FILED: NEW YORK COUNTY CLERK 01/30/ :21 PM INDEX NO /2017 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 01/30/2017. Index No.

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1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF New York PHOTOBUCKET.COM, INC. Index No. [type in Index No] -against- GOOTEN F/K/A/ BREAKOUT COMMERCE INC. Plaintiff(s), Summons Defendant(s). Date Index No. Purchased: To the above named Defendant(s) GOOTEN F/K/A BREAKOUT COMMERCE INC. 54 West 40th Street New York, New York You are hereby summoned to answer the complaint in this action and to serve a copy of your answer, or, if the complaint is not served with this summons, to serve a notice of appearance, on the Plaintiff's attorney within 20 days after the service of this summons, exclusive of the day of service (or within 30 days after the service is complete if this summons is not personally delivered to you within the State of New York); and in case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the complaint. The basis of venue is New York County, which is the principal place of business of defendant. Dated: New York, NY January 30, 2017 Gordon & Rees LLP by Jennifer A. Guidea Attorneys for Plaintiff PHOTOBUCKET.COM INC. One Battery Park Plaza 28th Floor New York, NY of 10

2 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK x PHOTOBUCKET.COM, INC., Plaintiff, -against- Index No COMPLAINT FOR DECLARATORY JUDGMENT GOOTEN f/k/a BREAKOUT COMMERCE INC., Defendant x Plaintiff, Photobucket.com, Inc. ( Plaintiff or Photobucket ), in its Complaint against defendant Gooten f/k/a Breakout Commerce Inc. ( Defendant or Breakout ), hereby states as follows: NATURE OF THE ACTION 1. This case arises from a dispute between the parties as to whether the Strategic Partner Products and Services Agreement (the Agreement ) entered into by the parties in July 2014 was properly terminated as of September Plaintiff seeks a declaratory judgment on this issue. 2. Additionally, Plaintiff seeks damages resulting from Defendant s various breaches of the Agreement. PARTIES 3. Plaintiff is a corporation organized and existing under the laws of the State of Delaware with its principal place of business at 2399 Blake Street, Suite 160, Denver, Colorado. 4. Upon information and belief, Defendant is a corporation organized and existing under the laws of the State of Delaware with its principal place of business at 54 W 40 th Street, New York, New York. 2 of 10

3 JURISDICTION AND VENUE 5. This court has personal jurisdiction by virtue of the Agreement between the parties which states that [e]ach party consents to the jurisdiction of the state and federal courts in the State of New York, U.S.A. 6. Venue is proper in this Court because Defendant s principal place of business is located in this county. 7. Assignment to the Commercial Division of this Court is proper because the Complaint seeks declaratory relief. ALLEGATIONS COMMON TO ALL CLAIMS FOR RELIEF 8. Plaintiff provides a platform for storage, sharing and printing of digital photographs and images. 9. Defendant provides fulfillment of product orders placed with Plaintiff using digital images in the form of prints, wall décor, photo gifts, printed items and other branded or personalized merchandise and provides certain technology, infrastructure and product fulfillment services (the Products and Services ). The Agreement 10. On or about May 29, 2014, Plaintiff and Defendant entered into a Strategic Partner Products and Services Agreement (the Agreement ) whereby the parties agreed that Defendant would be Plaintiff s exclusive provider of the Products and Services, subject to the terms and conditions of the Agreement. A copy of the Agreement with relevant exhibits is attached hereto as Exhibit A. 8. The Agreement contains a section entitled Technology SLA that includes the following language: 3 of 10

