Both the Missouri trial and appellate court hold that the purchase agreement’s arbitration clause was unenforceable because it failed to comply with the state’s required formalities
M&A Stories
July 28, 2022
Introduction:
Selling a dental practice can lead to legal disputes. Having a mandatory arbitration clause in the purchase agreement can save both the buyer and the seller time and money. However, in a recent Missouri case, the court refused to enforce the arbitration clause due to a failure to comply with the state’s required formalities.
The Deal:
In this particular case, a Missouri dental practice was sold, and the transaction was documented by an asset purchase agreement that included an arbitration clause. As part of the deal, the selling dentist agreed to work for the buyer for two years, and there was also a noncompetition covenant lasting two years within a ten-mile radius.
The Souring Relationship:
Unfortunately, the relationship between the dentist and the buyer turned sour, and the dentist decided to quit before the agreed-upon two-year term. To make matters more complicated, the dentist resumed his previous practice, and it appeared that he might have been serving some of his old patients within the two-year noncompetition period and within the restricted ten-mile radius. The buyer accused the dentist of soliciting his old patients in violation of the noncompetition covenant.
The Lawsuit:
The buyer took the matter to a Missouri trial court, but the dentist pointed to the arbitration clause in the agreement and requested the court to refer the dispute to arbitration. However, the trial court refused, stating that the arbitration clause was unenforceable under state law.
Court’s Decision:
The dentist appealed the decision, but the appellate court upheld the trial court’s ruling. The court agreed that the arbitration clause did not meet the required format and language set forth by the Missouri arbitration statute, which mandated using ten-point capital letters to notify the parties about the existence of a binding arbitration provision.
This case is referred to as Wind v. McClure, No. ED 109818, Missouri Court of Appeals, Eastern District, DIVISION ONE, (Filed: April 26, 2022).
Conclusion:
This case highlights the importance of paying attention to legal details in business transactions. It’s crucial to have legal representation experienced in business transactions and well-regarded in the business community to avoid such pitfalls. A properly crafted arbitration clause can be a useful tool in resolving disputes efficiently and economically.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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