In Re: FBI Wind Down, Inc. et al.

Filing 14

MEMORANDUM OPINION. Signed by Judge Sue L. Robinson on 5/16/2017. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

In re:
FBI WIND DOWN, INC. (f/k/a Furniture Brands
lnt'I, Inc.), et al.,
Debtors.
~~~~~~~~~~~~~~~~~~
FBI WIND DOWN, INC. LIQUIDATING TRUST, by
and through Alan D. Halperin, as Liquidating Trustee,
Plaintiff/Appellee,
v.

HERTIAGE HOME GROUP, LLC (f/k/a FBN
Acquisition Holdings, LLC), et al.,
Defendants/Appellants.

)
)
)
)
)

Chapter 11
Bank. No. 13-12329 (CSS)
Adv. Pro. No. 15-51899 (CSS)

)
)
)
)
)
)
)
)
)
)
)
)

Civ. No. 16-834 (SLR)

Michael J. Merchant, Esquire and Robert C. Maddox, Esquire, of Richards, Layton & Finger,
P.A., Wilmington, Delaware. Counsel for Appellants Heritage Home Group, LLC f/k/a FBN
Acquisition Holdings, LLC, KPS Capital Partners, LP, KPS Special Situations Fund 111, LP,
KPS Special Situations Fund Ill (A), LP, KPS Special Situations Fund Ill (Supplemental),
LP, KPS Special Situations Fund Ill (Supplemental -AIV), LP, and KPS Offshore Investors,
Ltd.
Michael B. Schaedle, Esquire and Victoria A. Guilfoyle, Esquire, of Blank Rome LLP,
Wilmington, Delaware. Counsel for Appellee FBI Wind Down, Inc. Liquidating Trust, by and
through Alan D. Halperin, as Liquidating Trustee.

MEMORANDUM OPINION

Dated: May )It> , 2017
Wilmington, Delaware

~N

'Senior District Judge

I. INTRODUCTION
This is an appeal by Heritage Home Group, LLC, et al. (together, "HHG") from a
bankruptcy court opinion (Adv. D.I. 41) 1 ("Opinion") and order (Adv. D.I. 42) ("Order")
denying HHG's motion to compel the arbitration of several claims in an adversary
proceeding. For the reasons that follow, the court will affirm the Order.

II. BACKGROUND
A. The APA and Sale Order
This appeal arises from the chapter 11 cases of Furniture Brands International, Inc.
(together with its subsidiaries, "Debtors"). The following facts appear to be undisputed. The
adversary proceeding arose out of the sale by Debtors of substantially all of their assets to
HHG pursuant to an asset purchase agreement dated October 2, 2013 (as amended, the
"APA") for a fixed price - approximately $280 million, plus HHG's assumption of certain
liabilities. 2 (HHG8 at~ 27) Because certain of the assets and liabilities subject to the sale
could not be immediately quantified and allocated on the date of the closing, the proposed
sale of Debtors' businesses for a fixed price presented certain logistical problems, including
two critical issues. 3

Cash and Cash Equivalents as Excluded Assets - APA § 3(a). First, HHG was
acquiring Debtors' operations with the expectations that it was acquiring a "turnkey"
business and that the proposed sale would proceed with no disruption in business

1

See FBI Wind Down Inc. v. Heritage Home Group, LLC, et al., Adv. Proc. No. 15-51899
(CSS) (Bankr. D. Del.). The docket of the adversary proceeding shall be referred to herein
"
as "Adv. D.I.
2 Citations to "HHG_" are to the Appendix filed in support of HHG's opening brief (D.I. 9).
3 The bankruptcy court provided a detailed summary of these issues in its Opinion. (See
HHG699-703).

operations. To ensure a seamless transition, the APA provided that HHG would acquire
Debtors' infrastructure and cash management systems as part of the sale, including taking
control of Debtors' physical bank accounts immediately following the closing of the sale on
Monday, November 25, 2013, at 12:01 a.m. (See HHG74, § 2.1(a)(iv)) However, the APA
also provided that Debtors would retain their "cash and cash equivalents," which assets
were excluded from the sale ("Excluded Assets"). 4 (HHG75-77, § 2.2) The parties
anticipated that there would be millions of dollars in transit over the weekend prior to closing
and that it would not be possible to quantify and allocate the value of the excluded cash and
cash equivalents at the moment the sale closed on Monday morning. (HHG11-12,

~

41)

Specifically, certain cash, bank deposits, wires, and checks in hand ("Cash Amounts in
Transit") that were initiated, transmitted, received, or otherwise related to the activity of
Debtors prior to the sale closing would not actually hit Debtors' cash management system
until after that system came under HHG's exclusive control. (See HHG75-77, § 2.2(a)(x);
HHG11-12, ~ 41) Similarly, the APA provided that certain outstanding liabilities, including
checks outstanding but not yet cleared, incurred by Debtors prior to the closing would
remain obligations of Debtors post-closing, but those items also would not hit Debtors' cash
management system until after that system came under HHG's exclusive control. (HHG1213,

~

42) In an attempt to address these issues prior to closing, the parties entered into an

amendment to the APA ("Amendment No. 2") and established an adjustment mechanism
whereby the parties would estimate and then true-up post-closing the "cash and cash

4

Among the "Excluded Assets" to be retained by Debtors were:
[A]ll cash (including checking account balances, certificates of deposit and
other time deposits and petty cash), other than Restricted Cash [(i.e., cash
reserved for the purpose of collateralizing letters of credit, cash received in
respect of certain insurance recoveries, and certain other cash received on
account of assets that all were sold to HHG)], and all cash and cash
equivalents and marketable and other securities.
(HHG76, § 2.2(a)(x); HHG372, § 2(d))

2

equivalents." (See HHG375-76, § 3(a)) This was not a "purchase price adjustment" but
rather a "cash component adjustment" meant to ensure that the aggregate purchase price
remained fixed at $280,000,000.

Accounts Payable Obligations- APA§ 3(b). Second, the parties recognized the
potential for significant post-closing disputes over what type of bankruptcy administrative
(i.e., post-petition) expenses constituted "trade payable obligations" under the APA, which

obligations HHG had agreed to assume up to a certain cap (with any excess remaining the
Debtors' obligation). (HHG15-16,

~~

48-51; HHG372, § 2(e)) These obligations also could

not be immediately quantified and allocated between Debtors and HHG at the moment of
the closing, given that business operations were continuing before, during, and after the
sale. In an attempt to address these issues prior to closing, Amendment No. 2 added the
definition of "Accounts Payable Obligations." 5 Similar to § 3(a), § 3(b) also contained an
adjustment mechanism whereby the parties would estimate and then true-up post-closing
all Accounts Payable Obligations. (See HHG371-72 & 376, §§ 2(a), 2(e) & 3(b))) Section
3(b), therefore, was designed to handle another difficulty in achieving a fixed purchase price
at closing.

