Attorneys for Appellants Attorneys for Appellee
Jeffrey R. Gaither John C. Hoard
T. Joseph Wendt R. Brock Jordan
Indianapolis, Indiana Indianapolis, Indiana
David J. Theising
Indiana Supreme Court
ISP.com LLC and ISP.net LLC,
Appellants (Defendants below),
David J. Theising, Receiver of
IQuest Internet, Inc.,
Appellee (Plaintiff below).
Appeal from the Hamilton Superior Court, No. 29D01-0202-PL-0104
The Honorable Steven R. Nation, Judge
On Petition To Transfer from the Indiana Court of Appeals, No. 29A02-0207-CV-0610
March 4, 2004
The plaintiff is David J. Theising, as the receiver of IQuest Internet, Inc.
The defendants responded to his complaint with a motion to compel arbitration
of the dispute. The motion was based on an arbitration clause in
an agreement entered into between the defendants and IQuest before IQuest was in
receivership. The trial court refused to compel arbitration and the Court of
Appeals affirmed that order on interlocutory appeal. We hold that the arbitration
clause is enforceable against the receiver as the successor in interest to IQuest.
Factual and Procedural Background
This case comes to us on interlocutory appeal from denial of a motion
to compel arbitration. As a result, we have the pleadings, which include
salient documents as exhibits, but no hearings or development of the factual background.
Our account of the facts is taken from the allegations of pleadings,
some court orders, and the documentation of the transactions that gave rise to
this dispute. There are significant gaps in the information available to us,
and we have no confidence that the facts will prove to be as
we currently understand them, or assume them to be. For purposes of
this appeal, however, the only material facts are the allegations of the complaint
and the relevant documents. We provide these allegations because the nature of
the claims is relevant to the only issue before us, which is whether
or not Theising is required to arbitrate his dispute with ISP. Liability
of other parties and arbitrability of disputes among other parties are not at
issue here. Except where indicated, the following account is taken from the
allegations of the complaint. They remain to be proven.
Until January 2000, IQuest Internet, Inc., an Indiana corporation, operated a dial-up internet
service based in Hamilton County. Its president and majority shareholder was one
Robert Hoquim, about whom more later. Four other individuals, John Carr, David
Julius, Terry Meadors and Thomas Neville, Jr., were also shareholders and participated in
the management of the company. On January 13, 2000, two Indiana limited
liability companies, ISP.com, LLC and ISP.net, LLC (collectively ISP
), agreed to acquire the
business. The form of the transaction was an asset sale embodied in
an Asset Purchase Agreement whereby ISP agreed to purchase substantially all of the
business assets of IQuest except cash and receivables and to assume designated liabilities.
The agreement contained the lengthy list of warranties and representations usually found
in an asset acquisition of a going business. Among these was IQuests
warranty, joined by Hoquim, that IQuest was current with taxing authorities. IQuest
and Hoquim indemnified ISP against a variety of circumstances, including breach of any
representation or warranty in the agreement. The purchase price was stated as
$23 million cash, and the agreement called for ISP to pay the price
by wire transfer to an account designated by IQuest.
On February 16, 2000, the parties closed the sale, apparently without further document
Rather than paying the entire purchase price to IQuest, ISP paid $13.15
million of the purchase price directly to Hoquim in the form of $12
million in two promissory notes and $1.15 million in cash.
