Matter of Daesang Corporation v. NutraSweet Company

Daesang Corporation (Daesang) (plaintiff) entered into an asset-purchase agreement (APA) with NutraSweet Company (NutraSweet) (defendant) in which Daesang sold all its assets to NutraSweet. Daesang made several representations and warranties in the APA. The parties also separately entered into a joint-defense-and-confidentiality agreement (JPA), which, among other things, entitled NutraSweet to rescind the APA should the purchase be challenged for violation of antitrust law. After the transaction closed, NutraSweet started making payments for the purchase as agreed in the APA, but it stopped making payment when the third installment was due. On receiving Daesang’s default notice, NutraSweet informed Daesang that it was rescinding the transaction pursuant to the JPA provision on rescission. Daesang initiated arbitration, where it made a number of claims, and NutraSweet counterclaimed seeking rescission of the transaction based on fraud in the inducement NutraSweet alleged flowed from Daesang’s representations and warranties in the JPA, which NutraSweet contended were fraudulent. During the hearing, the parties cited competing caselaw supporting their respective positions on whether NutraSweet’s fraud claim could be maintained under New York law. The arbitration panel acknowledged authority NutraSweet presented but unanimously found in favor of Daesang on all of its claims and dismissed NutraSweet’s defenses and counterclaims. NutraSweet filed a motion to vacate before the New York Supreme Court alleging that the arbitration panel exceeded its authority or so imperfectly executed its authority as to render its final decision voidable. The supreme court issued an order granting NutraSweet’s motion to vacate the panel’s order dismissing its equitable rescission and breach-of-contract claims, remanded the matter for redetermination, and held in abeyance Daesang’s petition for confirmation. The supreme court based its decision on a finding that the arbitration panel disregarded a well-established legal principle determining when a fraud claim can be maintained in New York, and the court disagreed with the panel that NutraSweet waived its breach-of-contract claim. The court concluded these were more than mere errors that courts ordinarily do not find to be a basis to vacate. Daesang appealed.