FILED: NEW YORK COUNTY CLERK 08/24/2016 12:27 PM INDEX NO. 651454/2016 NYSCEF DOC. NO. 65 RECEIVED NYSCEF: 08/24/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK CRICKET STOCKHOLDER REP, LLC, -against- Plaintiff, PROJECT CRICKET ACQUISITION, INC. and USES HOLDING CORP., Defendants. Index No. 651454/2016 IAS Part 39 (Justice Scarpulla) Motion Seq. No. 2 Oral Argument Requested MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT USES HOLDING CORP. S MOTION TO DISMISS FOR FAILURE TO STATE A CAUSE OF ACTION 1 of 10
TABLE OF CONTENTS Page PRELIMINARY STATEMENT...1 FACTUAL BACKGROUND...2 LEGAL STANDARD...3 ARGUMENT...4 A. The SPA s Terms Must Be Enforced as Written...4 B. The SPA Imposes an Obligation Only on Purchaser with Respect to Any Pre- Closing Tax Refunds...5 C. Sellers Agreed Their Sole and Exclusive Remedy Shall Be Indemnification by Purchaser...5 CONCLUSION...6 i 2 of 10
Cases TABLE OF AUTHORITIES Page(s) Ark Bryant Park Corp. v. Bryant Park Restoration Corp., 285 A.D.2d 143, 730 N.Y.S.2d 48 (1st Dep t 2001)...3, 4 Ashwood Capital, Inc. v. OTG Mgmt., Inc., 99 A.D.3d 1, 948 N.Y.S.2d 292 (1st Dep t 2012)...4, 5 Bovis Lend Lease (LMB), Inc. v. Lower Manhattan Dev. Corp., 108 A.D.3d 135, 966 N.Y.S.2d 51 (1st Dep t 2013)...4 EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11 (2005).. 3 Goldstein v. Bass, 138 A.D.3d 556 31 N.Y.S.3d 15 (1st Dep t 2016)..........3 Gordon & Breach Sci. Publishers, Inc. v. New York Sys. Exch., Inc., 267 A.D.2d 52, 699 N.Y.S.2d 673 (1st Dep t 1999)...4 Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 754 N.E.2d 184 (2001)...6 Stuart Lipsky, P.C. v. Price, 215 A.D.2d 102 (1st Dep t 1995) 3 Woss, LLC v. 218 Eckford, LLC, 102 A.D.3d 860, 959 N.Y.S.2d 218 (2d Dep t 2013)..4 Rules CPLR 3211(a)(7) 1, 3, 4 ii 3 of 10
Defendant USES Holding Corp. ( USES Holding ), under separate representation from co-defendant Project Cricket Acquisition, Inc. ( Purchaser ) as of August 24, 2016, hereby moves the Court pursuant to CPLR 3211(a)(7) to dismiss the Complaint by plaintiff Cricket Stockholder Rep, LLC ( Plaintiff ) against USES Holding for failure to state a cause of action. PRELIMINARY STATEMENT While Plaintiff lumps Purchaser and USES Holding together as defendants in this breach of contract action, the plain terms of the operative purchase agreement bar Plaintiff s claim against USES Holding and expressly limit Plaintiff s recourse (if any) to Purchaser alone. This is not surprising, as this matter arises from a $104 million transaction in which Purchaser acquired USES Holding from the sellers Plaintiff represents. 1 4 of 10
USES Holding merely changed hands from Plaintiff to Purchaser and does not belong in a suit concerning Purchaser s purported obligations to Plaintiff. The plain language of the parties contract confirms the alleged obligations pertinent to this dispute run solely between Purchaser and Plaintiff, not USES Holding. Under the Stock Purchase Agreement dated March 31, 2014 (the SPA ), 1 between Purchaser, the sellers listed on Exhibit A thereto (the Sellers ), Plaintiff, and USES Holding: (1) Any obligation to remit tax refunds to Sellers is Purchaser s alone, and not USES Holding s. (SPA 9.4(c).) (2) Plaintiff s exclusive remedy for breach of any obligation imposed by the SPA is indemnification by Purchaser alone, and not by USES Holding. (SPA 8.10, 8.3.) Each of these clear contractual provisions separately forecloses Plaintiff s claim against USES Holding and entitles USES Holding to dismissal. FACTUAL BACKGROUND On March 31, 2014, pursuant to the SPA, Purchaser acquired USES Holding from Sellers for $104 million (subject to certain adjustments). (Compl. 3; SPA 2.2.) 2 In the SPA, all parties agreed their sole remedy for any breach of the SPA would be to seek indemnification pursuant to the agreed-upon procedures in Article 8 of the SPA: [T]he parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims... for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this Article 8. (SPA 8.10.) 3 1 The SPA is annexed to the Complaint as Exhibit A and is also attached to the Affirmation of Karl C. Huth IV (the Huth Aff. ), filed herewith, as Exhibit B. 2 The Complaint is attached to the Huth Aff. as Exhibit A. 3 Section 8.10 carves out claims for fraud and the remedies of injunctive relief and specific performance, none of which Plaintiff alleges. See footnote 6, infra. 2 5 of 10
