Opinion

Lebenthal Holdings, LLC - Adversary Proceeding

Court: United States Bankruptcy Court, S.D. New York
Filed: Nov 27, 2019
Cited by: 0 cases
Authority: More cited than 30.2%

holding that the lower court properly relied on email exchanges “to modify plaintiff’s duties under the employment agreement”

How later courts described this case

holding that the lower court properly relied on email exchanges “to modify plaintiff’s duties under the employment agreement”

Written by the judges who cited it.

The opinion

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re: : NOT FOR PUBLICATION

: Chapter 7

LEBENTHAL HOLDINGS, LLC, et al., : Case No. 17-13337 (MG)

Debtors. : (Jointly Administered)

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LEBENTHAL HOLDINGS, LLC, :

Plaintiff, :

v. : Adv. Pro. No. 18-01547 (MG)

SOUTH STREET SECURITIES :

HOLDINGS INC., :

Defendant. :

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MEMORANDUM OPINION AFTER TRIAL FINDING THAT SOUTH STREET’S

TERMINATION OF THE MIPA WAS TIMELY AND THEREFORE

NOT A BREACH OF THE MIPA

A P P E A R A N C E S:

SILVERMAN ACAMPORA LLP

Attorneys for Plaintiff

Kenneth P. Silverman, Chapter 7 Trustee

100 Jericho Quadrangle, Suite 300

Jericho, New York 11753

By: Anthony C. Acampora, Esq.

Gayle S. Gerson, Esq.

Justin S. Krell, Esq.

WALFISH & FISSELL PLLC

Attorneys for Defendant

South Securities Holdings Inc.

11 Broadway, Suite 615

New York, New York 10004

By: Rachel Penski Fissell, Esq.

Daniel R. Walfish, Esq.

MARTIN GLENN

United States Bankruptcy Judge

Plaintiff, Kenneth P. Silverman, as chapter 7 trustee (the “Trustee” or “Plaintiff”) for the

jointly administered bankruptcy estate of Lebenthal Holdings, LLC (“Holdings”) and its

affiliated debtors1 brought this adversary proceeding (the “Action”) against South Street

Securities Inc. (“South Street” or “Defendant”) seeking, inter alia, $11.3 million in expectation

damages based on New York breach of contract claims arising from South Street’s termination

of a Membership Interests Purchase Agreement (“MIPA”) that it entered into with Holdings on

March 6, 2017.

Under the MIPA, South Street planned to acquire assets of Holdings and its affiliates,

subject to certain conditions. (“Joint Pretrial Order,” ECF Doc. # 34, Stipulated Facts ¶¶ 12–

14.)2 One condition required Holdings to deliver to South Street in advance of closing certain

2016 financial statements and other financial documentation as set forth in the MIPA. (See id. ¶¶

15–17.) According to South Street, under the terms of the MIPA, if such documentation was not

satisfactory to South Street in its sole discretion, South Street could terminate the MIPA by

written notice to Holdings within thirty (30) days after delivery of the financials. (See id., Def.’s

Cont. ¶¶ 1–4.) On May 25, 2017, South Street provided a written termination notice to Holdings

after determining that the financial statements of the entities subject to the MIPA were

unsatisfactory. (See id., Pl.’s Cont. ¶¶ 74–75.) Holdings argues that the notice was untimely

1 In addition to Holdings, the debtors include: (i) Lebenthal Asset Management (17-13339(MG)); (ii)

Lebenthal Family Office, LLC (17-13340(MG)); and (iii) Lebenthal Wealth Advisors, LLC (17-13341 (MG))

(collectively, the “Debtors”).

2 “Joint Pretrial Order” refers to the proposed order submitted by the parties on September 13, 2019. This

Court hereby enters the order.

and, therefore, ineffective (see id. ¶ 76); South Street argues that the notice was timely pursuant

to the MIPA. (See id., Def.’s Cont. ¶¶ 1–4.)

The parties agreed to a trial solely on the basis of written submissions, including

deposition designations and counter-designations, stipulated facts, exhibits, and trial briefs. (See

Stipulation and Order Regarding Pretrial Schedule and Procedure (“Pretrial Schedule and

Procedure”), ECF Doc. # 32.) The Court heard closing arguments on November 5, 2019.

Pursuant to the Pretrial Schedule and Procedure, the sole issue the Court must decide at this stage

of the case is whether South Street’s termination of the MIPA was untimely and therefore a

breach of the MIPA.3 (Id. ¶ 1.) For the reasons set forth below, the Court finds that South

Street’s termination of the MIPA was timely and therefore not a breach of the MIPA.4

I. PROCEDURAL HISTORY

On November 28, 2017, Holdings and its affiliated entities filed voluntary petitions for

relief under chapter 7 of the Bankruptcy Code. (“Petition,” Case No. 17-13337, ECF Doc. # 1.)

