good morning your honour's may please the court alan greenberg for the appellants a lot of cases were cited by both sides of course the implied covered it has been used in all of those cases if at all to prevent one party from depriving the other party of a contractual benefit implied covenant does not apply where the  counterparty receives the exact thing that it contracted for just before you launch into that there are no dispute it factual issues here is that is that right i believe that is correct there were cross motions based on the centrally undisputed sales the contract actually does not even address who buys anything what the contract says is that there was a mutual exchange which is what a contract is if it just says if gross profits as defined under generally accepted accounting principles reach a certain limit then the result of that is payment of an urn out or they don't even call it in or not i believe but of of compensation and so there's nothing in the contract in the purchase agreement that even covers the idea of who is going to buy the products nothing that even covers it isn't that the kind of precisely the kind of case where good faith and fair dealing come into play no not at all because it company does cover is how the exchanges the exchanges gross profit on their gap for payment that is what the contract provides the two parties agreed to that it was heavily negotiated to provide the most flexibility to the sellers to be able to sell any product to the perfect do that was the purpose of your provision i'm sorry what was the purpose of the earn out provision the purpose was more than one purpose but the purpose isn't primarily an incentive in fact in every case all it was to set up it was also and primarily i think because they couldn't agree on a purchase price so when you can't agree on a purchase price you make some of the payment up front and then you have the rest of it depend upon the performance of the company in the in the future and then that that determines what the what the purchase price will ultimately contracts because when they did that right pete was because they did they couldn't determine the value of the company they wanted to have the benefit of future sales in order to determine the the core value of this company out correct in the contract to align the party's interests correctly and then to follow that turn out the parties have so much at stake when they're in the situation the sellers in this case relied on what it says in the contract and now that at b because and that's supposed to be aligning the party's interest want a price ultimately pay a price that's the true value of the company isn't mean isn't that the purpose of the of price apparently they agreed on or are now out but it was it was it was an urn out that was going to depend upon how the company performed correct again i respectfully disagree it had nothing to do with how the company was going to perform it had to do with what it says in the contract grossed yes if by performing gross profit on suggest that you're right and it's not an earn out but it's some kind of bonus provision or incentive provision to make these guys manage the company well is that the idea that you're suggesting it may be that to manage it all they may be going to they could have walked away at will find so let's suppose it's that doesn't that also presuppose that the profits that are made that make it worth keeping these guys on are legitimate profits and not fake profits they're not fake prophets they're real prophets now there is somebody any profits if you're trying to assess a man you're trying to assess the performance of managers of a company the fact that the managers make profits by paying money themselves at an inflated price to make it look as if they sold things that were not part of the regular course of business why would that in any legitimate sense earn a bonus this is not an employment contract with a bonus it's a sale of a cause not that either it's not an urn out and it's not an incentive provision and it's not a bonus it's an intern what exactly earn out but it's a contract in every case as in the global reach case that we filed this week the recent case from the new york court of appeals the new york appeals looks at a contract and it says what the parties agree in this contract you know learned hand you just talked about the intent of a contract and you can have twenty bishops line up and say what the intent was but if it's not in the contract it doesn't count the contract has a formality to it but in the contract of the covenant of good faith it is do not to prevent someone from exploiting loopholes in contracts just like this it is to safeguard the express explicitly bargain for benefits and that's pursuit that's we cited the c s i case for that but we traced back that quote and it goes it goes back to judge walker in the metlife case ion it's not artificially product to create the gross profit that was called for under the contract with their own money you think that the parties intended when they entered into the purchase agreement in the royal opera vision that the sellers wrong four million dollars worth of stickers to get a ten million dollar payout do you think seller certainly intended that they would be able to achieve gross profit on that's out of it anyway i thought that they had they exchanged emails saying they thought they had really scored on this one that i mean this is the rare case it seems to me where there's evidence of actual subjective bad faith we're not inferring anything it's not your faith your honor that's just being viewed through a prism the c e o said a deal's  deal follow this deal get us gross profit and we want you to do it and they went out and they did it they thought that they had scored in the sense that they did what they were supposed to do acting in good faith if the if the two sides get what they bargained for that's in the contract absolutely you can have the liver what's in the contract there's not one case this would be the first case where that ever happened there's not one k that's that's what these fellows said this is going to make history or that's not the history that they were trying to make and it's actually the metlife gate is the history they're trying to make that they were trying to get over on somebody that's the history they were trying we're trying to get the money they deserved under a contract that