In Article 8, Purchaser but not USES Holding agreed to indemnify Sellers for any breach by Purchaser of the SPA. (SPA 8.3 ( From and after the Closing, Purchaser agrees to indemnify the Sellers.... ).) 4 With respect to pre-closing tax refunds, Section 9.4(c) imposes the following obligation on Purchaser, but not USES Holding: Purchaser shall promptly pay over (or cause the applicable USES Company to pay over) to Sellers all refunds received by Purchaser or its affiliates to which Sellers are entitled.... (SPA 9.4(c).) LEGAL STANDARD In deciding a motion to dismiss under CPLR 3211(a)(7), while a court must accept the well-pleaded factual allegations of the complaint as true, EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19 (2005), allegations consisting of bare legal conclusions as well as factual claims either inherently or flatly contradicted by the documentary evidence are not entitled to such consideration. Stuart Lipsky, P.C. v. Price, 215 A.D.2d 102, 103 (1st Dep t 1995). Documents annexed to a complaint are subject to fair consideration on a motion to dismiss, even where such materials are damaging to the plaintiff. Goldstein v. Bass, 138 A.D.3d 556, 557, 31 N.Y.S.3d 15, 17 (1st Dep t 2016). On a motion to dismiss pursuant to CPLR 3211(a)(7), the interpretation of an unambiguous contract is a question of law for the court, and the provisions of the contract delineating the rights of the parties prevail over the allegations set forth in the complaint. Ark Bryant Park Corp. v. Bryant Park Restoration Corp., 285 A.D.2d 143, 150, 730 N.Y.S.2d 48 (1st 4 The SPA defines Purchaser as Project Cricket Acquisition, Inc., a Delaware Corporation. (SPA at 1, 10.) The SPA separately defines USES Holding as the Company. (Id. at 1, 3.) All emphases herein are added unless otherwise noted. 3 6 of 10
Dep t 2001). Courts thus routinely dismiss contract claims pursuant to CPLR 3211(a)(7) where the contract at issue does not entitle the plaintiff to relief against the defendant. See Ark Bryant Park Corp., 285 A.D.2d at 150 (reversing trial court s denial of motion to dismiss breach of contract claim under CPLR 3211(a)(7) because the agreement s terms did not entitle plaintiff to relief); Gordon & Breach Sci. Publishers, Inc. v. New York Sys. Exch., Inc., 267 A.D.2d 52, 52, 699 N.Y.S.2d 673 (1st Dep t 1999) (affirming dismissal of breach of contract claim pursuant to CPLR 3211(a)(7) where the agreements at issue did not entitle plaintiffs to relief); Woss, LLC v. 218 Eckford, LLC, 102 A.D.3d 860, 862, 959 N.Y.S.2d 218 (2d Dep t 2013) (affirming trial court s dismissal of breach of contract claims pursuant to CPLR 3211(a)(7) where agreements appended to the complaint precluded defendant s liability); Bovis Lend Lease (LMB), Inc. v. Lower Manhattan Dev. Corp., 108 A.D.3d 135, 145, 966 N.Y.S.2d 51 (1st Dep t 2013) (reversing trial court s denial of motion to dismiss contract claims because contract barred plaintiff s claims). ARGUMENT A. The SPA s Terms Must Be Enforced as Written [W]hen parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Bovis Lend Lease, 108 A.D.3d at 145. This is especially true where... the parties are sophisticated business entities represented by counsel. Id. In these circumstances, courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include. Ashwood Capital, Inc. v. OTG Mgmt., Inc., 99 A.D.3d 1, 7, 948 N.Y.S.2d 292, 297 (1st Dep t 2012). Accordingly, the SPA must be enforced according to its express terms. See Bovis Lend Lease, 108 A.D.3d at 145. 4 7 of 10
