FILED: NEW YORK COUNTY CLERK 09/07/ :07 PM INDEX NO /2016 NYSCEF DOC. NO. 23 RECEIVED NYSCEF: 09/07/2016

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1 FILED: NEW YORK COUNTY CLERK 09/07/ :07 PM INDEX NO /2016 NYSCEF DOC. NO. 23 RECEIVED NYSCEF: 09/07/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK CARL GRIMSTAD, Plaintiff, X : Index No.: /2016 : Motion Seq. 001 v. IPAYMENT HOLDINGS, INC., and IPAYMENT, INC. : Defendants. PLAINTIFF'S REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF THE MOTION BY ORDER TO SHOW CAUSE FOR A PRELIMINARY INJUNCTION X KASOWITZ, BENSON, TORRES & FRIEDMAN LLP Marc E. Kasowitz Sheron Korpus Sarmad M. Khojasteh 1633 Broadway New York, New York (212) Attorneys for Plaintiff 1 of 9

2 Plaintiff Grimstad respectfully submits this Reply Memorandum of Law in Further Support of Plaintiff's Motion by Order to Show Cause for a Preliminary Injunction ("Reply ARGUMENT I. A PRELIMINARY INJUNCTION SHOULD BE GRANTED C.P.L.R provides that a preliminary injunction is appropriate where (a) the defendant is acting "in violation of the plaintiff's rights respecting the subject of the action, and tending to render the judgment ineffectual," or (b) "plaintiff has demanded and would be entitled to a judgment restraining the defendant from the commission or continuance of an act, which, if committed or continued during the pendency of the action, would produce injury to the plaintiff." Mr. Natural, Inc. v. Unadulterated Food Prods., Inc., 152 A.D.2d 729, 730 (2d Dep't 1989). "[I]t is not for [a] court to determine the merits of an action upon a motion for a preliminary injunction; rather the purpose of the interlocutory relief is to preserve the status quo until a decision is reached on the merits." See Gambar Enters., Inc. v. Kelly Servs., Inc., 69 A.D.2d 297, 306 (4th Dep't 1979) (citation omitted). As shown (Opening Br. 5-11), Grimstad has established all three elements -- likelihood of success, a showing of irreparable harm, and the balance of equities -- required for a preliminary injunction to be granted. A. Plaintiff Has Established A Likelihood of Success on the Merits As shown (Opening Br. 6-7), Grimstad has an overwhelming likelihood of prevailing on the merits. Tellingly, the Company does not dispute that Section 2 entitled Grimstad to be, Terms defined in Plaintiffs Memorandum of Law in Support of Motion by Order to Show Cause for a Preliminary Injunction and Temporary Restraining Order ("Opening Br.") shall have the same meaning in this Reply Brief. Submitted herewith in further support of this motion is the affidavit of Carl Grimstad ("Grimstad Aff"), sworn to on September 7, 2016, 2 of 9

3 among other things, the Chief Executive Officer, with "all authority and duties consistent with such position," during the term of his employment with the Company. Instead, the Company asserts that, notwithstanding the express provisions of the Employment Agreement, it was authorized, pursuant to the Company's By-Laws, to strip Grimstad of his bargained-for right to serve as CEO during the ninety-day notice period leading up to the effective date of his termination. (Defendants' Mem. of Law in Opposition to Plaintiff's Mot. by Order to Show Cause for a Preliminary Injunction ("Opp. Br.") at 15.) The argument is utterly meritless. The Company's attempt to evade its contractual-obligations to Grimstad by reference to the By-Laws run contrary to the express provisions of the Employment Agreement and wellsettled New York law. First, it is well-settled that "[w]here the language of a contract is clear and unambiguous, the contract must be interpreted by reference to that language alone, without resort to extrinsic evidence." Crossmar, Inc., v. Portfolioscope, Inc., 307 A.D.2d 843, 843 (1st Dep't 2003). Here, Sections 2 and 5(b) of the Employment Agreement are unambiguous, and, thus, extrinsic evidence -- including the By-Laws -- is not properly considered by the Court. See, e.g., Outstanding Tramp., Inc. v. Interagency Council of Mental Retardation & Developmental Disabilities, Inc., 110 A.D.3d 1049, 1049 (2d Dep't 2013).2 Second, Section 13 of Employment Agreement expressly provides that "[t]his Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements, written or oral, between them as to such subject matter." New York courts have repeatedly held that the plain meaning of "Entire Understanding" clauses, such 2 For this reason, the Company's contention that certain provisions of the By-Laws would be rendered meaningless if the Employment Agreement were enforced pursuant to its express provisions is a red-herring. 2 3 of 9

