FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM

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1 INDEX NO /2016 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 04/11/2017 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK JEFFREY PAUL ARNOLD DAY, in his capacity as Sellers Representative, Plaintiff, -vs.gardaworld CONSULTING (UK) LIMITED, Defendant. x ) ) ) ) ) ) ) ) ) x INDEX NO.: /2016 Hon. Charles E. Ramos, J.S.C Motion Seq. No. 3 PLAINTIFF S MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT S MOTION TO DISMISS THE FIRST AMENDED COMPLAINT OR, IN THE ALTERNATIVE, TO STAY COUNT TWO David Wertheimer William M. Regan Courtney Colligan HOGAN LOVELLS US LLP 875 Third Avenue New York, N.Y Tel: (212) Fax: (212) david.wertheimer@hoganlovells.com william.regan@hoganlovells.com courtney.colligan@hoganlovells.com Counsel for Plaintiff Jeffrey Paul Arnold Day, in his capacity as Sellers Representative Dated: April 11, of 30

2 TABLE OF CONTENTS Page PRELIMINARY STATEMENT...1 STATEMENT OF FACTS...5 A. The Parties...5 B. The PSA and the Earnout Provision Section 1.5 s Earnout Provision Section 1.5(d)(iv) s Dispute Resolution Provision The Role of the Sellers Representative... 7 C. The Sellers Representative Disputes Garda s Earnout Calculation...7 D. The Four Disputes Over the Interpretation of The Calculation Time Period Dispute The AWT Liability Dispute The Basra A/R Dispute The Unbilled A/R Dispute... 9 E. The Claims for Declaratory Relief and Breach of Contract...9 ARGUMENT...10 I. THE SELLERS REPRESENTATIVE HAS STANDING TO ASSERT ALL THE CLAIMS PLED IN THE FAC...10 II. III. IV. COUNT II PROPERLY ALLEGES THAT GARDA MISINTERPRETED 1.5 BY REDUCING ITS ACTUAL GROSS PROFIT CALCULATION BY THE AWT LIABILITY...13 A. Count II Is Not Subject To Arbitration...13 B. Garda Fails To Show That Count II Should Be Dismissed...15 COUNTS III AND IV PROPERLY ALLEGE THAT GARDA MISINTERPRETED 1.5 BY EXPENSING INDEMNIFIED LOSSES IN ITS ACTUAL GROSS PROFIT CALCULATION...16 A. Sections 9.4(e) and 9.5 Preclude Recognizing the A/R Expenses in 1.5(a) s Actual Gross Profit Calculation...18 B. Day s Interpretation of the PSA Is Consistent with the Parties Intent...20 COUNT V PROPERLY STATES A CLAIM FOR BREACH OF CONTRACT...24 CONCLUSION of 30

3 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 INDEX NO /2016 RECEIVED NYSCEF: 04/11/2017 TABLE OF AUTHORITIES Page(s) CASES Airlines Reporting Corp. v. Pro Travel, Inc., 239 A.D.2d 233 (1st Dep t 1997)...10, 11 Airlines Reporting Corp. v. S & N Travel, Inc., 238 A.D.2d 292 (2d Dep t 1997)...11 Arbitration of Certain Controversies Between Gramercy Advisors LLC v. J.A. Green Dev. Corp., 134 A.D.3d 652 (1st Dept t 2015)...24 China Privatization Fund (Del), L.P. v. Galaxy Entm t Group Ltd., 95 A.D.3d 769 (1st Dep t 2012)...17 College Mgmt. Co. v Belcher Oil Co., 159 A.D.2d 339 (1st Dep t 1990)...11, 12, 13 Considerant v. Brisbane, 22 N.Y. 389 (1860)...10 CWCapital Asset Mgmt., LLC v. Great Neck Towers, LLC, 99 A.D.3d 850 (2d Dep t 2012)...11 Ellington v. EMI Music, Inc., 24 N.Y.3d 239 (2014)...15 ERC 16W Ltd. P ship v. Xanadu Mezz Holdings LLC, 95 A.D.3d 498 (1st Dep t 2012)...21 Fairbanks Capital Corp. v. Nagel, 289 A.D.2d 99 (1st Dep t 2001)...11 Gerling Global Reinsurance Corp. v. Home Ins. Co., 302 A.D.2d 118 (1st Dep t 2002)...13 Givati v. Air Techniques, Inc., 104 A.D.3d 644 (2d Dep t 2013)...20 Greenwich Capital Fin. Products, Inc. v. Negrin, 74 A.D.3d 413 (1st Dep t 2010)...20, 22 Jarach v. Ocean Carriers Corp., 9 A.D.2d 646 (1st Dep t 1959)...10 ii 3 of 30

4 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 INDEX NO /2016 RECEIVED NYSCEF: 04/11/2017 JF Capital Advisors, LLC v. Lightstone Group, LLC, 25 N.Y.3d 759 (2015)...16, 17 Mastrocovo v. Capizzi, 87 A.D.3d 1296 (4th Dep t 2011)...19 Muzak Corp. v. Hotel Taft Corp. 1 N.Y.2d 42 (1956)...18 Nassi v. Joseph DiLemme Constr. Corp., 250 A.D.2d 658 (2d Dep t 1998)...10 Quadrant Structured Products Co., Ltd. v. Vertin, 23 N.Y.3d 549 (2014)...19 Salerno v. Coach, Inc., 144 A.D.3d 449 (1st Dep t 2016)...19 Sokoloff v. Harriman Estates Develop. Corp., 96 N.Y.2d 409 (2001)...25 TBA Global v. Fidus Partners, LLC, 132 A.d.3d 195 (1st Dep t 2015)...18 Two Guys from Harrison-N.Y., Inc. v. S.F.R. Realty Assocs., 63 N.Y.2d 396 (1984)...14, 24 Wageworks, Inc. v. Metro. Transp. Auth., No /06, 15 Misc. 3d 1119(A), 2007 WL (Sup. Ct. N.Y. Cty. Jan. 4, 2007)...24 Watts v. Phillips-Jones Corp., 211 A.D. 523 (2d Dep t 1925), aff d, 242 N.Y. 557 (1926)...11 Westmoreland Coal Co. v. Entech, Inc., 100 N.Y.2d 352 (2003)...23 William Higgins & Sons, Inc. v. State, 20 N.Y.2d 425 (1967)...18 SECONDARY AUTHORITIES Vincent C. Alexander, Practice Commentaries, McKinney s Cons Laws of NY, Book 7B CPLR 1004 (2006 ed)...10 iii 4 of 30

