Better Holdco, Inc. v. Pierce

Background

Better Holdco, Inc. employed Sarah Pierce from August 2016 until February 4, 2022. In January 2021, Better and Pierce entered into two partial-recourse promissory notes under which Better loaned Pierce a total of $2,277,000. The loans were secured by shares of Better common stock that Pierce purchased under an option agreement.

The notes defined the due date as the earliest of six specified dates. The earliest applicable date was 120 days after termination of Pierce’s employment for any reason. On that date, unpaid principal and accrued interest became immediately due. The notes allowed Better to pursue up to 51% of the loan amount, plus unpaid interest, against either the pledged shares or Pierce’s personal assets. For the remaining portion, Better could proceed only against the pledged shares.

Pierce’s employment ended on February 4, 2022. Better later told Pierce that the loan balance had come due and proposed repurchasing unvested and vested shares to settle portions of the debt. Pierce stated that her lawyers accepted the proposal, but the parties did not sign a repurchase or modification agreement. Pierce made no payments on the notes.

Better initially filed its motion for summary judgment in lieu of a complaint in New York state court under New York Civil Practice Law and Rules § 3213. Pierce removed the case to federal court. The court treated the removed motion as a motion for summary judgment under Federal Rule of Civil Procedure 56.

Legal standard

Summary judgment is appropriate when the evidence shows that there is no genuine dispute about a fact that could affect the outcome and the moving party is entitled to judgment under the law. Under New York law, a plaintiff seeking payment on a promissory note generally must show the note and the defendant’s failure to pay. The defendant must then identify a valid defense that creates a genuine factual dispute.

Court’s analysis

The court found that Better established its initial case. Pierce signed the notes, Better loaned her $2,277,000, the debt became due after her employment ended, and Pierce admitted that she had made no payments.

The court rejected Pierce’s argument that the notes were not instruments for the payment of money because Better’s collection rights were limited by the pledged shares. The notes expressly required payment of principal and accrued interest on the due date. Their limits on which assets Better could pursue affected enforcement of the debt, not whether the notes required payment of money.

The court also rejected Pierce’s five defenses:

1. Alleged settlement through share repurchases. The court held that Better’s email did not create an enforceable settlement offer. It lacked material terms, including the amount of debt to be canceled and the number of vested shares to be purchased. The email also contemplated a later repurchase agreement, and the notes required any modification to be in a written instrument signed by both parties. No such signed agreement existed.

2. Retaliatory enforcement. Pierce argued that Better was retaliating against her because, according to Pierce, she was the only employee from whom Better sought repayment. The court held that this allegation did not create a factual dispute about enforceability. The notes gave Better broad enforcement discretion and stated that the debt became due when Pierce’s employment ended for any reason.

3. Custody and vesting of the shares. Pierce argued that Better held the shares and that she could not return unvested shares to satisfy the non-recourse portion of the debt. The court found these facts immaterial to her obligation to repay the loans. It also found that the record showed Pierce owned the shares, including the unvested shares, even though some shares were held in escrow.

4. Alleged intent that the notes not be binding. Pierce offered no supporting evidence. The court further held that evidence of an alleged contrary understanding could not be used to change the terms of the notes, which the court found unambiguous. Under the notes, Better could pursue Pierce’s personal assets for the recourse portion.

5. Failure to file a federal complaint after removal. The court rejected Pierce’s procedural argument. A removed case continues in the procedural posture it had in state court, so Better was not required to file a new complaint in federal court.

Ruling and disposition

The court held that Pierce had not identified a genuine factual dispute concerning a valid defense to payment. It therefore granted Better’s motion for summary judgment. Better was entitled to judgment for the unpaid principal of $2,277,000 plus accrued interest through the date of repayment. The court emphasized that Better remained subject to the collection restrictions in the notes, including the restriction against using Pierce’s personal assets to collect the non-recourse portion. The court directed the parties to submit a joint letter concerning a briefing schedule for attorneys’ fees and costs.