Jenkins v. XpresSpa Grp.

RODGER JENKINS and GREGORY JONES, Plaintiffs, v. XPRESSPA GROUP, INC., Defendant.

19-CV-1774 (VEC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

December 10, 2020

OPINION AND ORDER

VALERIE CAPRONI, United States District Judge:

This case arises from an inartfully drafted agreement pursuant to which Defendant acquired Plaintiffs' company. Shortly after the initial acquisition, Defendant sold the company to a third party. The parties' dispute concerns whether the subsequent sale triggered a provision in the original contract providing for accelerated earnout compensation and, if the provision was triggered, the amount Defendant owes for its alleged breach. Plaintiffs and Defendant have cross-moved for summary judgment. For the reasons discussed below, Plaintiffs' motion for summary judgment is GRANTED IN PART and DENIED IN PART; Defendant's motion for summary judgment is GRANTED IN PART and DENIED IN PART.

BACKGROUND¹

Plaintiffs Rodger Jenkins and Gregory Jones jointly owned Excalibur Integrated Systems, Inc. ("Excalibur"), a technology equipment company, on an 80-20 basis. Def. 56.1 Response ¶ 18; Pl. 56.1 Reply ¶ 18. On February 2, 2017, Defendant XpresSpa Group, Inc. ("XpresSpa"), then operating as FORM Holdings Corp., and Plaintiffs executed a Stock Purchase Agreement ("SPA"), pursuant to which XpresSpa acquired Excalibur. Def. 56.1 Response ¶ 35; Pl. 56.1 Reply ¶ 35. After the acquisition, Excalibur was combined with Group Mobile International, Inc. ("Group Mobile"), a subsidiary of XpresSpa. Def. 56.1 Response ¶ 36; Pl. 56.1 Reply ¶ 36. At or around the time of the sale, Jenkins signed an employment agreement with Group Mobile, which was incorporated into the SPA as Exhibit C. Def. 56.1 Response ¶ 37; Pl. 56.1 Reply ¶ 37; SPA Ex. C. Jenkins' employment agreement does not include any sales targets nor were any sales targets otherwise established for Jenkins during his employment by Group Mobile. Pl. 56.1 Stmt. ¶¶ 8-9; Def. 56.1 Response ¶¶ 8-9; see also SPA Ex. C.

The SPA included a provision pursuant to which Plaintiffs would earn additional compensation if certain performance targets were satisfied during the three years subsequent to the acquisition. Section 2.3 of the SPA, titled "Subsequent Consideration," provides:

After Closing, as additional consideration for the purchase and sale of Shares as set forth in Section 2.1 herein, each year until the third anniversary of the Closing (the "Subsequent Transfer Period"), the Buyer will, each April 1, pay $500,000 . . . to the Sellers . . . for each $2,000,000 of cumulative Gross Profit of sales generated by those accounts set forth on Exhibit B hereto (the "Seller Accounts"), until the cumulative Gross Profit of sales generated by the Seller Accounts in the Subsequent Transfer Period reaches $6,000,000. . . .

SPA § 2.3.² The effect of § 2.3 was that Plaintiffs could earn up to $1,500,000 in subsequent consideration ("Subsequent Consideration") if Excalibur's legacy accounts generated $6,000,000 in gross profit in the three years following XpresSpa's acquisition of Excalibur. See Pl. Mem. at 3.³

The SPA also contained a provision that established the terms for acceleration of the Subsequent Consideration if XpresSpa sold Group Mobile. Section 2.5 of the SPA, titled "Acceleration of Consideration," provides:

Upon a Change of Control of the Company's subsidiary, Group Mobile International LLC ("Group Mobile"), if (a) more than 25% of Group Mobile's aggregate revenue is then derived from accounts attributable to the efforts of the Company and/or the Sellers, and (b) if Rodger Jenkins has met all applicable sales targets pursuant to his employment by Group Mobile, as agreed to by Rodger Jenkins and Group Mobile in connection with the employment agreement attached herein as Exhibit C, then (i) within sixty (60) Business Days of such Change of Control, Buyer shall pay the Sellers 50% of the [S]ubsequent [C]consideration . . . that would have been transferred from the Buyer to the Sellers, in connection with Section 2.3 herein, as if the cumulative Gross Profit of sales generated by the Seller Accounts, from Closing until the third anniversary of the Closing, had reached $6,000,000, less the [S]ubsequent [C]onsideration already transferred from the Buyer to the Sellers under Section 2.3 herein; and (ii) Buyer shall cause the purchaser of Group Mobile, as a condition to such purchase, to assume the obligation to pay to the Sellers the remaining amount of [S]ubsequent [C]onsideration due under § 2.3, provided that Sellers meet all conditions and requirements in connection therewith.

SPA § 2.5.

