CURO Intermediate Hldgs. Corp. v. Sparrow Purchaser, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CURO INTERMEDIATE HOLDINGS )
CORP., a Delaware corporation, )
)
Plaintiff, Counterclaim )
Defendant, )
)
v. ) C.A. No. 2023-0371-NAC
)
SPARROW PURCHASER, LLC, a )
Delaware limited liability company, and )
CCF INTERMEDIATE HOLDINGS LLC, )
a Delaware limited liability company, )
)
Defendants, Counterclaim )
Plaintiffs. )
MEMORANDUM OPINION
Date Submitted: March 5, 2024
Date Decided: June 5, 2024
Thomas P. Will, Rachel R. Tunney, MORRIS, NICHOLS, ARSHT & TUNNELL
LLP, Wilmington, Delaware; Richard T. Marooney, Emma S. Nguyen, KING &
SPALDING LLP, New York, New York; Jeffrey S. Rosenberg, KING & SPALDING
LLP, Washington, D.C.; Counsel for Plaintiff and Counterclaim Defendant CURO
Intermediate Holdings Corp.
Nicholas J. Rohrer, Lakshmi A. Muthu, Alex B. Haims, YOUNG CONAWAY
STARGATT & TAYLOR, LLP, Wilmington, Delaware; Christina Golden Ademola,
MORRISON & FOERSTER LLP, New York, New York; Robert W. May, Michael
Komorowski, MORRISON & FOERSTER LLP, San Francisco, California; Counsel
for Defendants and Counterclaim Plaintiffs Sparrow Purchaser, LLC and CCF
Intermediate Holdings LLC.
COOK, V.C.
This action arises from the parties’ disagreement over a post-closing
accounting true-up process designed to calculate adjustments to the closing
purchase price for the sale of certain entities. At bottom, the parties disagree over
whether two specific provisions are contract interpretation questions requiring
judicial resolution or are accounting questions to be resolved by an independent
accounting firm. The seller seeks specific performance of the true-up process and, to
that end, has moved for judgment on the pleadings. The purchaser seeks judicial
resolution first.
This decision grants the seller’s motion as it relates to the first of the two
disputed contract provisions. It denies the seller’s motion as to the second provision
due to ambiguity in the term.
I. FACTUAL BACKGROUND
I draw the facts from the pleadings and the documents incorporated by
reference, attached as exhibits, or otherwise integral to them.1
A. The Purchase Agreement
On May 18, 2022, defendants/counterclaim-plaintiffs Sparrow Purchaser,
LLC and CCF Intermediate Holdings LLC (collectively, “Purchaser”) entered into
1 See BBD Beach, LLC v. Bayberry Dunes Ass’n, 2022 WL 763466, at *2 (Del.
Ch. Mar. 10, 2022).
1
an Equity and Asset Purchase Agreement (the “Purchase Agreement”) with
plaintiff/counterclaim-defendant CURO Intermediate Holdings Corp. (“Seller”).2
Under the Purchase Agreement, Purchaser agreed to buy, among other
things, all equity interests in certain entities from Seller (the “Transferred
Entities”).3 The parties dispute how to calculate “Working Capital” as it is used in
determining various adjustments to the “Closing Purchase Price.”4
The price adjustment process is set forth in the Purchase Agreement. The
Purchase Agreement required that, no less than five days before the anticipated
closing date, Seller would provide Purchaser with Seller’s good faith estimate of,
among other things, Working Capital (the “Estimated Closing Statement”).5
Under the Purchase Agreement, Working Capital refers to, “as of the date or
time of determination, the current assets of the Company minus the current
liabilities of the Company, in each case as specified on Annex A of Schedule I and as
calculated in accordance with the Transaction Accounting Principles.”6 Per
2CURO Intermediate Hldgs. Corp. v. Sparrow Purchaser, LLC, C.A. No.