5 Plaintiff Jeffrey Paul Arnold Day, in his capacity as Sellers Representative ( Day or Sellers Representative ), submits this memorandum of law and the accompanying Affirmation of Courtney Colligan, executed on April 11, 2017 ( Colligan Aff. ), in opposition to the motion of defendant GardaWorld Consulting (UK) Limited ( Garda ) to dismiss the First Amended Complaint ( FAC ) or, in the alternative, to stay Count Two of the FAC. PRELIMINARY STATEMENT This action arises out of the sale by Sellers of Hestia B.V. ( Hestia ) and its Operating Companies to Garda pursuant to the terms of a Purchase and Sale Agreement (the PSA ). 1 Day, in his capacity as the Sellers Representative, asserts claims for declaratory relief and breach of contract due to Garda s misinterpretation and breach of the terms of an Earnout provision set forth in 1.5 of the PSA. Section 1.5 directs that Garda must pay to the Sellers Representative (on behalf of the Sellers) an Earnout Amount whose size is tied to the Actual Gross Profit earned by the Operating Companies over the Earnout Period. Section 1.5 further directs that Garda prepare and deliver Earnout Statements to the Sellers Representative setting forth Garda s calculation of the Actual Gross Profit earned and the resulting Earnout Amount owed. Garda delivered Earnout Statements to the Sellers Representative showing that. The Sellers Representative contends that, if Garda had correctly interpreted and complied with the terms of 1.5, an Earnout Amount in excess of is due. Counts I through IV of the FAC assert claims for declaratory judgment. Count I -- which is not challenged on Garda s motion -- alleges that Garda misinterpreted 1.5 by using an erroneously shortened time period over which to calculate the amount of Actual Gross Profit earned. Garda s use 1 Capitalized terms not defined herein have the meanings ascribed to them in the FAC, which is attached as Ex. 1 to the Colligan Affirmation. The PSA is attached as Exhibit A to the FAC and its provisions are cited as. Garda s brief in support of its motion is cited as Def. Br. at _. 5 of 30

6 of that improperly truncated measuring period is the primary reason why Garda was able to calculate that. Counts II, III and IV are all based on the same error Garda made in interpreting 1.5(a) -- i.e., it reduced its calculation of Actual Gross Profit by amounts that are indemnified Losses under the terms of the PSA. That reduction was improper because 9.4(e) and 9.5 require that indemnified Losses be excluded (i.e., not deducted) from the 1.5 Earnout calculation. Count V asserts a claim for breach of contract based on Garda s failure to deliver Earnout Statements that correctly calculate the Earnout Amount for the reasons pled in Counts I though IV. For relief, Count V seeks specific performance requiring Garda to deliver corrected Earnout Statements reflecting this Court s determination of the proper interpretation of 1.5. That relief is necessary so that the parties may proceed to resolve other unrelated disputes concerning Garda s calculation of Actual Gross Profit that are subject to binding arbitration before an Accounting Referee, who is vested with the authority to determine the correct Earnout Amount. Garda s motion attempts to challenge the Sellers Representative s assertion of these wellpled claims, but its scattershot arguments all miss their mark. Garda argues that the Sellers Representative lacks standing to sue because he purportedly is acting based merely on a power of attorney, which is insufficient to prosecute Sellers claims. That argument, however, must be rejected because it ignores the FAC s allegations which establish that (a) the Sellers Representative is a party to the PSA to whom Garda made promises and it is Garda s failure to abide by these promises that is the basis for the FAC s claims; and (b) Garda acknowledged the Sellers Representative to be the Sellers general agent with respect to all matters concerning the calculation and payment of the Earnout Amount. Based on these allegations, CPLR Rule 1004 permits Day, in his capacity as the Sellers Representative, to assert all the claims alleged in the FAC. (See Point I.) 2 6 of 30

7 Garda s argument that Count II must be either stayed (because subject to arbitration) or dismissed also does not withstand scrutiny. Count II s declaratory judgment claim asserts a dispute over the proper interpretation of 1.5(a) that 1.5(d)(iv) explicitly directs should be submitted to resolution before this Court. Indeed, Garda has not sought to stay Counts III and IV, even though they raise the same issue of contract interpretation. Garda s conflicted approach bespeaks its confusion over Count II, which undermines its argument for dismissal. Garda reads Count II as challenging Garda s and argues that the claim must fail because Garda s argument, however, ignores Count II s well-pled factual allegations that show that the claim alleged is not premised on the. Rather, the claim is based on Garda s Because that constitutes an indemnified Loss, Count II asserts that Garda should have excluded it from the 1.5(a) Earnout calculation. In sum, because Garda s argument is based on a false premise, its conclusion necessarily fails. (See Point II.) Garda s argument for dismissal of the claims alleged in Counts III and IV should also be rejected. Garda does not contest the well-pled allegations of Counts III and IV that the amounts at issue which Garda deducted in calculating Actual Gross Profit constitute indemnified Losses. Instead, Garda argues that the PSA permits it to recover such Losses either under the PSA s indemnification provisions or through 1.5(a) s Earnout calculation. Garda s reading of the PSA cannot stand, however, because it is contrary to the terms of 9.4(e) and 9.5, which direct that indemnified Losses may only be recovered under the PSA s indemnification provisions and not through any other means, including 1.5(a) s Earnout calculation. 3 7 of 30