for $2 million, matured in May of 2002, and apparently substantial payments were
made on that note. The second note was for $10 million and
would mature in 2005. ISP and Hoquim executed a Loan and Security
Agreement securing ISPs obligations to Hoquim under the $10 million note and providing
that ISP could set off against its obligations under the note any amounts
Hoquim owed under the indemnity provisions of the Asset Purchase Agreement. In
effect, the Loan and Security Agreement purported to permit ISP to invoke self-help
to reduce the purchase price for IQuests assets by the amount of any
damages, at least up to $10 million, resulting from breaches of the sellers
representations, undertakings or warranties. Another $3 million of the purchase price was
paid in the form of issuance of ownership credits in ISP
and Neville, both IQuest officers, in the amounts of $2 million and $1
Hoquim died intestate in May 2000. The Court of Appeals tantalizingly informs
us that at the time of his death Hoquim was a thirteen year
fugitive wanted by the Federal Bureau of Investigation whose real name was John
but supplies no elaboration on this unusual circumstance. There are
other interesting gaps in the information available to us. The record does
not reveal the ownership of ISP before or after the sale, so we
are in the dark as to the relative equity position in ISP the
ownership credits represented. Nor are we told whether ISP had an independent
existence before the sale or was newly formed for purposes of acquiring IQuests
assets. We are given no indication of the circumstances of Hoquims death,
and, consistent with the many lacunae in this record, we are not told
whether his name was pronounced hokum, ho-KEEM or something else. Whatever the
answer to these mysteries, it seems clear that IQuest was not without its
problems. The receiver alleges that neither IQuest since its inception in 1995
nor Hoquim for many years before that had paid any federal or state
taxes, and at the time of the sale IQuest had a substantial liability
to taxing authorities. If true, these allegations would appear to establish a
breach of the warranty in the Asset Purchase Agreement.
As best we can make out, this appeal is taken in the fourth
of four separate but related l
egal proceedings. First, on December 15, 2000,
IQuest was thrown into receivership by its creditors and the Hamilton Superior Court,
in cause CP-668, appointed Theising as receiver. Second, Hoquims Estate was opened
at some point, apparently as a probate matter
in Hamilton County as cause
ES-44. Third, on January 16, 2001, Hoquims Estate filed cause CP-75 in
Marion Superior Court Room 11 to collect the note from ISP.com and ISP.net
and two individuals who guaranteed ISPs note to Hoquim.
On March 30, 2001, ISP moved to arbitrate the Marion County case.
While that motion was pending, on September 4, 2001, the Hamilton Superior Court
entered an order in Hoquims Estate finding that Theising was entitled to the
$10 million note and some $1.8 million in cash representing the proceeds of
ISPs payments on the two notes before ISP stopped paying. The basic
reasoning of the court in the estate proceeding was that the direct payments
of the asset purchase price to Hoquim had been frauds on creditors of
IQuest. On September 21, 2001, the Marion Superior Court ordered arbitration of
the dispute before it.
In December 2001, pursuant to the order of
the Hamilton County probate court, Hoquims Estate assigned the $10 million note from
ISP to Theising, as receiver of IQuest, and Theising was substituted for IQuest
as plaintiff in the Marion County case. Theising unsuccessfully filed a Motion
to Correct Errors seeking to overturn the order to arbitrate and has separately
appealed the Marion County order directing arbitration of the claim to collect the
This appeal is taken from rulings of the trial court in a suit
filed in Hamilton Superior Court as PL-104. The defendants in this case
are ISP.com, ISP.net, and Carr, Neville, Julius and Meadors, who Theising alleges were
shareholders, officers and directors of IQuest at all relevant times. On February
15, 2002, after obtaining the approval of the receivership court, Theising filed the
current complaint in Hamilton Superior Court. In this lawsuit, which is separate
from both the receivership and the Estate, Theising alleges that the shift in
method of closing the asset sale to payment of the purchase price directly
to Hoquim and others amounted to a fraudulent transfer by IQuest in which
ISP and the four other individual defendants participated in various capacities and for
which each of them was liable. Theising claims, among other things, that
the closing left IQuest with insufficient funds to pay its debts. The
complaint alleges that IQuest was insolvent at the time of the sale and
also after the sale when the four individuals surrendered their IQuest shares in
exchange for substantially all of the cash IQuest received from ISP. The
complaint alleges that these exchanges, and the ownership credits to Carr and Neville,
were fraudulent conveyances that Theising, as IQuests receiver, is entitled to set aside.
The same basic facts are alleged to support claims against these four
individuals for negligent mismanagement of IQuest, director liability for unlawful distributions from an
insolvent corporation, and breach of fiduciary duty to creditors of IQuest.