2023-0371-NAC, Docket (“Dkt.”) 1 (“Compl.”) ¶¶ 12, 40, Ex. 1 (“Purchase
Agreement”); Dkt. 36 (“Answ.”) ¶¶ 12, 40.
3 Compl. ¶ 12; Answ. ¶ 12.
4 The adjustment amounts in dispute total roughly $3.7 million, which
constitutes just over 1% of the $310 million Closing Purchase Price. See Dkt. 63
(“OA Tr.”) 15–16; Purchase Agreement § 2.02; see also Compl. ¶ 13; Answ. ¶ 13.
5 Purchase Agreement § 2.04.
6 Id. § 1.01.
2
Schedule I, “Transaction Accounting Principles” means “[g]enerally accepted
accounting principles in the United States (GAAP).”7
The Purchase Agreement also required Purchaser to provide Seller with an
“Initial Closing Statement” no later than sixty days after closing.8 Among other
things, the Purchase Agreement required the Initial Closing Statement to include a
good faith, GAAP-compliant calculation of Working Capital.9
Under the Purchase Agreement, from the date Seller receives the Initial
Closing Statement, if Seller disagrees with “any aspect of” it, Seller has sixty days
to provide Purchaser with a “Notice of Disagreement.”10 This is followed by a
thirty-day “Resolution Period.”11 If the parties do not reach a resolution during this
period, they must, by contract, submit all unresolved issues raised in the Notice of
Disagreement to an independent accounting firm (an “Independent Accountant”) for
an expert determination under Section 2.06(c) of the Purchase Agreement.12
In relevant part, Section 2.06(c) provides:
If, at the end of the Resolution Period, Seller and Purchaser have been
unable to resolve any differences that they may have with respect to
7 Id. § 2.04(b), Sch. I.
8 Id. § 2.05.
9 Id.
10 Id. § 2.06.
11 Id.
12 Id.
3
any of the matters identified in the Notice of Disagreement, Seller and
Purchaser shall submit all such remaining matters to (i)
PricewaterhouseCoopers, or (ii) if such firm cannot or does not accept
such engagement, another nationally recognized independent
accounting firm, reasonably acceptable to Seller and Purchaser, which
shall not be the independent accountants of Purchaser or Seller . . . .13
Section 2.06(c) expressly contemplates a prompt true-up process.
B. Seller Disputes Purchaser’s Initial Closing Statement
On July 7, 2022, Seller delivered the Estimated Closing Statement to
Purchaser.14 The transaction closed on July 8, 2022 (“Closing”).15 Seller received
the Initial Closing Statement from Purchaser on September 6, 2022, and Seller
delivered a Notice of Disagreement to Purchaser on October 24, 2022.16
The Notice of Disagreement outlined three points where Seller disagreed
with Purchaser’s Working Capital calculation in the Initial Closing Statement.17
Two issues remain in dispute. Of those, the first raises a dispute over the accrued
vacation liability reflected in the Initial Closing Statement’s Working Capital
calculation.18 This relates to how the paid time off would accrue and carry over for
13 Id.
14 See Answ. ¶ 41; Compl. ¶ 41, Ex. 2.
15 Answ. ¶ 43; Compl. ¶ 43.
16 See Answ. ¶¶ 44–45; Compl. ¶¶ 44–45, Ex. 3 & 4.
17 See Answ. ¶ 45; Compl. ¶ 45, Ex. 4.
18 Compl. Ex. 4.
4
persons employed by the Transferred Entities after the entities are transferred and
the employees are rehired by Purchaser (the “Transferred Employees”).
