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Acushnet Co. v. Beam, Inc.

Appeals Court of Massachusetts, Suffolk

February 2, 2018

ACUSHNET COMPANY
v.
BEAM, INC.[1]

          Heard: September 14, 2017.

         Civil action commenced in the Superior Court Department on March 27, 2012.

         The case was heard by Kenneth W. Salinger, J.

          Eric R. Breslin, of New Jersey (Sean S. Zabeneh, of Pennsylvania, & Bronwyn L. Roberts also present) for the plaintiff.

          Michael J. Tuteur (Michael Thompson also present) for the defendant.

          Present: Wolohojian, Agnes, & Wendlandt, JJ.

          WOLOHOJIAN, J.

         At issue is the interpretation, under New York law, of a provision in the stock purchase agreement pursuant to which Beam, Inc. (Beam), sold its subsidiary, Acushnet Company (Acushnet).[2] More specifically, the parties disagree as to which of them is entitled to $16.62 million of value added tax (VAT) receivables carried on Acushnet's balance sheet at the time of the closing. Beam took the amount as a postclosing setoff for its own benefit; in response, Acushnet brought this suit. On cross motions for summary judgment, a judge of the Superior Court determined that the contract provision was ambiguous. A jury-waived trial followed before a second judge, who found that the "apparent purpose of the parties" was to allow for the setoff. On appeal, Acushnet argues (1) that the motion judge erred, as a matter of law, when she concluded that the contract provision was ambiguous; and (2) that the trial judge's interpretation of the contract was clearly erroneous. We affirm.

         Background.

         The following facts are either undisputed or taken from the trial judge's findings of fact and supported by the record.

         In late 2010, Beam decided to sell Acushnet (a wholly-owned subsidiary engaged in the manufacture and distribution of golf products) by way of auction. The eventual winning bidder was a group led by FILA Korea, Ltd. (buyer group), and, after a period of negotiations, the parties formalized the deal in a stock purchase agreement (SPA), dated May 19, 2011.[3] A little over two months later, on July 29, 2011, the transaction closed, with the buyer group purchasing all of the stock in Acushnet for $1, 225 billion, subject to certain postclosing adjustments. Acushnet operated thereafter under its new ownership.

         To ensure the sale proceeded promptly and smoothly, Beam decided prior to soliciting bids to remove all issues regarding taxes by creating a bright-line allocation of Acushnet's preclosing tax liabilities to itself, as seller, and of postclosing tax liabilities to Acushnet and its new owners. While no one from the Beam side explicitly conveyed that intent to anyone representing the buyer group, [4] it was manifestly clear from the structure of the transaction as reflected in the SPA, as well as every draft of the SPA exchanged between the parties.[5]

         That said, the parties anticipated at least two types of tax situations where further arrangement was required. First, they foresaw that some of Acushnet's postclosing tax returns would include preclosing tax liabilities. To deal with this situation, the parties agreed in the SPA that Beam would reimburse Acushnet for any preclosing tax liabilities included in Acushnet's postclosing tax returns.[6]

         Second, the parties also anticipated the possibility that amounts related to preclosing tax liabilities might come into Acushnet's possession after the closing and need to be paid over to Beam. The parties addressed this in section 8.01(b) of the SPA, which provides, in pertinent part:

"Any tax refunds that are received by or with respect to any Acushnet Company, and any amounts credited against or with respect to Taxes to which any Acushnet Company becomes entitled, that relate to any taxable year or portion thereof that ends on or before the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing Date, shall be for the account of the Seller, and Buyer shall pay (or cause the relevant Acushnet Company to pay) over to the Seller any such refund or the amount of any such credit actually received in cash within thirty (30) days after the actual receipt thereof in the case of a refund, or within thirty (30) days after the filing of any Tax return in which the credit is used, except to the extent Seller Group has an indemnification or payment obligation under this Agreement for such Taxes that has not been satisfied ..." (emphasis added).

