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16-P-1611 Appeals Court
ACUSHNET COMPANY vs. BEAM, INC.1
No. 16-P-1611.
Suffolk. September 14, 2017. - February 2, 2018.
Present: Wolohojian, Agnes, & Wendlandt, JJ.
Corporation, Sale of assets, Subsidiary. Contract, Construction
of contract. Sale, Contract of sale, Of corporate
property. Taxation, Accounts receivable. Practice, Civil,
Summary judgment, Findings by judge.
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.
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,
1
Formerly known as Fortune Brands, Inc.
2
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
2
At the time, Acushnet was owned by Fortune Brands, Inc.
(Fortune), which, following the sale of Acushnet, changed its
name to Beam, Inc. The company was then acquired by another
entity and changed its name to Beam Suntory, Inc. To avoid
confusion, we simply refer to the defendant seller as "Beam"
throughout.
3
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
3
The actual parties to the SPA were Fortune, see notes 1
and 2, supra, and Alexandria Operations Corp., a holding company
created by the buyer group.
4
Each side was represented in the transaction by a team of
its own employees and a team of outside accountants, lawyers,
and investment bankers.
5
Sections 8.01(a) and (c) of the SPA, which were largely
unaltered during negotiations, provide, in pertinent part:
"(a) Seller shall be liable for and pay an amount equal to,
and shall indemnify and hold harmless the Buyer Group from
and against (i) all Taxes imposed on any Acushnet Company,
4
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
or for which an Acushnet Company may otherwise be liable,
for, or with respect to, any taxable year or period 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 . . . .
". . .
"(c) Buyer shall be liable for and pay, and shall indemnify
the Seller Group from and against, (i) all Taxes imposed on
an Acushnet Company, or for which any Acushnet Company may
otherwise be liable, for, or with respect to, any taxable
year or period that begins after the Closing Date and, with
respect to any Straddle Period, the portion of such
Straddle Period beginning after the Closing Date . . . ."
6
Section 8.02(a) of the SPA provides, in pertinent part:
"Buyer shall timely file or cause to be timely filed when
due (taking into account all extensions properly obtained)
all other Tax Returns that are required to be filed by or
with respect to any Acushnet Company and Buyer shall remit
or cause to be remitted any Taxes due in respect of such
Tax Returns. . . . Seller or Buyer shall pay the other
party for the Taxes for which Seller or Buyer,
respectively, is liable pursuant to Section 8.01 (after
taking into account any limitations herein), but which are
payable by the other party (after taking into account
estimated taxes paid by the first party) . . . ."
5
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
7
The parties agreed in the SPA that they had both
participated in its drafting and negotiation and that it would
not be construed for or against either party.
6
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 tenthirty
(1030) days after the actual receipt thereof or entitlement
theretoin 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)
7
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
8
The buyer group's outside tax attorney recalled one
conversation with Beam's outside tax attorney regarding section
8.01(b), but could not recall any specifics.
9
As defined in the SPA, "Taxes" included:
"[A]ll federal, state, local, foreign and other income,
gross receipts, sales, use, production, ad valorem,
transfer, franchise, registration, profits, license, lease,
service, service use, withholding, payroll, employment,
unemployment, estimated, excise, severance, environmental,
stamp, occupation, premium, property (real or personal),
real property gains, windfall profits, customs, duties or
other taxes, fees, assessments or charges of any kind
whatsoever, together with any interest, additions or
penalties with respect thereto and any interest in respect
of such additions or penalties."
8
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
10
If some portion of the VAT billed to customers proves
uncollectible, a vendor or retailer can still be "made whole" by
taking a credit for the loss on a future VAT tax return.
9
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 extent, an estimate. At the time of closing, the
estimated amount reported in the "VAT receivable-trade" line
item was $16.62 million.
While the words "VAT receivables" do not appear in the SPA,
those receivables were referenced in the accompanying disclosure
schedules. By agreement of the parties, a "working capital
adjustment" was to be made for any difference between Acushnet's
"base working capital"12 and the actual amount of its working
capital at the time of closing, with a corresponding postclosing
payment made by, as appropriate, the seller or buyer.13 To that
end, there were two accounting notes in the "working capital
calculation" section of the disclosure schedules indicating that
VAT receivables had been reclassified as "other current assets"
and were not included in accounts receivable; this meant that
11
This was because, when Beam would examine the "working
capital efficiency" of its various subsidiaries, Acushnet, as
the only one that collected VAT, always appeared to have
inordinately large accounts receivable.
