| Vanship Holdings Ltd. v Energy Infrastructure AcquisitionCorp. |
| 2009 NY Slip Op 06076 [65 AD3d 405] |
| August 4, 2009 |
| Appellate Division, First Department |
| Vanship Holdings Limited, Respondent, v EnergyInfrastructure Acquisition Corp., Appellant, et al., Respondent. |
—[*1] Skadden, Arps, Slate, Meagher & Flom LLP, New York (John L. Gardiner of counsel), forrespondent.
Order, Supreme Court, New York County (Richard B. Lowe, III, J.), entered December 2,2008, which, to the extent appealed from as limited by the briefs, enjoined respondents fromdistributing $2.6 million of the funds in an account held by Continental Stock Transfer and TrustCompany as trustee for Energy Infrastructure Acquisition Corp. (EIAC), unanimously reversed,on the law, without costs, and the injunction vacated.
Petitioner Vanship Holdings Limited (Vanship) entered into a "Share Purchase Agreement"(the SPA) with respondent Energy Infrastructure Acquisition Corp. (EIAC) and nonparty EnergyInfrastructure Merger Corp. (Merger Corp.). The SPA provided for EIAC to purchase nine largecrude oil carriers from Vanship.
EIAC is a special purpose acquisition company, a shell entity whose raison d'Être is toacquire another company. Before EIAC had identified a target, it held an initial public offering(IPO) which raised $209.25 million. Pursuant to a representation made in the IPO prospectus, thefunds were placed in a trust account (the Trust). The prospectus provided that the funds wouldremain in the Trust until the earlier of an acquisition being completed or two years from the dateof the IPO. If no acquisition was consummated, the funds would be returned to the investors, lessany debts owed by the entity to third parties. The trustee of the Trust was respondent ContinentalStock Transfer and Trust Company.
The parties terminated the SPA by mutual agreement. Shortly thereafter, Vanship submitteda series of invoices to EIAC totaling approximately $3.4 million. These amounts representedcosts incurred by Vanship during the negotiation of the SPA. Vanship's claim for reimbursementwas based on section 21 (i) of the SPA, which provided, in pertinent part: "Expenses.Each party shall be responsible for its own expenses in connection [*2]with the preparation, negotiation, execution, delivery andperformance of this Agreement, provided that the costs of preparing the Audited FinancialStatements and the Interim Financial Statements and the costs of [Vanship]'s counsel (includingsecurities and general counsel) and reasonable and documented 'road show' expenses of[Vanship]'s representatives incurred up to and including the Closing Date or earlier terminationshall be borne initially by [Vanship] and, together with any costs of counsel to EIAC, [MergerCorp.] or the lending parties, and commitment fees and other expenses arising in connection withthe Financing or its termination and paid at any time (after consultation with EIAC) by[Vanship] on behalf of EIAC, [Merger Corp.] or any of the SPVs, shall be reimbursed by[Merger Corp.] and/or EIAC to [Vanship] upon (as the case may require) the earlier oftermination of this Agreement pursuant to Section 20 and the Closing, and the cost of any otheraudited or interim financial statements requested by SEC shall be borne by EIAC."
For reasons that are not germane here, EIAC refused to pay the invoice. Vanship filed forarbitration pursuant to an arbitration clause contained in the SPA. EIAC and Merger Corp. filedtheir own arbitration claim against Vanship, alleging, among other things, that Vanship breachedthe SPA and engaged in fraud. Vanship then commenced this special proceeding, pursuant toCPLR 7502 (c) and 6301, for a preliminary injunction in aid of arbitration.
Specifically, Vanship asked the court to enjoin the release of the Trust funds to theshareholders and to order EIAC to place $6 million of the Trust funds in escrow to ensure that itsclaim would be paid in full. In making these requests, Vanship relied in part on section 16 (d) ofthe SPA. Pursuant to that section, Vanship waived any claims against the Trust "which it mayhave in the future as a result of, or arising out of, any negotiations, contracts or agreements withEIAC." However, section 16 (d) contained an exception for "any expenses which EIAC and/or[Merger Corp.] has agreed to pay under the terms of this Agreement on the earlier of thetermination of this Agreement under Section 20 and the Closing Date." Vanship asserted that the"expenses" referred to in section 16 (d) included those covered by section 21 (i). It furtherclaimed as "expenses" covered by section 16 (d) arbitration costs provided in section 21 (c) ofthe SPA. That section, the arbitration clause, stated, in pertinent part, that "[t]he arbitrationaward shall include attorneys' fees and costs to the prevailing party." The arbitration clauseapplied to "[a]ny controversy or claim arising out of or in conjunction with [the SPA]."
In opposing the motion, EIAC argued that Vanship was a stranger to the relationshipbetween EIAC and its investors, and had no standing to prevent EIAC from directing that theTrust be disbursed to the investors. It further asserted that Vanship was unlikely to prevail in thearbitration because it had acted in bad faith in its dealings with EIAC. Finally, EIAC stated thatit had placed its shareholders on notice that they could be held liable for claims against EIAC.Accordingly, it maintained that Vanship would not be frustrated because EIAC was a shell.