On January 5, 2018, the Court entered an order consolidating the Debtors’ cases (for procedural

purposes only) and directing them to be jointly administered under the chapter 7 case of

Holdings. (“Joint Administration Order,” Case No. 17-13337, ECF Doc. # 19.)

Before this chapter 7 bankruptcy case was commenced, Holdings filed a state court action

captioned Lebenthal Holdings, LLC v. South Street Securities Holdings, Inc., Index No.

3 The Pretrial Schedule and Procedure expressly reserved the parties’ rights with respect to “whether South

Street breached the Promissory Note and Pledge, dated March 10, 2017, as alleged in Count II of the Complaint, and

if so, what the resulting damages are, if any.” (Id. ¶ 1.) On March 23, 2018, South Street filed secured Claim No.

22 against the Holdings in an amount of “No less than $131,667.25” under a Promissory Note and Pledge, dated as

of March 10, 2017. Count II of the Complaint alleges that “South Street breached its obligations under the Note by

instructing Sterling to freeze LebCo’s account under the DACA in the absence of any default by Lebenthal at the

time of South Street’s action.” (Complaint, ECF Doc. # 1 ¶ 109.) Nothing in this Opinion resolves any issues with

respect to Count II.

4 The Joint Pretrial Order at 59 provides that “[i]n the event liability is established, the issue of damages will

be tried separately.” Because the Court rules in favor of Defendant, the issue of damages is moot.

655450/2017 (Sherwood, J.), in the Supreme Court of the State of New York, New York County,

Commercial Division (the “New York Court”). After the Trustee was appointed, he removed the

Action to the District Court pursuant to 28 U.S.C. § 1334(b), and the Action was then referred to

this Court.

On May 30, 2018, South Street filed a motion for abstention to remand the Action back to

the New York Court pursuant to 28 U.S.C. §§ 1334(c)(1) and (2). (“Abstention Motion,” ECF

Doc. # 3.) On July 11, 2018, the Trustee filed an opposition (“Abstention Opposition,” ECF

Doc. # 7), and South Street filed a reply. (“Abstention Reply,” ECF Doc. #9.) On July 27, 2018,

the Court entered the Memorandum Opinion and Order denying South Street’s Abstention

Motion. (“Abstention Order,” ECF Doc. # 11.)

On March 7, 2019, the Court entered a case management order requiring that (i) all fact

discovery be completed by June 5, 2019, (ii) all expert discovery be completed by July 20, 2019,

and (iii) counsel submit a joint pretrial conference order. (“Case Management Order,” ECF Doc.

# 19.) On June 26, 2019, the parties filed a joint status report stating that, inter alia, fact

discovery was complete, neither party intended to offer expert testimony, and that each party

intended to move for summary judgement on the same issue. (“Joint Status Report,” ECF Doc. #

27.)

On July 2, 2019, the Court held a case management conference during which counsel for

the parties requested leave to file cross motions for summary judgement and the Court directed

counsel to file letters regarding same. (See ECF Doc. # 28 (letter from Defendant); ECF Doc. #

29 (letter from Plaintiff).) On July 15, 2019, after reviewing the letters, the Court concluded that

cross motions for summary judgment were unlikely to provide the most effective, cost efficient

and speedy procedure for resolving this case. (See ECF Doc. # 30.) The Court proposed that the

parties proceed to a trial solely on the basis of written submissions—including deposition

designations and counter-designations, stipulated facts and exhibits, and trial briefs—with

counsel having the opportunity for closing arguments. (Id.) Counsel were directed to advise the

Court how they wished to proceed on or before July 22, 2019. (Id.)

On July 22, 2019, the parties submitted a letter and stipulation regarding pretrial

scheduling and procedure, wherein the parties agreed, inter alia, that the Court shall hold a trial

by paper limited to the sole issue of whether South Street’s termination of the MIPA was

untimely and therefore a breach of the MIPA. (Joint Pretrial Order ¶ 1.)

On September 13, 2019, the parties submitted a proposed joint pretrial order setting forth

stipulated facts, the parties’ contentions, exhibit lists, and deposition transcripts. (See Joint

Pretrial Order.)

On September 20, 2019, South Street submitted the Trial Brief of Defendant South Street

Securities Holdings Inc. (“South Street Trial Brief”) and Holdings submitted Plaintiff’s Trial

Brief (“Holdings Trial Brief”). (South Street Trial Brief, ECF Doc. # 35; Holdings Trial Brief,

ECF Doc. # 36.) On October 4, 2019, the Parties submitted their respective response briefs.

(“South Street Response,” ECF Doc. # 37; “Holdings Response,” ECF Doc. # 38.)