5

The term "Accounts Payable Obligations" is defined in the APA as:
The Sellers' accounts payable obligations incurred for the period prior to the
Closing that are 503 Liabilities accounted for in the Sellers' books and records
under the accounts 22100, 22180, 22181 and 22990 referenced in Exhibit
2.3(a)(ii) to this Amendment plus accounts payable obligations related to the
purchase of goods or services incurred by the Sellers prior to the Closing
(including accounts payable obligations for goods in transit for which title has
passed to Sellers prior to the Closing) that are not captured in the
aforementioned accounts; provided, that Accounts Payable Obligations do not
include (i) any accounts payable obligations related to goods for which title
passes after the Closing or services rendered on or after the Closing Date and
(ii) for avoidance of doubt, any amounts already reflected in the Check
Amounts in Transit (including, without limitation, all amounts in account 22300
referenced on Exhibit 2.3(a)(ii) to the extent so reflected) and accounts payable
obligations of the Foreign Subsidiaries.
(HHG371, § 2(a) (amending APA§ 1.1 ))

3

Arbitration Provisions. Sections 3(a) and 3(b) of Amendment No. 2 each include
an identical arbitration provision, 6 whereby the parties agreed that any "disputed items" not
mutually resolved in connection with the post-closing adjustments would be submitted to an
accounting firm for final resolution:
To the extent the parties are unable to come to a final resolution of the
foregoing adjustments, the parties shall submit to a mutually acceptable "big
four" accounting firm for resolution any disputed items in accordance with
the procedures (including allocation of fees and expenses) provided by such
accounting firm.
(HHG375-76, §§ 3(a), 3(b) (emphasis added)) On November 22, 2013, the parties
executed Amendment No. 2 containing the adjustment mechanisms and arbitration
provision discussed above and, later that day, the bankruptcy court entered an order
approving the sale and "all of the terms and conditions" of the APA "in all respects."
(HHG403, § 4) ("Sale Order") The Sale Order further provided that the bankruptcy court
retained jurisdiction over issues of interpretation under the APA:
The Court shall retain jurisdiction to, among other things, interpret,
implement, and enforce the terms and provisions of this [Sale] Order and the
[APA], all amendments thereto, any waivers and consents thereunder, and
each of the agreements executed in connection therewith to which the Debtors
are a party or which has been assigned by the Debtors to [HHG], and to
adjudicate, if necessary, any and all disputes concerning or relating in any way
to the Sale or Transaction.
(HHG429

at~

68 (emphasis added)) Both the Sale Order and APA were heavily

negotiated and jointly proposed by the parties. (See HHG706-07; HHG710)

B. Post-Closing Disputes
The sale closed on November 25, 2013. Thereafter, the parties attempted to
complete the post-closing adjustments required under Amendment No. 2 but were

6

Because the arbitration provisions contained in § 3(a) and § 3(b) are identical, for
purposes of clarity and simplicity, the court refers to them herein in the singular.

4

ultimately unsuccessful with respect to reconciliation of Excluded Assets and Accounts
Payable Obligations.
With respect to Excluded Assets, the parties dispute: (1) whether the definition of
Cash Amounts in Transit in § 3(a) of Amendment No. 2 includes "Auction Clearing House
Electronic Receipts and Deposits" ("ACHE-RID") earned by Debtors shortly before closing;
and (2) whether ACHE-RID are "cash and cash equivalents" and, therefore, "Excluded
Assets" retained by Debtors in the sale. (See HHG21, ~ 66(a)) In short, Trustee 7 believes
HHG's true-up and adjustment of Cash Amounts in Transit improperly omits ACHE-RID that
constitute cash and cash equivalents retained by Debtors.
Regarding Accounts Payable Obligations, the parties have several disputes. First,
the parties dispute whether Debtors' prepayments to vendors should be characterized as
(1) a reduction against Accounts Payable Obligations, or (2) an "Acquired Asset" purchased
by HHG in the sale. (See HHG21-22,

~

66(b)) Second, the parties dispute whether

deposits made by customers of Debtors should be treated as (1) a credit against accounts
receivables, or (2) Accounts Payable Obligations. (See id.) Third, the parties dispute
whether Accounts Payable Obligations should include expenses "accrued" at the time of
closing. (See id.) With respect to the merits, the parties do not appear to dispute the
bankruptcy court's understanding. According to Trustee, the definition of Accounts Payable
Obligations in Amendment No. 2 specifically requires a calculation applying the same
accounting practices used by Debtors in their ordinary course of business, and that Debtors'
long-standing accounting practice was ( 1) to apply prepayments to vendors as reductions
against accounts payable, (2) to credit customer deposits against accounts receivables, and
(3) to capture accrued expenses in ledger accounts beginning 23xxx or 24xxx. (HHG25-27,

7

Alan D. Halperin, as Liquidating Trustee ("Trustee") for the FBI Wind Down Inc. Liquidating
Trust ("Liquidating Trust").
5

~

78) Trustee asserts that were an arbitrator to apply Debtors' long-standing accounting

practice, to which the post-closing mechanisms were meant to conform, the arbitrator would
fully agree with Trustee's calculations. Conversely, HHG believes that GAAP accounting
principles must be used to calculate Accounts Payable Obligations, and that applying
GAAP: (1) prepayments to vendors are an asset; (2) customer deposits are accounts
payable; and (3) accrued expenses are accounts payable. HHG asserts that were an
arbitrator to apply GAAP accounting methodology, the arbitrator would fully agree with
HHG's calculations.

C. Adversary Proceeding
Under the arbitration provision, any disputed items that remain unresolved with
respect to the post-closing adjustments must be submitted to arbitration. (HHG 375-76)
Trustee took the position that, before arbitration of those disputed items may proceed, the
bankruptcy court must decide two threshold issues of contract interpretation: (1) whether
the APA's plain language should be interpreted to include ACHE-RID as "cash and cash
equivalents" that were "Excluded Assets" retained by Debtors, or as an "Acquired Asset"
sold to HHG; and (2) whether the APA's plain language should be interpreted to include the
concept of GAAP, by implication or otherwise, to the narrow definition of "Accounts Payable
Obligations." (See D.I. 10 at 17, 19-20; HHG39

at~

109(a)-(d)) Trustee concedes that

there may still be a need for arbitration before an accounting firm, but only after the
bankruptcy court has resolved these "threshold legal issues" requiring interpretation of the
APA (See HHG595) Because interpretation of the APA was expressly reserved for the
bankruptcy court's determination in the Sale Order, Trustee filed this adversary proceeding
on November 11, 2015, seeking, inter alia, the bankruptcy court's adjudication of the
threshold issues of interpretation. (See HHG38-40)

6

D. Motion to Compel Arbitration
Relying on the arbitration provisions set forth in the APA, HHG moved for an order
compelling arbitration of all claims relating to the post-closing reconciliation disputes. (See
HHG565-86) HHG argued that these disputes clearly fell within the scope of the APA's
arbitration provisions, which covered "any disputed items" not resolved in connection with
the post-closing adjustments. HHG argued that, regardless of how they are framed, these
issues are "disputed items" subject to arbitration and not determination by the bankruptcy
court. On July 7, 2016, the bankruptcy court heard extensive oral argument before taking
the matter under advisement. (See HHG646-88)
On September 15, 2016, the bankruptcy court entered the comprehensive Opinion
and Order determining that the core issues of the parties' dispute did not fall within the
scope of the arbitration provision and denying HHG's motion to compel arbitration.