In addition to the fraudulent conveyance claims, Theisings complaint also alleges that the
four individuals acted on behalf of ISP in the acquisition and knew of
IQuests false representations in the Asset Purchase Agreement. Theising contends that ISP
is charged with this knowledge and is therefore estopped from asserting breaches of
those representations and warranties as a setoff against ISPs obligations on the note.
On June 10, 2002, ISP moved in this proceeding in Hamilton County to
stay proceedings and compel arbitration of this dispute based on the arbitration clause
in the Asset Purchase Agreement. The trial court denied ISPs motion and
the Court of Appeals affirmed. We now grant transfer and reverse the
I. Receivers Obligation to Arbitrate
As already noted, in the estate proceeding, the court concluded that Hoquim could
not retain the note or the cash payments made under them because their
direct payment to Hoquim constituted a fraud on creditors of IQuest. Fraud
on creditors is essentially the same theory Theising now pursues in attempting to
recover from the individual defendants. Insofar as the complaint seeks relief from
ISP, however, Theising seeks more than simple restitution of assets diverted from IQuest.
Hoquims Estate apparently did not seek to invoke arbitration, and the issues
on this appeal were not raised in the estate proceeding. Similarly, there
appears to be no claim raised here that the ruling of the Marion
Superior Court ordering arbitration of the note claim is res judicata or otherwise
precludes Theising from relitigating arbitrability in this case. Accordingly, we address the
contention that disputes between ISP and Theising must be arbitrated as a freestanding
Arbitrability of Fraud Claims
The Court of Appeals acknowledged the general rule that a receiver for a
corporation takes only the rights of the corporation, such as could be asserted
in its own name. ISP.com, LLC v. Theising, 783 N.E.2d 1228, 1231
(Ind. Ct. App. 2003) (quoting Voorhees v. Indianapolis Car & Mfg. Co., 140
Ind. 220, 239, 39 N.E. 738, 744 (1895)). However, the Court of
Appeals, again quoting Voorhees, noted an exception to this rule for acts .
. . done in fraud on the rights of [creditors or shareholders], but
which are valid against the corporation itself. Id. From this, the
Court of Appeals concluded that Theising may act to represent creditors who are
charging that fraud has occurred, and because the IQuests creditors were not parties
to the arbitration clause, Theising was free to bring his claims in court
to the extent they charge fraud. Id. The fraudulent conveyance claims
were claims of fraud, therefore no arbitration was required.
We agree with these general propositions, but believe the Court of Appeals has
read them too broadly. Voorhees was a case where this Court reversed
a trial court ruling permitting a group of creditors to assert claims on
behalf of a corporation already in receivership. This Court pointed out the
chaos that could result from permitting each individual creditor to exercise its own
judgment as to potential claims by the corporation. The passage quoted above
appears in the course of discussing that issue. For the proposition that
the receiver stands in the shoes of the corporation, the Court cited James
L. High, Receivers, § 315, at 249 (2d ed. 1886), and Charles Fisk
Beach, Commentaries on the Law of Receivers § 639 (1894). We agree
that the receiver succeeds to the rights of the corporation, and that the
receiver is obligated to act in the interest of the creditors. But
that does not mean a receiver may pursue any fraud action unfettered by
the obligations of the corporation, and we do not read the cited authorities
to suggest that. Rather, the receiver is not barred by defenses that
may preclude recovery by the corporation if the acts complained of constituted a
fraud on shareholders or creditors. See McCandless v. Furlaud, 296 U.S. 140,
159 (1935) (citing Casey v. Cavaroc, 96 U.S. 467, 488 (1877)); Am. Can
Co. v. Erie Preserving Co., 171 F. 540, 542 (W.D.N.Y. 1909); Waslow v.
Grant Thornton, LLP, 240 B.R. 486, 505 (Bankr. E.D. Pa. 1999); Marcovich v.
OBrien, 63 Ind. App. 101, 113, 114 N.E. 100, 104 (1916). But
the fraud exception applies only to those claims where the receivers interest is
adverse to the corporation and where the fraud is such that, as Voorhees
put it, the receiver attacks acts that are valid against the corporation itself.
