Jenkins v. Xpresspa Group, Inc.

Background

Rodger Jenkins and Gregory Jones jointly owned Excalibur Integrated Systems, Inc. On February 2, 2017, XpresSpa Group, Inc., then operating as FORM Holdings Corp., acquired Excalibur under a Stock Purchase Agreement. Excalibur was later combined with XpresSpa subsidiary Group Mobile International, Inc. Jenkins also signed an employment agreement with Group Mobile, which was incorporated into the purchase agreement.

The agreement provided for additional compensation of up to $1.5 million if Excalibur’s legacy accounts generated $6 million in cumulative gross profit during the three years after the acquisition. A separate provision, Section 2.5, provided for accelerated compensation if there was a change of control of Group Mobile, more than 25% of its revenue came from accounts attributable to Excalibur or the plaintiffs, and Jenkins had met all applicable sales targets agreed upon with Group Mobile.

In March 2018, XpresSpa agreed to sell Group Mobile to Route1, Inc. The parties agreed that the sale was a change of control and that the revenue condition was satisfied. They also agreed that no sales targets had been established for Jenkins during his employment at Group Mobile. XpresSpa did not pay accelerated compensation and did not require Route1 to assume an obligation to pay the remaining compensation. Jenkins and Jones sued for breach of contract and sought damages and specific performance. Both sides moved for summary judgment, which is a decision without a trial when no genuine dispute of important fact exists and one side is entitled to judgment under the law.

Rulings on the Contract Conditions

The Court held that the phrase “all applicable sales targets” was unambiguous. It interpreted “applicable” to mean sales targets capable of being applied to Jenkins—those agreed upon by Jenkins and Group Mobile. Because no sales targets existed, there were no applicable targets for Jenkins to satisfy. The absence of agreed-upon targets therefore did not prevent the accelerated-compensation provision from taking effect.

Because the change-of-control and revenue conditions were also satisfied, the Court held that the plaintiffs were entitled to accelerated compensation. Under Section 2.5(i), XpresSpa had to pay 50% of the maximum $1.5 million subsequent compensation, or $750,000. XpresSpa’s failure to pay that amount within 60 business days breached the agreement.

The Court found Section 2.5(ii) ambiguous. That provision required XpresSpa to cause the buyer of Group Mobile to assume an obligation to pay the remaining compensation, but the parties offered competing reasonable interpretations of which conditions applied to that obligation. The Court therefore could not decide on summary judgment whether XpresSpa breached Section 2.5(ii) or what liability might result from such a breach. The issue remains for trial.

Effect of Jenkins’s Acknowledgement

Jenkins had signed an acknowledgement stating that, other than FORM Holdings Corp., Route1 and related entities had no liability or obligation under the purchase agreement. The Court held that Jenkins signed this document in his personal capacity and waived any claim against Route1 concerning obligations arising from the purchase agreement.

Although the acknowledgement did not waive Jenkins’s claim against XpresSpa itself, it prevented Jenkins from showing damages caused by any breach of Section 2.5(ii), because he had agreed not to demand payment from Route1. The Court therefore granted XpresSpa’s motion for summary judgment as to Jenkins’s Section 2.5(ii) claim. The acknowledgement did not bar Jones’s claim because Jenkins had not signed it as Jones’s representative. Jones may therefore pursue damages for a possible Section 2.5(ii) breach at trial.

Remedy and Attorneys’ Fees

The Court held that compensatory damages, rather than specific performance, were appropriate for the Section 2.5(i) breach. The amount owed was certain: $750,000, plus prejudgment interest at 9% per year. Although the purchase agreement allowed XpresSpa to choose between paying the original contractual compensation in cash or XpresSpa shares, the Court held that XpresSpa could not choose the form of payment for the damages judgment.

The Court denied the plaintiffs’ request for attorneys’ fees. It found that XpresSpa’s arguments were not entirely meritless or pursued for an improper purpose, particularly because one of its arguments prevailed in part concerning Section 2.5(ii).

Disposition

The Court granted in part and denied in part both the plaintiffs’ and XpresSpa’s motions for summary judgment. It stated that judgment would be entered for the plaintiffs for $750,000 plus 9% prejudgment interest for the Section 2.5(i) breach. The plaintiffs’ request for attorneys’ fees was denied. XpresSpa’s motion was granted as to Jenkins’s Section 2.5(ii) claim and denied as to Jones’s Section 2.5(ii) claim. The pending motions in limine were dismissed as moot, and the parties were directed to proceed toward trial on the remaining issue.