(HHG693-718) Consistent with Third Circuit law construing the Federal Arbitration Act, 9
U.S.C. § 1, et seq. ("FAA"), the bankruptcy court first examined the scope of the arbitration
clause and then turned to the factual underpinnings of Trustee's claims to determine
whether those claims fell within the scope of the arbitration provision.
In examining the scope of the arbitration provision, the bankruptcy court determined
that its unambiguous text and structure required a finding that it was narrow in scope and
applied only to the post-closing adjustments required by§ 3(a) and § 3(b) of Amendment
No. 2. (See HHG705-06) The bankruptcy court interpreted "disputed items" as a limitation
on the scope of the provision, rejecting as "unreasonable" HHG's argument that "any
disputed items" should be interpreted synonymously with "any dispute," and determining
that the use of specific language by sophisticated commercial parties, negotiating at arms'
length, was intentional and meaningful. (See HHG707) Because the arbitration clause
"'states that 'the parties shall submit ... for resolution any disputed items"' - and does

7

"not state that the parties shall submit for resolution 'any dispute"' - the bankruptcy court
determined that the "only reasonable interpretation is that 'disputed items' is a sub-category
of 'disputes"' potentially arising under the post-closing reconciliation procedures. (See id.)
(emphasis in original) The bankruptcy court further observed that, in "the accounting field,
'item' is a term of art meaning individual entries in a firm's ledger book," and use of this
language provided a strong basis for interpreting the arbitration provision as covering
accounting disputes; thus, "to the extent the parties dispute specific accounting entries
they must submit their dispute" to arbitration - which is consistent with Amendment No. 2's
specific reference to certain account balances in Debtors' general ledger and the overall
context of submitting post-closing price adjustment disputes to an accounting firm.
(HHG708-09) (emphasis in original)
The bankruptcy court noted that its interpretation rendered the arbitration provision
harmonious with the retention provision in the Sale Order, pursuant to which the parties
agreed that the bankruptcy court retained "jurisdiction to, among other things, interpret,
implement, and enforce" the terms and provisions of the Sale Order and APA "and all
amendments thereto ... " (See HHG710 (emphasis in original) (quoting HHG429,

~

68)).

The bankruptcy court determined that the arbitration provision was a "validly agreed to
provision of the APA" and that the language of the Sale Order was also significant for
several reasons. (See HHG709-10) The Sale Order's retention provision was not courtimposed but rather drafted by the parties - "a provision that the parties agreed to as part
and parcel of the [s]ale" - and the provision was also explicit: "There is not silence on the
other side of the Arbitration Clause [with respect to interpretive issues], but instead an allencompassing provision that explicitly states the Court has the power to interpret,
implement and enforce the APA." (HHG710) The bankruptcy court declined to read a
conflict between the provisions of the APA and Sale Order, as HHG urged; rather, the

8

bankruptcy court chose an interpretation which "render[ed] the Arbitration Clause
harmonious with [retention provision of] the Sale Order, such that the bankruptcy court
'"performs contractual interpretation" and the "Accounting Arbitrator determines the
accuracy of the parties' records and calculations." (See id.) This interpretation validates
both provisions, giving effect to the plain language of the arbitration provision and also the
parties' agreement that the bankruptcy court retain jurisdiction over any contract
interpretation disputes. (See id.)
Having determined the scope of the arbitration provision, the bankruptcy court turned
to a detailed and thorough analysis of the factual underpinnings of Trustee's claims to
determine whether they fell within the scope of the provision. (See HHG710-16) The
bankruptcy court explained that "[t]he parties' dispute regarding ACHE-RID [is] plainly legal
in nature and require[s] only the interpretation of defined terms in the APA." (HHG710)
Similarly, the bankruptcy court further explained that "the question of what accounting
principles must be applied by the Accounting Arbitrator is clearly a threshold legal dispute"
and "[t]he disagreement between the parties over the calculation of Accounts Payable
Obligations is clearly a dispute about the meaning of a provision in the APA." (HHG711)
The bankruptcy court noted that, while an accounting arbitrator is not barred from deciding
issues of law, that fact alone did not support a finding that the parties intended or agreed to
have an accounting arbitrator decide issues of contract interpretation under the APA.
(HHG713) Based on its analysis, the bankruptcy court determined that "[t]he parties'
current disputes are, at their core, disputes over the proper interpretation of the APA and
not disputes over accounting items or methodology." (HHG710) "Because the disputes
raised by the Trustee are clearly disputes about interpreting the APA and defined terms
within the APA," the bankruptcy court concluded there was "no basis for compelling

9

arbitration of Trustee's claims ... " (HHG717}, and denied HHG's motion to compel
arbitration. (HHG718) HHG timely appealed the bankruptcy court's decision. (See 0.1. 1)
111.

STANDARDS OF REVIEW
The court has mandatory jurisdiction over this appeal because the order is a final

judgment of the bankruptcy court, 28 U.S.C. § 158(a)(1 ), and because that order denied a
motion to compel arbitration and stay proceedings under the Federal Arbitration Act ("FAA"),
9 U.S.C. § 16(a). 8 The FAA mandates that district courts shall stay proceedings while
arbitration is pending if a suit is brought "upon any issue referable to arbitration under an
agreement in writing for such arbitration" and the court is "satisfied that the issue involved in
such suit or proceeding is referable to arbitration under such an agreement ... " 9 U.S.C. §
3. The FAA limits the role of the court to a determination of: (1) whether the parties entered
into a valid arbitration agreement; and (2) whether the specific dispute falls within the
substantive scope of the agreement. John Hancock Mutual Life Ins. Co. v. Olick, 151 F.3d
132, 136 (3d Cir. 1998). In conducting this review, the court should apply the ordinary
principles of contract law. See 9 U.S.C. § 2; First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938, 944 (1995).
Whether the dispute between Trustee and HHG is arbitrable turns on questions of
contract construction and statutory interpretation, both questions of law over which the court
exercises plenary review. Brayman Const. Corp. v. Home Ins. Co., 319 F.3d 622, 624-25
(3d Cir. 2003); see also Teamsters Indus. Employees Welfare Fund v. Rolls-Royce Motor

Cars, Inc., 989 F.2d 132, 135 (3d Cir. 1993) (contract construction); Moody v. Sec. Pac.
Bus. Credit, Inc., 971 F.2d 1056, 1063 (3d Cir. 1992) (statutory interpretation).

8

9 U.S.C. § 16(a) provides for immediate appeals of orders denying motions to compel
arbitration.