This exception permits a receiver to assert claims free from defenses, such
as in pari delicto, that might bar the corporation. For example where
the corporation was a tool of its management in a scheme to defraud
investors, the corporations receiver was not precluded from recovering assets fraudulently stripped from
the corporation. See Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir.
1995). The receiver is in some respects a new entity, untainted by
the corporations wrongdoing. He is not necessarily barred by in pari delicto.
Elimination of an in pari delicto defense permits the receiver to prevail
in asserting the corporations rights but it does not result in the receivers
asserting rights of creditors. Id. This doctrine eliminates defenses to claims
by the corporation. But we see no reason why it should relieve
the receiver generally of the contractual undertakings such as an arbitration or forum
selection clause, unless the clause itself is fraudulently induced.
The Nature of the Receivers Claims
Here the thrust of much of the complaint is recovery of assets diverted
from IQuest to its shareholders, and the liability of those same individuals for
corporate mismanagement in their roles as officers and directors. These seem to
be classic examples of claims the corporation itself could pursue, and therefore, although
claims of fraud, do not fall within the exception permitting the receiver to
assert claims free from defenses that might bar the corporation because he is
essentially adverse to the corporation. But the issue here is not arbitration
of issues of liability of the director-shareholders who received these assets or who
ran IQuest for several years. ISP alone seeks arbitration. The first
allegation against ISP appears in Count XI of Theisings complaint, following ten counts
against the individuals. Theising there asserts estoppel against ISPs assertion of breach
of IQuests warranty regarding current taxes. This estoppel is alleged to arise
from Theisings allegation that the four individuals acted for both IQuest and ISP
in the asset sale, and therefore their knowledge of IQuests failure to file
tax returns is chargeable to ISP, and precludes ISPs reliance on the warranty
to reduce the purchase price. This theory of ISPs complicity in the
wrongs alleged against IQuests management presents an entirely different complex of issues from
the liability of those individuals. It amounts to a claim that ISP
is chargeable with the actions of the director-shareholders of IQuest. If that
is the case, ISPs liability is one for which IQuest would have a
remedy. If IQuest were not in receivership, there would be no reason
why it could not pursue such a claim against ISP and its former
directors. If the four individuals were still in charge of IQuest, a
shareholder derivative suit could assert such a claim. In either case, however,
the corporations agreement to arbitrate that dispute would be enforceable. The receiver
is bound by the undertakings of the corporation unless the undertaking itself constitutes
a fraud on creditors.
The facts alleged in these complaints, none of which have gone to trial,
suggest a wide range of possible scenarios. At one extreme, ISP is
composed of new investors who were victims of a scheme to sell off
an insolvent corporation at an exorbitant price. In that view, the creditors
were not harmed by the sale as long as the real purchase price,
net of offsets, is recovered from the selling shareholders for their benefit, leaving
the assets for creditors as they were before the sale. Or ISP
could be nothing more than a tool of IQuests management in an attempt
to bail out of a sinking operation at the expense of both IQuests
creditors and ISPs financiers. Or ISP could be merely an alter ego
of IQuests former management in a scheme to reincorporate free of the liabilities
IQuest had accumulated. Or the sale could be in substance a reorganization
designed to cash out Hoquim but leave the rest of ownership and management
in place. We cannot evaluate whether, as Theising alleges, the management of
IQuest was on both sides of the table at the closing, or a
number of other questions that this incomplete record presents. We identify these
possibilities not because we suggest any of them reflect the facts of this
case, but to underscore the point that at this stage it is not
easy to separate the good guys from the bad guys, assuming there are
some bad guys. This further bolsters the conclusion that the receiver steps
into the shoes of the corporation, and should have no worse and no
better hand to play than his predecessor in dealing with this cast of
potential victims and perpetrators.
