Discover how unharmonized arbitration clauses with forum selection clauses in M&A agreements create costly litigation. This post analyzes a recent Fifth Circuit case to show lower middle market buyers, sellers, and their advisors how precise pre-closing drafting of these provisions can prevent procedural battles, protect deal value, and ensure disputes are resolved as intended. Learn to avoid common pitfalls in M&A contract negotiation.
M&A Stories
June 10, 2025
Lower middle market M&A transactions frequently incorporate arbitration, often utilizing an independent accountant or industry expert, to efficiently resolve financial disagreements such as earnout calculations and purchase price adjustments. While intended to provide a clear path for dispute resolution, the reality can sometimes diverge, leading one party to attempt to force the dispute into a courtroom.
A recent federal Fifth Circuit case, Odom Industries, Inc. v. Sipcam Agro Solutions, LLC, offers a pertinent illustration of how contractual language can create unforeseen procedural battles. In this instance, a seller of business assets initiated a lawsuit in a Mississippi state court, despite an Asset Purchase Agreement that stipulated all disputes were to be resolved through arbitration. Complicating matters, the agreement also contained a forum selection clause which asserted that, “notwithstanding” the arbitration provision, any “suit or proceeding” related to the asset purchase agreement must be filed in a specified Mississippi state court.
The buyer, upon being sued, removed the case to federal district court in Mississippi and promptly moved to compel arbitration. However, the seller successfully persuaded the federal district court that the forum selection clause necessitated the state court’s determination of the arbitration request. The district court concurred, remanding the case to state court and prompting the buyer’s appeal to the Fifth Circuit.
The Fifth Circuit reversed this decision. It clarified that, under the Federal Arbitration Act (FAA), a federal district court is obligated to address a motion to compel arbitration before considering a remand based on a forum selection clause, especially when federal jurisdiction is not in question. The appellate court sent the case back to the federal district court for it to properly make that determination.
While the federal district court is now likely to compel arbitration, given the FAA’s strong preference for it, this scenario highlights a crucial pre-closing lesson. The dispute in Odom Industries over where to dispute, which led to costly and time-consuming procedural delays, could have been entirely avoided. This actionable risk arises when an agreement’s forum selection clause, like the one in Odom, broadly states that “any suit or proceeding” must be filed in a specific court, even in the presence of an arbitration provision. To mitigate this, advisors should ensure the forum selection clause is carefully drafted to expressly apply only to litigation that is not subject to arbitration under the agreement’s arbitration provision. This precise contractual language is a vital, yet often overlooked, pre-closing legal risk management tool that can prevent future litigation headaches and preserve deal value.
See: Odom Industries, Inc. v. Sipcam Agro Solutions, LLC, No. 24-60410 (5th Cir. 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
Legal Disclaimer
The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.
Recent Comments