Consumer Law, Warranties Mandatory Arbitration

[GulfCoastKid]

I am in MS. I sold an online hearing aid business to a guy in Arizona. I sold the business because the customer service was too much for me to handle. I originally listed the business on an online auction site where I stated the problems that I was having operating the business. The buyer originally contacted me via that site, but our deal was made offline.

In the auction listing I specifically stated the problems that I had encountered and the reasons for selling the business. The buyer had more than two weeks for due diligence.

We made a deal to buy the primary site and another hearing aid site that I owned (same business different online name). He paid me $60k in cash with an agreement to pay $30k over the course of one year. The contract called for mandatory arbitration in his home state of AZ if there was a contract dispute.

I also owned a hearing aid manufacturing business. When I decided to sell that business I gave him first right of refusal. Months later, he bought that business too for a very low price (under $10k cash).

He made the first three monthly payments on the first business. Last week I received a letter from his attorney stating that his client was unhappy because he found a few online complaints. He also stated that he was forced to change the name of the company - to the name of the second website that I sold him.

The letter stated that if I forgave the remaining $22,500 owed, then he would not pursue legal action against me. I spoke to the attorney and he could not give me any specifics, other than his client no longer wanted to pay. I obviously did not agree to his request.

Now, they are moving forward with arbitration. He is banking that I will not fly to Arizona to defend myself.

Is there any way that I can file suit against him here in Mississippi? Can I at the very least ask the court for an injunction that forces him to put the money in escrow?

This is clearly a case of a guy that just does not want to pay what he agreed to pay. I would like to avoid putting my life on hold and flying to AZ for mediation and then again for arbitration.

Any advice would be greatly appreciated.

 

[army judge]

Did you draft the contract yourselves?




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[GulfCoastKid]

Did you draft the contract yourselves?




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The contract was drafted by him. Here is the clause:

3.4 Mediation / Arbitration. Prior to initiating any litigation or arbitration, each party agrees to submit any dispute to non-binding mediation to be conducted by a mediator, acceptable to both parties to take place within thirty (30) days of demand. The purpose of this provision is to attempt a speedy amicable resolution to any dispute. Each party shall be responsible for one-half (1/2) the cost of the mediation. If mediation is unable to resolve the matter, then it is agreed and understood that a dispute between the parties concerning the interpretation, enforcement or cancellation of this Agreement, or any conduct by either of the parties actually or apparently in pursuit of performance of obligations under this Agreement, shall be resolved by arbitration in Tucson, Arizona. In the event of any such dispute either party may serve a written demand for arbitration upon the other. If a demand for arbitration is made, then an arbitration panel shall be appointed and, unless the parties are able to agree on a single arbitrator, each party will select an arbitrator within ten (10) days after demand for arbitration is made, and the two (2) arbitrators so selected shall select a third arbitrator to be the chairman of the panel within five (5) days of the selection of the last of the arbitrators selected by the parties. Should either party fail to designate an arbitrator, or, should the two arbitrators selected be unable to agree upon a third arbitrator, then the presiding judge of the Superior Court of Pima County shall appoint an arbitrator for the party failing to appoint an arbitrator or shall appoint the third arbitrator if the two arbitrators have been unable to agree upon one. Each arbitrator shall be a member of the State Bar of Arizona having been continuously engaged in the practice of law for a period of not less than ten (10) years prior to the appointment as an arbitrator herein. Each party shall be entitled to a reasonable opportunity to conduct pre-hearing discovery, and in no event shall the hearing be held less than forty-five (45) days after the written demand for arbitration without the consent of both parties. Discovery procedures shall include all methods of discovery authorized by the Arizona Rules of Civil Procedure, and the time limits of the Arizona Rules of Civil Procedure shall apply to the extent practicable. The sole arbitrator or the three (3) arbitrators shall promptly advise the parties of the procedural rules to be followed, shall conduct a hearing as soon as reasonably possible, and shall decide whether or not either party is in default under the terms of this Agreement or the meaning or interpretation to be given to the terms or provisions thereof. This provision for arbitration is also intended to provide a speedy method for determining such disputes. The determination of the arbitrators shall be final and binding upon the parties as to such meaning or interpretation or as to the question of whether a default does or does not exist; the amount, if any, owed to the other as a result of such default; and it shall be enforceable in a court of law. In addition to any other award by the arbitration panel, the substantially prevailing party shall be entitled to be reimbursed for their actual attorney's fees incurred, provided only that they are not unreasonable, together with all other costs of such arbitration proceedings. Costs shall be defined to include, but are not limited to, fees paid to the arbitration panel, and all fees paid to expert witnesses, provided only that the fees are not unreasonable, in which event the arbitrator shall determine the amount of all expert witness fees. Notwithstanding the above, disputes arising under this Section 3.4 or SELLER'S failure to properly transfer the website and other assets to PURCHASER may be litigated and injunctive relief sought in any court having jurisdiction over the subject matter of such dispute.