10

IV. ISSUES RAISED ON APPEAL
HHG argues that, despite the APA's clear language submitting to arbitration "any
disputed items" with respect to post-closing adjustments, the bankruptcy court misconstrued
the arbitration provision as narrow, as applying only to accounting calculations, and as
excluding threshold legal issues or issues of contract interpretation that the bankruptcy
court considered as more appropriate for its realm of expertise. (See D. I. 8 at 19) By so
holding, HHG argues that the bankruptcy court erred in at least four ways: (1) by ignoring
the strong federal policy favoring arbitration; (2) by disregarding the clear language of the
arbitration provision; (3) by improperly narrowing the scope of the arbitration provision on
the premise that legal issues are better decided by a court than an accounting arbitrator;
and (4) by misconstruing the bankruptcy court's general retention of jurisdiction as a
limitation on the scope of the parties' agreement to arbitrate. (See id.) Trustee disputes
HHG's characterizations of the bankruptcy court's ruling. According to Trustee, the
bankruptcy court properly interpreted of the scope of the arbitration provision and correctly
determined that the factual underpinnings of the parties' disputes were, at their core, issues
of contract interpretation expressly reserved to the bankruptcy court under the Sale Order.
(See D.I. 10 at 26, 35)

V. DISCUSSION
A. Whether the Bankruptcy Court Erred by Ignoring the Strong Federal Policy
Favoring Arbitration?
1. The bankruptcy court properly construed the scope of the arbitration
provision and determined the factual underpinnings of the claims
HHG argues on appeal that the bankruptcy court's ruling ignored the strong federal
policy conferring a presumption in favor of arbitration. (See 0.1. 8 at 20-23) "[A]rbitration is
a matter of contract and a party cannot be required to submit to arbitration any dispute
which [the party] has not agreed so to submit." Steelworkers v. Warrior & Gulf Navigation
11

Co., 363 U.S. 574, 582 (1960). This axiom recognizes the fact that "[a]rbitrators derive their
authority to resolve disputes only because the parties have agreed in advance to submit
their grievances to arbitration." AT&T, 475 U.S. at 648-49. However, the FAA mandates
that "any doubts concerning the scope of arbitrable issues should be resolved in favor of
arbitration." Moses H. Cone Mem'/ Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25
(1983); see also Battaglia v. McKendry, 233 F.3d 720, 727 (3d Cir. 2000) ("[A]n agreement
to arbitrate a particular dispute 'should not be denied unless it may be said with positive
assurance that the arbitration clause is not susceptible of an interpretation that covers the
asserted dispute.'") (quoting AT&T Techs., Inc. v. Commcn's Workers of Am., 475 U.S. 643,
650 (1986)).
Although courts generally operate under this "presumption of arbitrability," Battaglia,
233 F.3d at 725, the Third Circuit has held that it does not apply in all circumstances.
Rather, the presumption in favor of arbitrability applies only where the arbitration provision
is broad or there is some ambiguity or doubt as to its scope. See, e.g., Trap Rock Indus. v.
Local 825, Int'/ Union of Operating Eng'rs, 982 F.2d 884, 888 n.5 (3d Cir. 1992) (holding

that when an arbitration provision is narrowly crafted, the court "cannot presume, as we
might if it were drafted broadly, that the parties here agreed to submit all disputes to
arbitration"); Granite Rock Co. v. Int'/ Broth. of Teamsters, 561 U.S. 287, 288 (2010) (stating
that presumption in favor of arbitrability arises "only where a validly formed and enforceable
arbitration agreement is ambiguous about whether it covers the dispute at hand");
Painewebber, Inc. v. Hofmann, 984 F.2d 1372, 1377 (3d Cir. 1993) ("This presumption

notwithstanding, a compelling case for nonarbitrability should not be trumped by a flicker of
interpretive doubt.") (internal quotations and citing reference omitted). The Third Circuit has
further held that the presumption of arbitrability is inapposite where an arbitration clause

12

"clearly delimits the issues subject to arbitration." Local 827 Int'/ Broth. Of E/ec. Workers,
AFL-CIO v. Verizon New Jersey, Inc., 458 F.3d 305, 311 (3d Cir. 2006).

Here, the bankruptcy court determined that the "text and structure of the Arbitration
Clause are largely unambiguous." (See HHG705) The court agrees that the arbitration
provision is unambiguous, addressing "disputed items" that the parties are unable to resolve
solely in connection with the post-closing adjustment procedures set forth in § 3(a) and § 3
(b) of Amendment No. 2. While the parties dispute the bankruptcy court's interpretation of
this provision, they do not dispute that the language is unambiguous. (See 0.1. 8 at 22; 0.1.
10 at 29) "A contract is not ambiguous merely because the parties disagree about its
proper interpretation." MBIA Ins. Corp. v. Royal lndem. Co., 426 F.3d 204, 210 (3d Cir.
2005).
The court further concurs with the bankruptcy court's determination that the
arbitration provision is narrow in scope. (HHG705) The "presumption [in favor of
arbitrability] is particularly applicable when the [arbitration] clause is ... broad" covering
"any differences arising with respect to interpretation of [the] contract or the performance of
any obligation thereunder." AT&T Techs., 475 U.S. at 650. Broad arbitration provisions are
generally defined as those that apply to "any dispute" or "all disputes" arising from an
agreement. See Trap Rock, 982 F.2d at 888 n.5. Narrow arbitration provisions, on the
other hand, have been found to "expressly limit the range of arbitrable disputes to a single
category or function." Id. Clearly, the arbitration provision here does not apply to "any
dispute"; rather, it appears only in § 3(a) and § 3(b) of Amendment No. 2, which specifically
addresses the mechanics of post-closing adjustments with respect to excluded assets and
liabilities that could not be precisely quantified and allocated at closing:
To the extent the parties are unable to come to a final resolution of the
foregoing adjustments, the parties shall submit to a mutually acceptable "big
four" accounting firm for resolution any disputed items in accordance with the
13

procedures (including allocation of fees and expenses) provided by such
accounting firm.
(HHG18,

~

56; HHG375-76, §§ 3(a) and 3(b)) The arbitration clause thus applies only to

disputes arising in connection with the post-closing adjustments required under Amendment
No. 2, and then only to "disputed items." Unlike clauses that direct parties to arbitrate any
and all matters arising from an agreement, the bankruptcy court noted that "this pointed
phrase limits arbitration to, at most, all disputes arising under the post-closing
reconciliations required by§ 3(a) and§ 3(b)." (HHG706) While the parties may disagree
about the meaning of the term "any disputed items" - specifically regarding whether that
term captures issues of interpretation under the APA - taken as a whole, the provision is
still narrow, as it "expressly limit[s] the range of arbitrable disputes to a single category or
function" - post-closing adjustments made in accordance with § [3(a)] and § [3(b)]. See
Trap Rock, 982 F .2d at 888 n.5. 9 Based on the foregoing, it is clear to the court that the
arbitration provision was "narrowly crafted." See id. As the arbitration provision is neither
ambiguous nor broad, the bankruptcy court did not err by failing to apply a presumption of
arbitrability.
