbitration clause, meaning that it covered specific types of disputes rather than all disputes arising from the agreement. For a narrow clause, the court considered whether the dispute fell within the clause or was sufficiently connected to the matters assigned to arbitration. The court also applied the Federal Arbitration Act’s policy favoring arbitration when the agreement could reasonably be interpreted to cover the dispute.

The court held that the clause was capable of covering the dispute. It authorized the independent accounting firm to consider disputed amounts in the parties’ calculations and determine whether those amounts complied with the agreement’s definitions, terms, and conditions. The court concluded that the defendants’ updated calculations were determined under those contractual terms. It rejected News Corporation’s attempt to characterize the dispute as outside the arbitration provision and stated that the availability of a legal claim did not make the dispute non-arbitrable.

Disposition

The court granted the defendants’ Motion to Compel Arbitration. The order states at the outset that the defendants’ motion was granted in part and denied in part; its conclusion specifically states that the motion to compel arbitration was granted. The parties were directed to appear for a status conference, and the case was stayed until October 21, 2022, at 10:00 a.m. The scheduled November 18, 2021 oral argument was canceled, and the Clerk was directed to terminate the motion.