The Notice of Disagreement provides:
Accrued Vacation Liability: Seller objects to Purchaser’s calculation
of the $3,386,399.30 accrued vacation liabilities incorporated into the
Working Capital. Purchaser appears to have accrued vacation
liabilities for all states in which the Transferred Entities operated or
had employees. However, vacation liability should only be accrued for
those states that require payout upon termination, specifically the
hourly employees in California, Colorado and Louisiana, and the sales
store managers in California. All other states are “use it or lose it”
jurisdictions; therefore, no vacation liabilities should be accrued with
respect to those employees. Seller’s calculation of accrued vacation
liability as of the Closing Date is $653,488, whereas Purchaser’s
calculation of the same was $3,386,399.30. Seller maintains its
position that accrued vacation liability of $653,488 is correct for
calculation of the Working Capital.19
Seller’s position is rooted in the application of GAAP to “CURO’s vacation
policy,” which provides employees “unlimited paid time off” and thus “does not pay
out upon separation of employment, unless required by statute.” 20 Thus, Seller
asserts, vacation liability should only accrue in very specific circumstances.
Second, Seller disputes the amount of the accrued bonuses liability that
Purchaser included in its Working Capital calculation. The Notice of Disagreement
provides:
Accrued Bonuses: Seller objects to Purchaser’s calculation of
$1,313,995.93 accrued bonus liabilities incorporated into the Working
Capital in its entirety. Purchaser appears to have included accrued
19 Id.
20 Id. Ex. 6 at 5.
5
bonuses liabilities for Short-Term Incentive Compensation, which were
assumed by the Purchaser pursuant to Section 6.04 of the Purchase
Agreement. Additionally, Seller paid all such bonuses related to short-
term incentive compensation, call center bonuses, and referral bonuses
for the second quarter of 2022 prior to the Closing. Therefore, Seller
objects to Purchaser’s inclusion of such liabilities in the calculation of
Working Capital in the amount of $1,313,996, and believes such
liabilities should be $300,000.21
After Seller provided the Notice of Disagreement to Purchaser, the clock
began to run on the thirty-day Resolution Period. The parties undertook efforts to
resolve their outstanding disagreements. On November 23, 2022, toward the end of
the initial Resolution Period, Purchaser’s counsel sent Seller a memorandum
attempting to show that the figures Purchaser included in the Working Capital
calculation for the disputed liabilities complied with GAAP, as the Purchase
Agreement required.22
In an email that same day, Purchaser wrote that Section “2.06 of the Equity
and Asset Purchase Agreement stipulates a 30 day time Resolution Period following
the Notice of Disagreement after which Pricewaterhouse[C]oopers or an equivalent
national firm be engaged to undertake a process to reach a final determination.”23
Purchaser thus “propose[d] extending the Resolution Period[,]” to which Seller
21 Id. Ex. 4.
22 Id. ¶ 47, Ex. 5; Answ. ¶ 47.
23 Compl. Ex. 6 at 8.
6
agreed.24 The parties were able to resolve one of Seller’s three original objections
during the extension, leaving only the two referenced above.25
On December 23, 2022, Seller informed Purchaser that it intended to submit
the dispute to PricewaterhouseCoopers (“PwC”).26
After contacting PwC, Seller explained in a January 2023 email to Purchaser
that it had “learned . . . that PwC [was] conflicted out.”27 As a result, Seller sought
another Independent Accountant, as contemplated by Section 2.06(c).28
At the end of January 2023, however, Purchaser raised contract
interpretation issues. Specifically, Purchaser asserted that a court must first
resolve the interpretation of Sections 6.01 and 6.04 of the Purchase Agreement—
addressing vacation and bonuses, respectively—before the parties can present the
dispute to an Independent Accountant under Section 2.06(c).29
24 See id. ¶ 48; Answ. ¶ 48.
25 See Compl. ¶ 49, Ex. 6 at 5–6; Answ. ¶ 49.
26 See Compl. ¶ 51, Ex. 6; Answ. ¶ 51.
27 Compl. ¶¶ 54–56, Ex. 8; Answ. ¶¶ 54–56.
28 See Compl. ¶ 56, Ex. 8; Answ. ¶ 56.
29 See Compl. ¶ 57, Ex. 9; Answ. ¶ 57.
7
C. Litigation
As a result of Purchaser’s new position, Seller commenced this action.