On October 24, 2019, the Court entered an order (the “Scheduling Order”) scheduling

closing arguments in the Action to take place on November 5, 2019 at 10:00 a.m. (Scheduling

Order, ECF Doc. # 40.) The Scheduling Order also set forth the Court’s conclusion—as both

sides had argued—“that the terms of the MIPA are clear and unambiguous and so extrinsic

evidence relating to the negotiating history will not be considered to vary or explain the terms of

the written agreement.” (Id. at 1.)

II. FACTUAL BACKGROUND

A. The Parties and Key Players

Lebenthal Holdings, LLC was a holding company that owned membership interests in

various financial services entities. (Joint Pretrial Order, Stipulated Facts ¶ 1.) In the summer of

2016, Holdings retained Gordian Group, LLC (“Gordian Group”), an investment bank, to

identify potential suitors and provide advisory services in connection with the sale of its

subsidiaries. (Id., Pl.’s Cont. ¶ 15.) South Street is a holding company that owns certain broker-

dealers and other businesses. (Id., Stipulated Facts ¶ 8.)

In September 2016, South Street, through its retained investment bank, Pi Capital

International LLC (“Pi Capital”), expressed an interest in exploring a transaction whereby South

Street would acquire Holdings’ 100% membership interest in (i) Lebenthal Asset Management,

LLC (“LAM”), a registered investment adviser owned by Holdings, and (ii) Lebenthal Family

Office, LLC (“LFO”), a small family office that was also owned by Holdings and provided

certain services to wealthy individuals and families. (Id. ¶¶ 2, 4.) South Street also proposed to

acquire Holdings’ 49% interest in Lebenthal & Co. (“LebCo” and, together with LAM and LFO,

the “Operating Entities”), a broker-dealer that was majority owned by Alexandra Lebenthal.

(Id., Pl.’s Cont. ¶ 17.)

Alexandra Lebenthal was Chief Executive Officer of Holdings from June 2016 through

June 2017. In June 2017, she became Chief Executive Officer and Managing Member of LebCo.

(Id., Def.’s Cont. ¶ 12.) James Lebenthal, Alexandra’s brother, was Chief Executive Officer of

LAM until he resigned in June 2017. (Id. ¶ 13.)

James Tabacchi (“Tabacchi”) was South Street’s Chief Executive Officer and the

ultimate decision-maker as to deal terms for South Street. (Id., Pl.’s Cont. ¶¶ 25, 34.) He also

authorized Jordan Winder (“Winder”), a Pi Capital employee, and South Street’s counsel,

Milbank Tweed (“Milbank”), to negotiate the MIPA on South Street’s behalf. (Id. ¶ 34.)

Tabacchi authorized Winder to handle, on his behalf, exchanging drafts of the MIPA and to be

Lebenthal’s main point of contact. (Id. ¶ 35; Id., Def.’s Cont. ¶ 11 (quoting Tabacchi Dep. Tr.

82–83).) David DeBlase (“DeBlase”) was South Street’s Chief Financial Officer. (Id., Pl.’s

Cont. ¶ 25.)

Steven Collopy (“Collopy”) was Holdings’ Chief Financial Officer. (Id., Def.’s Cont. ¶

14.) With respect to Holdings’ negotiation of the MIPA, Andrew Greenstein (“Greenstein”),

Holdings’ general counsel, Ashley Zambito (“Zambito”), a junior investment banker at Gordian

Group, Paul Kaufman, Gordian Group president, and Sharon Levine of Saul Ewing Arnstein &

Lehr LLP (“Saul Ewing”), handled the negotiations for Holdings. (Id., Pl.’s Cont. ¶ 36.)

In April 2017, pursuant to the Accounting Assistance Letter (as defined and detailed

below), South Street’s controller, Florian Jaze (“Jaze”), went to work in Holdings’ offices to

assist Collopy with the preparation of certain 2016 financial statements in connection with the

MIPA and otherwise provide general accounting assistance. (Id. ¶¶ 62–63.) Jaze reported to

DeBlase. (Id., Def.’s Cont. ¶ 8.)

B. The MIPA

On March 6, 2017, Holdings and South Street entered into the MIPA. (Id., Stipulated

Facts ¶ 12.) Under the terms set forth in the MIPA, South Street planned to purchase all of

Holdings’ membership interests in LebCo, LAM, and LFO at a closing date to be determined.

(Id. ¶ 14.) Section 5.2(g) of the MIPA provides, in pertinent part, as follows:

[South Street] shall have received, no later than April 15, 2017,

copies of (i) the unaudited financial statements of LAM and LFO

for the period beginning January 1, 2016 and ended December 31,

2016 and (ii) the audited financial statements of [LebCo] for the

period beginning January 1, 2016 and ended December 31, 2016 ((i)

and (ii) together, the “2016 Financial Statements”), including the

unqualified opinion addressed to [LebCo] from Grant Thornton LLP

(the “Audit Report”), confirming that it has audited in accordance

with the standards of the Public Company Accounting Oversight

Board (United States) the 2016 financial statements; . . . .