12
The base working capital was established in the SPA.
13
The actual working capital at closing exceeded the base
working capital and, as a result, the buyer group paid Beam an
additional $62 million.
10
VAT receivables would not be included in the working capital
adjustment. Beam included the accounting notes to clarify how
Acushnet historically classified VAT receivables. The parties
never specifically discussed VAT receivables or the accounting
notes prior to the closing.
On October 20, 2011, almost three months after the closing,
Acushnet, now under its new ownership, sent Beam a demand
pursuant to the SPA, for reimbursement of $19.29 million in
taxes that Acushnet had paid, postclosing, to various tax
authorities for preclosing tax liabilities. Of the $19.29
million, approximately $3 million was for VAT.14 On November 1,
2011, Beam reimbursed Acushnet for only $2.67 million, after
taking a setoff of $16.62 million -- the amount that was
reflected in the "VAT receivable-trade" line item at the time of
closing.15 According to Beam, it was entitled to the setoff
under section 8.01(b) of the SPA because VAT receivables were
"amounts credited against or with respect to Taxes" for
preclosing tax periods. Acushnet disagreed, and this suit,
14
Acushnet, on Beam's behalf, had paid the $3 million in
VAT to tax authorities in various countries after applying
credits for approximately $5 million in input VAT that Acushnet
paid to its suppliers prior to the closing against approximately
$8 million in output VAT that Acushnet billed to customers,
again, prior to the closing.
15
Beam does not dispute that the $19.29 million was
otherwise due and owing.
11
seeking a declaratory judgment and asserting claims of breach of
contract and violation of G. L. c. 93A, followed.16
Discussion. 1. Ambiguity of the contract provision. We
turn first to the motion judge's denial of the cross motions for
summary judgment on the ground that section 8.01(b) of the SPA
is ambiguous.17 "Whether an agreement is ambiguous is a question
of law for the courts," Riverside S. Planning Corp. v.
CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009) (quotation
omitted), and is subject to our de novo review. See Balles v.
Babcock Power Inc., 476 Mass. 565, 571 (2017).18 Ambiguity is
assessed "by looking within the four corners of the document,
not to outside sources. . . . [C]ourts should examine the
entire contract and consider the relation of the parties and the
circumstances under which it was executed. Particular words
should be considered, not as if isolated from the context, but
in the light of the obligation as a whole and the intention of
the parties as manifested thereby. Form should not prevail over
16
Acushnet does not appeal from the trial judge's allowance
of Beam's motion for a directed verdict on Acushnet's claim for
alleged violations of G. L. c. 93A.
17
Acushnet wrongly ascribes the ambiguity ruling to the
trial judge. The sole focus of the trial was, as the trial
judge himself noted, "to decide the meaning of a single phrase
in a contract that [the motion judge] has ruled is ambiguous."
18
In conducting that review, we apply New York law.
Section 11.08(a) of the SPA provides, in part: "This Agreement
shall be governed by and construed in accordance with the
internal laws of the State of New York."
12
substance and a sensible meaning of words should be sought."
Kass v. Kass, 91 N.Y.2d 554, 566 (1998) (quotation omitted). "A
contract is unambiguous if the language it uses has a definite
and precise meaning, unattended by danger of misconception in
the purport of the agreement itself, and concerning which there
is no reasonable basis for a difference of opinion." Greenfield
v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002) (quotation
omitted). Ambiguity "arises when the contract . . . fails to
disclose its purpose and the parties' intent . . . , or where
its terms are subject to more than one reasonable
interpretation." Universal Am. Corp. v. National Union Fire
Ins. Co. of Pittsburgh, Pa., 25 N.Y.3d 675, 680 (2015)
(quotations omitted).
Acushnet argues that the phrase "amounts credited against
or with respect to Taxes" in section 8.01(b) clearly means --
and can only mean -- credits applied on a tax return filed with
a tax authority.19 This interpretation, Acushnet suggests, is
mandated by the language later in section 8.01(b) that required
it to pay Beam "the amount of any such credit . . . within
thirty (30) days after the filing of any Tax return in which the
credit is used." In other words, Acushnet maintains that the
19
Beam, meanwhile, has abandoned the position it took at
the summary judgment stage and asserts that the motion judge
"appropriately concluded" that section 8.01(b) is ambiguous. It
has also withdrawn its cross appeal.