Finally, the court agrees with the bankruptcy court's determination that the parties'
disputes fall outside the scope of the arbitration provision, as the core of these disputes are
matters of contract interpretation. In making this determination, the bankruptcy court was
required to look to the factual underpinnings of the claims, as opposed to the legal theories
asserted. Reviewing the complaint, the parties' current dispute involves: (1) whether the

9

Further supporting this classification is the Sale Order's broad retention provision that
reserves for the bankruptcy court power to "interpret, implement, and enforce" the terms of
APA. See Compucom Sys., Inc. v. Gentronics Finance Holdings B. V., 635 F. Supp. 2d 371,
378 (D. Del. 2009) (asset purchase agreement directing accounting firm to resolve certain
disputes was to be construed narrowly in light of broader resolution clause requiring actions
to be brought in Delaware courts.)

14

APA should be interpreted to include ACHE-RID as "cash and cash equivalents" that were
an "Excluded Asset" retained by Debtors, or an "Acquired Asset" sold to HHG (HHG39, ~
109(a)); and (2) whether the APA should be interpreted to include the concept of GAAP by
implication or otherwise in the definition of "Accounts Payable Obligations" (HHG39, ~
109(b)-(d)). The court finds no basis to disagree with the bankruptcy court's determination
that these are not issues of how cash and cash equivalents should be calculated or how
GAAP accounting principles should be applied, but rather issues of interpretation regarding
defined terms in the APA.

2. The bankruptcy court was not required to compel arbitration of
interpretive issues that "touch" the post-closing adjustment disputes
HHG argues that, to the extent the bankruptcy court relied upon Third Circuit
holdings to the effect that a "presumption of arbitrability" does not apply to "narrow" as
opposed to "broad" arbitration clauses, any such distinction is irrelevant here. (See D.I. 8 at
21) HHG argues that, under Third Circuit law, "[i]f the allegations underlying the claims
'touch matters' covered by [an arbitration clause in a contract], then those claims must be
arbitrated, whatever the legal labels attached to them." (Id. at 21-22 (quoting Brayman
Constr. Corp. v. Home Ins. Co., 319 F.3d 622, 626 (3d Cir. 2003)) (internal citations

omitted). HHG cites the Third Circuit's decision in Brayman in support of its argument that
an accounting arbitrator - rather than the bankruptcy court - must interpret the APA's terms
to the extent they in any way "touch upon" the post-closing adjustments under§ 3(a) and §
3(b) of Amendment No. 2. (Id. at 22)
In holding that an insurer's alleged mishandling of a worker's compensation claim
was covered by an arbitration provision in a separate retrospective premium agreement
("RPA"), despite the underlying insurance policy's silence as to arbitration, the Third Circuit
in Brayman determined that the RPA's arbitration provision was "broad in scope, sweeping

15

into its reach 'any dispute ... between the Company and Insured with reference to
interpretation of the [RPA], or their rights with respect to any transaction involved."'

Brayman, 319 F .3d at 625 (emphasis added). The Third Circuit determined that although
the language "any transaction involved" was ambiguous, in light of federal policy favoring
arbitrability, any ambiguity should be resolved in favor of arbitration and the provision
interpreted to include "any business dealing relating, in whole or in part, to the RPA." See

id. at 625. Thus, the Court in Brayman rejected the insurer's argument that the bad faith
and breach of contract claims were not arbitrable because they arose under the policy,
rather than the RPA, determining this "does not necessarily preclude the conclusion that the
[insured's] claims also relate sufficiently to the RPA that they are swept into the RPA's
broad arbitration clause." Id. at 626 (relying on Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815
F.2d 840, 846 (2d Cir. 1987) (holding RICO claims and Robinson-Patman Act claims were
subject to arbitration provision in sales agreement: "If the allegations underlying the claims
'touch matters' covered by [an arbitration clause], then those claims must be arbitrated,
whatever the legal labels attached to them") (internal quotations omitted)).
HHG relies on Brayman in arguing that, because disputes over defined terms in the
APA not only "touch upon" but are well within the plain and natural language of the
arbitration provision concerning post-closing adjustments, those issues of interpretation
must be arbitrated as well. (See D.I. 8 at 22) The court declines to find issues of the APA's
interpretation are arbitrable because they may "touch" upon the adjustment disputes. First,
"[t]his theory admits no limiting principle." See Shy v. Navistar Intern. Corp., 781 F.3d 820,
834 (61h Cir. 2015) (Clay, C.J., dissenting). If applied as a rule, any interpretive issue arising
under the APA could touch upon the ultimate adjustments of cash components required by
Amendment No. 2. Second, the parties expressly agreed that interpretive issues under the
APA would be decided by the bankruptcy court, whereas in Brayman, the Third Circuit
16

noted that the underlying policy included no language "incompatible with this cause of
action being resolved in an arbitral forum," as "[t]he policy does not provide that it is to be
enforced in court or specify a choice of forum." Id. at 626. Brayman is thus distinguishable
from this case for a number of reasons, including its broad arbitration provision and the fact
that the underlying Sale Order approving the APA includes express language specifying the
forum for disputes over interpretation and enforcement. Brayman does not require a
different outcome.

3. The parties' threshold disputes require interpretation of the APA, not
application of accounting methodology
HHG further argues that "numerous courts have compelled arbitration before
accounting firms, even where the arbitration clauses were 'narrow' in the sense that they
covered only a specific type of contract dispute - that is, disputes as to adjustments to
purchase prices - as opposed to 'all' disputes relating to a contract. The same result
should apply here." (See D.I. 8 at 23 (citing cases)) HHG relies heavily on the Alliant case
in support of its position. See Alliant Techsystems, Inc. v. MidOcean Bushnell Holdings,

L.P., 2015 WL 1897659 (Del. Ch. Apr. 24, 2015). In Alliant, a transaction agreement
contemplated a post-closing working capital adjustment pursuant to which seller and buyer
would exchange GAAP-compliant estimates and calculations, and any disputes would be
resolved by an independent accountant. See id. at *4. Seller represented that its financial
statements were GAAP-compliant, but buyer disputed whether certain items in seller's
working capital estimate complied with GAAP. See id. at *1. Seller argued that buyer could
not arbitrate GAAP compliance as part of the working capital adjustment and was required
to seek a remedy for breach of representation under a separate indemnification provision.
See id.

17

Delaware's Court of Chancery rejected seller's arguments that the accounting
provision was limited to disputes over "items or amounts in Buyer's calculation ... as to
which Seller disagrees," that the arbitrator's determinations should be limited to "pure
mathematics," and that the parties never intended for the accountant, which was designated
as an expert rather than an arbitrator, to "resolve questions over the proper interpretation of
GAAP." Id. at *10. The court determined that, even though "the dispute implicates issues
concerning compliance with GAAP," such disputes were included in the dispute resolution
process addressing "items or amounts." (See id. at *7, *10).