Seller’s complaint seeks specific performance of the dispute resolution process set
forth in Section 2.06(c). Purchaser answered and pled two counterclaims.
Seller then filed the Plaintiff/Counterclaim-Defendant’s Partial Motion for
Judgment on the Pleadings and Partial Motion to Dismiss the Verified
Counterclaims (the “Motion”).30 Seller argues it is entitled to judgment on the
pleadings for the only count in its complaint—breach of contract and specific
performance. Seller asks the Court to enforce the accounting true-up process set
forth in Section 2.06(c).31 Seller also argues resolution of this issue resolves the first
count of Purchaser’s counterclaims, which, it contends, is the mirror image of its
own claim.32
II. LEGAL ANALYSIS
“A motion for judgment on the pleadings may be granted only when no
material issue of fact exists and the movant is entitled to judgment as a matter of
30 Dkt. 26–28.
31 See Purchase Agreement § 2.06(c). Relevant to whether specific
performance is appropriate, Seller raises Section 11.11(a) (titled “Specific
Performance”), which provides in part that the “parties acknowledge and agree that
the parties shall be entitled to . . . specific performance . . . to enforce specifically the
terms and provisions hereof . . . .” Id. § 11.11(a); Compl. ¶ 38.
Seller has expressly acknowledged that its partial motion to dismiss
32
Purchaser’s second counterclaim is now moot. Dkt. 46 (“Seller’s RB”) at 2 n.2.
8
law.”33 “The procedural standard of review for a motion for judgment on the
pleadings under Rule 12(c) is similar to that for a motion to dismiss under Rule
12(b)(6).”34 “In determining a motion under Court of Chancery Rule 12(c) for
judgment on the pleadings, a trial court is required to view the facts pleaded and
the inferences to be drawn from such facts in a light most favorable to the non-
moving party.”35 But the Court “need not blindly accept as true all allegations, nor
must it draw all inferences from them in the non-moving party’s favor unless they
are reasonable inferences.”36 “On a Rule 12(c) motion, the Court may consider
documents integral to the pleadings, including documents incorporated by reference
and exhibits attached to the pleadings, and facts subject to judicial notice.”37
33 Desert Equities, Inc. v. Morgan Stanley Leveraged Equity Fund, II, L.P.,
624 A.2d 1199, 1205 (Del. 1993).
34 MPT of Hoboken TRS, LLC v. HUMC Holdco, LLC, 2014 WL 3611674, at
*5 (Del. Ch. July 22, 2014); see also Bayberry Dunes Ass’n, 2022 WL 763466, at *6
n.58 (noting that the same standard that applies to a Rule 12(b)(6) motion applies to
a Rule 12(c) motion (citing McMillan v. Intercargo Corp., 768 A.2d 492, 500 (Del.
Ch. 2000))).
35 Desert Equities, Inc., 624 A.2d at 1205 (footnote omitted).
36 Bayberry Dunes Ass’n, 2022 WL 763466, at *2 (quoting W. Coast Mgmt. &
Cap., LLC v. Carrier Access Corp., 914 A.2d 636, 641 (Del. Ch. 2006)); see also OA
Tr. 16 (“[Purchaser is] certainly not disagreeing with what the exhibits to the
complaint say . . . .”).
37 Bayberry Dunes Ass’n, 2022 WL 763466, at *2 (quoting Jimenez v. Palacios,
250 A.3d 814, 827 (Del. Ch. 2019), aff’d, 237 A.3d 68 (Del. 2020) (TABLE)); see also
CorVel Enter. Comp, Inc. v. Schaffer, 2010 WL 2091212, at *1 (Del. Ch. May 19,
2010) (“[U]nder Court of Chancery Rule 12(c) for judgment on the
pleadings. . . . The Court also may consider the agreements attached to the
pleadings in making its determination.”).