8 Moreover, Garda s interpretation should be rejected because it would lead to commercially unreasonable and absurd results that the parties clearly did not intend. For example, under Garda s approach, by recovering indemnified Losses under the 1.5(a) Earnout calculation, Garda could reduce the Earnout Amount by 3.5 times the Loss expensed -- or even avoid paying any Earnout Amount -- rather than only receiving the dollar-for-dollar recovery that the parties agreed to under the PSA s indemnification terms. Similarly, Garda s approach would allow it to avoid the negotiated limits to the Sellers financial exposure adopted in the indemnification provisions and to circumvent the procedures governing indemnification claims. Furthermore, Garda s approach is contrary to the fundamental premise of the Earnout -- which aligns payment price to future earnings -- because Garda seeks to reduce earnings by recognizing risks to those earnings that it not only identified prior to signing the PSA but for which it demanded (and received) indemnification. In sum, having been made whole for any Losses, Garda may not pay less for what it agreed to buy. (See Point III.) Finally, Garda s challenge to Count V s breach of contract claim is untenable because it is premised on a contractual pre-condition that Garda has invented. Garda reads the PSA to preclude any breach of contract claim from being asserted until after the Accounting Referee has determined the Earnout Amount. Because the Accounting Referee s determination is final and binding, that interpretation would effectively deprive the Sellers Representative of pursuing a breach of contract claim in this Court. Section 1.5(d)(iv), however, explicitly permits such a claim to be asserted here. Therefore, Garda s attempt to deny what the PSA allows should fail. (See Point IV.) Accordingly, for the reasons set forth more fully below, Garda s motion to dismiss, or in the alternative to stay Count II, should be denied. 4 8 of 30

9 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 INDEX NO /2016 RECEIVED NYSCEF: 04/11/2017 STATEMENT OF FACTS A. The Parties Plaintiff Day is a citizen of the United Kingdom, who executed the PSA both as one of the Sellers and as the Sellers Representative. (FAC 2 & n.2, 14.) Defendant Garda is a private limited company incorporated under the laws of England and Wales and executed the PSA as the Purchaser. (Id. 2, 15.) B. The PSA and the Earnout Provision The PSA, dated as of July 10, 2015, sets forth the terms governing the sale by Sellers to Garda of their shares in Hestia and its Operating Companies. (Id. 1, 21, 23.) The parties to the PSA are the Sellers, the Sellers Representative, Garda and Garda World Security Corporation. (Id. 2.) The sale closed on September 17, (Id. 23.) The PSA provides for Garda to pay the Sellers an initial purchase price, subject to certain adjustments. (Id.) One such adjustment is an Earnout, set forth in 1.5, under which Sellers could potentially receive an additional 1.. (Id. 4, 24.) Section 1.5 s Earnout Provision Section 1.5 provides for the potential payment of two Earnout Amounts tied to two sequential Earnout Periods. Only the First Earnout Amount (the Earnout Amount ) for the First Earnout Period (the Earnout Period ) is at issue in this action. (Id. 5, 25.) Under 1.5(a)(i), the size of the Earnout Amount varies based on whether Hestia s Operating Companies achieve certain earning hurdles -- as measured by their Actual Gross Profit -- over the course of the Earnout Period. An Earnout Amount of equals is due if the Actual Gross Profit and further payments are due for each dollar of Actual Gross Profit earned in excess of, up to a cap. Moreover, an Earnout Amount is due if at least in Actual Gross Profit is earned. (Id ) 5 9 of 30

10 Pursuant to 1.5(a)(i), the length of the Earnout Period varies depending on the amount of Actual Gross Profit earned. The initial Earnout Period is the twelve-months ending January 31, 2016, provided that the Operating Companies earn an Actual Gross Profit of at least over that period. If not, then the Earnout Period is automatically extended through May 31, 2016, subject to earlier termination at any month-end during which the amount of Actual Gross Profit earned equals or exceeds. (Id. 6, 28.) Section 1.5 sets forth procedures governing the calculation, review and dispute of the Earnout Amount for the Earnout Period. The procedures require Garda to prepare and deliver to the Sellers Representative an Earnout Statement showing its calculation of the Operating Companies Actual Gross Profit and resulting Earnout Amount for the initial Earnout Period and to repeat that process for each period within any extended Earnout Period. Following Garda s delivery of each Earnout Statement, the Sellers Representative may obtain discovery of Garda concerning its preparation of the Earnout Statement and calculation of the Earnout Amount. Thereafter, if the Sellers Representative disagrees with Garda s calculation of the Earnout Amount, he must deliver to Garda an Earnout Dispute Notice. (Id ) 2. Section 1.5(d)(iv) s Dispute Resolution Provision Section 1.5(d)(iv) directs that disagreements raised in an Earnout Dispute Notice are to be resolved pursuant to 1.4(c)(ii), which essentially requires that Garda and the Sellers Representative attempt to negotiate a resolution and, failing that, submit any disputes for determination by an Accounting Referee in binding arbitration. Section 1.5(d)(iv), however, explicitly excludes certain disagreements from the 1.4(c)(ii) process and the Accounting Referee s jurisdiction: it provides that to the extent that the disagreement relates to the validity, interpretation or breach of the provisions of this Section 1.5, the relevant definitions or certain other specified items, the disagreement will be submitted to this Court for resolution. (Id. 9, 33.) 6 10 of 30