4 as Section 13, "should be enforced without regard to consideration of extrinsic evidence of the parties' understanding or intent." See, e.g., Goldman v. White Plains Ctr. for Nursing Care, LLC, 43 A.D.3d 251, 252 (2007), affd, 11 N.Y.3d 173 (2008) (refusing to consider matters outside the employment agreement where the agreement contained such a clause);.johnson v. Stanfield Capital Partners, LLC, 68 A.D.3d 628, 629 (1st Dep't 2009) (refusing to consider evidence outside of employment agreement where the agreement was fully integrated); Unisys Corp. v. Hercules Inc., 224 A.D.2d 365, 368 (1st Dep't 1996) ("Having declared the contract to be the entire agreement, the law regards it as not merely the best but the exclusive evidence of the parties' intent.").3 Thus, in view of unambiguous, plain language of Sections 2 and 5(b) of the Employment Agreement, and the "Entire Understanding" clause contained therein, there is no basis to consider the By-Laws when determining the parties' rights and obligations to one another under the Employment Agreement.4 3 The Company also suggests that the Board's fiduciary duties prevent the Company from honoring its obligations to Grimstad under the Employment Agreement because "no Board could ever guarantee that it would maintain a chief executive in that position no matter what." (Opp. 15.) The position is a red-herring. As an initial matter, Grimstad is not claiming that he has the right to remain CEO indefinitely, but rather that the Employment Agreement specifically required that he continue as CEO until his termination date on November 24, 2016, Nevertheless, had the Board's fiduciary duties required it to terminate Grimstad because he posed a risk to shareholder value or the Company, the Board could have fired him for Cause, as set forth in Section 5(a)(i) of the Employment Agreement. it, however, did not. Indeed, there is no basis whatsoever to consider whether Grimstad -- the founder of the Company and a 20% shareholder -- posed a risk to shareholder value as his interests were completely aligned with those of the Company's other shareholders. 4 Thus, the case law relied on by the Company in support of their position that the By-Laws should control (Opp. Br. at 16-17) has no application here. Nevertheless, those cases are clearly distinguishable from the facts here as none of them involve an employment agreement. See Coffey v. Tetragenetics, Inc., 40 A.D.3D 1247, 1249 (3d Dep't 2007) (unlike here, employment was "at-will" and there were no restrictions on termination); Allen v. Murray House Owners Corp., 130 A.D.2d 356 (I st Dep't 1987) (unlike here, case did not address employment agreement, but rather an offering plan, and concerned by-laws that stated that they superseded the offering plan at issue); Klaasen v. Allegro Development Corp., C.A. No VCL, 2013 WL , at *19, n. 12 (Del. Ch. Oct. 11, 2013)(no employment agreement at issue). 3 4 of 9