9
“Under Delaware law, the ‘proper interpretation of language in a
contract . . . is treated as a question of law . . . and ‘judgment on the pleadings . . . is
a proper framework for enforcing unambiguous contracts.’”38 But “[w]here the
meaning is ambiguous . . . a court cannot render judgment on the pleadings.”39
In construing a contract, our goal is to give effect to the intent of the
parties. . . . We will read the contract as a whole and enforce the plain
meaning of clear and unambiguous language. . . . Language is
ambiguous if it is susceptible to more than one reasonable
interpretation. An interpretation is unreasonable if it produces an
absurd result or a result that no reasonable person would have
accepted when entering the contract. . . . The determination of
ambiguity lies within the sole province of the court.40
Section 2.06(c) provides that if the parties are unable to resolve “any
differences” they may have with respect to “any” of the matters set forth in the
Notice of Disagreement, the parties “shall submit all” remaining matters to an
Independent Accountant for an expert determination.41 As I noted above, the
Purchase Agreement identifies GAAP as the governing default for calculating
Working Capital.
38 OSI Sys., Inc. v. Instrume. Corp., 892 A.2d 1086, 1090 (Del. Ch. 2006); Fiat
N. Am. LLC v. UAW Retiree Med. Benefits Tr., 2013 WL 3963684, at *7 (Del. Ch.
July 30, 2013) (“If a contract’s meaning is unambiguous and the underlying facts
necessary to its application are not in dispute, judgment on the pleadings is an
appropriate procedural device for resolving the dispute.” (quoting Schaffer, 2010 WL
2091212, at *1)).
39 Fiat N. Am. LLC, 2013 WL 3963684, at *7.
40Weinberg v. Waystar, Inc., 294 A.3d 1039, 1044 (Del. 2023) (footnotes
omitted) (quotation marks omitted).
41 Purchase Agreement § 2.06(c).
10
Purchaser argues Section 2.06(c) sets the Independent Accountant up as an
expert and not an arbitrator. According to Purchaser, this means an Independent
Accountant cannot be called upon to interpret the Purchase Agreement’s terms.
Seller does not dispute that Section 2.06(c) is an “experts” provision.42 Thus,
despite extended briefing on this point, Purchaser’s characterization of the provision
does not function as a basis for denying the Motion.43
Next, Purchaser argues the parties’ dispute centers around contract
interpretation issues arising from the provisions of the Purchase Agreement that
address the accrual of vacation and bonuses—Sections 6.01(a) and 6.04,
respectively. Thus, according to Purchaser, under a Delaware governing law and
forum selection provision in the Purchase Agreement, the Court must resolve these
contract issues before the parties can present any remaining accounting disputes to
an Independent Accountant.44 As I explain below, this is partially correct.
42 Seller’s RB at 10 (characterizing the issue as a “red herring that need not
be addressed”).
43 Unless otherwise provided, “[p]rinciples of contract interpretation
determine whether a disputed issues falls within [an expert provision’s] scope.”
ArchKey Intermediate Hldgs. Inc. v. Mona, 302 A.3d 975, 997 (Del. Ch. 2023) (citing
Terrell v. Kiromic Biopharma, Inc., 297 A.3d 610, 617 (Del. 2023)).
44 See Dkt. 38 (“Purchaser’s AB”) at 2; Purchase Agreement § 11.03.
11
A. Section 6.01(a): Accrued Vacation
Section 6.01(a) does not mark itself as a contractual deviation from the
default treatment of the Working Capital calculation under GAAP. Section 6.01(a)
is titled “Offers to Certain Business Employees.”45 It provides:
Prior to the Closing, Purchaser shall, or shall cause one of its Affiliates
to, use commercially reasonable efforts to make a written offer of
employment, on terms and conditions consistent with the requirements
of this Article 6 and applicable Law, to each Business Employee that
Purchaser desires to employ after the Closing (other than the Data
Center Employees), with such employment to commence immediately
after the Closing. Seller and its Affiliates shall reasonably cooperate
in Purchaser’s efforts to cause the Business Employees that Purchaser
desires to employ after the Closing to accept such offers of
employment. Such Business Employees receiving offers of employment
from Purchaser or its applicable Subsidiary shall represent the
substantial majority of the Business Employees (other than the Data
Center Employees). Purchaser will include in the offer letter that any
Business Employee’s paid time off that is accrued and unused as of the
Closing will be transferred to Purchaser on behalf of that Business
Employee if the offer of employment is accepted. Following the
Closing, Purchaser shall allow each Business Employee to use such
employee’s paid time off that was accrued and unused prior to the
Closing during their employment with Purchaser or its Affiliates.
