Birmingham Member David Hansma secured nearly $3 million for a business owner in an arbitration hearing to redeem his interests in family businesses.
The client and his brother were 50% owners of a funeral home business and other related businesses. In April 2024 the parties signed agreements for the companies to redeem the client’s various interests, with a scheduled closing of July 31, 2024. When the closing date arrived, the client’s brother attempted to renegotiate the buyout claiming he couldn’t secure financing to close.
When it became clear that a settlement would not occur, Hansma received the case to handle the litigation. Hansma sent a demand for arbitration last October followed by a complaint in circuit court to compel arbitration, which ultimately happened earlier this spring.
“The case came down to an issue of impossibility of performance. There wasn’t any question that the companies breached the contract,” Hansma said. “They argued that the business wasn’t valued as highly as the brothers thought, so no bank was going to loan 100% of the funds. We argued that they didn’t show it was impossible to get a loan. They only showed that two banks wouldn’t offer the exact financing the companies wanted.”
Hansma further argued that not securing financing was a foreseeable risk, but the companies failed to build those contingencies into the buyout agreement.
“Because they failed to do that, they assumed the risk that they wouldn’t get financing, and a party generally assumes the risk of its own non-performance. Therefore it’s unfair and inequitable to cast that risk onto my client, who should’ve been able to show up and accept a check,” Hansma said.
The arbitration hearing occurred in early April, and the arbitrator awarded $2.65 million plus a share of bank accounts, accounts receivable, and interest, on April 30.
“It was a powerful fact in their favor to say that they tried and failed to get financing from two banks, but we proved legally that it was irrelevant,” Hansma said. “We also showed factually that there were other avenues to secure the funds for the buyout, and they were just using arbitration to try to renegotiate and secure a better deal.”