C. Assertion of Claims of Creditors
An arbitration clause, like any other contract, binds the parties to the agreement
and those in privity. Mislenkov v. Accurate Metal Detinning, Inc., 743 N.E.2d 286,
289 (Ind. Ct. App. 2001); see OEC-Diasonics v. Major, 674 N.E.2d 1312, 1314-15
(Ind. 1996). Privity is found if a non-party holds a mutual
or successive relationship with [a party] with regard to property or that their
interests are so identical as to represent the same legal right. Mislenkov,
743 N.E.2d at 289. A receiver of a corporation is in privity
with that corporation. Marion Trust Co. v. Blish, 170 Ind. 686, 693,
84 N.E. 814, 817 (1908); Federal Sav. & Loan Ins. Corp. v. Dir.
of Revenue, 650 F. Supp. 1217, 1223 (N.D. Ill. 1986); Buchanan v. Hicks,
136 S.W. 177, 180 (Ark. 1911); Armstrong v. Greenwich Motors Corp., 165 A.
598, 599 (Conn. 1933); Brooks v. Miami Bank & Trust Co., 156 So.
757, 759 (Fla. 1934). We agree with the Court of Appeals that
creditors of a corporation are not in privity with it. We disagree
that a receiver generally represents the creditors, in the sense that the receiver
can assert the creditors claims for them.
The Court of Appeals cited
Capitol Life Ins. Co. v. Gallagher, 839 F.
Supp. 767, 768 (D. Colo. 1993), for the view that a receiver may
assert claims of creditors. We think that case supports the opposite conclusion
as applied to a state law receiver for a general business corporation like
IQuest. Gallagher was the Florida Insurance Commissioner who became the receiver of
GSL, an insolvent insurer. He sought the right to assert a class
action on behalf of GSLs policyholders against Capitol Life, which had a reinsurance
agreement with GSL. The federal court permitted Gallagher to present a class
action claim on behalf of policyholders directly, asserting their rights under the insurance
contracts. Id. at 770. The decision was driven by the unique legal
framework that governs insurance companies, which are not subject to bankruptcy laws, and
are liquidated or rehabilitated under state law. 11 U.S.C. § 109(b)(2) (2000);
Sims v. Fidelity Assurance Assn., 129 F.2d 442, 451 (4th Cir. 1942).
It does not apply to claims asserted as a receiver. As the
federal district court pointed out, it was undisputed that Gallagher, as . .
. receiver, may be compelled to arbitrate . . . because Gallagher stands
in the shoes of GSL. Capitol Life, 839 F. Supp. at 769
(quoting Phillips v. Lincoln Natl Health & Cas. Ins. Co., 774 F. Supp.
1297, 1299 (D. Colo. 1991)). This conclusion is fortified by the principal
authority cited in Capitol Life. Hays & Co. v. Merrill Lynch, Pierce
Fenner & Smith, Inc., 885 F.2d 1149, 1155 (3d Cir. 1989), permitted a
bankruptcy trustee to assert claims on behalf of creditors of the bankrupt.
Like the insurance commissioner in Capitol Life, a bankruptcy trustee may assert claims
on behalf of creditors by reason of a unique statute. Id.
Section 544(b) of the Bankruptcy Code explicitly authorizes a bankruptcy trustee to void
any transfer by the debtor that is voidable under applicable law by a
creditor . . . . 11 U.S.C. § 544(b). By
reason of this provision, the Third Circuit held the trustee could properly assert
claims of creditors, but only those claims that fell within § 544(b).
Except for the claims specifically authorized by 11 U.S.C. § 544(b), however, the
Third Circuit, following a long line of federal cases,
concluded that the claims
the trustee sought to assert were governed by the arbitration clauses in the
debtors agreements. Capitol Life, 885 F.2d at 1154. In short, in
the absence of a statutory authorization, a receiver of a corporation under Indiana
law has no more status to assert claims of others than the corporation
had. IQuest had no right to assert claims of creditors or other
parties. The rights the receiver has are only those the corporation had.