(MIPA, Art. V, § 5.2(g).)

Section 7.1(g) of the MIPA provides, in pertinent part, as follows:

[The MIPA] may be terminated in writing at any time prior to the

Closing Date, “by [South Street], by written notice to [Holdings]

within thirty (30) days after delivery of the 2016 Financial

Statements, Audit Report and financial results therein contemplated

by Section 5.2(g), if such 2016 Financial Statements, Audit Report

and financial results therein are not satisfactory to [South Street] in

its absolute discretion.”

(MIPA, Art. VII, § 7.1(g).) To be sure, section 5.2(g) defines “2016 Financial Statements” as (i)

“the unaudited financial statements of LAM and LFO for the period beginning January 1, 2016

and ended December 31, 2016, and (ii) the audited financial statements of [LebCo] for the period

beginning January 1, 2016 and ended December 31, 2016.” (MIPA, Art. V, § 5.2(g).) Section

5.2(g) defines “Audit Report” as “the unqualified opinion addressed to [LebCo] from Grant

Thornton LLP.” (Id.)

Section 9.4 of the MIPA provides, in pertinent part, as follows:

No amendment, modification or discharge of this Agreement, and

no waiver under this Agreement, shall be valid or binding unless set

forth in writing and duly executed by the Party against which

enforcement of the amendment, modification, discharge or waiver

is sought. Any such waiver shall constitute a waiver only with

respect to the specific matter described in such writing and shall in

no way impair the rights of the Party granting such waiver in any

other respect or at any other time. . . .

(MIPA, Art. IX, § 9.4.)

C. Financial Statements

On March 20, 2017, Collopy, Holdings’ Chief Financial Officer, sent to Thomas Miller, a

South Street employee, an email attaching, inter alia, (a) Excel workbooks containing data

extracted from QuickBooks, and bearing the filenames: (i) “2016 LFO-Balance Sheet.xlsx”; (ii)

“2016 LFO – Profit and Loss.xlsx”; and (iii) “Transaction List by Date – 2016”; and (b) PDF

files bearing the filenames: (i) “Dec 2016 – LFO Accounts Payable.pdf”; and (ii) “Dec 2016-

LFO Profit and Loss.pdf” (collectively, the “LFO March Financials”). (Joint Pretrial Order,

Stipulated Facts ¶ 18.)

On March 29, 2017, Collopy sent to DeBlase, South Street’s Chief Financial Officer, an

email attaching, inter alia, (a) Excel workbooks containing data extracted from QuickBooks and

bearing the filenames: (i) “2016 – Lebenthal_Asset Management_LLC Balance Sheet.xlsx”; (ii)

“2016 - Lebenthal_Asset_Management_LLC Profit and Loss.xlsx”; (iii) “2016 –

Lebenthal_Asset_Management_LLC Profit and Loss by Quarter.xlsx”; (iv) “2016 -

Lebenthal_Asset_Management_LLC Transaction Detail.xlsx”; and (v) “2016 -

Lebenthal_Asset_Management_LLC Trial Balance.xlsx”; and (b) PDF files bearing the

filenames: (i) “2016 – Lebenthal_Asset_Management_LLC Balance Sheet.pdf”; and (ii) “2016 –

Lebenthal_Asset_Management_LLC Profit and Loss.pdf” (collectively, the “LAM March

Financials,” and together with the LFO March Financials, the “March Financials”). (Id. ¶ 19.)

On April 12, 2017, Holdings and South Street executed a letter agreement (the

“Accounting Assistance Letter”) regarding certain assistance that South Street agreed to provide

to Holdings. The Accounting Assistance Letter provided that:

Pursuant to Section 5.2 of the [MIPA] [Holdings] is obligated to

deliver to [South Street] by no later than April 15, 2017 copies of

the 2016 Financial Statements, including the Audit Report. At this

time, [Holdings] and [LebCo, LAM, and LFO] lack the resources,

expertise and capacity to prepare and maintain the books and

records, financial reports and financial statements required in order

to deliver the 2016 Financial Statements and to otherwise operate

Lebenthal Businesses. Therefore, [Holdings] requests that [South

Street] assist [Holdings] in completing the 2016 Financial

Statements and otherwise maintaining and preparing its accounting

and financial books and records by providing accounting assistance,

including the closing of books, preparation and review of journal

entries and supporting information, preparation of financial

statements and reports and other accounting duties (any of such

services, the “Accounting Assistance”).

