Precision Castparts Corp. et al. v. Schultz Holding GmbH & Co. KG et al.

At a glance

Parties

Precision Castparts Corp. and PCC Germany Holdings GmbH (petitioners) v. Schultz Holding GmbH & Co. KG, Schultz Extruded Products Beteiligungs GmbH & Co. KG and Schultz Extruded Products Verwaltungs GmbH (respondents)

Case no.

No. 20-cv-3029 (LJL)

Court

U.S. District Court, Southern District of New York (Judge Lewis J. Liman)

Underlying award(s)

ICDR award of 9 April 2020 (three-member panel, New York) under the Securities Purchase Agreement of 28 December 2016

Treaty

Arbitration clause in SPA § 10.9 (AAA Commercial Arbitration Rules); New York Convention; FAA §§ 10, 207

Sector

Manufacturing; mergers and acquisitions

Outcome

Award confirmed; the respondents' motion to vacate or modify was denied with prejudice (15 July 2020).

Amount

Award confirmed: EUR 643,000,000 for fraudulent inducement, plus simple interest at 3.75% a year from 16 February 2017, plus costs and fees. The EUR 100,000,000 for breach of contract is subsumed in that sum.

The dispute

In February 2017 Precision Castparts Corp. and PCC Germany Holdings GmbH bought companies with manufacturing plants in the United States and Germany from the Schultz entities for EUR 800,000,000. The sale was made under a Securities Purchase Agreement (SPA) governed by Delaware law. After closing, the buyers found that the sellers had manipulated the companies' financial documents. The companies, presented as high-margin businesses, were in fact "functionally insolvent". An ICDR tribunal found fraudulent inducement and breach of warranty and awarded damages above the SPA's EUR 100,000,000 indemnity cap. The buyers petitioned to confirm the award under the New York Convention. The sellers cross-moved to vacate or modify it under FAA § 10(a)(4) and for manifest disregard of the law. They relied mainly on Delaware's "rehash doctrine", which bars fraud claims that seek the same damages as a contract claim.

Key holdings

1. The award was not made in manifest disregard of Delaware law. The tribunal addressed the bootstrapping and rehash doctrines at length (Award ¶¶ 245–260). It found the fraud damages materially different from the contract damages, because the contract claim was limited by a fraudulently induced EUR 100,000,000 indemnity cap. pp. 6–8
2. The cases the sellers relied on (EZLinks and Yu) dealt only with punitive damages added to identical actual damages. They did not involve a fraudulently induced cap, so the rehash doctrine was not 'well defined, explicit, and clearly applicable' to this case. pp. 8–9
3. The tribunal's view has reasonable support in Delaware case law (JCM Innovation, Abry Partners, Firmenich). Under that case law, a contractual cap on damages can open the door to parallel fraud and contract claims. pp. 9–11
4. Two further arguments failed. First, the statement that the EUR 100,000,000 contract damages were 'subsumed' in the fraud award does not show the damages were identical. Second, the tribunal's remark that the rehash doctrine 'must be approached with circumspection' did not apply a wrong legal standard. pp. 11–13
5. The tribunal did not exceed its powers under FAA § 10(a)(4). The arbitration clause in SPA § 10.9 covers both the fraud and the contract claims. Stolt-Nielsen does not apply, because the sellers were challenging the correctness of the tribunal's reasoning, not its power to decide. pp. 13–15
6. Modification was refused. The arguments about the SPA's EUR 2,000,000 indemnity threshold and the deduction of previously settled claims went to the merits, not to the tribunal's power. p. 15

Procedural history

1. 28 December 2016Securities Purchase Agreement signed (amended 14 February 2017). The acquisition followed in February 2017.
2. 5 March 2018The buyers start arbitration before the AAA/ICDR, claiming fraudulent inducement and breach of warranty.
3. 24 June – 1 July 2019 and 16 October 2019Hearings in New York City.
4. 9 April 2020Award in favour of the buyers: EUR 643,000,000 plus interest, costs and fees.
5. 14 April 2020Petition to confirm the award filed in the S.D.N.Y.
6. 28 April 2020The sellers move to vacate or modify the award.
7. 15 July 2020Opinion and Order: award confirmed and motion to vacate denied with prejudice.

Tribunal, counsel and experts

Decided by

• Lewis J. Liman Judge, U.S. District Court, Southern District of New York

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Keywords

• confirmation of award
• New York Convention
• FAA Section 207
• FAA Section 10(a)(4)
• manifest disregard of the law
• excess of powers
• vacatur
• fraudulent inducement
• breach of warranty
• rehash doctrine
• bootstrapping doctrine
• Delaware law
• indemnity cap
• securities purchase agreement
• ICDR
• Schultz Extruded Products
• Abry Partners

Summary generated with AI from the published documents — refer to the award for the authoritative text.