13
language later in section 8.01(b) narrows the substantive scope
of the language appearing earlier in the section. And,
according to Acushnet, VAT receivables are not credits taken,
used, or applied on a tax return filed with a tax authority.
Instead, the VAT receivables reported on Acushnet's balance
sheet only represent a "snapshot in time" of the estimated
amount of VAT still due to Acushnet from customers, without
regard to the tax period in which the underlying output VAT had
been billed to customers and reported and paid to the applicable
tax authority.
We start by reviewing the plain language of section
8.01(b). In that regard, Acushnet rightly insists that we must
interpret the disputed provision and contract as a whole. At
the same time, however, it effectively asks us, through its
proffered interpretation, to read the phrase "with respect to"
out of section 8.01(b). This we cannot do. See Vermont Teddy
Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475 (2004)
("[C]ourts may not by construction add or excise terms, nor
distort the meaning of those used and thereby make a new
contract for the parties under the guise of interpreting the
writing" [quotation omitted]).
By its ordinary meaning, the phrase "with respect to," like
other similar phrases (e.g., "relating to," "in connection
with," "associated with," "with reference to"), suggests an
14
"expansive sweep" and "broad scope." California Div. of Labor
Standards Enforcement v. Dillingham Constr., N.A., Inc., 519
U.S. 316, 324 (1997). See Coregis Ins. Co. v. American Health
Foundation, Inc., 241 F.3d 123, 128-129 (2d Cir. 2001); Kamagate
v. Ashcroft, 385 F.3d 144, 154 (2d Cir. 2004). At the same
time, we must avoid applying a "hyper-literal approach" to our
interpretation of what can seem to be an open-ended phrase. See
Greater N.Y. Metropolitan Food Council, Inc. v. Giuliani, 195
F.3d 100, 106 (2d Cir. 1999) (Giuliani). With all of this in
mind, we start from the premise that the phrase "with respect
to" as utilized in section 8.01(b) must be taken to expand the
scope of the amounts that are "for the account" of Beam, as
seller, beyond those "credited against . . . Taxes." So too, as
the parties agreed, the word "Taxes" was defined in the SPA to
include VAT. VAT receivables, in turn, are amounts owed by
customers for VAT. In short, we cannot conclude that the
language in section 8.01(b) has such a definite and precise
meaning as to exclude VAT receivables, even though we understand
that the VAT receivables reported on Acushnet's balance sheet
were not necessarily synonymous with the output VAT reported on
a particular tax return.
Certainly, if the intent had been to limit Beam's rights
under section 8.01(b) to tax credits taken or used on a tax
return, that could have been stated differently. Clearly, the
15
parties could have deleted the words "or with respect to." They
also could have replaced the words "amounts credited against or
with respect to Taxes" with the phrase "tax credits." The
phrase "Tax refunds" appears in section 8.01(b),20 but not "Tax
credits." This is notable given that the parties used the
phrase "Tax refund or credit" in other parts of section 8.01.21
We have to assume, therefore, that they were aware of the phrase
"tax credits" and would have used it had they intended to impose
the same meaning in section 8.01(b). See International Fid.
Ins. Co. v. Rockland, 98 F. Supp. 2d 400, 412 (S.D.N.Y. 2000)
("Sophisticated lawyers . . . must be presumed to know how to
use parallel construction and identical wording to impart
identical meaning when they intend to do so, and how to use
different words and construction to establish distinctions in
meaning"). Instead, the parties used a phrase that lends itself
to ambiguity. See Giuliani, 195 F.3d at 105 ("[A]mbiguity
resides . . . in the open-ended language . . . 'with respect
to'").
20
There is no dispute that the VAT receivables did not
qualify as "tax refunds" under section 8.01(b).
21
Sections 8.01(e) and (f) address tax audits or amendments
of tax returns that result in an increase or decrease in, among
other things, the amount of a "Tax refund or credit to which
[Beam] is entitled under Section 8.01(b)." Acushnet argues that
this bolsters its argument that Beam is only entitled to "Tax
refunds or credits" under section 8.01(b). Given the context in
which that phrase is used in sections 8.01(e) and (f), however,
it does not appear reasonable to draw such an inference.
16
The language later in section 8.01(b), relied upon by
Acushnet, is also not a model of clarity. When read in full, it
requires Acushnet to pay Beam "the amount of any such credit
actually received in cash . . . within thirty (30) days after
the filing of any Tax return in which the credit is used"
(emphasis added). The attorney who inserted that language on
behalf of Acushnet testified that it was not "artfully drafted,"
given that a tax credit is typically not received in cash but,
rather, taken as an offset.22 Inartfully drafted or not,
however, the language cannot be ignored.