EIAC's counsel repeated these contentions at the oral argument of Vanship's motion.Counsel further maintained that, if the court was inclined to restrain the Trust, it should, at thevery least, limit the amount restrained to Vanship's claimed deal costs of $3.4 million, and notinclude the anticipated costs of arbitration. The court granted Vanship's application in itsentirety, noting that its decision turned primarily on the fact that it perceived no prejudice toEIAC if the Trust was restrained pending arbitration.[*3]
On appeal, EIAC abandons the argument it made belowthat Vanship had no standing to make a claim against the Trust. Instead, it asserts that the plainlanguage of section 16 (d) of the SPA limits any claim by Vanship against the Trust to expensesthat EIAC "agreed to pay under the terms of this Agreement on the earlier of the termination ofthis Agreement under Section 20 and the Closing Date." EIAC argues that, since section 21 (i) ofthe SPA provided which "expenses" EIAC would pay, and did not expressly mention costsincurred in recovering those expenses, section 16 (d) precludes Vanship from recovering fromthe Trust any attorneys' fees that might be awarded as a result of the arbitration.
Vanship contends that, because EIAC did not make the foregoing argument below, it is notpermitted to make it here. We disagree. Although ordinarily arguments not raised in the trialcourt may not be asserted on appeal, that is not the case where "a party does not allege new factsbut, rather, raises a legal argument which appeared upon the face of the record and which couldnot have been avoided . . . if brought to [his or her] attention at the proper juncture"(Gerdowsky v Crain's N.Y. Bus., 188 AD2d 93, 97 [1993] [internal quotation marks andcitations omitted]). So long as the issue is determinative and the record on appeal is sufficient topermit our review, we may consider a new legal argument raised for the first time in this Court(see Matter of Allstate Ins. Co. v Perez, 157 AD2d 521, 523 [1990]). Here, all of thesupport for EIAC's argument can be found within the four corners of the SPA, which was part ofthe record below. Indeed, this appeal revolves around the strictly legal issue of how the SPAshould be interpreted.
Turning to the merits, Vanship argues that the injunction was properly entered because all ithad to do was establish a prima facie showing of a right to proceed against the Trust, and that itdid not need to "prove" that point until it was before the arbitrators. However, the proceduralquestion of whether Vanship may make a claim against the Trust will not be before thearbitrators. The only issue for the arbitrators is whether Vanship is entitled to recover its dealcosts. Thus, Vanship was required to prove as a matter of law in this proceeding that it isentitled to recover its attorneys' fees from the Trust. We hold that it failed to do so.
This Court has held that, when interpreting a contract, "the intent of the parties governs. Acontract should be construed so as to give full meaning and effect to all of its provisions. Wordsand phrases are given their plain meaning. Rather than rewrite an unambiguous agreement, acourt should enforce the plain meaning of that agreement" (American Express Bank vUniroyal, Inc., 164 AD2d 275, 277 [1990], lv denied 77 NY2d 807 [1991] [citationsomitted]). We must be guided by these rules. Even Vanship does not contend that the SPA isambiguous and that extrinsic evidence should be considered to prove the parties' intent. Instead,it argues that the SPA allows Vanship to recover its attorneys' fees from the Trust. However,section 16 (d) clearly limits the claims Vanship may make against the Trust to "expenses whichEIAC and/or [Merger Corp.] has agreed to pay under the terms of this Agreement on the earlierof the termination of this Agreement under Section 20 and the Closing Date." The only"expenses" mentioned in the SPA which fit that description are the expenses covered by section21 (i).
Vanship argues that, even though any attorneys' fees which it might be awarded by thearbitrators are not included in the description of "expenses" contained in section 21 (i), theattorneys' fees provision in section 21 (c) would be rendered illusory were this Court to find thatsection 16 (d) is limited to deal costs only. It claims that it would have been "nonsensical" for it[*4]to have bargained for reimbursement of its deal costs, and thefees expended seeking to recover those deal costs, but at the same time waive its right to recoverthose fees from the Trust. It further asserts that attorneys' fees and costs are not stand-aloneclaims, but are "ancillary" relief awarded when the underlying claim is successful. Accordingly,it claims that EIAC's interpretation would force it to improperly split its fee claim from theunderlying claim for its deal costs.
These arguments are unavailing. The plain language of the SPA controls and it does notallow Vanship to recover from the Trust any attorneys' fees it is awarded if it prevails in thearbitration. Section 16 (d) clearly precludes any and all claims against the Trust save those fordeal costs. No mention is made of attorneys' fees expended in recovering those costs. Thisinterpretation does not render section 21 (c) illusory, because Vanship can still have a claimagainst EIAC for recovery of its attorneys' fees. While EIAC's sole asset may be the Trust, thatdid not dissuade Vanship from agreeing in section 16 (d) that it would not assert against theTrust any claim, other than one for its deal costs, that it "may have in the future as a result of, orarising out of, any negotiations, contracts or agreements with EIAC."
Nor is Vanship's argument that attorneys' fees are "ancillary" to its claim for deal costspersuasive. Even if, as Vanship argues, a particular claim and the fees incurred pursuing thatclaim are inseparable, it is not being forced to split the two. That is because the claim for dealcosts is against EIAC. Indeed, the Trust is not even a party to the arbitration. In the arbitrationagainst EIAC, Vanship is free to seek its deal costs and related attorneys' fees together. The onlyquestion before us is whether Vanship is entitled to an injunction restraining disbursement of theTrust on the basis that, once it has an arbitration award including attorneys' fees, it can satisfy theattorneys' fees portion of the award from the Trust. The plain language of the SPA provides thatit cannot recover any such fees from the Trust. Accordingly, the injunction was improperlyissued. Concur—Mazzarelli, J.P., Andrias, Nardelli, Catterson and DeGrasse, JJ.