they made and not to have to defend it in the desert when there are there's not going is your position is they deserve the ten million dollars absolutely they earned it under the terms of their contract with the other side which is what contracts are the kind of the other side was not a little old feeble person who took advantage of it's a big company that had lawyers that made a good good morning your honor sir adam often hearts with gibson dunn counsel for the appellee vista outdoors i would just like to stress a few points very quickly first of all as you can imagine vista believes this is the paradigmatic case regarding the good faith and fair dealing the covenant of good faith and very dealing as the court elicited from my adversary there is no provision expressly detailing what is or is not an appropriate transaction my adversary conceded that his belief is that therefore any transaction even one that evinces bad faith is appropriate that flies in the face of well settled new york law there breach here when the count when it was never consummated but your honor judge walker that's a very good question the breach of the contract is that they took a number of steps to stopped it you found out but that you figured out what was happening and it never happened your honor all the elements are really makes much difference in terms of the outcome of the case in terms of the consequences financial consequences judge walker you're you raise an excellent question all the elements of the breach of the covenant of good faith and fair dealing were in place and the cause of action a rose at least no later than when vista paid sixty thousand five hundred dollars for these ill gotten stickers because at that but as i understand it that was an independent decision i don't think vista when they bought the stickers felt that i thought the evidence in the record was when they bought the stickers they just said well you know this is swag it can be used in the future and so forth there's no indication that they were cajoled into buying the stickers and that it wasn't made it wasn't an independent business decision actually your honor respectfully judge walker if you look at the e mails regarding the purchase of the stickers these are in the appendix a supplemental appendix five five five supplemental appendix ten ninety three supplemental appendix five five three these are a series of e mails in april of two thousand and sixteen where the this is in the appendix yes your honor supplemental appendix at page ten ninety three one thousand nine hundred three it's an april twenty seventh e mail from col reeves to a trish johnson regarding the stickers and mr reeves writes as part of his scheme i want these stickers in the system so we can pay for them asap next week we need these not only to sell direct on line but to be able to pull out of inventory this summer for all of the trade show giveaways outdoor retailer it's cetera and you're saying that's a lie yes your honor because what if that's a lie that's a behavior that is not in good faith whether or not the  the ultimate transaction that gets them ten million dollars is consummated absolutely judge a if they got the ten million dollars you'd be suing to get it back absolutely and since they didn't you're saying they were still scheming to engage they engage in a bad faith  course of dealing with your client which is not in accordance with the yes because certainly as of the time of this e mail they knew they were going to be buying the stickers of course of course you still have the stickers you're honor and you're using them apparently as i understand it they are given to the manager of the company to use in the way that that e mail suggests well respectfully your honor two very important points on that first of all it is one thing to have a handful of stickers that are periodically handed out it's another thing entirely to have a million stickers that might be a supply for decades and also your honor there's a bit is there not i mean this goes with slightly different question for me is there not an issue of fact as to what if anything is the fair market value of the stickers well your honor on this this might be one of the few issues upon which my adversary and i agree we i don't think there are any disputed facts the record below is clear that  wrote off the sixty thousand five hundred dollars it took a hit of sixty thousand five hundred dollars on its account just looking like him that's what the gap says but in real life they have the stickers they're using them for a particular purpose they have them up for sale on the web site if anybody's going to buy them if somebody buys one for five dollars isn't that five dollars less than sixty thousand dollars well images first of all your honor there's nothing in the record to indicate that these things are on sale i do not believe that they are on sale i believe that the logo for jimmy sticks as been changed these stickers are virtually of no value but importantly your honor and i should raise this originally my apologies there's nothing in the record about the value of these stickers my adversary moved for summary judgment trying to dismiss our claims and move on his claims they said both parties can be wrong right off and both parties say there are no disputed issues of fact returns out that's because they each have different issues of fact that they say are undisputed and summary judgment on some issue may not be appropriate after all certainly honor but judge lynch if i may there is no evidence from my adversary there is no evidence from the appellant's below on the value of the stickers they had the opportunity during summary judgment to put in an affidavit saying we think these stickers are very value what did you put in as to the value of the stickers judge chen we put in testimony from one of the senior accounting officer saying these stickers had been written off and there is nothing to grow but that's not the money so you took a position that they were against worthless but that but that you're now you're being able to market them and when you have when you have a duty to mitigate any way i mean to get something for them your honor we aren't we are not marketing them we are not using them there's nothing in the record to indicate that that's something that my adversary looted in their briefing that is unsupported in stickers over close to a million stickers your honor and