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Weiner v. Milliken Design, Inc.

Court of Chancery of Delaware

January 30, 2015

ROBERT S. WEINER, Plaintiff,

Date Submitted: October 15, 2014

Kevin R. Shannon, Esq., Matthew J. O'Toole, Esq., Christopher N. Kelly, Esq., POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Steven M. Kushner, Esq., FELLOWS LABRIOLA LLP, Atlanta, Georgia; Attorneys for Plaintiff.

R. Judson Scaggs, Jr., Esq., Leslie A. Polizoti, Esq., Christopher P. Quinn, Esq., MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Troy A. Tessier, Esq., Greenville, South Carolina; Attorneys for Defendant.



Before the Court are cross motions for summary judgment, one seeking to compel arbitration of a post-closing price adjustment pursuant to a stock purchase agreement, and the other seeking to limit the scope of that arbitration. In particular, the defendant, a Delaware corporation, contends that certain issues identified by the plaintiff, an individual formerly employed by that corporation, are not arbitrable under the relevant agreement. The plaintiff contends that the defendant's objections actually go to questions of procedural arbitrability and should be decided by the arbitrator. For the reasons stated herein, I agree with the plaintiff and refuse to limit the issues the arbitrator will decide in the manner requested by the defendant. The parties also disagree about who should serve as the arbitrator, and espouse different interpretations of the relevant contract provision. On this point, the parties are directed to submit up to three candidates each who would be qualified based on the parameters I have specified in this Memorandum Opinion.


A. The Parties

Plaintiff and Counterclaim Defendant, Dr. Robert S. Weiner, is an individual residing in Georgia. Defendant and Counterclaim Plaintiff, Milliken Design, Inc. ("Milliken"), is a Delaware corporation formerly known as Sylvan Chemical Co., Inc. Milliken is a privately held textile, chemical, and floor covering company based in Spartanburg, South Carolina.

B. Facts

1. The Agreement

In October 2009, Milliken entered into a Stock and Unit Purchase Agreement (the "Agreement")[2] to acquire several entities owned by Dr. Weiner and his former business partners: (1) Lineage PCR, Inc., a Delaware corporation ("Lineage PCR"); (2) PCR Holdings, LLC, a Delaware limited liability company ("PCR Holdings"); (3) Product Concepts Residential, LLC, a Georgia limited liability company ("Product Concepts"); and (4) Constantine Dyeing, LLC, also a Georgia limited liability company (collectively, the "Acquired Companies").[3] Product Concepts, which the Agreement defined as the "Operating Company, "[4] formerly did business as Constantine Carpet.[5] Before the acquisition, Product Concepts and Constantine Dyeing, LLC were subsidiaries of PCR Holdings, which, in turn, was partly owned by Lineage PCR.

PCR Holdings and Lineage PCR were held by two groups that, together, comprised the "Sellers" under the Agreement: (1) the "Legacy Owners, " which include Dr. Weiner and several other entities and individuals; and (2) the "Lineage Owners, " which include a Delaware limited partnership, Lineage Capital, L.P., and a Delaware limited liability company, Lineage Investors, LLC.[6] The Legacy Owners directly held membership interests in PCR Holdings. The Lineage Owners were the stockholders of Lineage PCR, and thereby had an indirect interest in PCR Holdings.

Pursuant to the Agreement, Milliken purchased the Acquired Companies by acquiring all of the outstanding shares and interests of Lineage PCR and PCR Holdings.[7] As consideration, Milliken agreed to pay the Sellers roughly $30 million in cash and to assume roughly $16 million of the Acquired Companies' net debt. That $46 million figure potentially could be adjusted by a "Net Working Capital Adjustment" and certain "Earnout" payments to yield the total "Purchase Price."[8] Certain of the Sellers were to receive their full consideration upon closing of the transaction, while others received cash up front plus the potential for future "Earnout" payments.[9] This dispute pertains to the Agreement's Earnout payment mechanism.

2. Payment of Earnouts under the Agreement

a. Earnout calculation

As relevant here, Section 2.6 of the Agreement provided for three potential Earnout payments: one each at the end of fiscal years 2010, 2011, and 2012.[10] For each of those years, the Agreement sets out defined "Target Revenue" figures. If, for example, Fiscal Year 2010 Revenue met or exceeded 2010 Target Revenue, Milliken would pay $2, 333, 333 million as an addition to the Purchase Price; if 2010 Revenue was below Target Revenue, the Agreement provides a formula for computing the "2010 Earnout Payment, " which would amount to some dollar figure between $0 and the $2, 333, 333 maximum.[11]

The same computation is made to determine the 2011 Earnout Payment and the 2012 Earnout Payment.[12] With respect to Fiscal Years 2011 and 2012, however, the Agreement required Milliken to make additional payments in the form of the "2010-2011 Cumulative Earnout" and the "2010-2012 Cumulative Earnout, " respectively. A payment was owed for the 2011 Cumulative Earnout if the sum of the 2010 Earnout Payment and the 2011 Earnout Payment was less than a certain threshold; that threshold itself was dependent on whether "2010-2011 Revenue" exceeded a certain minimum amount.[13]The same structure was used to compute the 2010-2012 Cumulative Earnout, except that the inputs included the 2010 Earnout Payment, the 2011 Earnout Payment, the 2010-2011 Cumulative Earnout, and the 2012 Earnout Payment, and the threshold against which those payments were measured was "2010-2012 Revenue."[14] The Cumulative Earnout payments for 2011 or 2012, if any, would be made in addition to the 2011 Earnout Payment and the 2012 Earnout Payment. The parties agreed that, in any event, the aggregate payment ...

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