11 INDEX NO /2016 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 04/11/ The Role of the Sellers Representative As shown by the above review, the Sellers Representative is a party to the PSA to whom Garda made various promises, which are the subject of this action. In addition, the PSA provides that the Sellers Representative serves as the Sellers general agent empowered to take all actions he deems appropriate to facilitate the consummation of the Transaction, including acting to ensure that Garda pays to the Sellers Representative (on the Sellers behalf) the Earnout Amount owed under 1.5(a). (Id. 3, ) The PSA provides that the Sellers Representative s agency is irrevocable; that Garda may rely upon all actions taken or omitted by the Sellers Representative; and that all such actions or omissions shall be legally binding upon the Sellers. (Id. 20.) C. The Sellers Representative Disputes Garda s Earnout Calculation Between May and June 2016, Garda delivered to the Sellers Representative five purported Earnout Statements -- one for the twelve month period ending January 31, 2016 and four additional ones for periods ending at month-end from February through May Each Earnout Statement showed that. (Id. 7, ) The Sellers Representative sought discovery of Garda, which Garda largely resisted. (Id. 38.) Thereafter, the Sellers Representative timely delivered to Garda an Earnout Dispute Notice and an Amended Earnout Dispute Notice (the Dispute Notices ) raising numerous disagreements over Garda s calculation of the Earnout Amount in the Earnout Statements. If the disagreements are resolved in the Sellers Representative s favor, Garda will owe the Sellers Representative (on Sellers behalf) in excess of D.. (FAC 8, 39-40; FAC Exs. B & C.) The Four Disputes Over the Interpretation of 1.5 Of the many disputes raised in the Dispute Notices, the following four are the subject of this action because they arise from Garda s misinterpretation of 1.5(a) in calculating Actual Gross Profit and the Earnout Amount. (FAC 10 & n.3, 41.) 7 11 of 30

12 1. The Calculation Time Period Dispute The Calculation Time Period dispute arises from Garda s failure to calculate the Actual Gross Profit over the proper Earnout Period. Garda used a rolling twelve month period to calculate Actual Gross Profit in each Earnout Statement rather than the extended twelve to sixteen month period that 1.5(a)(i) requires. If Garda had calculated the Earnout Amount using the proper Earnout Period, then it would owe an Earnout Amount of at least. (FAC 11(1), ) 2. The AWT Liability Dispute The Afghanistan Withholding Tax dispute arises from Garda s reducing its Actual Gross Profit calculation by in connection with its recording a known as the Afghanistan Withholding Tax liability (the AWT Liability ). Garda claims it recorded the AWT Liability to Based on Garda s assertion, the AWT Liability constitutes a Loss, as that term is defined in 13.1(a), and is subject to indemnification under various provisions of Articles IX and X of the PSA. Garda s reduction of Actual Gross Profits by the AWT Liability was improper because 9.4(e) and 9.5 require that indemnified Losses be excluded i.e., not deducted from the calculation of Actual Gross Profit under 1.5(a). (FAC 11(2), ) 3. The Basra A/R Dispute The Basra Accounts Receivable dispute arises from Garda s reducing its Actual Gross Profit calculation by to reflect its supposed the Basra Accounts Receivable (the Basra A/R ), which were assets on a Hestia subsidiary s balance sheet. That reduction was improper because the supposed the Basra A/R constitutes an indemnified Loss and, like the AWT Liability, 9.4(e) and 9.5 require that indemnified Losses be excluded from the calculation of Actual Gross Profit. (FAC 11(3), ) 8 12 of 30

13 4. The Unbilled A/R Dispute The Unbilled Accounts Receivable dispute arises from Garda s reducing its Actual Gross Profit calculation by for two alternative reasons relating to Unbilled Accounts Receivable (the Unbilled A/R ), which were amount reflects Garda s supposed indemnified Loss and, like the supposedly. Either (a) the entire the Unbilled A/R, which would constitute an Basra A/R, must be excluded from the Actual Gross Profit calculation pursuant to 9.4(e) and ; or, in the alternative (b) part of that amount reflects a Because that would constitute an indemnified Loss, it too must be excluded from the Actual Gross Profit calculation pursuant to 9.4(e) and 9.5. (FAC 11(4), ) E. The Claims for Declaratory Relief and Breach of Contract Counts I to IV assert claims for declaratory relief, each relating to one of the four disputes discussed above. Each claim seeks a declaration that Garda misinterpreted the terms of 1.5(a) in calculating Actual Gross Profit for purposes of determining the Earnout Amount set forth in the Earnout Statements. Count V asserts a claim for breach of contract based on Garda s failure to deliver Earnout Statements that properly calculate the Earnout Amount for the reasons set forth in Counts I through IV. Count V seeks specific performance requiring Garda to deliver Earnout Statements that calculate the Earnout Amount consistent with the proper interpretation of 1.5(a) as set forth in Counts I to IV. 2 Garda also may have reduced its Actual Gross Profit calculation by an additional due to its supposed the Unbilled A/R. (FAC 65 n.10.) 9 13 of 30

14 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 INDEX NO /2016 RECEIVED NYSCEF: 04/11/2017 ARGUMENT I. THE SELLERS REPRESENTATIVE HAS STANDING TO ASSERT ALL THE CLAIMS PLED IN THE FAC Garda s argument that Day, in his capacity as Sellers Representative, lacks standing to assert the FAC s claims is meritless. Garda contends that, because the Sellers Representative has not been assigned title to the Sellers claims, he must be prosecuting this action as the Sellers attorney-in-fact, which alone does not support standing. (Def. Br. at 6-9.) That argument is untenable because it relies on an artificially circumscribed view of the Sellers Representative s status that is contradicted by the FAC s allegations and the PSA s terms. Those facts show that Day, in his capacity as the Sellers Representative, has standing -- both as a party to the PSA and as the Sellers general agent -to assert all the claims pled in the FAC pursuant to CPLR Rule CPLR Rule 1004 provides that an action may be brought by a person with whom or in whose name a contract has been made for the benefit of another without joining the person for... whose interest the action is brought. That provision has been recognized to apply to agency situations in which the agent entered into a contract in her own name but the purpose was to benefit the principal and it permits the agent to sue in her own name to enforce the contract. 3 Indeed, for over a century, New York courts have applied that provision (and its predecessors) in a myriad of commercial transactions to permit contracting agents to sue in their own name to enforce promises made to them, even though the promised performance was intended to benefit the agent s principal.4 3 Vincent C. Alexander, Practice Commentaries, McKinney s Cons Laws of NY, Book 7B CPLR 1004 at 410 (2006 ed). 4 See, e.g., Considerant v. Brisbane, 22 N.Y. 389, (1860)(agent may sue in its own name to enforce contract for sale of stock that the agent entered on behalf of his principal where the promise was to pay to him, as such agent the amount owed); Nassi v. Joseph DiLemme Constr. Corp., 250 A.D.2d 658, 659 (2d Dep t 1998) (husband may sue to enforce contract made as agent for his wife); Airlines Reporting Corp. v. Pro Travel, Inc., 239 A.D.2d 233, 234 (1st Dep t 1997)(ticketing agent for airline carriers could sue to enforce agreement with defendant who agreed to conduct all its business with respect to those carriers exclusively through plaintiff ); Jarach v. Ocean Carriers Corp., 9 A.D.2d 646, 646 (1st Dep t 1959) (where defendant s of 30