the thought that a few stickers a handful of stickers could be given away somehow negates the harm that vista suffered to put an end to this scheme we think is unfair about sixty thousand dollars anyway let's talk about a different trivial amount of money in comparison to the whole case but i'm having a little trouble understanding the the business about whether mr wilkins paid his half or not i understand the legal argument that both sellers or jointly and severally liable under the contract for the total amount as of before the email exchange but then there's an email where mr wilkins says so are you asking for three checks two from the wilkins is that add up to sixty thousand dollars and one from the reeves family trust for another sixty proximately thousand  dollars i don't see where that comes from there may have been all kinds of discussions between the parties but this does not sound like is it ok if we send you checks in the following form he says are you asking for this is there is there no issue of fact as to what that means well your honor respectfully judge lynch we think that the contract at section two point five is clear that this money is owed by the  just this is a convenient way for you guys to do it is that you're honor it was your honor i think you're exactly right it was convenience if obviously you were all responsible for the entire payment if you want to pay us two checks and have someone write a third that totals the full amount so be it again there was no prejudice with this and allowing parties to pay an amount they owed jointly and severally by different checks is not the same as a written amendment saying we hear by for go our right to collect the full amount and in any event there's no prejudice if the reeves i'm sorry if the wilkins feel that that money is owed them by mr consumers reeves yeah i'm sorry if the wilkins feel thank your honour's first i just want to emphasize one more point that the cases say you cannot use the implied covenant to end wholly new terms to a contract with respect to damages counsel conceded that there's nothing in the record the burden was on them they move he conceded that there was nothing on the record submitted by your side that they put in evidence saying that they wrote off the sixty thousand stickers were worthless no they did not say they were worthless they said in the record that they'd wrote off the heat but he did say i didn't need to misquote him i think he did say there's nothing in the record then later he said by us that he also did say and it's correct that there's a declaration from an accountant who doesn't know anything about the stickers was not shown page eight twenty six of the appendix is the testimony by a vista executive who was asked what happened to the stickers and he said we gave them to women the yagur so he could use them in promotions and other things as he sees fit now that he's the head of watersports and they still have they have they don't have any declaration that says that they got rid of the stickers or they're not using them the fact there's a million stickers it sounds like a lot but this outdoor retailer show that is mentioned in in the e mail the council mentioned is a huge trade show with tens of thousands of people a million stickers is not that many stickers for marketing these are for different types of sting in the record the talks about what  typical quantities of stickers to be purchased i don't know i don't know that there is such a thing as a typical quantity i suppose the best thing you've got going for them for you on this score is that when your client sent the original proposal to purchase sixty thousand dollars worth of stickers nobody said sixty thousand dollars worth no one here we were doing that no one complained and the head of global operations just approved the transaction which they then alleged falsely was something that was done out of the ordinary channels it was done correctly through channels completely transparent they're using the stickers for exactly what was said that they would be they could sell them they could use them in marketing that's exactly what the e mail where you say they could buy them themselves for four million dollars so as to inflate the profits that it looks like the company is making and would have made those profits under gap if that transaction had been permitted to go forward but they blocked it and but there is they were not damaged in any way and certainly not under the purchase agreement which doesn't have anything to do with stickers or ordering stickers meaning when i say stickers or ordering i mean from the manufacturer the whole a the acquisition of the stickers by vista is not something that's dealt with in any way in that purchase agreement the purchase a green it deals with buying the company and then this earn out that's it so there where where look you know it's a diff they didn't sue for other things they sued for breach of the implied covenant in this purchase agreement and there's nothing in there that governs the actions of the people in in ordering stickers from china to for the company to use for anything for selling to them to the founders were from from using in marketing or anything else and i just want paid and his wife paid their half as an expedient he didn't necessarily agree with the amount so he relied on paying half theirs in a style bill here where he's told to pay half and he he could  notice of this second superseding amended closing statement they never the company never asked them for the money and never told them how much to pay other than the original one they did send for a higher amount but mysteries it's in the record and we trust did not object to mr wilkins objected to it he didn't object to it he just questioned it he asked a question he said hey is this right that this isn't the right amount let's look at it again they look at it again they reduce the amount isn't mr wilkins negotiating on behalf of both of them are you saying that mr reeves where the reeds trust still owes the larger amount because they never questioned it you know the larger amount because the larger amount was retracted and said to be  this why did they get the benefit of the to wilkens negotiation isn't that because mr wilkins is negotiating on behalf of everyone he's not he's just asking a question does this reduce looks wrong and they write back and say we look another look it's wrong here's the