Such paid time off assumed by Purchaser or its Affiliates shall be in
addition to, and not in lieu of, paid time off accrued under the
applicable plans or policies of Purchaser or its Affiliates on or following
the Closing, and shall in all cases be subject to the terms and
limitations of the applicable plans or policies of Purchaser and its
Affiliates governing the use of paid time off.46
Purchaser argues the plain terms of Section 6.01(a) require it “to assume
liability for accrued and unused paid time off for all Transferred Employees” with
45 Purchase Agreement § 6.01(a).
46 Id.
12
“no exceptions.”47 Thus, according to Purchaser, this accrued vacation liability
figure should be used in calculating Working Capital.48
Purchaser tries to frame the issue as one of whether the vacation liability is
“in” (i.e., whether it is included at all in the Working Capital calculation).49 But
Seller has never argued it is not “in.”50 Instead, Seller’s argument is that, although
“in,” the vacation liability only accrues, per GAAP, as to certain employees,
depending on the state.51
Put another way, as it relates to vacation liability, the parties only disagree
on the amount of the liability included in the Working Capital calculation. This
disagreement is based on differing views of how to calculate that figure. That is a
47 Purchaser’s AB at 27; see also OA Tr. 25 (“Our position is that all of the
PTO that the transferred employees have earned, regardless of what the policy is,
regardless of what jurisdiction they’re in, transferred over to [Purchaser], and
[Purchaser] is able to record that as a liability on the closing statement.”).
48 OA Tr. 25; Purchaser’s AB at 1–2.
49 OA Tr. 21, 25, 33–34.
50 Section 6.01(a) is about the guarantees Purchaser must include in offer
letters to Transferred Employees. As Seller argues, this provision has nothing to do
with how liabilities accrue under GAAP for purposes of calculating Working
Capital. Seller’s RB at 5–7. Section 6.01(a) seems to embody the parties’ efforts to
ensure Purchaser will maintain the status quo as it relates to Transferred
Employees. By way of analogy, assume no transaction occurred and an employer
simply desired to undertake a mid-year working capital calculation that accounts
for accrued vacation liability. The employer would not need (or want) a court to run
the calculation for the employer’s accounting purposes—its accountant would do
that.
51 See Seller’s RB at 6; Compl. Ex. 4–6.
13
GAAP question. Thus, under Section 2.06(c), the remaining dispute arising from
the vacation liabilities is proper for presentation to an Independent Accountant.
This is as far as my analysis of this issue needs to go. The foregoing compels
me to reject Purchaser’s assertion that Section 6.01(a) raises questions of contract
interpretation that must be determined before turning to the dispute resolution
process set forth in Section 2.06(c).
Seller’s position is based on the understanding that, absent a remaining
contract dispute under Sections 6.01(a) or 6.04, an order granting specific
performance of the dispute resolution process in Section 2.06(c) is appropriate.