5 B. Grimstad Has Established Irreparable Harm That Warrants an Injunction As shown (Opening Br. 7-10), the Company's breach of the express terms of the Employment Agreement has caused Grimstad irreparable harm by stripping him of his voice in management and denying him access to his corporate documents. As set forth in the Grimstad Affidavit, Grimstad specifically negotiated for the ninety-day notice period when entering into his employment agreement with the Company, cognizant of the fact that because he was granting the Company the right to terminate him as CEO with or without cause, he wanted to be sufficiently protected to ensure that, if he were terminated, (i) he would be able to assist to the extent possible in assuring an orderly succession and transition and thus help to preserve shareholder value, including my own, at the Company, and ensuring that the team of employees and senior management that he built would be well-treated; and (ii) he would be able to reasonably manage his departure from the Company so as to prevent harm to his reputation and his ability to earn a living in the future. (Grimstad Aff. 9.) As a result of the Company's breach of the Employment Agreement, and its immediate termination of his access to s and the office, Grimstad has been stripped of the opportunity to ensure an orderly transition at the Company, which he spent the last sixteen years building. In addition, such termination has left Grimstad unable to protect the team of employees that he built over the last decade, and has caused Grimstad to suffer reputational harm and that risk having an incalculably adverse impact on his future business prospects. (Grimstad Alf. 10.) First, in respect to the orderly transition and succession at the Company, not only has Grimstad been denied the opportunity to provide input on who should replace him as Chief Executive Officer, or work with members of senior management to ensure his responsibilities are properly carried out, but he has been unable to speak with many of the Company's long-standing 5 of 9

6 customers and investors to offer reassurances concerning the Company's future. (Grimstad Aff. 11.) As the founder of the Company, all three constituencies -- senior management, investors and customers -- look to Grimstad as a bell weather of the Company's prospects for future growth and success. In his absence, uncertainty concerning the Company's future undoubtedly has grown among all three constituencies, which has indisputably harmed shareholder value, including Grimstad's 20% ownership stake. (Id.) Second, by unceremoniously and without notice locking Grimstad out of the Company that he spent sixteen years building, the Company and its executive committee have sent a egregiously damaging and erroneous message to the market and future business opportunities that the ipayment founder and CEO needed to be immediately and coldly locked out of his offices and cut off from all communication access to his company. (Grimstad Aff. 12.) Third, as shown (Opening Br. 8), New York courts repeatedly have recognized precisely the type of harm Grimstad now suffers -- the destruction of his bargained-for right to have a voice in the management of the Company he founded and built -- as constituting irreparable harm. See, e.g., Wisdom Import Sales Co. LLC v. Labatt Brewing Co., Ltd., 339 F.3d 101, 115 (2d Cir. 2003) ("[A] bargained-for... right to participate in corporate management has value in and of itself and a denial of that right, without more, can give rise to irreparable harm."); Davis v. Rondina, 741 F.Supp. 1115, 1125 (S.D.N.Y. 1990) (granting injunctive relief, explaining that "[m]oney damages will not compensate [plaintiff] for loss of the opportunity to continue to manage the company which she has helped to build").5 5 The Company's efforts to draw a distinction between the facts here and the plethora of New York cases confirming that the loss of Grimstad's voice in the management of the Company constitutes an irreparable harm is futile. Whether Grimstad brought this action as a minority shareholder (which he is) or as an individual to which contractual guarantees for participation in management have been made (which he is) has no bearing on whether his harm here -- being stripped of his voice in the management of the Company -- constitutes an irreparable harm. Further, contrary to the Company's assertion (Opp. Br ), Grimstad is seeking to have his voice restored in the 5 6 of 9