The receiver, like the corporation, is subject to the arbitration undertaking in
its agreement, subject only to whatever exceptions and limitations would be available to
IQuest itself. The receiver is of course obligated to protect the interests
of creditors. Deitrick v. Standard Sur. & Cas. Co., 303 U.S. 471,
483 (1938); Campbell Leasing, Inc. v. FDIC., 901 F.2d 1244, 1249 (5th Cir.
1990); Marcovich v. OBrien, 63 Ind. App. at 113, 114 N.E. at 104
(1916). But that does not mean the receiver can take over the
claims of creditors and assert them on his own. Rather the receiver
succeeds to the rights of the corporation as he finds it, and that
includes any arbitration obligations the corporation has incurred. If the receiver has
a claim that the arbitration clause is itself the product of fraud, then
that claim can be presented in a proper forum. Here, however, the
receiver seeks to embrace the asset sale and claim the proceeds, but disavow
the arbitration clause. That seems a difficult hill to climb, and Theising
asserts no claim that the entire Asset Purchase Agreement should be rescinded.
II. Application of the Arbitration Clause to These Claims
Whether a particular claim must be arbitrated is a matter of contract interpretation.
See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944
(1995); AT&T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 648
(1986); PSI Energy v. AMAX, Inc., 644 N.E.2d 96, 99 (Ind. 1994); Intl
Creative Mgmt. v. D & R Entmt Co., 670 N.E.2d 1305, 1311 (Ind.
Ct. App. 1996). Theising contends that even if his rights are identical
to IQuests, IQuest did not agree to arbitrate the claims he asserts.
The arbitration clause in question is found in Section 9.16 of the Asset
Purchase Agreement. It calls for arbitration of any dispute arising out of
or relating to this Agreement, or the breach thereof. The claims asserted
by Theising against ISP are described above. The claims are stated in
terms of ISPs liability for the diversion of assets from IQuest, ISPs inability
to set off the purchase price for warranty breaches, and ISPs liability for
IQuests liability for past taxes by reason of the transfer of IQuests assets
for less than adequate consideration rendering IQuest insolvent. All relate to the
sale agreement or its breach and are within the terms of the arbitration
agreement. Theising also seeks a declaration that taxing authorities can pursue ISP
for IQuests delinquencies. That contention may raise a number of other issues
as to which the tax authorities, not Theising, may be the proper plaintiff,
but to the extent the issue is a dispute between ISP and Theising,
it arises out of the asset sale and is required by the terms
of the agreement to be arbitrated.
Theisings principal claim is that ISP continues to owe the full amount of
the contracted purchase price to IQuest, without setoff for any claimed breaches of
representations or warra
nties. He contends that that issue is not required to
be arbitrated because it arises under the note and Loan Security Agreement, not
the Asset Purchase Agreement. The Court of Appeals agreed with Theising.
We do not. For the reasons already given, the arbitration clause in
the Asset Purchase Agreement applies to the claims Theising asserts. There is
no requirement that an arbitration clause be included in all potentially relevant documents
to be binding if it covers the dispute at hand. see R.J. O'Brien
& Assoc. v. Pipkin, 64 F.3d 257, 261 (7th Cir. 1995) (contract did
not need to contain an explicit arbitration clause if it validly incorporated by
reference an arbitration clause in another document) (quoting Helen Whiting, Inc. v. Trojan
Textile Corp., 121 N.E.2d 367, 371 (N.Y. 1954); Imptex Intl Corp. v. Lorprint,
Inc., 625 F. Supp. 1572, 1572 (S.D.N.Y. 1986) (While an
be in writing to be enforceable, there is no requirement that it be
signed.). As long as one agreement between two parties includes an agreement
to arbitrate, that is enough to bind both parties to that undertaking.
The issue is simply whether the Asset Purchase Agreement arbitration clause includes an
agreement to arbitrate the issues Theising raises. If it does, then arbitration
is required, whether or not other documents include arbitration provisions, unless the other
documents supersede the arbitration commitment.