15 Consistent with this established precedent, Day, in his capacity as Sellers Representative, has standing to assert the FAC s claims. It is indisputable that the Sellers Representative is a party to the PSA. (FAC 2.) So too is the fact that Garda promised to deliver Earnout Statements to the Sellers Representative for the Earnout Period that calculated the Earnout Amount consistent with the PSA s terms. (FAC 6, ) As these facts establish, the Sellers Representative was not some stranger whose only connection to the PSA was by power of attorney. Airlines Reporting, 239 A.D.2d at Rather, as a contracting party, the Sellers Representative has standing to assert the FAC s claims because they all arise from Garda s failure to deliver what it promised to him -- i.e., Earnout Statements for the Earnout Period that properly interpreted and applied the PSA s terms to calculate the Earnout Amount. See id. & cases cited supra at n.4. The Sellers Representative also has standing because Rule 1004 permits an agent to sue in his own name when the defendant has acknowledged that the plaintiff possesses a general agency authorizing him to act in all matters. College Mgmt. Co. v Belcher Oil Co., 159 A.D.2d 339, 341 (1st Dep t 1990). 6 That precedent applies here because the FAC s well-pled allegations -- and the agreement was made with and required payment to plaintiff, plaintiff may maintain this action in his own name even though he may be merely an agent for collection ). 5 For that reason, all the cases Garda cites (Def. Br. at 6-8) -- which hold only that a power of attorney unaccompanied by an assignment of title to the claim is not a sufficient basis for standing -- are inapposite because they do not address, let alone limit, the established rule for contracting parties and general agents recognized by CPLR Rule 1004 that authorizes the Sellers Representative to assert the FAC s claims. 6 Accord CWCapital Asset Mgmt., LLC v. Great Neck Towers, LLC, 99 A.D.3d 850, 851 (2d Dep t 2012) (plaintiff could bring foreclosure action as servicing agent for disclosed trust which owned the subject note and mortgage, where trustee had delegated to agent the authority to act with respect to the subject mortgage ); Fairbanks Capital Corp. v. Nagel, 289 A.D.2d 99, 100 (1st Dep t 2001)(same); Airlines Reporting Corp. v. S & N Travel, Inc., 238 A.D.2d 292, 293 (2d Dep t 1997)(ticketing agent for airline carriers could sue to enforce agreement with defendant both because agent was a contracting party with defendant for carrier s benefit and because agent was acknowledged by the defendants as the carriers general agent ); Watts v. Phillips-Jones Corp., 211 A.D. 523, (2d Dep t 1925)(sales agent could sue in its own name to enforce contract which was made with them and dealings were wholly with them, including all claims and adjustments, thereby demonstrating defendant s recognition of plaintiff as possessing a general agency on behalf of its principal, who would be bound by any judgment in the action), aff d, 242 N.Y. 557 (1926) of 30

16 PSA s terms -- show that Garda deemed the Sellers Representative to be the Sellers agent with respect to all matters concerning the calculation and payment of the Earnout Amount. As a general matter, the Sellers Representative s authority is reflected in the PSA s sweeping and irrevocable grant of powers to him, pursuant to which he has the right to act for the benefit of the Sellers as their representative and exclusive agent and attorney-in-fact to facilitate the consummation of the Transaction and enforce and protect the rights and interests of the Sellers that relate in any manner to the PSA. (FAC 18-20; 12.13(a)). More specifically, the Sellers Representative has the sole right to: receive the Earnout Statements from Garda (FAC 29-30); conduct discovery of Garda over its Earnout Amount calculation (id. 31); deliver any notice disputing Garda s Earnout Amount calculation (id. 32); negotiate with Garda over any disagreements in a dispute notice (id. 33); prosecute any dispute over the Earnout Amount falling within the jurisdiction of the Accounting Referee (FAC 33; 1.4(c)(ii)); sue Garda to enforce Sellers rights under the PSA (FAC 19); compromise or settle any suit brought against Garda (id.); and receive, on Sellers behalf, the Final Earnout Amounts (id. 5; 1.5(d)(v)). Moreover, because Garda agreed to deal exclusively with the Sellers Representative, the PSA gives Garda the right to rely upon all actions taken or omitted by the Sellers Representative, which are all legally binding upon the Sellers. (FAC 20.) The constellation of rights described above demonstrates that the Sellers Representative has standing to pursue the FAC claims because Garda agreed that he possesses a general agency authorizing him to act on Sellers behalf with respect to all matters concerning the calculation and payment of the Earnout Amount. See College Mgmt., 159 A.D.2d at 341. Moreover, consistent with that agency, the Sellers Representative passes the test for whether he is the real party in interest of 30