Finally, Acushnet argues that its interpretation of section
8.01(b) is the only one consistent with the transaction as a
whole. Specifically, Acushnet notes that, in return for the
payment of $1.225 billion, the buyer group purchased all of the
stock and, thus, all of the assets of Acushnet. As per the
accounting notes that Beam inserted in the disclosure schedules,
VAT receivables were identified as one of Acushnet's "other
current assets"; and nowhere in the contracting documents were
VAT receivables excluded from the sale. Hence, according to
Acushnet, the VAT receivables were one of the assets purchased
by the buyer group.
22
Acushnet's attorney testified that he intended the words
"actually received in cash" to refer to tax refunds.
17
The transaction, however, was also structured to allocate
Acushnet's tax liabilities and benefits to Beam and the buyer
group on a pre- and postclosing basis, respectively. And, once
again, while the $16.62 million in VAT receivables on Acushnet's
balance sheet were not "Taxes" per se as defined in the SPA,
they were related to preclosing taxes. In addition, as we have
noted, because the VAT receivables were classified under "other
current assets," Acushnet did not pay any additional amounts for
those assets as part of the postclosing working capital
adjustment.23 Acushnet then proceeded, postclosing, to collect
nearly all of the VAT receivables from customers.24 The net
effect of Acushnet's interpretation, therefore, would be to hold
Beam responsible for paying to the tax authorities the output
VAT related to preclosing VAT receivables while barring it from
recouping those amounts through the postclosing collection of
the same VAT receivables. Such an interpretation is at odds
with the over-all tax allocation structure of the transaction.
We accordingly conclude that the intent of the parties is
not clearly expressed within the four corners of the contract
23
Admittedly, this appears to have been a product of
Acushnet's historical reclassification of VAT receivables and
not an act undertaken for the express purpose of removing VAT
receivables from the transaction due to any arguable relation to
taxes.
24
Acushnet had, at least by the time of trial, collected
$15.54 million of the $16.62 million in VAT receivables.
18
and that, as a matter of law, section 8.01(b) is ambiguous in so
far as it concerns postclosing rights to preclosing VAT
receivables.
2. Findings at trial. What remains, therefore, is
Acushnet's argument that certain subsidiary findings of the
trial judge are clearly erroneous and therefore his ultimate
finding as to the parties' intent with respect to the allocation
of preclosing VAT receivables must be reversed. See M. O'Neil
Supply Co. v. Petroleum Heat & Power Co., 280 N.Y. 50, 55-56
(1939) (when the language of a contract is ambiguous, it is for
the fact finder to ascertain and give effect to the intention of
the parties).
"To prevail on appeal on the basis of an assault on a
judge's factual findings is no easy matter, for we accept the
judge's findings of fact as true unless they are 'clearly
erroneous.'" Millennium Equity Holdings, LLC v. Mahlowitz, 456
Mass. 627, 636 (2010) (quotation omitted) (Millennium). We "do
not review questions of fact if any reasonable view of the
evidence and the rational inferences to be drawn therefrom
support the judge's findings . . . [and we will] uphold the
findings of a judge who saw and heard the witnesses unless we
are of the definite and firm conviction that a mistake has been
made." Martin v. Simmons Properties, LLC, 467 Mass. 1, 8 (2014)
(quotation omitted).
19
"When a term or clause is ambiguous, the parties may submit
extrinsic evidence as an aid in construction . . . ." Dobbs v.
North Shore Hematology-Oncology Assoc., P.C., 106 A.D.3d 771,
772 (N.Y. 2013) (quotation omitted). For example, evidence may
be submitted concerning "conversations, negotiations and
agreements made prior to or contemporaneous with the execution"
of the agreement, 67 Wall St. Co. v. Franklin Natl. Bank, 37
N.Y.2d 245, 248-249 (1975); the predispute conduct of the
parties, Innophos, Inc. v. Rhodia, S.A., 38 A.D.3d 368, 375
(N.Y. 2007) (McGuire, J., concurring in part and dissenting in
part), aff'd, 10 N.Y.3d 25 (2008); and industry custom and
usage, see Reuters Ltd. v. Dow Jones Telerate, Inc., 231 A.D.2d
337, 343-344 (N.Y. 1997) (Reuters). Evidence concerning a
party's uncommunicated subjective intent, however, is
irrelevant. Nycal Corp. v. Inoco PLC, 988 F. Supp. 296, 302
(S.D.N.Y. 1997), aff'd, 166 F.3d 1201 (2d Cir. 1998). "The
purpose of contract interpretation . . . is to determine the
intentions of the parties . . . by examining [their] objective
manifestations." Id. at 301.