7 Faced with this record and well-settled New York law on the issue, the Company refers on inapposite case law concerning the suspension of employment duties for employees that lacked employment agreements pursuant to which they had obtained a bargained-for right to participate in the management of a company they founded and built.6 See, e.g. Bank of America, N.A. v. PSW NYC LLC, No /2010, 2010 WL , at *10-11 (Sup. Ct. N.Y. Cnty. Sept. 16, 2010) (finding that the loss of a contractual right to participate in corporate management constituted irreparable harm); Int'l Equity Invs., Inc. v. Opportunity Equity Partners Ltd., 441 F. Supp.2d 552, 563 (S.D.N.Y. 2006) ("Conduct that unnecessarily frustrates efforts to obtain or preserve the right to participate in the management of a company may constitute irreparable harm"). Finally, the Company disingenuously argues that Grimstad will not suffer irreparable harm because he remains a director on the Board and, thus, retains a voice in the management of the Company. (Opp. Br. at 11.) This is flatly wrong. As set forth in the Grimstad Affidavit, on August 19, 2016, three of the five directors on the Board -- Feisal Alibhia, Evan Ratner, and David Pecker -- formed an "Executive Committee" that now carries out the responsibilities of the Board. (Grimstad Aff. 5.) Indeed, since early August, Grimstad has not received notice of any meetings of the Board, or any actions taken by the Board, including the naming of an interim Chief Executive Officer, a Chief Financial Officer and a Chief Operating Officer. (Id. 7.) Thus, as a result of the Company's continued breaches of the Employment Agreement, Grimstad has lost ninety-days as the CEO of the Company he founded and built, and every day management of the Company for the next 90 days, as his Employment Agreement guarantees; nothing less, nothing more. 6 See Rubin v. Corning-Painted Post, 190 F. Supp.2d 541, 543 (W.D.N.Y. 2002) (termination of a teacher); Hartzog v. Reebok Int'l Ltd., 77 F. Supp. 2d 475, 477 (S.D.N.Y. 1999) (employee argued irreparable harm resulted from financial harm) 6 7 of 9

8 that passes that he is unable to participate in management, he is being stripped of his ability to ensure an orderly transition of that Company, protect his employees and his reputation. C. The Equities Weigh Strongly In Favor Of Granting A Preliminary Injunction As shown (Opening Br ), the balance of the equities in this case clearly favors Grimstad because, absent injunctive relief, a final judgment in Grimstad's favor will be rendered ineffectual because there is no chance that the lawsuit is litigated and resolved prior to the Termination Date. See Gramercy Co. v. Benenson, 223 A.D.2d 497, 498 (1st Dep't 1996) (finding balance of equities tilted in favor of plaintiffs where denial of injunctive relief would have rendered the final judgment ineffectual). Unable to articulate any actual prejudice the Company will suffer as a result of injunctive relief in Grimstad's favor, the Company resorts to baseless speculation concerning the parade of horribles that would ensue if the Court grants such relief. There is absolutely no evidence in the record to suggest that Grimstad would torpedo or sabotage the Company, which he founded and built, and in which he owns a 20% stake. Indeed, Grimstad's personal and professional interests are completely aligned with the success and growth of ipayment -- whether he is CEO or not. As the Company concedes, Grimstad's severance payment itself is tied to the Company's performance, and may increase by as much as 25% if the Company performs well. (Opp. Br. at 5.) Incredibly, the Company asks the Court to take the illogical leap to infer from an sent by Grimstad to other members of the Board -- requesting only that he be permitted to participate in their meetings with senior management whom report to him -- that intends to harm the Company that he founded and built. (Affidavit of Feisal Alibhai, sworn to September 5, 2016, Ex. 2.) Nothing in this can remotely be construed as hostile to the Company's interests or the preservation of shareholder value. 7 8 of 9

9 For these reasons, the balance of equities clearly favor injunctive relief here. Indeed, defendants are effectively asking the Court to permit them to continue to breach their obligations based upon rank speculation of potential misconduct by Grimstad. This is contrary to the law. Aside from the imagined potential of Grimstad torpedoing the Company that he founded, built and continues to own a 20% stake in, Defendants do not and cannot identify any conceivable prejudice they will suffer from honoring their contractual commitments. CONCLUSION For the reasons set forth above and in the Opening Brief, Grimstad respectfully requests that the Court grant his motion by order to show cause for a preliminary injunction, and such other and further relief as the Court may deem just and proper. Dated: New York, New York September 7, 2016 Respectfully submitted, KASOWITZ, BENSON, TORRES & FRIEDMAN LP By: Marc E. Kasowitz Sheron Korpus Sarmad M. Khojasteh 1633 Broadway New York, New York (212) Attorneys for Plaintiff 8 9 of 9