Purchaser does not contest this.52 Instead, Purchaser asserts that the Court must
first interpret Sections 6.01(a) and 6.04 before an Independent Accountant can
proceed with an expert determination. For the reasons I have discussed, Purchaser
is wrong as to Section 6.01(a). Indeed, although I do not rely on it in reaching my
conclusion on this issue, I acknowledge that my conclusion here seems to comport
with Purchaser’s own characterization of the issue in its pre-litigation
52 As noted above, the parties expressly agreed to specific performance.
Purchase Agreement § 11.11; see also In re Cellular Tel. P’ship Litig., 2021 WL
4438046, at *72 (Del. Ch. Sept. 28, 2021) (“Where parties have expressed their
expectations through a specific contractual remedy, Delaware law favors enforcing
that remedy.”); Gildor v. Optical Sols., Inc., 2006 WL 4782348 (Del. Ch. June 5,
2006). Compare In re Cellular Tel. P’ship Litig., 2021 WL 4438046, at *72 (“[T]he
language of the contracts they negotiate holds even greater force when . . . the
parties are sophisticated entities that bargained at arm’s length.” (quoting
Progressive Int’l Corp. v. E.I. Du Pont de Nemours & Co., 2002 WL 1558382, at *7
(Del. Ch. July 9, 2002))), with OA Tr. 14 (noting that “both sides in the deal had
sophisticated legal advisors”).
14
communications. In one such communication, Purchaser expressly stated that “the
relevant question under the Purchase Agreement is what vacation liabilities should
be accrued under GAAP.”53
B. Section 6.04: Accrued Bonuses
Seller concedes that Section “6.04 is a little bit murkier” than Section
6.01(a).54 Indeed, as I explain below, Section 6.04 is open to more than one
reasonable interpretation at this pleading stage.
The proviso at the end of the first sentence in Section 6.04 (the “Proviso”),
unlike Section 6.01(a), expressly addresses the Working Capital calculation. The
parties’ arguments turn on competing readings of the Proviso. Since both
interpretations are reasonable at this stage, the Proviso is ambiguous.55
Accordingly, I must deny the Motion as to this issue.56
Section 6.04 provides:
Purchaser shall be responsible for any cash incentive compensation
(including annual cash bonuses, sales incentives and commissions,
productivity bonuses, and spot bonuses) payable in respect of the 2022
calendar year (or any portion thereof) to Transferred Employees in
53 Compl. Ex. 5 at 2.
54 OA Tr. 37.
55 See Waystar, Inc., 294 A.3d at 1044.
56 See Stone v. Nationstar Mortg. LLC, 2020 WL 4037337 (Del. Ch. July 6,
2020) (denying in part a motion for judgment on the pleadings in accounting true-up
action due to ambiguity in contract term); Fiat N. Am. LLC, 2013 WL 3963684, *19
(denying in part a motion for judgement on the pleadings where contract term was
“susceptible to at least two reasonable interpretations” and thus “ambiguous”).
15
connection with their services to the Business (the “Cash Incentive
Compensation”), and Seller and its Affiliates shall not have any
Liability for the Cash Incentive Compensation in respect of any period
following the Closing; provided that, for the avoidance of doubt, certain
amounts related to anticipated Cash Incentive Compensation will be
reflected as a Liability in the calculation of Working Capital. All Cash
Incentive Compensation shall be governed by plans, programs or
arrangements maintained by Purchaser and its Affiliates (including
the Transferred Entities).57
The parties’ primary dispute centers around the Proviso, which states: “for
the avoidance of doubt, certain amounts related to anticipated Cash Incentive
Compensation will be reflected as a Liability in the calculation of Working
Capital.”58
On the one hand, Purchaser argues that Section 6.04’s structure, including
the clause preceding the Proviso and the Proviso itself, permits it to include as a
liability in Working Capital the pro rata portion of anticipated bonuses payable in
respect of the pre-Closing part of 2022.59 This includes discretionary bonuses.
Seller, on the other hand, argues the Proviso only raises GAAP questions and
should be read to exclude discretionary bonuses that “may not be paid.”60
57 Purchase Agreement § 6.04.
58 Id. (emphasis added).
59 See Purchaser’s AB at 28–30; OA Tr. 21–22.
60 Seller’s RB at 8; Dkt. 27 (“Seller’s OB”) at 31; OA Tr. 39 (“That’s a pure
GAAP question.”).