(Joint Pretrial Order, Stipulated Facts ¶ 20 (emphasis added).)

On April 18, 2017, Collopy sent to DeBlase an email attaching, inter alia, files bearing

the names (i) “Lebenthal 2016 statement of financial condition-final.pdf”; (ii) “Lebenthal 2016

financial statements Long Form – final.pdf”; and (iii) “SEC delivery receipt 2016 Financial

Statements.pdf” (collectively, the “LebCo Audit Report”). (Id. ¶ 21.)

On April 26, 2017, Collopy sent to DeBlase an email attaching, inter alia, (i) a revised

version of the LAM March Financials (the “LAM April Financials”); (ii) a revised version of the

LFO March Financials (the “LFO April Financials,” and together with the LAM April

Financials, the “April Financials”); and (iii) excel workbooks containing data extracted from

QuickBooks and bearing the file names: (a) “Dec 2016 – Lebenthal Holdings Balance Sheet 4-

25-17.xlsx”; (viii) “Dec 2017 – Lebenthal Holdings General Ledger 4-25-17.xlsx”; (ix) “Dec

2016 – Lebenthal Holdings Profit and Loss 4-25-17”; (x) “Dec 2017 – Lebenthal Holdings Trial

Balance 4-25-17.xlsx”; and (xi) “Dec 2016 – Lebenthal Combined BS and PL 4-25-17.xlsx”

(collectively, the “Holdings Financials”). (Id. ¶ 23.)

A comparison of the March Financials and the April Financials reveals that certain

changes were made by Holdings. First, the LFO April Financials reflect a $100,000 increase in

amounts due to LFO from LAM, and a decrease of approximately $92,000 in amounts from LFO

to Holdings. (See id. ¶¶ 24–25; id., Def.’s Cont. ¶ 76.) Second, the LAM April Financials

reflect the addition of a $25,000 debt owed to LAM from LebCo, a $5,700 reduction in debt of

Holdings due to LAM, and an 11% drop in LAM’s assets with a slight increase in net income.

(See id. ¶¶ 26–27; id. Def.’s Cont. ¶¶ 77–78.)

On May 25, 2017, South Street delivered to Holdings a notice stating that South Street

“hereby terminates the [MIPA] pursuant to Section 7.1(g) of the [MIPA] due to the fact that

[South Street] has determined in its absolute and sole discretion that the 2016 Financial

Statements, Audit Report and financial results therein are not satisfactory to the Purchaser.” (See

id. ¶ 28.)

III. THE PARTIES’ CONTENTIONS

A. South Street Trial Brief

South Street’s Trial Brief urges the Court to begin its analysis with the plain language of

the MIPA. (South Street Trial Brief at 6.) Section 5.2(g) of the MIPA required Holdings to

deliver to South Street “the 2016 Financial Statements,” which were defined as “the unaudited

financial statements of LAM and LFO.” (Id.) (emphasis in original). South Street maintains that

the drafters’ choice to use a limiting article, “the,” to precede “unaudited financial statements”

indicates that Holdings had to deliver the final, completed, and most updated financial

statements. (Id. at 7.) Under this reasoning, the April Financials were the singular, definitive,

unaudited financial statements referred to in the MIPA because they were the last and most

complete versions sent to South Street. (Id. at 11.) They were also meaningfully different from

March Financials. (Id.)

South Street points to extrinsic evidence regarding the parties’ course of conduct showing

that South Street timely terminated the MIPA. (Id. at 8.) South Street references the Accounting

Assistance Letter in which Holdings acknowledged that the 2016 Financial Statements were not

complete and had not been delivered. (Id.) South Street also points to email correspondence

with Holdings’ key executives and advisor acknowledging that the April 26 delivery date of the

April Financials triggered the 30-day clock. (Id.) Lastly, between May 2 and May 24, several

drafts of a closing checklist were widely disseminated and those closing checklists listed May 25

as the termination date. (Id.) In spite of these facts, no one at Holdings disputed that termination

date, challenged South Street’s termination notice as defective, or moved to enjoin South Street

to close the transaction. (Id.)

South Street also raises a waiver and estoppel defense, arguing that Holdings knowingly,

voluntarily, and intentionally abandoned any right to claim that the March Financials were “the

unaudited financial statements” contemplated by the MIPA. (Id. at 22–23.) No one at Holdings

told South Street that it had to terminate the MIPA by May 17 or lose its termination rights under

section 7.1(g). (Id. at 23.) After May 25, no one from Holdings indicated that South Street’s

termination was defective. (Id.) Relying on Holdings’ actions and failures to act, South Street

did not terminate earlier, seek an extension to a later date, assert a different basis for termination,

or refuse to close because other closing conditions had not yet been met. (Id.)