B. The SPA Imposes an Obligation Only on Purchaser with Respect to Any Pre- Closing Tax Refunds While Plaintiff has sued both Purchaser and USES Holding for breach of Section 9.4 of the SPA for allegedly refusing to pay pre-closing tax refunds to Sellers, Section 9.4 imposes an obligation on Purchaser alone: Purchaser shall promptly pay over (or cause the applicable USES Company to pay over) to Sellers all refunds received by Purchaser or its affiliates to which Sellers are entitled. (SPA 9.4(c).) The Complaint itself alleges that Purchaser (not USES Holding) is the party responsible to pay over any refunds to which Plaintiff is entitled. (See Compl. 24 ( Section 9.4(c) of the SPA requires that Purchaser promptly pay over (or cause the applicable USES Company to pay over) to Sellers all refunds received by Purchaser or its affiliates to which Sellers are entitled. ).) As Section 9.4 imposes no obligation on USES Holding, the breach of contract claim against USES Holding must be dismissed. 5 See Ashwood Capital, 99 A.D.3d at 7 (in construing agreement between sophisticated parties, courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include ). C. Sellers Agreed Their Sole and Exclusive Remedy Shall Be Indemnification by Purchaser Even if Section 9.4 imposed a contractual obligation on USES Holding with respect to pre-closing tax refunds (which it does not), the parties mutually agreed their sole remedy for any breach of the SPA shall be indemnification pursuant to Article 8 of the SPA: [T]he parties acknowledge and agree that their sole and exclusive remedy with 5 Section 9.4(b) notes that any pre-closing tax refunds shall be for the benefits of Sellers, but contains no terms imposing any obligation on USES Holding. 5 8 of 10
respect to any and all claims... for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this Article 8. (SPA 8.10.) 6 In Article 8, Purchaser alone and not USES Holding agreed to indemnify the Sellers for any breach by Purchaser of the SPA. (SPA 8.3 ( From and after the Closing, Purchaser agrees to indemnify the Sellers.... ).) The Complaint acknowledges this: Pursuant to Section 8.3(b) of the SPA, Purchaser is required to indemnify Sellers.... (Compl. 26.) Nowhere does the Complaint allege the SPA obligates USES Holding to indemnify Sellers, because the SPA does not. If there is any doubt, in Section 8.10 the Sellers expressly waived any claims against USES Holding in favor of indemnification by Purchaser: [E]ach party hereby waives, to the fullest extent permitted under Law, any and all rights, claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto [i.e., USES Holding] and their Affiliates and each of their respective Representatives arising under or based upon any Law, except pursuant to the indemnification provisions set forth in this Article 8. Accordingly, Plaintiff s sole recourse is indemnification by Purchaser. CONCLUSION For the foregoing reasons, defendant USES Holding respectfully requests that the Court dismiss with prejudice all causes of action against USES Holding. 6 Section 8.10 carves out claims for fraud and the remedies of injunctive relief and specific performance, none of which Plaintiff alleges. Even if specific performance were sought, specific performance will not be ordered where money damages would be adequate to protect the expectation interest of the injured party. Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 415, 754 N.E.2d 184, 188 (2001) (internal quotations omitted). 6 9 of 10
Dated: August 24, 2016 /s/ Karl C. Huth IV Karl C. Huth IV Kenneth S. Levine Anthony Ford Prospect Administration, LLC 10 E. 40th St., 42nd Floor New York, NY 10016 (212) 448-0702 Attorneys for Defendant USES Holding, Inc. 7 10 of 10