We do not find any affirmative intention in the loan documents to undo
the arbitration covenant found in the Asset Purchase Agreement. Theising points out
that the Loan and Security Agreement includes a forum selection clause and a
consent to jurisdiction in Marion County. He argues that these demonstrate an
intention not to arbitrate any dispute under the note or Loan and Security
Agreement. Again, we disagree. It is not uncommon to find both
arbitration and forum selection clauses in agreements.
See, e.g., Cortez Byrd Chips,
Inc. v. Bill Harbert Constr. Co., 529 U.S. 193, 201 (2000); Jumara v.
State Farm Ins. Co., 55 F.3d 873, 875 (3d Cir. 1995); Pacemaker Plastics
Co. v. AFM Corp., 163 F. Supp. 2d 795, 807 (N.D. Ohio 2001).
Several considerations may lead to the inclusion of both. First, and
obviously, arbitration may be waived by the parties. Germany v. River Terminal
Ry. Co., 477 F.2d 546, 547 (6th Cir. 1973); Uwaydah v. Van Wert
County Hosp., 246 F. Supp. 2d 808, 810 (N.D. Ohio 2002); Miller Constr.
Co. v. First Baptist Church, Inc., 396 So. 2d 281, 282 (Fla. Dist.
Ct. App. 1981); Shahan v. Brinegar, 181 Ind. App. 39, 44, 390 N.E.2d
1036, 1040 (1979). If they choose, they may prefer to litigate, but
be required to do so in a designated forum. Second, any claim
of fraud in the inducement, etc., may be presented to a court despite
an arbitration clause. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388
U.S. 395, 404 (1967); Phillips v. Assocs. Home Equity Servs., 179 F. Supp.
2d 840, 845 (N.D. Ill. 2001); Allied Sanitation, Inc. v. Waste Mgmt. Holdings,
Inc., 97 F. Supp. 2d 320, 333 (E.D.N.Y. 2000). The forum selection
provision may apply in that circumstance, and is not surplusage for that reason
The Court of Appeals pointed out that the Loan and Security Agreement includes
egration clause, providing that the Loan Agreement and Note constitute the complete
agreement of the parties hereto and supersede all previous understandings relating to the
subject matter hereof. There is no arbitration clause in either the note
or the Loan and Security Agreement. However, both the note and the
agreement provide for ISP to set off any Indemnity Obligation under the Asset
Purchase Agreement against ISPs obligations under the note. The Loan and Security
Agreement defines Indemnity Obligation as any claim for indemnification that has been finally
determined in accordance with Article VIII of the Asset Purchase Agreement. Article
VIII in turn includes a dispute resolution mechanism that culminates in arbitration under
section 9.16 quoted above. It seems clear that this contemplates arbitration of
any dispute over ISPs right to a setoff based on breaches of the
Asset Purchase Agreement. Setoff is permitted only if a claim for indemnity
(which would include a claim for breach of warranty) is finally determined under
the procedure contemplated by Article VIII, which ultimately requires arbitration under section 9.16.
We think this elaborate structure evidences an agreement to arbitrate disputes arising from
the sale. Agreements for business acquisitions are intended to flush out problems
in the acquired business by requiring the sellers to warrant that circumstances are
as they seem, and accept the consequences of a price reduction if that
does not prove to be the case. Refusal to give a requested
warranty or representation is a red flag that there may be a risk
the seller is u
nwilling to accept, and both parties understand that. Buyers
also recognize that unless there is a mechanism to gain, in effect, a
refund of the purchase price, there may be significant practical obstacles to collecting
from the former shareholders of the business being sold. For that reason,
techniques to permit self-help or automatically triggered relief, such as escrows or as
in this case, setoffs against seller financing, are frequently found in sales of
going businesses. If the note and Loan and Security Agreement did not
contemplate arbitration, a claim could never be finally determined under Article VIII, and
the entire rather elaborate mechanism for retroactive price adjustment based on breaches of
warranty would collapse. We do not believe the parties intended that result,
or if the sellers did, it was too cute by half. In
either case, the agreement to arbitrate was made and should be enforced.