In March 2018, XpresSpa agreed to sell Group Mobile to Route1, Inc. ("Route1"). Pl. 56.1 Stmt. ¶ 5; Def. 56.1 Response ¶ 5. The parties agree that Group Mobile's sale to Route1 constituted a "Change of Control" as defined in SPA § 2.5 and that, at the time of the sale of Group Mobile to Route1, more than 25% of Group Mobile's aggregate revenue was derived from accounts attributable to the efforts of Excalibur and Plaintiffs. Pl. 56.1 Stmt. ¶¶ 6-7; Def. 56.1 Response ¶¶ 6-7. It is also undisputed that, as part of the sale, XpresSpa did not require Route1 to assume the obligation to pay Plaintiffs any amount of accelerated consideration under § 2.5 of the SPA ("Accelerated Consideration"). Pl. 56.1 Stmt. ¶ 11; Def. 56.1 Response ¶ 11.

While negotiations were occurring between XpresSpa and Route1, Jenkins entered into an employment agreement with Route1 to remain a Group Mobile employee in the event that Route1 acquired Group Mobile. Def. 56.1 Response ¶ 76; Pl. 56.1 Reply ¶ 76. Jenkins also signed an "Acknowledgement," which states that "[o]ther than FORM Holdings Corp., neither Route1 Security Corporation, Route1 Inc., Group Mobile Int'l, LLC, nor any of their affiliates have any liability or obligation with respect to the SPA." Def. 56.1 Response ¶ 80; Pl. 56.1 Reply ¶ 80; see also Acknowledgement.

To date, neither XpresSpa nor Route 1 has paid any Accelerated Consideration to Plaintiffs. Pl. 56.1 Stmt. ¶ 10; Def. 56.1 Response ¶¶10-11; Pl. 56.1 Reply ¶¶ 11.

The parties disagree on whether the conditions of § 2.5 of the SPA were satisfied when Route1 acquired Group Mobile such that XpresSpa was obligated to pay Plaintiffs 50% of the Accelerated Consideration and to cause Route1 to assume an obligation to pay the remaining 50%. Specifically, the parties dispute whether the condition that Jenkins "met all applicable sales targets" was satisfied at the time of the sale. Pl. Mem. at 8; Def. Mem. at 10-11. Plaintiffs sued Defendant for breach of contract due to XpresSpa's refusal to pay $750,000 in Accelerated Consideration and for failing to cause Route1 to pay the remaining $750,000 of Accelerated Consideration allegedly due. See TAC ¶¶ 30-32. Plaintiffs seek compensatory damages and specific performance. TAC ¶ 32.

DISCUSSION

I. Standard of Review

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Scott v. Harris, 550 U.S. 372, 380 (2007) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

Summary judgment is appropriate on a contract-based claim "[w]here the language of the contract is unambiguous, and reasonable persons could not differ as to its meaning." Fulton Cogeneration Assocs. v. Niagara Mohawk Power Corp., 84 F.3d 91, 98 (2d Cir. 1996) (quoting Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir. 1985) (internal quotation marks omitted)); see also Thompson v. Gjivoje, 896 F.2d 716, 721 (2d Cir. 1990) ("Only where the language is unambiguous may the district court construe it as a matter of law and grant summary judgment accordingly."). Whether a contract is ambiguous is a question of law for the Court. See Law Debenture Tr. Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 465 (2d Cir. 2010); see also Sutton v. E. River Sav. Bank, 55 N.Y.2d 550, 554 (1982) ("[T]he threshold decision on whether a writing is ambiguous is the exclusive province of the court."). Summary judgment may also be appropriate if a contract is ambiguous but the extrinsic evidence of the parties' intent is so one-sided that it does not raise a genuine issue of fact for trial. See Turner Network Sales, Inc. v. DISH Network L.L.C., 413 F. Supp. 3d 329, 343 (S.D.N.Y. 2019); see also Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch, Pierce, Fenner & Smith Inc., 232 F.3d 153, 158 (2d Cir. 2000).

II. "Applicable Sales Targets" Is an Unambiguous Contract Term

A. The Court Did Not Previously Hold That the Contract Is Ambiguous

As a threshold matter, the Court must address Defendant's argument that the Court has previously ruled that the contract is ambiguous as a matter of law, thus binding the parties for purposes of summary judgment and subsequent stages of litigation as law of the case. "[T]he 'law of the case' doctrine is a rule of practice followed by New York courts that dictates that 'a decision on an issue of law made at one stage of a case becomes binding precedent to be followed in subsequent states of the same litigation.'" Perreca v. Gluck, 262 F. Supp. 2d 269, 272 (S.D.N.Y. 2003) (quoting In re Korean Air Lines Disaster, 798 F. Supp. 755, 759 (E.D.N.Y. 1992)).

Defendant contends that, at the January 3, 2020, hearing on Defendant's motion for judgment on the pleadings, the Court decided that the language "applicable sales targets" was ambiguous as a matter of law. In support of this argument, Defendant emphasizes the Court's statement that "[r]eading any ambiguity in plaintiffs' favor, the modifier 'applicable' means the agreement contemplated a scenario where no sales...