Alliant does not contradict the conclusion reached by the bankruptcy court, as the

bankruptcy court also concluded that any dispute over compliance with GAAP (or another
accounting methodology) would be a "disputed item" properly reserved for the accounting
arbitrator under the language of the APA. (See HHG20 (clarifying that the accounting
arbitrator, not the bankruptcy court, has the power to determine which party's calculations
are consistent with the accounting methodology designated in the APA)). However, the
issue of whether GAAP applies under the language of the APA - or whether the APA
designated any specific accounting methodology - is a matter of contract interpretation,
which the Alliant court also decided in the first instance. See Alliant, 2015 WL 1897659, at
*1 ("the critical issue for the court to decide here is what the shared intentions of the
contract parties were when they entered the Agreement"); id. at *11 (dispute raised issues
of GAAP compliance and was arbitrable as parties did not intend to limit role of arbitrator to
resolving questions of "pure mathematics"). Here, interpretive issues under the APA were
also expressly reserved for the bankruptcy court under the Sale Order.

18

HHG cites other cases outside this circuit which do not support its argument or are
otherwise distinguishable. 10 Perhaps the strongest support for HHG's argument is the Sixth
Circuit decision in Shy. In that case, under a settlement agreement and consent decree
resolving a class action lawsuit relating to employee benefits, Navistar made annual
contributions to a trust managed by a Supplemental Benefit Committee ("SBC"). The size
of the contributions was determined by a formula provided in the agreement, and Navistar
was required to regularly provide certain data to SBC that would enable SBC to determine
whether Navistar was applying the formula correctly and making contributions in the
required amounts. See Shy, 781 F.3d at 822-23. The agreement provided for arbitration
with an accounting firm in the event SBC disputed the "information and calculation[s]"
provided by Navistar. Id. at 823. A dispute arose regarding Navistar's alleged manipulation

10

In Seed Holding, the parties "agreed to arbitrate only '[t]he determination ... of the
[a]ctual [w]orking [c]apital" and "[s]uch limitations on the scope of an arbitrator's role indicate
a narrow clause for purposes of arbitrability analysis." Seed Holdings, Inc. v. Jiffy Int'/ AS, 5
F. Supp. 3d 565, 583 (S.D.N.Y. 2014). While the court held that a determination of the
proper accounting methodology fell within the scope of the arbitration provision, central to
this ruling was the fact that the arbitration provision "impose[d] no explicit limits on the type
of objections to the calculation of working capital that may be raised before the arbitrators ..
. to the contrary, the provision calls for 'any dispute' relating to the determination of actual
closing working capital to be [arbitrated]." Id. at 583-84 (emphasis added).
In compelling arbitration of a dispute over parties' compliance with agreement's
prescribed accounting methodology (as opposed to an interpretive issue of whether
agreement specified accounting methodology), the Tailwind court noted that the agreement
contained a narrow dispute resolution clause requiring the parties to "jointly engage Ernst &
Young ... to review and resolve exclusively all of the unresolved Objections" over postclosing adjustments. Tailwind Mgmt. LP v. Akorn, Inc., 2015 WL 3884230, at *4 (S. D. N. Y.
June 24, 2015) (emphasis added).
In HBC, the arbitration provision "vest[ed] the [a]ccountant with authority to
determine 'whether the [f]inal [p]urchase [p]rice was calculated in conformity with the
accounting principles' set forth in purchase agreement). HBC Sols., Inc. v. Harris Corp.,
2014 WL 6982921, at *2 (S.D.N.Y. Dec. 10, 2014). Thus, HBC also involved a dispute over
compliance with an agreement's prescribed accounting methodology. Moreover, the
agreement provided "without exception or limitation" that "all issues" raised in the relevant
dispute notice must be decided by the arbitrator. See id. (emphasis added).
19

of its corporate structure and misclassification of aspects of its business in order to avoid its
profit-sharing obligations. See id. at 824-25.
The Sixth Circuit found the arbitration clause "narrow," applying where "information
or calculation[s]" provided by the corporation were disputed, but determined that the
provision was not limited by its terms to disputes over "calculations" and could include
business classification disputes "potentially involv[ing] questions of contract interpretation."
See id. at 825. The Sixth Circuit observed that the "accountant-based" nature of the

arbitration provision "at most creates some ambiguity as to whether the scope of the
disputes over 'information and calculation[s]' was intended to be restricted to disputes in
which no legal analysis whatsoever might be necessary." Id. at 825. However, the majority
concluded that "the otherwise unqualified language of the agreement trumps any
assumption that the parties would not have committed legal disputes to an accountant's
resolution" and the ambiguity, if any, "must be resolved in favor of arbitration." Id. at 826.
Shy is distinguishable as the terms "information and calculation[s]" are of a broader

scope than disputed "items" - especially reading the term "information" in the context of the
parties' intent to confirm Navistar's financial information and enable SBC to enforce plan
contributions. More importantly, the court disagrees with the majority's conclusion that the
language of the arbitration provision was "otherwise unqualified." See id. at 825-26. As the
dissent explained, "the recourse provided by [the arbitration provision] must be understood
in context of the larger [agreement] and consent decree, which included ... a provision in
which the district court retained jurisdiction to 'resolve any disputes relating to or arising out
of or in connection with the enforcement, interpretation or implementation' of the parties'
agreement." See id. at 833 (Clay, C.J., dissenting) (emphasis in original).

20

B. Whether the Bankruptcy Court Erred by Disregarding the Clear Language
of the Arbitration Provision at Issue?
1. The bankruptcy court properly applied principles of contract law
In determining whether a specific dispute falls within the scope of the agreement, the
bankruptcy court was required to apply ordinary principles of contract law. See 9 U.S.C. §
2; Kaplan, 514 U.S. at 944. HHG argues that the bankruptcy court erred by disregarding
the plain language of the unambiguous arbitration provision governing post-closing
adjustments, which expressly covers the parties' disputes. (See D.I. 8 at 23-26) According
to HHG, because the parties dispute the amounts of the Cash Amounts in Transit and
Accounts Payable Obligations adjustments under§ 3(a) and § 3(b) - and "specifically
dispute whether certain amounts (or 'items') are to be included in the adjustments or not" "the parties' disputes over those 'items,' and those 'adjustments,' are undoubtedly subject to
arbitration." (See id. at 24) According to HHG, the arbitration clause's reference to "any
disputed items" as to the "foregoing adjustments" is broad enough to cover the parties'
disputes - even if they include matters of contract interpretation or accounting methodology.

(See id. at 24-25)
As the bankruptcy court correctly observed, the essence of HHG's argument is that
the court should have interpreted "any disputed items" synonymously with "any dispute."
(HHG 706) However, in "ascertaining the shared intentions of the contracting parties when
they entered into their agreement," the court must "give the words chosen by the parties
their ordinary meaning." Matria, 2007 WL 763303, at *1. The bankruptcy court found it
unreasonable to interpret "any disputed items" synonymously with "any disputes" in the
context of submitting post-closing adjustment disputes to an accounting firm for arbitration.
The court agrees that a synonymous interpretation of these terms is unreasonable, would
fail to give effect to the term "items," and would require the court to ignore the language

21

chosen by "sophisticated commercial parties bargaining at arms-length." (HHG706) The
parties could have agreed to arbitrate "any dispute" arising under the post-closing
adjustment procedures, but they did not. Rather, the only reasonable interpretation is that
"any disputed items" is a sub-category of all "disputes" potentially arising from post-closing
adjustments.