4 Breakout guarantees the Software and Products and Services will have uptime of at least 99.99% at all times assuming 100% uptime from Breakout s co-location and internet service providers (herein referred to as the Uptime SLA ). If the represented Uptime SLA in any given month is not adhered to, the Partner will be entitled to a reasonable offset of fees paid by Partner for any given month, which will be mutually negotiated between Partner and Breakout. If Breakout does not meet the Uptime SLA in (a) any 2 consecutive calendar months, or (b) any 3 calendar months out of any 12 consecutive calendar months, then Partner may terminate this Agreement upon written notice to Breakout specifying the effective date of termination. See Exhibit C to the Agreement. 9. The Agreement also includes a Production Service Level Agreement ( Production SLA ) which sets forth the requirement that each Customer order ships within 5 business days from the date the manufacturers [sic] receives the orders. See Exhibit A to the Agreement at 2b. 10. Further, the Adjusted Production SLA provision of the Agreement provides that: [T]he Adjusted Production SLA is calculated by adding the average shipping time to the destination from the manufacturer to the Production SLA. In the event that more than 1% of all Customer orders in any 2 consecutive calendar months do not meet the Adjusted Production SLA, then Partner may terminate the Agreement without liability upon ninety (90) days written notice where termination will be effective on the date stated by Partner. See Exhibit A to the Agreement at 2d. 11. The Agreement also provides: Returns SLA. In no event [sic] shall the percentage of Products returned under Section 5a exceed 1.5% of the total number of Products ordered in any three consecutive month period ( Returns SLA ), then Partner may terminate the Agreement without liability upon ninety (90) written days notice where termination will be effective on the date stated by Partner. 1 See Exhibit A to the Agreement at 5c. 1 The clause In no event shall the percentage... appears to be a typographical error and was intended to read In the event the percentage... 4 of 10

5 12. The Agreement also provides that Breakout shall use commercially reasonable efforts to ensure the security of the Customer Information that it receives from Partner and/or Customer. See Agreement, Exhibit A at Section 11 of the Agreement provides Plaintiff with the opportunity to audit the financial books and records of Defendant to determine compliance with all of the terms of the Agreement. 14. The Agreement provides that Plaintiff is entitled to seek damages up to the amount of fees paid during the twelve (12) month period prior to the claim, which fees exceeded $1,000,000. See Agreement at 10. Violations of the Agreement 15. Defendant violated sections (a) and (b) of the Technology SLA by falling below the Uptime SLA a total of six times in 2016, including during the five consecutive months between January and May As a result of the failure to maintain the required Uptime SLA, Plaintiff was required to suspend its marketing efforts to ensure that customers did not attempt to place orders that would not be fulfilled. 17. Defendant has also violated the Production SLA and the Adjusted Production SLA by failing to comply with its guarantees in connection with the timely shipment of customer orders. 18. In addition, Defendant has violated the Return SLA by failing to ensure that the percentage of products returned was below 1.5% of total number of Products ordered for a three month consecutive period. 5 of 10

6 19. On September 9, 2016, Plaintiff advised Defendant, in writing, that it was exercising its immediate right to terminate the Agreement due to the violation of the Technology SLA. A copy of the September 9, 2016 Correspondence is attached as Exhibit B. 20. Additionally, the September 9, 2016 correspondence put Defendant on notice of the violations of the Production SLA and the Return SLA which give rise to a right of termination upon ninety days notice. 21. The September 9 correspondence also advised Defendant that Plaintiff intended to conduct an audit of Defendant s financial books and records pursuant to Section 11 of the Agreement. Such an audit would, inter alia, permit confirmation of Breakout s representation that the Product and Service published pricing offered to Partner under this Agreement is no less favorable than the Product and Service pricing that Breakout offers to any other party. See Agreement, Exhibit D, Product Prices. 22. On at least 3 occasions in 2016 Defendant unilaterally suspended, without notice, access by Plaintiff s customers to the Products and Services. 23. At least one of these suspensions, in December 2016, was imposed within a day of a call by Plaintiff s CEO requesting Defendant s intentions with respect to correcting the problems with the SLA, Adjusted Production SLA and other matters raised in Plaintiff s September 9, 2016 correspondence, thereby leaving Plaintiff with the impression that any further communication regarding these problems could lead to further suspensions with an adverse impact on Plaintiff s business. 24. Plaintiff has paid all invoices for Products and Services provided by Defendant through January 30, of 10

