M&A Stories
May 5, 2025
Strengthen your lower middle market M&A deals. Discover a vital, often missed step in spousal consents – ensuring the spouse agrees to the forum selection clause – to avoid costly jurisdictional complications post-closing.
In asset acquisitions of privately held businesses, particularly those involving sellers in community property states, obtaining spousal consent to the transfer is a common and prudent practice. These consents typically aim to ensure the non-selling spouse relinquishes any community property interest in the assets being sold, thereby facilitating a clean transfer of title. However, a recent New York case, Elevate Music Fund 3 LP v. Estate of Scaife, highlights a less obvious but potentially critical aspect often overlooked in these standard forms: the explicit inclusion of the purchase agreement’s forum selection clause.
The Scaife case involved the sale of music-related assets by a Nashville country music studio engineer and record producer. The acquisition agreement contained a New York forum selection clause. The seller’s spouse executed a consent, agreeing to be bound by the purchase agreement to the extent of her interest in the assets, as Tennessee law provides spouses with an interest in the other’s property, albeit not necessarily a 50/50 community property split. Following the seller’s death, the buyer sued the surviving spouse in New York, seeking recovery of payments related to the acquired assets that she had allegedly received.
The New York court dismissed the claims against the surviving spouse for lack of personal jurisdiction. The court reasoned that her consent was limited to the transfer of her property interest and did not constitute an explicit agreement to be bound by the New York forum selection clause. As a Tennessee resident who had not otherwise submitted to jurisdiction in New York, she could not be compelled to litigate there.
This ruling highlights a key oversight in standard spousal consents. While they secure property transfer, they often fail to bind the non-selling spouse to the purchase agreement’s chosen forum for disputes. The Scaife case shows that consenting to the transfer doesn’t automatically mean consenting to litigate in a specific state.
Recommendation for Buyers and Advisors: To avoid jurisdictional issues with a seller’s spouse post-closing, especially when dealing across state lines, explicitly include a clause in the spousal consent where the spouse agrees to the forum selection clause of the main purchase agreement. This ensures that if disputes arise involving the spouse, they can be addressed in the agreed-upon court.
By clearly stating the spouse’s agreement to the forum, buyers can proactively protect themselves against jurisdictional challenges and streamline potential post-closing litigation. This simple addition to the consent form can be a significant risk mitigator.
See: Elevate Music Fund 3 LP v. Estate Of Scaife, Index No. 151454/2025, Supreme Court, New York County, (April 16, 2025).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals..
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
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