2. The bankruptcy court did not improperly narrow the arbitration
provision
HHG further argues that to reach its result, the bankruptcy court "engaged in a
strained and convoluted reading of the language of the [arbitration] claus[e]," and erred in
"misconstruing the scope of the term 'any disputed items."' (See D. I. 8 at 30-32)
Specifically, HHG argues that the bankruptcy court misconstrued the word "any" as
surplusage and sua sponte considered and misconstrued the word "item" as narrowing the
arbitration provisions to cover only accounting calculations. (D.I. 8 at 32) Conversely,
Trustee argues that HHG spent considerable time before the bankruptcy court identifying
and explaining the import of the phrase "any disputed items" as one of limitation that covers
only individual "debits and credits" that remain in dispute, and that the parties properly
intended to put such disputed accounting entries before an accounting firm with expertise in
reviewing records of that type. (See D.I. 10 at 30-31; HHG668-83) Trustee argues that
HHG's suggestion that the bankruptcy court improperly construed "any" as a limiting
modifier, or that it sua sponte determined the word "item" to be an accounting term of art, is
incorrect, as both parties' briefs presented case law addressing the significance of this
language. (See D.I. 10 at 31) In its Opinion, the bankruptcy court reasoned:
The Arbitration Clause does not specifically enumerate the disputes it
covers, 11 but instead expresses its scope by using a general term - "any
11

The bankruptcy court included the following footnote: "By way of example, a specificenumeration arbitration clause that could have been drafted here is "the parties shall submit
to a mutually acceptable 'big four' accounting firm any disputes over the Cash Amounts in
22

disputed items." By necessity, the parties' use of a general term must
include the modifier "any." A general term with a limiting modifier - i.e. "some
disputed items" or "most disputed items" - would provide no interpretative
guidance; the interpreter would have no logical method for distinguishing
between disputes subject to arbitration and disputes not subject to arbitration.
Therefore the Court finds that the use of the modifier "any" does not justify,
nor even support, interpreting the Arbitration Clause broadly.
(HHG707) The bankruptcy court understood that the plain meaning of the term "any" is allinclusive and expansive but must be read in the context of the particular phrase "any
disputed items," which is different from a more broadly drafted arbitration provision covering
"any disputes."
In giving the words chosen by the parties their ordinary meaning, the bankruptcy
court determined that the most reasonable interpretation of the term "disputed items"
incorporates the definition given to "item" in accounting. (HHG705) The bankruptcy court
observed that "[i]n the accounting field, 'item' is a term of art meaning individual entries in a
firm's ledger book," and determined that the word "item" in the context of Amendment No. 2
evinces a "clear reference to disputes over accounting items." (HHG708-09) On appeal,
HHG labels this determination "puzzling" and argues that "there is a far more obvious, and
natural, explanation for the use of the phrase 'any disputed items': to describe the specific
adjustment amounts at issue and to exclude from arbitration any adjustments (or portions of
those adjustments) that were not in dispute." (D. I. 8 at 32-33) The court does not see
where an arbitration provision, intended to address disputes, would require language
excluding items already resolved. The court finds the bankruptcy court's interpretation of
"item" more logical in the context of the parties' agreement. As the bankruptcy court
observed, the usage of this term makes sense when the context is taken into account: "item

Transit adjustment, the reconciliation of Check Amounts in Transit with Check Amounts in
Transit Cash or the reconciliation of estimated Closing Cash with actual Closing Cash ... ".
(HHG707 at n.59)
23

is a term of art in accounting, and the arbitration clause sends 'disputed items' to an
accounting arbitrator for resolution." (HHG709)
The bankruptcy court's interpretation of "item" as an accounting entry finds support
in one of the main cases relied on by HHG. See Alliant, 2015 WL 1897659, at *10 (stating
that the word "items" means "a singular article or unit in a collection" or "an entry in
account"). The Alliant court determined that the parties' compliance or non-compliance with
GAAP methodology was an "item" that the accounting arbitrator should decide, but only
after determining in the first instance that the parties must comply with GAAP principles
under the operative agreement. See Alliant, 2015 WL 1897659, at *11 (discussing same).
Just as in Alliant, the bankruptcy court here ruled that the interpretive issue of whether the
APA designated a specific accounting methodology to be used in post-closing adjustments
must be decided by the court, and clarified that disputes of over proper application of - or
compliance with - that methodology were issues reserved to the accounting arbitrator.
(See HHG716)
As the Trustee points out, other cases support the interpretation of "item" as an
accounting entry. See e.g., Medcom Holding Co. v. Baxter Travenol Lab., 1988 WL
107545, *4 (N.D. Ill. Oct. 13, 1988) (denying motion to compel arbitration for purchase price
dispute arising under stock purchase agreement where "the arbitration clause is limited to
objections concerning any 'account or item' ... " and "[t]he language does not encompass
all disputes arising out of the stock purchase agreement,'' as the "objections extend beyond
mere challenges to an account or item on the closing balance sheet"); Baumgart Holding
Co. v. First Am. Corp., 2008 WL 2404748, *1 (M.D. Fla. Jun. 11, 2008) (denying motion to
compel arbitration as the parties "agreed to arbitrate only a somewhat narrow scope of
disputes" comprising disagreement on "any particular item or items or amount or amounts"
subject to stock purchase agreement indemnification rights). The cases cited by HHG
24

compelling arbitration of disputes as "items" are distinguishable and do not compel a
different outcome.13

C. Whether the Bankruptcy Court Erred by Improperly Narrowing the Scope of
the Arbitration Provision on the Premise that "Legal Issues" Are Better
Decided by a Court than an Accountant Arbitrator?
HHG argues that the bankruptcy court was required to rigorously enforce the
arbitration provision, but instead misconstrued the law by "presum[ing] that the parties
intended to exclude 'legal' issues from the arbitration of the [a]djustment disputes, absent
any express language to that effect in the arbitration claus[e]." (D.I. 8 at 28) According to
HHG, the bankruptcy court improperly narrowed the scope of the arbitration provision
"based on a fundamentally flawed premise: that the scope of an arbitration clause should
depend on a court's view of the appropriate 'realms of expertise' of a court versus an
arbitrator." (Id. at 17) HHG mischaracterizes the Opinion.
The bankruptcy court expressly acknowledged that there is no bar to an accounting
arbitrator deciding issues of law, including those of contract interpretation. (See HHG713)
Indeed, the correct question is not whether an accounting arbitrator is capable of deciding
issues of interpretation under the APA, but rather whether the parties intended to have an
accounting arbitrator decide issues of interpretation under the APA. See Campeau Corp. v.

May Dept. Stores Co., 723 F. Supp. 224, 228 (S.D.N.Y. 1989) (in determining whether a
dispute falls within the scope of an arbitration provision, "[t]he question, of course, is not
13 See Matria, 2007 WL 763303, at *2, *6-*8 (compelling arbitration by settlement
accountant, as opposed to arbitrator, based on finding that disputes over "amounts or items"
included merits of pending dispute over customer claims based on finding that parties had
established an "arbitration hierarchy" in merger agreement that assigned responsibility to
settlement accountant as "the forum of express choice") (emphasis added); Severstal U.S.