B. Holdings Trial Brief

Holdings argues that, contrary to Second Circuit case law, South Street impermissibly re-

writes the MIPA to render the heavily negotiated 30-day termination provision meaningless.

(Holdings Trial Brief at 5–6.) (citing Metropolitan Life Ins. Co. v. RJR Nabisco Inc., 906 F.2d

884, 889 (2d Cir. 1990)). According to Holdings, as per the terms of the MIPA, once Holdings

delivered the specified financial statements—regardless of the veracity or completeness of those

financial statements—South Street had 30 days to terminate the deal. (Id. at 6, 20–21.) There is

no requirement in the MIPA stating that the financial statements needed to be

“final.” (Id.) Holdings contends that the Court should be precluded from interpreting an

agreement to state something that the parties neglected to include. (Id. at 22.)

Further, South Street’s position would impermissibly allow it to act as an arbiter of when

financial statements pursuant to MIPA section 5.2(g) are sufficiently “final” thereby unilaterally

controlling when the 30-day period in section 7.1(g) starts to run. (Id. at 23.) Accordingly,

Holdings argues that South Street’s termination was untimely under the MIPA. (Id. at 20.)

C. South Street Response

South Street maintains that its core argument is not that the deadline for termination

under section 7.1(g) was eliminated. Rather, the dispute concerns which date—April 18, 2017 or

April 26, 2017—triggered the 30-day clock to terminate the MIPA. (South Street Response at

4.) Holdings’ papers offer no justification for why the March Financials, not the April

Financials, satisfied the delivery obligation. (Id. at 4–5.) Under Holdings’ theory, the delivery

obligation in the MIPA could be satisfied as long as the transmitted files were labelled “2016

financial statements,” “regardless of the veracity or completeness of those financial statements.”

(Id. at 6 (citing Holdings Trial Brief at 2).) Such an argument would allow Holdings to have

unfettered discretion to determine when and whether the 30-day clock would run, and to re-write

the terms of the MIPA, eliminating the word “the” preceding 2016 Financial Statements and

converting it to “any.” (Id. at 6.)

South Street does not argue, as Holdings contends, that it could unilaterally determine

when the 30-day clock started. (Id. at 7.) Rather, South Street’s position is that a termination

deadline existed under the MIPA and it complied with that deadline. (Id.) Similarly, South

Street does not argue that the parties intended for Holdings’ financials to be included in the

MIPA’s definition of “2016 Financial Statements.” (Id.) However, their inclusion in the

delivery of April Financials on April 26 statements (when they were absent from delivery of the

March Financials) supports the view that the April Financials were the applicable statements.

(Id.) South Street also contends that Holdings does not even attempt to address its argument that

the definite article “the” preceding unaudited financial statements required Holdings to deliver a

particularized, singular, definitive version of those statements. (Id. at 9.)

D. Holdings Response

Holdings takes issue with South Street’s description of the April Financials as

“meaningfully different” than the March Financials. (Holdings Response at 5.) Holdings

maintains that the differences between the original and modified versions are insignificant. (Id.

at 6.)

Holdings also argues that the MIPA imposed a definitive starting point for delivery of the

financial statements and ending point when South Street could terminate the contract. (Id. at 8.)

After Holdings delivered the LFO March Financials, LAM March Financials, and LebCo Audit

Report on March 20, March 29, and April 18, 2017, respectively, the parties engaged in an

iterative process whereby Holdings continued to provide South Street with financial information

as it became available. (Id. at 7.) Thus, under South Street’s reasoning, the starting gate to

trigger section 7.1(g) would continue to move, rendering the 30-day clock meaningless. (Id. at

8.)

Holdings points to emails and an early draft of the closing checklist showing that South

Street understood that May 17, 2017 was South Street’s deadline to terminate its agreement. (Id.

at 11.) The MIPA can only be modified by a writing, signed by the parties to be bound under

section 9.4. (Id. at 12.) As such, South Street cannot now argue that the MIPA was modified by

an email from Zambito, who responded to Winder’s email concerning modified termination

deadlines by stating, “Understood.” (Id. at 12.) Holdings also cites to deposition testimony

indicating that Zambito is “very junior” and did not have the authority to make legally binding

decisions on behalf of Holdings. (Id.)

IV. JURISDICTION AND VENUE

The Court has subject matter jurisdiction under 28 U.S.C. §§ 157 and 1334(b). Venue of

this adversary proceeding is proper under 28 U.S.C. § 1409(a). This adversary proceeding is a

core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Both parties have consented to the

bankruptcy court entering final orders and judgments. (Joint Pretrial Order, Stipulated Facts II.)

