Superior Court of Massachusetts, Suffolk, Business Litigation Session
FINDINGS OF FACT, RULINGS OF LAW, AND MEMORANDUM OF
DECISION AFTER NON-JURY TRIAL
Kenneth W. Salinger, Justice
Fortune Brands, Inc. sold all stock in the Acushnet Company
for $1.225 billion, subject to post-closing adjustments.
Although Fortune subsequently changed its name to Beam, Inc.,
the Court will refer to Defendant as " Fortune"
because this lawsuit concerns events that occurred before the
the closing Acushnet asked Fortune to pay $19.29 million for
pre-closing taxes pursuant to the allocation of tax liability
agreed to by the buyers of Acushnet and Fortune, as seller,
in their Stock Purchase Agreement (the " SPA").
Fortune took the position that it was entitled to deduct and
setoff $16.62 million in Acushnet customer account
receivables for value added taxes, because those VAT
Receivables constitute " amounts credited against or
with respect to Taxes" within the meaning of §
8.01(b) of the SPA. Fortune therefore made payment of the
$2.67 million difference.
claims that Fortune breached the parties' contract by
setting off the $16.62 million. Both sides moved for summary
judgment, but the court (Sanders, J.) ruled that the contract
is ambiguous and thus that the issue could only be decided
after both sides had the opportunity at trial to present
parol or extrinsic evidence regarding the meaning of the
phrase quoted above. That trial was recently completed.
Court now finds and concludes that Fortune has a contractual
right to set off all receivables actually owed by customers
to Acushnet at the time of the closing with respect to value
added taxes on prior purchases from Acushnet, that the proper
setoff amount was $15.65 million, and that Acushnet is
therefore entitled to judgment in its favor in the amount of
$972, 288 plus prejudgment interest.
Findings of Fact
Court conducted a jury-waived trial over six days from May 31
to June 8, 2016. The Court heard closing arguments on June
17, 2016. The Court makes the following findings of fact
based on the credible evidence presented at trial, the
undisputed facts to which the parties stipulated before
trial, and reasonable inferences drawn from the evidence.
Overview of the Deal
2010, Fortune Brands, Inc. was a multi-billion-dollar holding
company that owned Acushnet Company (a golf products
manufacturer that sells the Titleist and Footjoy lines of
products, among other things), Fortune Brands Home &
Security, and Beam Global Spirits & Wine. Fortune decided
that it wanted to sell its wholly-owned subsidiary Acushnet
and to spin-off the Home & Security business.
decided that it would sell all shares of Acushnet through an
auction. Fortune began the bidding process by having its
investment banker send an offering memorandum, a draft stock
purchase agreement or " SPA, " and related
documents to prospective bidders in early April 2011. The
winning bid was submitted by investors led by FILA Korea,
Ltd. and Mirae Assets (collectively the " FILA
FILA Group first offered to buy Acushnet for $1.05 billion.
Fortune's investment banker told the FILA Group's
investment banker that this was a low bid. The FILA Group
then increased their offer to $1.118 billion. Their final
offer, which Fortune accepted, as $1.225 billion.
and its attorneys prepared the first draft of the SPA.
Fortune provided this first draft to the FILA Group on April
7, 2011. In response, the FILA Group proposed various
revisions to the SPA. Fortune accepted some but not all of
the FILA Group's proposed revisions. Over the next month
the two sides negotiated and finalized various changes and
revisions to the SPA.
and the FILA Group executed the final version of the SPA on
May 9, 2011. The transaction closed on July 29, 2011. In
accord with the final SPA, the FILA Group, acting through a
holding company, bought all outstanding shares of Acushnet
for $1.225 billion, subject to certain post-closing
final contract provides that " [t]he parties have
participated jointly in the negotiation and drafting of this
Agreement and this Agreement will not be construed for or
against any party by reason of the authorship or alleged
authorship of any provision hereof or by reason of the status
of the respective parties."
final SPA also provides that it " shall be governed by
and construed in accordance with" New York law. A
separate provision states that no party to the SPA shall be
liable " for any consequential, incidental, indirect,
special or punitive damages . . . relating to the breach or
alleged breach" of the SPA.
Disclosure of VAT Receivables
put the FILA Group on notice from the start of the bidding
process that Acushnet did business and sold goods in
countries that impose value added taxes (VATs).
added tax system works as follows. A VAT is a kind of sales
tax imposed at each stage of the distribution chain. The
entire amount of the VAT is supposed to be paid by the final
customer. Companies in the distribution chain must charge,
collect, and remit VATs to the taxing authority, but
ultimately are not supposed to incur any portion of the VAT
themselves. In nations that impose a VAT, a company like
Acushnet must pay a so-called input VAT as part of the price
it pays for inputs it buys from suppliers, and must charge a
so-called output VAT as part of the price it charges to and
collects from its customers. Acushnet must file a VAT return
at the end of each taxable period in each VAT jurisdiction,
stating the total output VAT it charged to its customers and
the total input VAT that Acushnet had paid to its suppliers,
which Acushnet is allowed to subtract as a credit. Acushnet
must pay the difference between the total output VAT that it
charged to its customers and the total input VAT it paid to
its suppliers over to the tax authority. At this point, as to
any particular sale to one of its customers Acushnet has paid
out an amount equal to the VAT that it charged to that
customer: it first paid the input VAT to its supplier, and
then paid the difference between the output VAT and the input
VAT to the tax authority. Under a VAT system, Acushnet is
supposed to be made whole when its customer pays Acushnet an
amount that covers the purchase price for the goods sold plus
an additional amount equal to the entire output VAT. If some
portion of output VAT owed by customers proves to be
uncollectible, a seller like Acushnet is entitled to subtract
the uncollectible output VAT as a credit or other allowance
on a future VAT tax return, and thereby recoup that amount.
This mechanism is designed to ensure that companies like
Acushnet are able to collect or otherwise recover the full
amount of VAT that they pay either as an input VAT charge or
as a net amount paid to the taxing authority. The Court
credits the unrebutted testimony to that effect by Joseph
Floyd, who was called by Acushnet to testify on its behalf as
an expert witness.
FILA Group understood that this is how a VAT system works, in
part because FILA Korea itself does business in countries
that impose a VAT and therefore is subject to VATs in the
same manner as Acushnet.
disclosed to the FILA Group that Acushnet does business in
countries with VATs and that, as a result, at the time of the
auction Acushnet was owed money by customers associated with
repayment of VATs. This disclosure was made in the first
draft of the SPA that Fortune provided to the FILA Group in
April 2011. This draft SPA included draft Disclosure
Schedules containing italicized notes that told potential
buyers that all customer receivables related to VAT have been
removed from Acushnet's gross accounts receiveable and
reclassified to other current assets. In its ...