17 INDEX NO /2016 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 04/11/2017 because, under the PSA s terms, Sellers are bound by the Sellers Representative s actions and thus any judgment here will protect the defendant[] from the claims of Sellers. Id. Accordingly, because CPLR Rule 1004 permits the Sellers Representative to assert the FAC s claims in his own name, Garda s standing argument should be rejected. II. COUNT II PROPERLY ALLEGES THAT GARDA MISINTERPRETED 1.5 BY REDUCING ITS ACTUAL GROSS PROFIT CALCULATION BY THE AWT LIABILITY Count II seeks a declaration that Garda misinterpreted the terms of 1.5 by reducing its calculation of Actual Gross Profit by the amount of the AWT Liability for purposes of determining the Earnout Amount. Garda argues that Count II should either be (a) stayed because it is subject to arbitration or (b) dismissed for failing to state a claim. (Def. Br. at 9-11.) As shown below, both arguments are meritless. A. Count II Is Not Subject To Arbitration As the party seeking arbitration, Garda has the burden to demonstrate a clear and unequivocal agreement to arbitrate. Gerling Global Reinsurance Corp. v. Home Ins. Co., 302 A.D.2d 118, 123 (1st Dep t 2002). Garda s argument falls far short of satisfying its burden. Section 1.5(d)(iv) unambiguously provides that a disagreement over Garda s calculation of the Earnout Amount is to be submitted to this Court for resolution to the extent that it relates to the validity, interpretation or breach of the provisions of 1.5. (FAC 9, 33.) Count II is properly asserted here because it alleges a dispute over the interpretation of 1.5. The contract interpretation issue posed by Count II s claim is whether an indemnified Loss must be excluded -- i.e., not be deducted -- from the calculation of Actual Gross Profit under 1.5(a). Day alleges that the AWT Liability (as described by Garda) arose from various breaches of Hestia s representations and warranties -- including 3.5, 3.7, 3.11(b) & (h) -- and thus constituted an indemnified Loss under 9.2(a)(i) or was otherwise an indemnified Loss under the tax of 30

18 indemnification provisions of 10.2(a)(ii) & (iii). (Id. 54.) Because the AWT Liability constituted an indemnified Loss, it should have been -- but was not -- excluded from Garda s calculation of Actual Gross Profit under 1.5(a) pursuant to 9.4(e) and 9.5. (Id. 55, ) Accordingly, because Count II s claim is premised entirely on the parties disagreement over the interpretation of 1.5(a), it is properly before this Court and is not subject to arbitration. Garda s contention that Count II s claim should be resolved in arbitration before the Accounting Referee is untenable. Garda s argument rests on the scope of the Accounting Referee s authority under 1.4(c)(ii), which includes determining whether the items in dispute were determined in accordance with this Agreement. Garda contends that Count II s claim belongs in arbitration because it raises the question of whether the recognition of the AWT Liability was made in accordance with the PSA. (Def. Br. at 10.) The flaw in Garda s argument is that it proves too much. By reading 1.4(c)(ii) as giving the Accounting Referee authority to determine disputes over the interpretation of 1.5, Garda renders meaningless 1.5(d)(iv) s explicit direction that such disputes be brought in this Court. Such a result violates the established rule that contracts should be construed to avoid an interpretation that would leave contractual clauses meaningless. Two Guys from Harrison-N.Y., Inc. v. S.F.R. Realty Assocs., 63 N.Y.2d 396, 403 (1984). Moreover, the provisions of 1.5(d)(iv) and 1.4(c)(ii) are easily reconciled. Section 1.5(d)(iv) is a dispute resolution provision that serves a gatekeeping function, directing that different disputes be resolved in different forums. In contrast, 1.4(c)(ii) is a substantive rule that serves to constrain the Accounting Referee s exercise of authority in resolving those disputes allocated to him -- i.e., the Accounting Referee may only decide if a disputed item was determined in accordance with this Agreement rather than according to his own notion of the terms the parties might have of 30

19 INDEX NO /2016 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 04/11/2017 struck. Consistent with that construction, 1.5(d)(iv) controls where disputes over the interpretation of 1.5(a) should be brought and it unambiguously directs that such disputes be resolved here. Indeed, Count II s claim raises the same issue of contract interpretation with respect to 1.5(a) as is raised by the claims asserted in Counts III and IV, as discussed below (see Point III). Garda does not contend, however, that those claims are subject to arbitration. Garda s silence speaks volumes as to the merits of its position. In short, because 1.5(d)(iv) explicitly provides that disputes over the interpretation of 1.5 should be submitted to this Court, its terms should be enforced as written. See Ellington v. EMI Music, Inc., 24 N.Y.3d 239, 245 (2014)(an agreement that is unambiguous on its face must be enforced according to the plain meaning of its terms ). Accordingly, Garda s motion to stay Count II should be denied. B. Garda Fails To Show That Count II Should Be Dismissed Garda s argument for dismissal of Count II s claim should be rejected because it attacks a straw man and not the claim pled. Garda cherry-picks part of a sentence in Count II s claim in order to characterize the AWT Liability as (Def. Br. at 10, quoting FAC 49.) Based on that premise, Garda contends that Count II must fail because the definition of Gross Profit. (Def. Br. at 10.) Contrary to Garda s argument, Count II does not allege that the AWT Liability consists of. Rather, Count II pleads that the AWT Liability is (FAC ) of 30

20 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 INDEX NO /2016 RECEIVED NYSCEF: 04/11/2017 (Id ) In either case, Garda contends (as alleged in Count II) that (Id ) Against that well-pled factual background, Count II s claim asserts, as discussed above, that the AWT Liability (1) constitutes a Loss indemnified under 9.2(a)(i) arising from Hestia s supposed breach of various representations and warranties and/or the tax indemnification provisions of 10.2(a)(ii) & (iii); and (2) because it was an indemnified Loss, should have been excluded by Garda from its calculation of Actual Gross Profit pursuant to 9.4(e) and 9.5. (Id , ) In sum, Garda s argument must be rejected because Garda has ignored a cardinal procedural rule -- it has failed to accept as true for purposes of its motion the well pled facts of the FAC. See JF Capital Advisors, LLC v. Lightstone Group, LLC, 25 N.Y.3d 759, 762, 764 (2015). Furthermore, if Garda were to challenge Count II s claim that indemnified Losses should be excluded from the calculation of Actual Gross Profit, Day s arguments in support of the claims alleged in Count III and IV show why such a challenge must fail (see Point III, below). III. COUNTS III AND IV PROPERLY ALLEGE THAT GARDA MISINTERPRETED 1.5 BY EXPENSING INDEMNIFIED LOSSES IN ITS ACTUAL GROSS PROFIT CALCULATION Counts III and IV both seek a declaration that Garda misinterpreted 1.5 by expensing (i.e., deducting) from its calculation of Actual Gross Profit amounts that constituted indemnified Losses under 9.2(a), which the parties agreed should be excluded under 1.5(a). (FAC 85-87, ) The particular expenses that are the subject of the two claims -- and the reasons why they constitute indemnified Losses -- differ: of 30

