The opinion
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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MICHAEL BROWN, as agent on behalf of
former equityholders of Emergent Properties Inc.,
Plaintiff, 21-cv-10893 (PKC) (SDA)
-against-
ORDER ADOPTING REPORT
AND RECOMMENDATION
BUILDING ENGINES INC.,
Defendant.
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CASTEL, District Judge:
Plaintiff Michael Brown, as agent for the former equity holders of Emergent
Properties Inc., brought an action against Building Engines Inc. (“Building Engines”) under a payout
provision of the Merger Agreement by which Building Engines acquired Emergent Properties Inc.
d/b/a LogCheck as of May 28, 2021. Brown seeks declaratory judgment that the payout provision
of the Merger Agreement was accelerated, and the maximum payout became due when Building
Engines was sold to Jones Lang LaSalle (“JLL”) on or about November 23, 2021.
The predecessor district judge in an Amended Order of Reference (Doc. 17) referred
the action to Magistrate Judge Stewart D. Aaron for general pre-trial supervision and rulings on
dispositive motions. Judge Aaron issued a Report and Recommendation (“R&R”) recommending
denial of Building Engine’s motion to dismiss on forum non conveniens grounds, grant of Building
Engine’s motion to dismiss for failure to state a claim and denial of Building Engine’s motion for
attorneys’ fees. After the Amended Order of Reference but before the issuance of the R&R, the case
was reassigned to the undersigned.
No objection to the R&R has been filed by Building Engine. Brown has timely
objected insofar as the R&R dismissed his claim that the payout provision had been accelerated
by reason of the November 2021 acquisition of Building Engines by JLL.
I have reviewed and considered the entirety of the objections and reviewed the
objected portions of the R&R de novo. I conclude that the R&R of Magistrate Judge Aaron is
well-reasoned and grounded in fact and in law. Without objection the Court adopts the R&R
insofar as it denied the motion to dismiss on forum non conveniens grounds, denied the
application for attorney’s fees and granted leave to replead to Brown. Over the objection of
Brown, the Court adopts the R&R’s conclusion that Brown’s Complaint as presently pled fails
to state a claim for relief. The R&R is adopted in its entirety and without modification.
DISCUSSION
Brown’s single claim for relief is succinctly summarized in paragraph 63 of the
Complaint: “Plaintiff hereby requests a declaratory judgment that (i) the JLL Merger was a
Sale Event, but not the Contemplated Recap; (ii) the earnout payment accelerated as of, at
latest, November 23, 2021; and (iii) Defendant must therefore specifically perform by paying
the earnout amount of $1,500,000, plus any interest.”
The R&R correctly applies Delaware law to the Merger Agreement and
correctly describes the Court’s role in construing the terms of unambiguous contractual
provisions. The R&R well frames the issue, so the undersigned need only be brief.
Brown’s former equity holders – the sellers – maintained the ability to earn an
additional payout of up to $1.5 million based upon the entity achieving certain targets one year
after the closing. Under section 2.2 of the Merger Agreement, the maximum payout would be
earned and accelerated upon a “Sale Event.” There is no dispute – indeed, Brown alleges –
that the acquisition of Building Engines was a “Sale Event.” But as Building Engines argued
and the R&R accepted, a “Sale Event” that occurs prior to December 31, 2021 falls within the
definition of a “Contemplated Recap” and, therefore, does not trigger the acceleration
provision.
Section 2.2 of the Merger Agreement defines the term “Contemplated Recap” as
“a Sale Event that occurs prior to December 31, 2021.” Section 2.3(e) provides that “the
Contemplated Recap shall not, by itself, constitute an event requiring acceleration of the
payment of the Earnout Payment Amount under this Section 2.3(e) (it being agreed that Parent
or its successor resulting from the Contemplated Recap shall remain liable for Parent’s
obligations under this Article 2).”
There is no dispute that the JLL acquisition occurred in November 2021, which
is “prior to December 31, 2021.” Nor is it disputed that it was a “Sale Event.” Brown’s
position is that “Recap,” as used in the phrase “Contemplated Recap” means recapitalization
and that the JLL acquisition was not a recapitalization. As the R&R correctly notes, Delaware
law gives a term of an agreement the meaning assigned to it by the parties. See, e.g. Mehiel v.
Solo Cup Co., 2005 WL 5750634 (Del. Ch. May 13, 2005) (limiting the term “Company” to
that defined by the parties in their agreement). Here, “Contemplated Recap” was defined in a
manner that comfortably sweeps the JLL acquisition within its reach and therefore excludes it
from the acceleration provision.
CONCLUSION
Upon a de novo review of such parts of the R&R to which objections have been
made and considering all of the arguments of the parties, including those not expressly
referenced herein, the Court adopts the R&R. Rule 72(b)(3), Fed. R. Civ. P. The Clerk is
directed to terminate the motion. (Doc. 14.)
SO ORDERED.
ZZ Pipes AL
United States District Judge
Dated: New York, New York
August 11, 2022