Holdings, LLC v. RG Steel, LLC, 865 F. Supp. 2d 430, 434-36, 444 (S.D.N.Y. 2012)
(arbitration compelled to resolve disputes over "disputed contested adjustments" based on
finding that "the purchase price is ultimately a function of the agreed upon calculation
methodology" that did not relate to alleged misrepresentations made in financial
statements) (emphasis added); Shy, 781 F.3d at 822, 825-26.
25

who could best resolve the issue, but whether the parties agreed in their contract that an
arbitrator with appropriate expertise should do so.''); see a/so Alliant, 2015 WL 1897659, at
*9.
Contrary to HHG's assertions, the Opinion reflects no presumption "that disputes
involving legal issues or contractual interpretation were excluded from arbitration." (D.I. 8 at
27) Although the bankruptcy court did make the observation that its decision would result in
the bankruptcy court and accounting arbitrator operating within their respective "realms of
expertise," the careful reasoning set forth in the Opinion reflects that the bankruptcy court's
determination was not driven by its purported views on a court's expertise versus that of an
accountant. Rather, the bankruptcy court construed the arbitration provision as required in the full context of the agreement and in accordance with ordinary principles of contract
law - and determined that the unambiguous language reflected the parties' intent to limit the
scope of the arbitration provision to "disputed items" and intent to reserve for the bankruptcy
court any issues of interpretation under the APA.

D. Whether the Bankruptcy Court Erred by Misconstruing the Bankruptcy
Court's Retention of Jurisdiction as a Limitation on the Scope of the Parties'
Agreement to Arbitrate?
Finally, HHG argues that the bankruptcy court erred by misconstruing the general
retention of jurisdiction provision of the Sale Order as a limitation on the scope of the
parties' agreement to arbitrate. (D.I. 8 at 36) "Because [t]he Sale Order says nothing in its
general jurisdictional provision, or anywhere else, that would suggest any restriction on the
scope of the APA's arbitration [provision]," HHG argues that the bankruptcy court "erred in
concluding that the parties' disputes 'are issues over which the Court expressly retained
jurisdiction in the Sale Order."' (See id. (citing HHG696)) The court disagrees that the
bankruptcy court endorsed any interpretation of the Sale Order's retention provision as a
"limitation." The bankruptcy court properly rejected HHG's argument that the Sale Order
26

had no bearing on the arbitration provision because such an interpretation would strip the
parties' agreement of meaning. The Sale Order reflects the parties' express agreement that
the bankruptcy court would resolve interpretive issues, and this agreement is valid and
enforceable as both parties conceded. (See HHG652-54, 676-78, 709-10). The bankruptcy
court was required by ordinary principles of contract law to give meaning to both provisions,
if possible. See e.g., In re G-1 Holdings, Inc., 755 F.3d 195, 202 (3d Cir. 2014) (court should
interpret contract in such a way as to not render any of its provisions illusory or
meaningless). Thus, the proper construction was one that harmonized the Sale Order with
the arbitration provision. (See HHG710)
HHG further argues that "where, as here, an arbitration clause is more specific than
a general provision granting jurisdiction to a [b]ankruptcy [c]ourt, the arbitration clause
controls." (D.I. 8 at 37) In support of this argument, HHG cites DCV Holdings, a case in
which the Delaware Supreme Court affirmed a trial court's ruling that a buyer's claim for
indemnification was governed by a provision of the purchase agreement that contained a
knowledge qualifier, and thus indemnification was not available to the buyer. See DCV
Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954 (Del. 2005). The Delaware Supreme Court

cited "well settled rules of contract construction" including that "specific language in a
contract controls over general language, and where specific and general provisions conflict,
the specific provision ordinarily qualifies the meaning of the general one." See id. at 961.
The trial court's specific language is helpful: "where there is both a general and a specific
provision that pertains to the same subject, courts ordinarily qualify the meaning of the
general provision according to the meaning of the more specific provision." DCV Holdings,
Inc. v. ConAgra, Inc., 2005 WL 698133, at *12 (Del. Super. Mar. 24, 2005) (emphasis

added). Assuming that the "general provision" here is the parties' agreement in the Sale
Order that the bankruptcy court will interpret, implement, and enforce the terms of the APA,
27

it is not matched by a "specific provision" pertaining to the same subject of interpretation;
rather, § 3(a) and§ 3(b) provide mechanisms for post-closing adjustments and resolution of
"disputed items" by an accounting firm and do not address issues of interpretation.
Moreover, contrary to HHG's arguments, there is no inherent conflict or
inconsistency between these provisions. (See D.I. 8 at 37 (citing In re Energy Future
Holdings Corp., 539 B.R. 723, 727 (Bankr. D. Del. 2015) ("should there be an inconsistency
between a specific and general provision of a contract, the specific controls"); Brinckerhoff
v. Tex. E. Prods. Pipeline Co., 986 A.2d 370, 387 (Del. Ch. 2010) (finding that specific
provision controlled over general provision to avoid rendering specific provision a "nullity"))
The bankruptcy court was required to construe the contract as a whole, giving effect to the
parties' intentions and, if possible, in a way that did not render any provision meaningless or
illusory. The Sale Order reflects the parties' intention that the bankruptcy court address all
matters of interpretation, implementation, and enforcement under the APA, and Amendment
No. 2 reflects the parties' intent to apply mechanisms to make post-closing adjustments and
resolve disputed items in those adjustments. The bankruptcy court properly rejected HHG's
reading of the arbitration provision and Sale Order as conflicting and opted to read them in
harmony, rendering them both with meaning and practical application. See Trap Rock, 982
F.2d at 889 (reading reservation clause and arbitration clause together and concluding that
the "correct interpretatio[n] ... is both consistent with its structure and [p]ermits of a
practical application"). As there is no conflict between these provisions, which address
different subjects, the cases cited by HHG do not compel a different result.
The bankruptcy court's decision is compelled by a straightforward reading of the
arbitration provision. HHG does not meaningfully address the bankruptcy court's detailed
findings as to the factual underpinnings of the parties' dispute regarding the post-closing
adjustments, which at their core are disputes over the proper interpretation of the
28

contractual terms of the APA, not the application of accounting principles or calculations.
The court finds no basis to disagree with those findings or the bankruptcy court's
conclusion, which is consistent with ordinary principles of contract law and Third Circuit
cases construing asset purchase agreements in the bankruptcy context. See, e.g., In re
Nortel Networks Corp., 445 B.R. 370, 373-74 (Bankr. D. Del. 2011) (exercising jurisdiction
to decide issues of contract interpretation under asset purchase agreement as "dispute is
not about calculating 'amounts"' but rather "the parties' intent regarding a material element
of the Purchase Price Adjustment").

In light of the unambiguous language of the arbitration

provision and the parties' express agreement in the Sale Order, the court cannot conclude
that the parties intended for an arbitrator to determine issues of interpretation under the
APA.

VI. CONCLUSION
For the foregoing reasons, the bankruptcy court's Opinion and Order are affirmed,
and HHG's appeal is denied. An appropriate order shall issue.

29