16
By asserting that this is “a pure GAAP question,”61 Seller elides its
interpretation of the Proviso. But the exhibits to Seller’s Complaint—which I am
permitted to consider at this stage62—make Seller’s position plain. According to
Seller, the Proviso’s use of “certain amounts” is a reference to a specific,
contemplated, and definite sum of money—$300,000. In one such exhibit, Seller
explains that “the $300,000 in bonuses originally included in the working capital
calculation” was “included to address the ‘for the avoidance of doubt’ proviso
contained in Section 6.04 of the purchase agreement.”63
Here lies the Proviso’s central ambiguity. As used in the Proviso, it is not
clear whether, “certain amounts” is supposed to mean (1) amounts that are certain
(i.e., “definite amounts”) at the time of Closing or (2) amounts that are of a specific
but unspecified character (i.e., “some amounts”).64
61 OA Tr. 39.
62 See Bayberry Dunes Ass’n, 2022 WL 763466, at *2.
63 Compl. Ex. 6. at 6; see also OA Tr. 39–40 (suggesting the $300,000 figure is
derived from anticipated obligations for non-discretionary hiring bonuses payable
after Closing).
64 Compare Certain, NEW OXFORD AMERICAN DICTIONARY (3rd ed. 2010)
(Certain: “1 known for sure; established beyond doubt”), Certain, THE MERRIAM-
WEBSTER DICTIONARY (2022) (Certain: “1 : Fixed, Settled . . . 4: Indisputable,
Undeniable . . . 5 : assured in mind or action”) (capitalizations altered), and Certain,
ROGET’S DESK THESAURUS (2001) (Certain: “2 definite, inevitable, positive,
inescapable, bound to happen, settled, sure; . . . 3 specific, particular”), with Certain,
NEW OXFORD AMERICAN DICTIONARY (3rd ed. 2010) (Certain: “2 [attrib.] specific but
not explicitly named or stated”), Certain, THE MERRIAM-WEBSTER DICTIONARY
(2022) (Certain: “2 : of a specific but unspecified character”), Some, NEW OXFORD
AMERICAN DICTIONARY (3rd ed. 2010) (Some: “1. an unspecified amount or number”),
17
If read as meaning “definite amounts,” it is reasonable, as Seller argues, to
read the Proviso to exclude unpaid, discretionary bonuses from the Working Capital
calculation.65
But if read as meaning “some amounts” it is also reasonable to believe the
parties may have intended, as Purchaser argues, for all bonuses paid in respect of
the pre-Closing part of 2022 to be included in the Working Capital calculation. The
reasonableness of this point seems especially salient as it relates to anticipated but
discretionary bonuses since, if reading “certain amounts” as “some amounts,”
Section 6.04 does not appear to require discretionary bonuses to be treated
differently from any other bonuses.
Taken together, whether explicitly or implicitly, the parties appear to ascribe
different but reasonable meanings to the Proviso’s use of “certain amounts.” The
ambiguity apparent from the text of Section 6.04 and inherent in the parties’
competing positions requires me to deny the Motion as it relates to the treatment of
the bonus liability in the Working Capital calculation.66
and Some, THE MERRIAM-WEBSTER DICTIONARY (2022) (Some: “a certain number or
amount”).
65 At oral argument, Seller’s counsel seems to reference the distinction
between interpreting “certain amounts” as meaning “definite amounts” as opposed
to “some amounts.” Seller’s counsel draws this distinction as it relates to hiring
bonuses that were “earned” or “already accrued” at the time of Closing. See OA Tr.
39–40.
66 See Stone, 2020 WL 4037337; Fiat N. Am. LLC, 2013 WL 3963684, *19.
18
III. CONCLUSION
For the foregoing reasons, I grant the Motion as to the disputed vacation
liabilities and deny the Motion as to the disputed bonus liabilities. The parties are
to confer on a form of order implementing this decision.
19