 

[army judge]

Okay, as I read the arbitration clause, it doesn't apply to the debt he owes you.

Is the amount he owes you part of a promissory note?

The arbitration clause is well written, but as I said, not applicable to the debt.

You can sue him in MS, but obtaining jurisdiction over him will be very difficult and expensive.

The amount in dispute is not large enough to mount an all out legal attack.

His arbitration agreement bars him from trying to sue you, until he goes the arbitration route.

So, why not counter-offer to settle the damn thing for $10,000 or $11,000?

If you fight it, you'll spend a fortune to attempt to collect a lousy $20 grand.

You guys are geographically separated, but contractually cornered.

I suspect your "buyer" to be an attorney. The attorney that you spoke with is his alter-ego or law partner.




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[GulfCoastKid]

Okay, as I read the arbitration clause, it doesn't apply to the debt he owes you.

Is the amount he owes you part of a promissory note?

The arbitration clause is well written, but as I said, not applicable to the debt.

You can sue him in MS, but obtaining jurisdiction over him will be very difficult and expensive.

The amount in dispute is not large enough to mount an all out legal attack.

His arbitration agreement bars him from trying to sue you, until he goes the arbitration route.

So, why not counter-offer to settle the damn thing for $10,000 or $11,000?

If you fight it, you'll spend a fortune to attempt to collect a lousy $20 grand.

You guys are geographically separated, but contractually cornered.

I suspect your "buyer" to be an attorney. The attorney that you spoke with is his alter-ego or law partner.




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Thanks for this response. I really appreciate the help. My only other question is what do I do if they demand mediation and arbitration? They are doing just that. Am I supposed to pay for half the costs of this and fly to Arizona so that he can ask somebody if it is OK to stop paying me for the business that he is currently successfully running?

This does not seem fair at all. I have every intention of filing suit, but how do I handle the demand for arbitration?

 

[army judge]

Thanks for this response. I really appreciate the help. My only other question is what do I do if they demand mediation and arbitration? They are doing just that. Am I supposed to pay for half the costs of this and fly to Arizona so that he can ask somebody if it is OK to stop paying me for the business that he is currently successfully running?

This does not seem fair at all. I have every intention of filing suit, but how do I handle the demand for arbitration?

I don't know what little gems are hidden in your "contract" by the buyer.

There could be some very stiff penalties for not participating in the arbitration.

If it were me, I'd take a nice trip to AZ and comply. That way I wouldn't get snookered by this slickster.

Besides, then you could serve him and begin suing him in AZ for the money he refuses to pay.

You will never be able to prevail in a lawsuit you plan to bring for the 20 grand in MS. MS has no jurisdiction over an AZ defendant.

So, if you're hell bent on suing him, you'll have to do it in AZ anyway.

The surprise on his face as you serve him with that lawsuit, will be worth 20 grand alone. He thinks he's got you. Turn the tables on him. Use his treachery to your advantage. Get hum to worrying, he's more inclined to make a deal. Besides, defending a lawsuit, that can force him to pay your legal fees and expenses, levels the playing field.



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