Regal Games LLC v. SellerX Eight GmbH

Background

Regal Games brought claims against SellerX Eight GmbH concerning an asset purchase agreement dated April 1, 2021. Under that agreement, SellerX purchased substantially all assets of Regal Games’ Chalk City branded sidewalk-chalk product line, including Amazon marketplace listings, inventory, and associated intellectual property. SellerX paid Regal Games $4,311,626 in upfront and inventory payments.

The agreement also provided for possible deferred and earn-out payments based on Chalk City’s net sales and earnings before interest, taxes, depreciation, and amortization. It included procedures for disputes about those calculations and about residual revenue that continued to accumulate in Regal Games’ Amazon account after the asset transfer. If the parties could not resolve those disputes through negotiation, the agreement required them to submit them to a mutually agreed independent certified public accountant. The accountant’s determination would be final, binding, and not appealable. The agreement also selected New York law and New York County courts as the exclusive forum for claims arising from or related to the agreement, but it did not expressly use the word “arbitration.”

Regal Games alleged that SellerX breached the agreement by failing to make the deferred payment and sought contract-based relief, a declaration that SellerX had defaulted, the return of the Chalk City assets, and specific performance. SellerX disputed that it was in default. SellerX moved to compel arbitration and stay the case. Regal Games separately moved for attorneys’ fees and other expenses incurred in serving SellerX in Germany under the Hague Convention. Regal Games alleged that those third-party service costs totaled $4,591.32, excluding attorneys’ fees.

Motion to Compel Arbitration

The court applied the Federal Arbitration Act, which generally makes written arbitration agreements enforceable. The court considered whether the parties agreed to arbitrate, whether the disputes fell within the agreements’ scope, and whether the case should be stayed while arbitrable issues were resolved. The court did not need to consider whether any federal statutory claims were non-arbitrable because Regal Games asserted no federal statutory claims.

The court held that paragraphs five and nine of the asset purchase agreement created agreements to arbitrate specific disputes even though the contract did not use the words “arbitration” or “arbitrator.” Paragraph five covered disputes about the calculation of net sales and earnings before interest, taxes, depreciation, and amortization. Paragraph nine covered disputes about the calculation and transfer of residual Amazon revenue. The court found that the requirements that an independent accountant resolve unresolved disputes and that the accountant’s determination be final and binding showed the parties’ intent to obtain a final third-party decision.

The court rejected Regal Games’ argument that a certified public accountant could not serve as the decision-maker because the dispute-resolution provisions concerned accounting questions. It also rejected reliance on a Delaware decision involving an agreement that expressly described the third party as an expert rather than an arbitrator. The court found no comparable language in this agreement. The court further concluded that the specific provisions addressing accounting disputes controlled over any possible conflict with the agreement’s more general New York forum and choice-of-law provision.

The court held that the arbitration provisions covered the disputed calculations of net sales, earnings before interest, taxes, depreciation, and amortization, and residual Amazon revenue. It rejected Regal Games’ arguments that SellerX had not followed the required procedures, had failed to provide necessary documents, or had waited too long to seek review. The court stated that Regal Games could raise those issues before the independent accountant rather than in court.

The court stayed the entire case because the accounting issues were central to the claims. Those issues included whether Chalk City met the thresholds for deferred or earn-out payments and whether residual Amazon revenue had to be transferred to SellerX. The court granted SellerX’s motion to compel arbitration and stayed the proceedings until arbitration was completed. It did not reach SellerX’s alternative requests to dismiss Regal Games’ claims for breach of the implied covenant of good faith and fair dealing or to dismiss Regal Games’ demand for the return of Chalk City.

Motion for Attorneys’ Fees and Service Expenses

Regal Games sought attorneys’ fees and other expenses under Federal Rule of Civil Procedure 4(d) and the court’s inherent authority. It argued that SellerX had a duty to avoid unnecessary service expenses and had no good cause for refusing to waive service. SellerX argued that the fee-shifting provision applies when a defendant located in the United States refuses to waive service, not when a foreign defendant is served under the Hague Convention.

The court denied Regal Games’ motion. It relied on the rule’s text and an advisory note explaining that the cost-shifting provisions apply only when both the plaintiff and defendant are located in the United States. The court also relied on decisions denying similar requests involving foreign defendants served under the Hague Convention. Because SellerX was a foreign defendant and Regal Games sought expenses incurred serving SellerX in Germany, the court concluded that Regal Games could not recover those attorneys’ fees and service expenses.

Disposition

The court GRANTED SellerX’s motion to compel arbitration, stayed the case, and directed the parties to submit a status update within 48 hours after the arbitration decision. The court DENIED Regal Games’ motion for attorneys’ fees and other service expenses. Judge Edgardo Ramos did not decide the merits of Regal Games’ underlying breach allegations.