This opinion sets forth the Court’s findings of fact and conclusions of law pursuant to

Rule 52(a) and (c) of the Federal Rules of Civil Procedure, made applicable to this adversary

proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

V. LEGAL STANDARD

A. Modification of a Contract

New York law permits parties to modify a contract “by another agreement, by course of

performance, or by conduct amounting to waiver or estoppel.” Kaplan v. Old Mut. PLC, 526 F.

App’x 70, 72 (2d Cir. 2013) (quoting Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 783

(2d Cir. 2003)). “Contract modification requires proof of each element requisite to the formation

of a contract, including a ‘manifestation of mutual assent sufficiently definite to assure that the

parties are truly in agreement with respect to all material terms.’” Kaplan, 526 F. App’x at 72

(quoting Express Indus. & Terminal Corp. v. N.Y. State Dep’t of Transp., 93 N.Y.2d 584, 589

(1999)).

1. Modification by a Signed Writing

Section 15-301 of New York General Obligations Law governs prohibitions against oral

modifications in a contract. See N.Y. Gen. Oblig. Law § 15-301 (“A written agreement or other

written instrument which contains a provision to the effect that it cannot be changed orally,

cannot be changed by an executory agreement unless such executory agreement is in writing and

signed by the party against whom enforcement of the change is sought or by his agent.”).

Pursuant to section 15-301, “[w]here a contract prohibits oral modifications, any subsequent

modification must not only be in writing, but also must be signed by the party against whom

enforcement is sought.” Stanley Works Israel Ltd. v. 500 Grp., Inc., 332 F. Supp. 3d 488, 503

(D. Conn. 2018) (applying New York law).

In New York, signed electronic communications between parties are sufficient to modify

contract terms. See Stevens v. Publicis, S.A., 50 A.D.3d 253, 255 (1st Dep’t 2008) (holding that

the lower court properly relied on email exchanges “to modify plaintiff’s duties under the

employment agreement”). In this regard, Ion Audio, LLC v. Bed, Bath & Beyond, Inc., 15-CV-

8292(KMW), 2019 WL 1494398 (S.D.N.Y. Apr. 2, 2019), is instructive. There, Ion developed

and sold consumer electronics to Bed, Bath & Beyond (“BB&B”) pursuant to a Vendor

Compliance Guide and various addenda. Id. at *1. Ion argued that BB&B breached the contract

by miscalculating the permitted volume rebate under the agreements. BB&B defended the

breach of contract claim by contending that an email exchange between the parties modified the

volume rebate terms. Id. at *3. Pursuant to the email exchange, BB&B modified the volume

rebate provision under the original contract, and Ion responded “confirmed.” Id. The court

found that the email exchanges, with a signature block, containing the typed name and title of the

representative from BB&B and Ion, were sufficient to modify the contract. Id.

Similarly, in Stanley Works Israel Ltd., 332 F.Supp.3d at 503, the parties entered into a

settlement agreement whereby plaintiff agreed to wire a sum of ten million dollars to defendant

to resolve a dispute over license agreements. Pursuant to subsequent signed electronic

communications, however, plaintiff planned to withhold $600,000 of the agreed settlement

amount and remit it to the relevant tax authorities. Id. at 496. Plaintiff thereafter erroneously

transferred the full ten million dollars to defendant’s bank account and subsequently brought suit

arguing that defendant should return $600,000 in mistakenly transferred funds under the

modified contract. Although withholding $600,000 for tax purposes was not provided for in the

original settlement agreement, plaintiff argued that the parties modified the contract terms

through their electronic correspondence. Id. at 501. The court found that “Plaintiff plausibly

alleges that through the exchange of signed electronic writings—or emails—after the execution

of the Settlement Agreement, the parties modified the Agreement to account for the withholding

of funds for tax purposes” and agreed that due to the “mistaken overpayment . . . Defendants

would return the money.” Id. at 504.

Nevertheless, courts will enforce oral modifications without an accompanying signed

writing where there has been partial performance or reliance. See Gun Hill Road Servs. Station,

Inc. v. ExxonMobil Oil Corp., No. 08 Civ. 7956(PKC), 2013 WL 395096, at *5 (S.D.N.Y. Feb.

1, 2013). The subsequent performance or reliance must be “unequivocally referable to the

modification.” John Street Leasehold LLC v. F.D.I.C., 196 F.3d 379, 382 (2d Cir. 1999)

(quoting Towers Charter & Marine Corp. v. Cadillac Ins. Co., 894 F.2d 516, 522 (2d Cir.

1990)). “In this scenario, a court may consider past oral exchanges and the conduct of the parties

to explain the nature and extent of the modification.” Mooney v. AXA Advisors, L.L.C., 19 F.

Supp. 3d 486, 504 (S.D.N.Y. 2014).