7 AS AND FOR A FIRST CAUSE OF ACTION (Declaratory Judgment) 25. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 24 above as if fully set forth herein. 26. The Agreement provides Plaintiff with an immediate right of termination based upon Defendant s violations of the Technology SLA contained in Exhibit C to the Agreement. 27. Plaintiff properly exercised this right of immediate termination on September 9, Plaintiff provided proper notice of the termination to Defendant. 29. The Agreement also provides Plaintiff with a right of termination upon ninety days notice for Defendant s violations of the Production SLA and the Return SLA. 30. Plaintiff properly exercised these rights of termination on September 9, 2016, thus the Agreement was terminated, at the latest, on December 9, Upon information and belief, Defendant disputes the contentions herein. 32. A justiciable controversy therefore exists between the parties with respect to whether the Agreement was properly terminated. 33. By reason of the foregoing, Plaintiff is entitled to a declaration that the Agreement has been terminated as of September 9, 2016, or, in the alternative, as of December 9, 2016 and that both Plaintiff and Defendant are released from any ongoing compliance with the terms of the Agreement, except for those provisions that explicitly survive termination. 34. Plaintiff does not seek restitution of payments made for Products and Services provided by Defendant to date except to the extent it is entitled to damages for Defendant s violations of the Agreement as further alleged below. 7 of 10

8 AS AND FOR A SECOND CAUSE OF ACTION (Breach of Contract) 35. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 34 above as if fully set forth herein. 36. As detailed above Defendant violated its obligations under the Agreement, including but not limited to violations of the Technology SLA, the Production SLA and the Return Products SLA. 37. As a result of these breaches, Plaintiff has suffered damages, including but not limited to, lost revenue, in an amount of at least $250, The exact amount of damages from these breaches is currently unknown, as Plaintiff has not yet had the opportunity to examine Defendant s books and records. 39. Under the Agreement, Plaintiff is entitled to seek damages up to the amount of fees paid during the twelve (12) month period prior to the claim, which fees exceeded $1,000,000. AS AND FOR A THIRD CAUSE OF ACTION (Breach of Contract) 40. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 39 above as if fully set forth herein. 41. The Agreement provides that Breakout shall use commercially reasonable efforts to ensure the security of the Customer Information that it receives from Partner and/or Customer. See Agreement, Exhibit A at In the spring of 2015, Plaintiff noticed a significant number of fraudulent orders placed from zip codes in Mexico. 8 of 10

9 43. During this period of time, Plaintiff received hundreds of chargeback complaints, representing over 80% of orders placed from Mexico, from customers whose credit cards had been fraudulently used to place orders. 44. Defendant did not use commercially reasonable efforts to ensure security of this customer information, as it did not have any controls or monitoring in place to detect fraud issues. 45. Defendant did not take steps to correct the problem and as a result, Plaintiff instructed Defendant to turn off shipping to all zip codes in Mexico 46. Despite the lack of any fraud monitoring or protection, Defendant charged Plaintiff for the fraudulent orders. 47. As a result, Plaintiff has been damaged in an amount to of at least $50, The exact amount of damages from this breach is currently unknown, as Plaintiff has not yet had the opportunity to examine Defendant s books and records. 49. Under the Agreement, Plaintiff is entitled to seek damages up to the amount of fees paid during the twelve (12) month period prior to the claim, which fees exceeded $1,000,000. AS AND FOR A FOURTH CAUSE OF ACTION (Breach of Contract Audit of Books and Records) 50. Plaintiff repeats and realleges the allegations contained in paragraphs 1 through 49 above as if fully set forth herein. 51. Pursuant to Section 11 of the Agreement, Plaintiff is entitled to audit Defendant s financial books and records upon reasonable advance written notice. 52. Plaintiff requested access to Defendant s books and records on September 9, of 10

10 53. Defendant has not responded to Plaintiff s request and Plaintiff has not yet had the opportunity to conduct an audit. WHEREFORE, Plaintiff requests that a judgment be issued and entered against Defendant as follows: 1. Declaratory judgment decreeing that Agreement between the parties was properly terminated as of September 9, 2016, or, in the alternative, as of December 9, 2016 and releasing both Plaintiff and Defendant from any ongoing compliance with the terms of the Agreement, except for those provisions that explicitly survive termination; 2. Awarding damages to Plaintiff for Defendant s breach of the Agreement in an amount to be determined but not less than $300,000; 3. Requiring Defendant to allow Plaintiff access to its books and records for purposes of conducting an audit; and 4. Granting such additional relief as this Court deems just and proper. Dated: January 30, 2017 Respectfully submitted, GORDON & REES LLP By: s/ Jennifer A. Guidea Ronald A. Giller, Esq. Jennifer Guidea, Esq. Attorneys for Plaintiff One Battery Park Plaza, 28th Floor New York, NY Telephone (212) Fax (212) of 10