Here, after a six-day trial at which the parties presented
hundreds of exhibits and the testimony of numerous witnesses,
the trial judge found that the parties' purpose was to include
VAT receivables among the "amounts credited against or with
respect to Taxes." This ultimate finding was soundly anchored
20
to several subsidiary findings, namely: (1) while the parties
submitted the subjective interpretations of individuals involved
in the underlying negotiation and drafting, there was no
evidence of communications regarding section 8.01(b) beyond the
exchange of drafts of the SPA; (2) there was no evidence that
the phrase "amounts credited against or with respect to Taxes"
is a term of art or that it has any recognized and accepted
meaning as a matter of industry custom and usage; and (3) there
was no evidence of any subsequent course of performance between
the parties that would demonstrate a shared understanding of the
disputed phrase. Moreover, the judge's interpretation of the
contract is consistent with both (a) the division of tax
liability and benefits under the SPA, and (b) the premise that a
vendor or retailer will be left in a net zero position with
respect to VAT.
Nonetheless, Acushnet claims that the trial judge did not
understand what version of the contract was at issue. To
support this argument, Acushnet points to the fact that the
trial judge never quoted the final version of section 8.01(b) in
his decision, but instead quoted from a draft of section 8.01(b)
that was prepared by the buyer group, was never shared with
Beam, and did not include the modifying language upon which
Acushnet relies, which appears toward the end of section
21
8.01(b).25 All of this is true.26 The final version of section
8.01(b) and Acushnet's argument based on it, however, were not
lost on the trial judge, both having been addressed ad infinitum
at trial in various filings, by numerous witnesses, and in
Acushnet's closing brief and argument. Throughout the trial,
the judge demonstrated that he had a firm grasp of the issues,
the language of the final version of section 8.01(b), and the
parties' respective contentions. His comments during closing
arguments, referencing "credits . . . applied on a tax return,"
25
As we have noted, that language provides that Acushnet
was required to pay Beam "the amount of any such credit . . .
within thirty (30) days after the filing of any Tax return in
which the credit is used."
26
The draft of section 8.01(b) quoted by the judge
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 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 thereto, 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).
This version of the draft does not include the phrase appearing
in the final draft at **: "in the case of a refund, or within
thirty (30) days after the filing of any Tax return in which the
credit is used,".
22
in particular, demonstrate that he was basing his decision on
the correct contract language.27 For these reasons, although the
judge did not quote the correct contract language in his
decision, we are not left with a "definite and firm conviction
that a mistake has been committed."28 Millennium, 456 Mass. at
637 (quotation omitted).
Acushnet further argues that the trial judge erred when he
discounted certain opinion testimony that the phrase "amounts
credited against or with respect to Taxes" is limited to tax
credits. However, the judge was not required to accept the
experts' testimony. Evidence of industry custom and usage "is
not admissible to influence the construction of a contract
unless it appears that it be so well settled, so uniformly acted
upon, and so long continued as to raise a fair presumption that
it was known to both contracting parties and that they
contracted in reference thereto. That one party had knowledge
of the usage, and supposed that it would enter into the
contract, is not sufficient." Reuters, 231 A.D.2d at 343-344
(quotation omitted). Moreover, Acushnet's "expert" and
27
The judge commented, "As I understand Beam's position,
their position is that [section] 8.01(b) is not limited to tax
credits that are applied on a tax return. I understand if I
agree with Acushnet on that point, then [Acushnet] should win."
(Emphasis supplied.)
28
Acushnet did not to seek clarification or reconsideration
from the trial judge after he issued his decision.
23
"professional" witnesses' opinion testimony was imperfect at
best. They had not seen the exact contract language used
elsewhere; they could not identify other transactions in which
they had seen the same phrase or term; and they acknowledged it
was not a defined phrase under Generally Accepted Accounting
Principles. In sum, the evidence of industry custom and usage
was underwhelming and the trial judge, therefore, did not commit
clear error by discounting it. It does not matter that the
evidence was not rebutted. See McDonough v. Vozzela, 247 Mass.
552, 558 (1924) (judge "not bound to give credit to testimony
even though uncontradicted").
Judgment affirmed.