21 Count III alleges that the Basra A/R expense constituted an indemnified Loss because Garda and thus it was recoverable under 9.2(a)(vii) s indemnification provision (id ); and Count IV, which is pled in the alternative, alleges that the Unbilled A/R expense constituted an indemnified Loss because either (a) the full amount of the Unbilled A/R and thus, like the Basra A/R, was recoverable under 9.2(a)(vii); or (b) a portion of the Unbilled A/R amount arises from Garda s contention that Hestia supposedly breached its representations and warranties under 3.7 and thus the amount was recoverable under 9.2(a)(i) s indemnification provision (id ). Regardless of these differences, because both the Basra A/R expense and the Unbilled A/R expense (collectively, the A/R Expenses ) constitute indemnified Losses, the Losses must be excluded --i.e., not deducted -- from the 1.5(a) Earnout calculation. In its motion, Garda contests Day s reading of the PSA. Garda does not, however, dispute that the A/R Expenses constitute indemnified Losses under 9.2(a). 7 Rather, Garda appears to claim that the PSA allows it to elect whether to recover the Losses under 1.5(a) or 9.2(a). (Def. Br ) As discussed below, Garda s position should be rejected as a matter of law because it is precluded by the terms of 9.4(e) and 9.5 and its interpretation is contrary to the parties intent. 9 7 Garda s concession is not surprising. Section 13.1(a) broadly defines Losses to include losses, claims, liabilities... and expenses. Moreover, the FAC s characterization of the A/R Expenses as indemnified Losses is premised on its well-pled factual allegations, which must be accepted as true for purposes of Garda s motion and given the benefit of every possible favorable inference. JF Capital Advisors, LLC, 25 N.Y.3d at Garda also argues that Counts III and IV fail to state a claim because they do not allege that Garda s treatment of the A/R Expenses failed to comport with applicable accounting requirements or was inconsistent with Hestia s past practice. (Def. Br. at 11, 12.) That argument is a red-herring because it faults Day for not asserting claims that, under 1.5(d)(iv) s dispute resolution clause, may be heard only by the Accounting Referee. Indeed, Day asserted such claims in his Dispute Notices (FAC Exs. B at 2, 5-7; C at 2-3, 5-8) and has reserved his right to pursue those claims before the Accounting Referee if the Court does not find that the A/R Expenses should have been excluded from Garda s Actual Gross Profit calculation. (See FAC 10 n.3.) 9 Although Day contends that the PSA unambiguously supports his interpretation, if the Court concludes that the PSA is ambiguous, Garda s motion must also be denied. See China Privatization Fund (Del), L.P. v. Galaxy Entm t Group Ltd., 95 A.D.3d 769, 770 (1st Dep t 2012). A contract is ambiguous if on its face [it] is reasonably susceptible of more than one interpretation. Id of 30

22 INDEX NO /2016 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 A. RECEIVED NYSCEF: 04/11/2017 Sections 9.4(e) and 9.5 Preclude Recognizing the A/R Expenses in 1.5(a) s Actual Gross Profit Calculation Section 9.4(e) provides: Notwithstanding anything to the contrary in this Agreement, any amounts payable pursuant to the indemnification obligations under this Article IX or Article X shall be paid without duplication and in no event shall any Party hereto be indemnified under different provisions of this Agreement for Losses that have already been paid or otherwise taken into account under this Agreement. Without limiting the generality of the foregoing, Purchaser shall make no claim for indemnification under this Article IX in respect of any matter that is taken into account in the calculation of any adjustment to the Purchase Price pursuant to Section 1.4. (Emphasis added.) Section 9.4(e) s first sentence sets forth the rule precluding Garda s expensing of the A/R Expenses in its 1.5(a) Earnout calculation; its second sentence confirms it. Section 9.4(e) s first sentence includes two mandates. First, by directing that amounts payable under the Article IX and X indemnification provisions shall be paid without duplication, it precludes a double recovery for the same Loss. That means Garda may not recover Losses relating to the A/R Expenses under both 9.2(a) indemnity provisions and 1.5(a) s Earnout calculation. Second, it precludes Losses from being paid under different provisions of the PSA that have been otherwise taken into account under the PSA. Garda appears to read that direction as allowing it to elect between using either 1.5(a) s Earnout calculation or 9.2(a) s indemnification provisions to recover any Losses relating to the A/R Expenses. That interpretation is wrong. Established contract construction rules provide that a specific provision will not be set aside in favor of a catchall clause. William Higgins & Sons, Inc. v. State, 20 N.Y.2d 425, 428 (1967).10 Section 9.2(a) s provisions provide recovery specifically for the Losses relating to the A/R Expenses: 9.2(a)(i) provides for the indemnification of all Losses from the failure to be true and correct of any representations or warranties made by Hestia; and 10 Accord Muzak Corp. v. Hotel Taft Corp. 1 N.Y.2d 42, 46 (1956)( specific provision controls over general provision); TBA Global v. Fidus Partners, LLC, 132 A.d.3d 195, 204 (1st Dep t 2015)(same) of 30

