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Gomery v. Versatile Mobile Systems

January 22, 2009

JOHN M. GOMERY, PLAINTIFF
v.
VERSATILE MOBILE SYSTEMS (CANADA), INC., DEFENDANT



The opinion of the court was delivered by: Judge Conner

MEMORANDUM

This breach of contract action arises in the context of a stock purchase transaction among plaintiff John M. Gomery ("Gomery"), his fellow co-owners of a closely held business, and defendant Versatile Mobile Systems (Canada), Inc. ("Versatile"). Gomery claims that Versatile failed to reimburse capital advancements that he paid into the closely held business as required by an unwritten agreement among the parties. Versatile has filed a motion to compel arbitration (Doc. 15), invoking the arbitration clause contained in the written agreement for the sale of the company's outstanding stock. Gomery contends that the unwritten agreement is distinct from the contract governing the sale of stock, placing it beyond of the arbitration requirement. For the reasons that follow, the motion will be granted.

I. Statement of Facts*fn1

On March 25, 2005, Versatile entered into a share purchase agreement (hereinafter "the SPA") with Gomery and the other owners of Perfect Order Manufacturing, Inc. ("Perfect Order"), John Kelly and Terry Johnson (respectively "Kelly" and "Johnson," and collectively with Gomery, "the partners"). (Doc. 1-3 ¶ 4.) Gomery, Kelly, and Johnson owned one hundred percent of the outstanding capital stock of Perfect Order. (Id.) Negotiations for the sale were ongoing in early 2005, when the partners informed Versatile that they had collectively paid $425,000 in capital contributions into Perfect Order in addition to their stock ownership. (Doc. 18, Ex. A ¶ 3.) Gomery's share of the capital contribution was $141,666.66, one-third of the total. (Doc. 1-3 ¶ 5.) Versatile agreed to repay these capital contributions but stated that the repayment obligation would not appear in the SPA and would instead be governed by an ancillary agreement. (Doc. 18, Ex. A ¶ 6.) Gomery testified that by February 2005 all parties to the SPA recognized that repayment of the capital contributions was an essential component of the Perfect Order acquisition:

Q: . . . I take it that at this point in time, in late February [2005], there was no question in your mind that the acquiring entity had agreed to pay both sums, 400,000*fn2 and 425,000?

A: Absolutely no question.

Q: No backing off on the issue or no question about it; is that correct?

A: I expressed to [Versatile's chief executive officer] that it was a deal breaker; if this was not done, then we would not go forward and sign the definitive agreement. I mean it was part of the deal.

(Doc. 17, Ex. D at 63-64 (emphasis added)). At the end of February 2005, Versatile's chief financial officer sent an email to Gomery representing that Versatile "will prepare the letter dealing with the [capital repayment obligation] right away." (Id. at 63.) Gomery testified that this email "confirmed we were moving forward with the side agreement." (Id.)

The parties executed the SPA on March 25, 2005. (Doc. 17, Ex. A at 1.) The agreement does not discuss the capital contributions, and the parties did not simultaneously enter an ancillary agreement addressing the issue. The SPA contains an arbitration clause that provides, inter alia, as follows:

Arbitration. Except as otherwise set forth in this agreement, if any dispute, disagreement, difference or question shall arise out of or in connection with this Agreement, such dispute, disagreement, difference or question shall be referred to and determined by a single arbitrator appointed pursuant to the International Arbitration Rules of the American Arbitration Association. Every award or determination of any such arbitrator shall be final and binding on the Parties and there shall be no appeal therefrom. . . .

(Doc. 17, Ex. A ¶ 11(o), at 63 (emphasis added)). The SPA prescribed a closing date of April 19, 2005. (Id. ¶ 2(e), at 12.)

The unwritten capital repayment obligations continued to preoccupy the parties following execution of the SPA. On April 4, 2005, Versatile's board of directors met to ratify the SPA. Minutes of the meeting reflect that, in addition to approval of the SPA, the company "has also agreed to repay $425,000 of capital contributions" to the partners. (Doc. 18, Ex. B.) On April 18, 2005, Versatile sought to memorialize the capital repayment obligation by ...


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