         The highlighted language, the interpretation of which is at issue in this dispute, came to be included in the final version of section 8.01(b) through the combined drafting efforts of the parties.[7]

         As originally proposed in the first draft of the SPA circulated by Beam on April 7, 2011, section 8.01(b) provided:

"Any tax refunds that are received by or with respect to any [Acushnet] Company, and any amounts credited against or with respect to Taxes to which any [Acushnet] Company becomes entitled, that relate to any taxable year or portion thereof that ends on or before the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing Date, shall be for the account of the Seller, and Buyer shall pay (or cause the relevant [Acushnet] Company to pay) over to the Seller any such refund or the amount of any such credit within ten (10) days after receipt thereof or entitlement thereto, except to the extent Seller Group has an indemnification or payment obligation under this Agreement for such Taxes that has not been satisfied" (emphasis added).

         On May 2, 2011, the buyer group responded and provided Beam with proposed changes throughout the SPA, including the following proposed additions and deletions to section 8.01(b):

"Any Tax refunds that are received by or with respect to any [Acushnet] Company, and any amounts credited against or with respect to Taxes to which any [Acushnet] Company becomes entitled, that relate solely to any taxable year or portion thereof that ends on or before the Closing Date and, with respect to any Straddle Period, the portion of such Straddle Period ending on and including the Closing Date, shall be for the account of the Seller, and Buyer shall pay (or cause the relevant [Acushnet] Company to pay) over to the Seller any such refund or the amount of any such credit actually received in cash within ten thirty (1030) days after the actual receipt thereof or entitlement there to in the case of a refund, or within thirty (30) days after the filing of any Tax return in which the credit is used, except to the extent Seller Group has an indemnification or payment obligation under this Agreement for such Taxes that has not been satisfied" (strikeout and emphasis original).

Beam accepted all of these proposed changes except for the addition of the word "solely." When the buyer group did not insist on the inclusion of that word, therefore, section 8.01(b) was complete. The parties never communicated about section 8.01(b) other than through the exchange of drafts.[8]

         Nor did the parties discuss value added taxes (VAT) during their negotiations. Nonetheless, it was undisputed that value added taxes were included in the term "Taxes, " as defined in the SPA.[9] And the buyer group was aware from the outset that Acushnet conducted business in countries that, unlike the United States, utilize a VAT system.

         A VAT is a consumption tax, akin to a sales tax, that is imposed, in supposed recognition of the "value added, " at each stage of the production or distribution chain. Each initial and intermediary vendor or retailer in the chain, such as Acushnet, pays VAT on its own purchases of raw materials and other necessary products from its suppliers (input VAT), and then bills and collects VAT from its own customers (output VAT), with the final customer in the chain, often a consumer, paying the entire amount of the VAT. At the end of each VAT tax period, which can be monthly, quarterly, or annually depending on the jurisdiction, each vendor or retailer along the chain, other than the final customer, reports and pays to the applicable taxing authority all of the output VAT that it has billed to its customers during that period, after taking a credit for all of the input VAT that it has paid during the same tax period. Output VAT is reported and paid to the taxing authority even if the tax has not yet been collected from customers. In theory, each vendor or retailer in the chain, other than the final customer, should be placed in a "net zero" position with respect to VAT by (1) taking a credit on a VAT tax return for the input VAT it has paid and (2) collecting from its customers the output VAT that it has paid to tax authorities.[10]

         Typically, a vendor or retailer does not report the amount of VAT it is owed as a separate figure or asset on its balance sheet, but instead includes it within its over-all "accounts receivable." Starting as far back as 2003, however, Acushnet had recorded VAT receivables in a separate line item on its balance sheet, labeled "VAT receivable-trade."[11] Since Acushnet was not always in a position to calculate the amount of outstanding VAT receivables with precision in every jurisdiction where it collected VAT, the figure reported in that line was, to a certain ...


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