Objections to Earnout Statement in Attorney Letter Satisfied "Reasonable Detail" Requirement

On February 9, 2024, Justice Andrew Borrok of the New York County Commercial Division issued a decision in Tromer v. PEAK6 Insurtech Holdings LLC, Index No. 653530/2023, denying summary judgment to counterclaim plaintiff on the ground that, contrary to its argument and in accordance with the parties' unit purchase agreement, counterclaim defendant had "specif[ied] in reasonable detail" its objections to the amounts set forth in counterclaim plaintiff's earnout statement, explaining:

PEAK6 contends that the $3.1 million Earnout allegedly owed to it by Sellers is final and binding on the parties as a matter of law because, under the terms of§ 2.6 of the Amended and Restated Unit Purchase Agreement (the UPA; NYSCEF Doc. No. 28), Plaintiff failed to properly object to the Earnout Statement. The argument fails.

PEAK6 argues that Plaintiff Counsel's June 19, 2023 letter did not "specify in reasonable detail" Plaintiff's objections to the Earnout Statement, nor give "the basis therefor" as required by UPA § 2.6(b) (NYSCEF Doc. No. 28 § 2.6[b ]). But Plaintiff's letter was clear and specific: Plaintiff objected to every number in the Earnout Statement because Plaintiff believed that the values were improperly calculated and based on specific covenant violations including UP A § 2.5(d) (NYSCEF Doc. No. 62). Plaintiff set forth in great detail the basis upon which Sellers objected to the Earnout Statement, citing the specific provisions of the UP A Plaintiff believed PEAK6 had violated and the corresponding violative conduct, including supporting exhibits (Id.). Plaintiff also specifically indicated its belief that certain amounts in the Earnout Statement were incorrect, such that the calculation must have been done improperly (Id.). Plaintiff's letter was also unquestionably timely, as it was sent 31 days after the receipt of the email containing the Earnout calculation, and just 21 days after PEAK6 confirmed this email was intended as the Earnout Statement, well within the 45-day objection period specified by UPA § 2.6(b) (NYSCEF Doc. Nos. 60, 61).

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning a disputed earnout agreement.