23 9.2(a)(vii)(A) and (B) provide that Losses from any Basra A/R or Unbilled A/R will be paid solely out of and limited to the amount of the 1.9(c) and (d) escrow accounts, respectively. In contrast, 1.5(a) generally provides for the calculation of Actual Gross Profit based on applicable accounting requirements and consistent with past practice. Between the two, 9.2(a) is the specific provision and 1.5(a) is the catchall clause. Accordingly, because Losses relating to the A/R Expenses were taken into account under 9.2(a), they may not be recognized under 1.5(a). The second sentence of 9.4(e) confirms that Garda s election theory is not viable. That sentence precludes claims for indemnification under Article IX for any matter that is taken into account in calculating the post-closing price adjustments required under 1.4. Thus, 1.4 s price adjustment provision trumps 9.2(a) s indemnification terms. The same exception, however, is not made for 1.5(a). Consistent with contract construction rules, where sophisticated parties omit a term, the inescapable conclusion is that the parties intended the omission. Quadrant Structured Products Co., Ltd. v. Vertin, 23 N.Y.3d 549, 560 (2014). 11 Accordingly, 9.4(e) s second sentence confirms that the parties intended that matters taken into account under the specific provisions of 9.2(a) be excluded from the general provisions of the 1.5(a) Earnout process. Section 9.5 supports that reading of 9.4(e). Section 9.5, in relevant part, provides:... except with respect to fraud, the sole and exclusive remedy for (a) any inaccuracy or breach of any representation, warranty... contained in this Agreement or (b) any other claim relating to the subject matter of this Agreement, shall be indemnification in accordance with this Article IX and Article X, and no Person will have any other entitlement, remedy or recourse, whether in contract, tort or otherwise. (Emphasis added.) Section 9.5 evidences the parties agreement that, except as specifically excepted, all claims under the PSA -- including Garda s claim for breach of representations and warranties 11 Accord Salerno v. Coach, Inc., 144 A.D.3d 449, 450 (1st Dep t 2016)(applying doctrine of expressio unius est exclusio alterius to find that parties agreement that one specified form of compensation would be paid reflected their intent that other forms allegedly owed would not be paid); Mastrocovo v. Capizzi, 87 A.D.3d 1296, 1298 (4th Dep t 2011)(applying standard canon of contract construction expressio unius est exclusio alterius, that is, that the expression of one thing implies the exclusion of the other. ) of 30

24 INDEX NO /2016 FILED: NEW YORK COUNTY CLERK 04/11/ :37 PM NYSCEF DOC. NO. 61 RECEIVED NYSCEF: 04/11/2017 relating to the Unbilled A/R and its claim that the Basra A/R and Unbilled A/R are are recoverable only through the PSA s indemnification provisions. -- Garda cannot avoid that mandate simply by electing to characterize its indemnification claims as accounting expenses under 1.5(a). Indeed, if 9.5 were construed to permit such a tactic, potentially all indemnification claims could be treated as accounting expenses under 1.5(a). Because such a construction would render ineffective 9.5 s broad command limiting the parties remedies for all PSA-related claims to indemnification, it cannot stand.12 See generally Givati v. Air Techniques, Inc., 104 A.D.3d 644, 646 (2d Dep t 2013)(contract should be construed to give its provisions full force and effect ). B. Day s Interpretation of the PSA Is Consistent with the Parties Intent Not only should the above reading of 9.4(e) and 9.5 prevail because, consistent with contract construction rules, it accords the words their fair and reasonable meaning, and achieves a practical interpretation of the parties agreement, but Garda s alternative interpretation should be rejected because it would produce a result that is absurd and commercially unreasonable. Greenwich Capital Fin. Products, Inc. v. Negrin, 74 A.D.3d 413, 415 (1st Dep t 2010). Article IX s indemnification provisions reflect that the parties agreed upon a detailed structure governing indemnification claims. Among other things, that structure identifies the Losses subject to indemnification ( 9.2(a)); establishes procedures for asserting an indemnification claim ( 9.3); and imposes limits on indemnification ( 9.4). Having established that integrated structure, it makes little sense to suggest (as Garda does) that the parties nonetheless agreed that Garda could 12 That conclusion is not altered by 9.5 s last sentence, which excludes from 9.5 s scope the resolution of certain disputes relating to the Purchase Price between the Parties or by an Accounting Referee. The evident purpose of that exclusion is to permit Day to dispute Garda s calculation of the Earnout Amount using 1.5(d)(iv) s dispute resolution process -- as Day has done here -- rather than having to assert such a dispute as an indemnification claim. Accordingly, that sentence does not warrant Garda asserting indemnification claims masked as accounting expenses in its 1.5(a) Earnout calculation of 30

25 bypass that entire framework simply by electing to recover any indemnified Loss -- including the A/R Expenses (and Count II s AWT Liability) -- through 1.5(a) s Earnout calculation. That is particularly true given the disproportionate adverse impact on Sellers which might result from Garda electing to recognize a Loss under 1.5(a) rather than 9.2(a). Under 9.2(a), Garda is indemnified dollar-for-dollar for any Loss (subject to 9.4(c)(ii) s minimum thresholds). In contrast, under 1.5(a), the expensing of indemnified Losses could result in the Actual Gross Profit calculation falling below the thresholds for an Earnout Amount payment. As a result, by electing to seek indemnification under 1.5(a), Garda might avoid paying any Earnout Amount if the minimum threshold was not reached or reducing the Earnout Amount by 3.5 times each dollar expensed. 13 Because Garda s election interpretation gives it an unfair and unreasonable advantage over Sellers, it cannot be the result the parties intended. ERC 16W Ltd. P ship v. Xanadu Mezz Holdings LLC, 95 A.D.3d 498, 503 (1st Dep t 2012)(refusing to construe contract to assume that sophisticated party... threw caution to the wind and left itself at the mercy of the other party). Moreover, Garda s interpretation would also deny Sellers the financial protection they negotiated under 9.2(a) s provisions. For example, 9.2(a)(vii) limits the indemnified Losses for the Basra A/R and Unbilled A/R to the agreed-upon amounts contained in the 1.9(c) and (d) escrow accounts. If Garda s approach were adopted, Garda could avoid these negotiated limits by recognizing substantially larger amounts as accounting expenses in the 1.5(a) Earnout calculation. 14 Similarly, by recognizing other indemnified Losses as accounting expenses under 13 For example, if expensing the A/R Expenses caused the amount of Actual Gross Profit to fall below, Day would not receive the minimum Earnout Amount; and if it caused the amount of Actual Gross Profit to fall within the to range, the Earnout Amount would be decreased 3.5 times for each dollar of expense. (FAC 27; PSA 1.5(a)(i).) 14 Indeed, although Day need not rely upon it, Garda is attempting to engage in precisely such an evasive tactic. The FAC alleges that Garda reduced its calculation of Actual Gross Profit by between and of 30