The order of the trial court denying the motion to compel arbitration is
reversed. This case is remanded with instructions to order the plaintiff, ISP.com,
LLC and ISP.net, LLC to arbitrate their dispute under section 9.16 of the
Asset Purchase Agreement.
SHEPARD, C.J., and DICKSON, SULLIVAN, and RUCKER, JJ., concur.
ISP.com, LLC and ISP.net, LLC were the purchasers under the Asset Purchase
Agreement. Another e
ntity, IQuest Internet, LLC is also a defendant in the Marion
County litigation referred to below, but there are no allegations as to it,
and we are uncertain whether it became a successor in interest to the
purchasers or had or has some other relation to this situation. Except
where indicated, ISP refers to all ISP entities at the relevant time.
The parties sometimes refer to the purchasers as New IQuest and the seller
as Old IQuest. That was too many IQuests for us, so we
designate the purchasers ISP and the seller IQuest.
This is the allegation of the complaint. The Court of Appeals concluded
that $2 million was paid in cash to Hoquim. The complaint alleges
that $5.85 million was paid to IQuest at the closing, which would pr
total payments of $22 million ($5.85 to IQuest; $13.15 to Hoquim, and $3
to the two others). Perhaps the different descriptions stem from the amounts
paid under the notes before ISP stopped making them. From this record
we cannot resolve or reconcile this discrepancy, but, like several others noted, it
is immaterial to the issues on this appeal.
It is unclear from this record in what ISP entity or entities
these credits were given, and what their precise form was. All seem
to agree that whatever these were, they represented equity interests in the business
operated by IQuest before the sale and by ISP thereafter. For purposes
of this opinion, that is enough.
Footnote: For this proposition the Court of Appeals cited
WISH-TV, Secret Identity (June
8, 2000), available at http://www.wishtv.com/Global/story.asp?s=84881 (last visited Jan. 28, 2003).
This is an assumption we make based on the case number ES-44,
and the title of the proceeding In the matter of the Estate of
Robert P. Hoquim, formerly known as [21 other names]. We have no record
from that proceeding, but an Order Regarding Twelfth Petition For Instructions ruling on
the Estates surrender of the note and proceeds to Theising is before us
as an exhibit in the record from the appeal in the Marion County
Footnote: A different panel of the Court of Appeals, following the Court of
Appeals ruling in this appeal, found the case not arbitrable and reversed
the Marion Superior Court judgment ordering arbitration. Transfer has been sought in
that case as well, and its record is now before us. Some
of the facts included in this opinion are drawn from the record in
the Marion County case. This is appropriate on appeal.
Bd. v. Hansbrough, 275 Ind. 426, 433, 417 N.E.2d 311, 315-16 (1981). See
also De Bearn v. Safe Deposit & Trust Co., 233 U.S. 24, 32
(1914); Westfall v. Wait, 165 Ind. 353, 358, 73 N.E. 1089, 1091 (1905);
Phelps v. Porter County Office of Family & Children, 734 N.E.2d 1107, 1115
(Ind. Ct. App. 2000); Studabaker v. Faylor, 52 Ind. App. 171, 173, 98
N.E. 318, 319 (1912).
Today we affirm the order of the Marion Superior Court in
v. ISP.com, LLC, __ N.E.2d ___ (Ind. 2004).
Fallick v. Kehr, 369 F.2d 899, 904 (2d Cir. 1966); In re
Morgan, 28 B.R. 3, 5 (B.A.P. 9th Cir. 1983); In re Guy C.
Long, Inc., 90 B.R. 99, 102 (Bankr. E.D. Pa. 1988); Societe Nationale Algerienne
Pour La Recherche v. Distrigas Corp., 80 B.R. 606, 609 (Bankr. D. Mass.
1987); In re R.M. Cordova Intl, Inc., 77 B.R. 441, 450 (Bankr. D.N.J.
1987); Barber-Greene Co. v. Zeco Co., 17 B.R. 248, 250 (Bankr. D. Minn.
1982); In re Cres Rivera Concrete Co., 21 B.R. 155, 157 (Bankr. D.N.M.