2. Modification by Waiver

New York law permits parties to “knowingly, voluntarily and intentionally” abandon

their contract rights by waiver. See Fund’l Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt.,

L.P., 7 N.Y.3d 96, 104 (2006). Waiver is evidenced by “affirmative conduct or by failure to act

so as to evince an intent not to claim a purported advantage.” Id. (internal citations and

quotations omitted). “Although waivers are not lightly presumed, whether a party intends to

waive a contractual right is generally a question of fact.” Williams v. Buffalo Pub. Sch., 758 F.

App’x 59, 63 (2d Cir. 2018) (internal quotations and citations omitted). Courts maintain that the

presence of a non-waiver clause “does not preclude a contract from being ‘effectively modified

by actual performance and the parties’ course of conduct.’” 1301 Prop. Owner LP v. Abelson,

No. 653342/2013, 37 N.Y.S.3d 207, at *5 (N.Y. Sup. Ct. Apr. 1, 2016) (quoting Aiello v. Burns

Int’l Sec. Servs. Corp., 110 A.D.3d 234, 245 (1st Dep’t 2013)).

In JMC Rest. Holdings LLC v. Pevida, 14 Civ. 6157(WFK)(VMS), 2017 WL 6418939

(E.D.N.Y. Sept. 28, 2017), the court considered whether defendants waived a deadline to a

settlement stipulation. The stipulation provided that negotiations between the parties over a lease

needed to be concluded within sixty days of executing the settlement agreement, otherwise the

substantive settlement obligations would not be enforced. The parties disagreed about whether

the lease was signed within the negotiation period contemplated by the settlement agreement, or

whether the period was extended. The court found that defendants waived “any right to invoke

the [earlier] deadline” because defendants’ counsel had requested through email communications

an extension of the negotiation deadline and requested a stay to sign the lease while his clients

were out of town. See id. at *7. Such conduct waived defendants’ right to invoke the earlier

deadline. See id. The court also noted that the request for “an extension combined with

Plaintiffs’ course of conduct in signing the [lease] on the [later date], modified the Stipulation to

extend the duration of” the negotiating period. See id. at 6 n.6.

VI. DISCUSSION

A. The March Financials Were Not the 2016 Unaudited Financial Statements

Contemplated by the MIPA

The Court finds that the March Financials were not the 2016 unaudited financial

statements of LAM and LFO that were required for section 5.2(g) of the MIPA to be satisfied.

Rather, the 2016 unaudited financial statements contemplated by the MIPA were delivered on

April 26, 2017—i.e., the April Financials. Thus, South Street’s termination on May 25, 2017,

was timely because it was within the 30-day window specified in section 7.1(g).

1. Delivery of the March Financials

On March 20, 2017, Collopy sent Thomas Miller, a South Street employee, an email

attaching the LFO March Financials. (Joint Pretrial Order, Stipulated Facts ¶ 18.) On March 29,

2017, Collopy sent an email to DeBlase attaching the LAM March Financials. (Id. ¶ 19.)

This Court finds persuasive DeBlase’s testimony that he and Collopy had a clear

understanding that the March Financials were not the ones contemplated by the MIPA because

Collopy was still reconciling Holdings’ intercompany balances. (DeBlase Dep. Tr. at 119:14–

121:18; 124:19–125:8.) DeBlase testified that the financial statements were sent in an iterative

fashion. The March Financials were “just like another draft of all other e-mails that [Collopy]

had given [South Street] with the financials . . . .” (Id. at 119:21–25.) However, he did not

understand the March Financials to be “the final financials.” (Id. at 119:24–25.) Instead, he

viewed them as a draft because Collopy was still working on reconciling intercompany transfers

and balances. (Id. at 120:22–121:24; 124:24–125:8.)

2. The Accounting Assistance Letter

On April 10, 2017, James Lebenthal emailed Tabacchi to discuss recent accounting

issues. (DX-56 (Lebenthal April 10 Email).) He explained that Goldstein and Alexandra

Lebenthal are aware of these accounting issues. (Id.) The accounting difficulties were also

relayed to Holdings’ board of directors, who “weren’t happy . . . with the pace and production

being done by Steve Collopy as far as getting the financial statements completed, and so they

had decided to ask for assistance as part of the process.” (Id.; Greenstein Dep. Tr. at 155:5–13.)

Further, an email correspondence on March 5, 2017 from Collopy to DeBlase reveals that

Holdings needed an extension to complete the LebCo audit due to an upcoming move and

shortage of staff. (DX-43 (Collopy March 5 Email).)

In response to the accounting problems at Holdings, South Street agreed to provide

Holdings with accounting assistance. (DX-57 (Winder April 11 Email).) To that end, on April

12, 2017, Holdings and South Street executed the Accounting Assistance Letter. As previously

stated, the Accounting Assistance Letter provided that: