Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_14-cv-00337/USCOURTS-cand-3_14-cv-00337-16/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

NORTH VENTURE PARTNERS, LLC,

Plaintiff/Counter-Defendant,

v.

VOCUS, INC.,

Defendant/Counter-Claimant.

Case No. 14-cv-00337-RS 

ORDER DENYING NORTH VENTURE 

PARTNERS' MOTION FOR SUMMARY 

JUDGMENT AND GRANTING 

VOCUS'S MOTION FOR LEAVE TO 

AMEND ADMISSIONS

I. INTRODUCTION

This action arises from an agreement between plaintiff/counter-defendant North Venture 

Partners, LLC (“NVP”), and defendant/counter-claimant Vocus, Inc., to acquire NVP’s software 

platform North Social. In exchange for North Social, Vocus agreed to pay NVP a lump sum and 

earn-out payments, provided NVP satisfied two criteria—the “Monthly Run Rate” and the 

“EBITDA Margin Requirement.” The asset purchase agreement (“APA”) defined both terms. 

Dissatisfied with Vocus’s calculation of the earn-out payments, NVP filed this lawsuit. 

Throughout most of the action the parties agreed that NVP had satisfied the EBITDA Margin 

Requirement. Indeed, Vocus admitted as much in its responses to NVP’s requests for admission. 

While preparing to submit certain accounting issues to a special master, however, Vocus’s expert 

discovered that it had calculated the EBITDA inaccurately, resulting in significant overpayment. 

Armed with this new information, Vocus successfully sought leave to add counterclaims for unjust 

enrichment and money had and received. NVP now moves for entry of summary judgment with 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 1 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

respect to those two counterclaims, relying upon Vocus’s prior admissions, among other evidence. 

Vocus moves for leave to withdraw these admissions. Because Vocus has demonstrated that 

withdrawal of its three prior admissions will facilitate the presentation of its counterclaims, and 

NVP has not shown that withdrawal will prejudice its ability to defend against the claims at trial, 

Vocus is granted leave to withdraw the admissions.

In its motion for summary judgment, NVP contends (1) that the APA’s definition of 

“EBITDA Margin Requirement” is unambiguous; (2) that Vocus’s judicially binding admissions 

doom its counterclaims; (3) that equitable estoppel bars the counterclaims; and (4) that Vocus 

waived its right to challenge NVP’s satisfaction of the EBITDA Margin Requirement. None of 

these arguments is persuasive. Because both NVP and Vocus offer reasonable interpretations the 

APA is ambiguous, and a reasonable fact finder could decide in either party’s favor, summary 

judgment is inappropriate. Moreover, none of Vocus’s other evidence undercuts the viability of 

the counterclaims. Finally, NVP has failed to establish that it relied upon Vocus’s representations 

to its detriment or that Vocus intentionally and knowingly relinquished its right to contest the 

interpretation of the EBITDA Margin Requirement. Accordingly, NVP’s motion for summary 

judgment must be denied.

II. FACTS AND PROCEDURAL HISTORY

A. Vocus Acquires NVP’s North Social Platform

NVP creates and promotes social media software and business services. In 2010, NVP 

founded North Social, a separate division of NVP, which promoted a suite of Facebook Fan Page 

applications and services for purchase, download, and installation. Bernstein Decl. ¶ 2. In 2011, 

to acquire North Social, Vocus agreed to pay NVP $7,000,000, plus up to $18,000,000 in earn-out 

payments, provided North Social achieved certain performance and profitability targets delineated 

into four “tiers.” 

During the earn-out period between 2011 and 2013, Vocus paid NVP for achieving tiers 1 

and 2, but only a pro rata share of the full sum available for satisfying the criteria of tier 3. 

According to Vocus’s calculations, NVP never achieved the requirements to receive the $6 million 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 2 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

3

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

payment under tier 4. NVP objected to this pro rata installment and demanded payment of the full 

$18,000,000, arguing that it had satisfied the requirements for all four tiers. When Vocus refused 

to pay, NVP filed this action.

B. The Special Master’s Involvement1

To facilitate adjudication of NVP’s claims, the parties agreed to submit to a special master 

certain accounting issues arising from the earn-out computation. Both parties hired accounting 

experts and submitted reports to the special master, who conducted a live hearing. While 

preparing for the hearing with the special master, Vocus’s accounting expert, Matthew Bialecki, 

discovered that Vocus had calculated the EBITDA Margin inaccurately throughout the earn-out 

period based on his interpretation of the APA. As a result of this error, Vocus may have overpaid 

NVP. Soon after this discovery, Vocus sought and was granted leave to file counterclaims against 

NVP for unjust enrichment and money had and received. 

C. The Relevant Terms of the APA

Vocus’s counterclaims revolve around how properly to interpret the APA’s definition of 

the “EBITDA Margin Requirement.” Pursuant to the APA, NVP had to satisfy two criteria to be 

eligible to receive earn-out payments. First, NVP had to hit certain revenue targets (“Monthly 

Run Rates”) during the twenty-four-month period between February 24, 2011, and February 28, 

2013. Rudman Decl. Ex. 14, APA §§ 1.06, 1.08. The “Monthly Run Rate” refers to “the monthly 

Revenue from the Business for any calendar month during the Earn-Out Period.” APA at A-6. 

Under the four-tiered system, NVP had to achieve the following Monthly Run Rate milestones: 

$250,000 (Tier 1); $500,000 (Tier 2); $750,000 (Tier 3); and $1 million (Tier 4). Second, NVP 

had to satisfy the “EBITDA Margin Requirement.” The parties agreed to define the term 

“EBITDA Margin Requirement” as follows:

 

1 Vocus has objected to numerous statements in the reply declaration of NVP counsel Rod 

Divelbiss, who accuses Vocus of bad faith and submitting fraudulent or “seriously flawed” 

accounting methods to the special master. Divelbiss has not offered foundation for these opinions, 

nor are they appropriate. See Fed. R. Evid. 602, 701. Accordingly, Vocus’s objections are 

sustained.

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 3 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

4

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

“EBITDA Margin Requirement” means that for the period commencing on the 

Closing Date and ending on the last day of a calendar month that the First Tier 

Criteria, Second Tier Criteria, Third Tier Criteria or Fourth Tier Criteria is 

satisfied, or the end of the Earn-Out Period2(each a “Margin Period”), the 

Owner’s3cumulative earnings before interest, taxes, depreciation and amortization 

of the Business4for the applicable Margin Period (“the EBITDA”), divided by the 

cumulative Revenue of the Business for such Margin Period, all as determined in 

accordance with GAAP,5is greater than or equal to 15%. For purposes of this 

definition (a) Owner shall be treated as an unaffiliated, stand-alone entity and 

Buyer6and its Affiliates shall not allocate any of their expenses or other deductions 

to Owner (including, without limitation, any of their management or administrative 

overhead expenses); (b) Revenue recognized by Buyer for sales of Owner’s 

products or services conducted by Buyer or its Affiliates (other than Owner) shall 

be included in calculating both EBTIDA and the Monthly Run Rate; (c) a sales 

commission (regardless of whether such amount is paid) equal to thirty-five percent 

(35%) of such Buyer-generated Revenue shall be included in calculating EBITDA; 

and (d) the following expenses shall be excluded in determining EBITDA: (i) the 

first $200,000 of marketing expenses incurred by Owner during the Earn-Out 

period; (ii) any expenses or liabilities of Owner which shall be paid by Seller or 

Members pursuant to Section 6.02(a); and (iii) all travel related expenses incurred 

by Members or Owner for travel to Buyer’s headquarters or for travel required by 

Buyer in writing, but only to the extent that such expenses are permitted by Buyer’s 

travel policies. Notwithstanding anything in this Agreement to the contrary, if both 

Members are no longer employed by Owner for any reason whatsoever, then the 

EBITDA Margin Requirement for all purposes under this Agreement shall be 

deemed satisfied for all Margin Periods and other time periods occurring on or after 

the date that the last of the Members ceases to be employed by the Owner.

APA at A-3-4. The EBITDA Margin Requirement for a certain Margin Period would be 

expressed mathematically thus:

EBITDA Margin Requirement = EBITDA

Revenue

 

2

The APA defines the “Earn-Out Period” as the twenty-four month period following the closing 

date. APA at A-3.

3

“Owner” refers to North Social Apps, LLC, which was formed to operate North Social after 

closing. APA § 1.09.

4

The APA defines “the Business” as “an online platform that enables subscribers to purchase and 

install a suite of Facebook Fan Page applications and certain services in connection with such 

applications.” APA at 009. 

5

“GAAP” means the United States generally accepted accounting principles. APA at A-4.

6 Under the APA Vocus is “the Buyer.” APA at 009.

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 4 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

5

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

The term “earnings” is undefined, whereas the APA defines “Revenue”7as follows:

[T]he revenue of the Business, determined in accordance with GAAP, provided, 

however, that the term ‘Revenue’ shall exclude any amounts received from a single 

customer (including its Affiliates) to the extent that such amounts exceed two 

percent (2%) of the total monthly Revenue for such one-month period; and 

Revenue received from a single customer shall include only amounts charged to a 

single-credit card for the customer or invoiced to the customer. 

APA at A-6 (emphasis in original). 

Throughout the earn-out period, Vocus used gross revenue, rather than the defined term 

“Revenue,” to calculate EBITDA. Vocus also used gross revenue as the denominator when 

calculating the EBITDA Margin Requirement. 

Both parties now dispute whether gross revenue, without the two-percent limitation, should 

have been used in both the nominator and the denominator of the EBITDA Margin Requirement 

equation. NVP contends that “earnings” means gross revenue, and therefore Vocus properly used 

gross revenue when calculating EBITDA. However, NVP also argues that Vocus erred by using 

gross revenue instead of “Revenue” as the denominator of the EBITDA Margin Requirement 

equation. 

In contrast, Vocus argues that the defined term “Revenue,” with the two-percent limitation,

should have been used to calculate EBITDA, and also as the denominator in the EBITDA margin 

Requirement equation. See Bialecki Decl. ¶ 3. The difference between these formulas is 

consequential: applying Bialecki’s formula, NVP never satisfied the EBITDA Margin 

Requirement after December 2011. Id. ¶¶ 4-5. This asserted error, according to Vocus, caused it

to overpay NVP $8,558,537. Id. ¶¶ 3-11.

D. Vocus’s Run Rate Reports

Throughout the earn-out period, the APA obligated Vocus to provide NVP with “Run Rate 

Reports,” which calculated the Monthly Run Rate for the prior month. Bernstein Decl. ¶ 15. 

 

7

Throughout this order, “Revenue” refers to the term defined by the APA, whereas “revenue” will 

mean gross revenue.

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 5 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

6

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

When Vocus notified NVP that it was not on target to achieve the margin requirement, NVP made 

efforts to decrease expenses and to increase revenues. See Bernstein Decl. ¶¶ 8-11, 16. Vocus 

never used “Revenue” to calculate the EBITDA Margin Requirement throughout the earn-out 

period, which meant NVP never had any indication that Vocus might have been calculating the 

EBITDA Margin Requirement incorrectly. Vocus was also ignorant of this alleged error until 

September 2015. Sklaire Decl. ¶¶ 2-3, Ex. 1. 

E. Vocus’s Responses to NVP’s Requests for Admissions

In November 2014, after this litigation commenced, NVP served Vocus with requests for 

admissions pursuant to Federal Rule of Civil Procedure 36, which included the following requests:

Request for Admission No. 2: “Please admit that on the date the Second Tier 

Requirement for payment of the earn-out under the [APA] was met, the EBITDA 

Margin Requirement was also satisfied.”

Request for Admission No. 3: “Please admit that on the date the Third Tier 

Requirement for payment of the earn-out under the [APA] was met, the EBITDA 

Margin Requirement was also satisfied.”

Request for Admission No. 4: “Please admit that on the date the Fourth Tier 

Requirement for payment of the earn-out under the [APA] was met, the EBITDA 

Margin Requirement was also satisfied.”

Sklaire Decl. Ex. 3, Vocus’s Responses to NVP’s RFAs Set 2. Vocus served admissions to the 

second and third requests, and stated that it was unable to admit or to deny the fourth. Id. Vocus 

now seeks leave to withdraw these three admissions and to amend its responses. 

III. LEGAL STANDARD

Litigating parties may employ requests for admission “relating to . . . facts, the application 

of law to fact, or opinions about either.” Fed. R. Civ. P. 36(a). Requests for admission “serve two 

important goals: truthseeking in litigation and efficiency in dispensing justice.” Conlon v. United 

States, 474 F.3d 616, 622 (9th Cir. 2007) (citing Fed. R. Civ. P. 36 advisory committee’s note). 

An admission has the effect of “conclusively establish[ing]” the matter admitted “unless the court, 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 6 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

7

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

on motion, permits the admission to be withdrawn or amended.” Fed. R. Civ. P. 36(b). 

Rule 36(b), which is “permissive, not mandatory,” allows district courts to grant requests 

to withdraw or to amend admissions only when the moving party demonstrates (1) that withdrawal

of the admission “would promote the presentation of the merits of the action,” and (2) that 

withdrawal will not prejudice the party that obtained the admission “in maintaining or defending 

the action on the merits.” Fed. R. Civ. P. 36(b); Conlon, 474 F.3d at 621. A party satisfies the 

first criterion by showing that “upholding the admissions would practically eliminate any 

presentation of the merits of the case.” Conlon, 474 F.3d at 622 (internal quotation marks 

omitted). The party objecting to withdrawal of an admission bears the burden of proving that 

withdrawal would prejudice its presentation of the evidence at trial. Hadley v. United States, 45 

F.3d 1345, 1348 (9th Cir. 1995). Inconvenience or “reliance on a deemed admission in preparing 

a summary judgment motion” do not constitute prejudice. Conlon, 474 F.3d at 623-24. 

A party is entitled to summary judgment when “there is no genuine dispute as to any 

material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). 

The party who seeks summary judgment bears the initial responsibility of identifying an absence 

of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the 

moving party satisfies this initial burden, the non-moving party must present specific facts 

showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(e); Celotex, 477 U.S. at 324. 

“Only disputes over facts that might affect the outcome of the suit under governing law” are 

material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue exists if the 

non-moving party presents evidence from which a reasonable fact-finder, viewing the evidence in 

the light most favorable to that party, could resolve the material issue in his or her favor. Id. at 

248-49.

IV. DISCUSSION

A. NVP’s Motion to Withdraw Admissions

1. The Scheduling Order

NVP insists that Vocus’s present motion for leave to withdraw the admission is a pretrial 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 7 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

8

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

motion, which the scheduling order required to be heard by March 3, 2016. Dkt. 82. Vocus 

noticed its motion to withdraw admissions for March 17—two weeks after the scheduled deadline. 

According to NVP, to be heard on the present motion, Vocus must demonstrate “good cause” to 

amend the scheduling order. See Fed. R. Civ. P. 16(b)(4). NVP ignores, however, that the 

scheduling order quite clearly refers to dispositive pretrial motions (i.e., motions for summary 

judgment or judgment on the pleadings), which Vocus’s pending motion is not. Accordingly, 

although Vocus has offered no excuse for its failure to file this motion sooner, it is not required to 

demonstrate “good cause” to alter the scheduling order.8

2. Presentation of the Claims on the Merits 

Vocus’s counterclaims rest on whether NVP satisfied the EBITDA Margin Requirement, 

and therefore the admissions Vocus seeks to withdraw undercut its counterclaims entirely. At this 

point, Vocus has shown that it was genuinely mistaken when it responded to the requests for 

admission. Holding Vocus to its previous answers would not promote the adjudication of Vocus’s 

claims on the merits because doing so would eviscerate the counterclaims completely. See 

Hadley, 45 F.3d at 1348 (concluding the first prong of Rule 36(b)’s test is satisfied if denial of the 

request to withdraw would prejudice the moving party’s case); Medina v. Donahoe, 854 F. Supp. 

2d 733, 748-49 (N.D. Cal. 2012) (“Where . . . the admissions go directly to the ultimate questions 

at issue in this case, the presentation of the merits in this action would be subserved if defendant 

were allowed to prevail on the matters deemed to be admitted under Rule 36.” (internal quotation 

marks and alteration omitted)). Because civil litigation should not be a game of “gotcha” and the 

prior admissions would prejudice its case, Vocus has satisfied the first requirement of Rule 36(b).

3. Prejudice

While the tardiness of Vocus’s request for leave to withdraw the admission is troubling, 

NVP bears the burden to demonstrate that it will be prejudiced if Vocus’s request to withdraw the 

 

8 NVP’s supplemental argument about the meaning of this court’s very own scheduling order is 

unconvincing. NVP’s request for further oral argument on this issue is denied.

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 8 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

9

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

admissions is granted. It has not done so. To start, NVP has been aware for months that Vocus 

now challenges both parties’ long-held belief that NVP satisfied the EBITDA Margin 

Requirement. In September 2015, Vocus sought leave to add counterclaims, which NVP opposed. 

Dkt. 65, 70. In December 2015, NVP moved to dismiss Vocus’s claim for unjust enrichment, as 

well. Dkt. No. 85. NVP cannot therefore credibly claim surprise at Vocus’s current request to 

withdraw the admissions that undermine the counterclaims it fought vigorously to preserve. 

For similar reasons, NVP’s claim that its experts have not or could not reanalyze the 

EBITDA Margin Requirement is insufficient to establish prejudice. NVP has had six months to 

address Vocus’s counterclaims, and, indeed, NVP has already retained Gregory Halm9to perform 

such calculations. See Halm Decl. ISO MSJ. To the extent NVP lacks information necessary to 

recalculate the EBITDA Margin Requirement, the parties are instructed to continue to work 

together to ensure both sides have all information necessary to adjudicate these counterclaims on 

the merits at trial.

NVP also insists that it will need to notice additional depositions or to redepose some of 

Vocus’s employees if the request to withdraw the admissions is granted. NVP has not adequately 

explained, however, the basis for that assessment or why it had not sought leave to do so shortly 

after Vocus was granted leave to file counterclaims. To begin, Vocus and its employees have 

consistently testified that they were unaware of their miscalculation of the EBITDA Margin 

Requirement. NVP has not identified how additional depositions or redeposing certain witnesses 

will further its defense to the counterclaims when Vocus does not contest that its methods then and 

now are different. If NVP wishes to conduct additional depositions or to redepose witnesses, it 

should work with Vocus to ensure that happens. The mere hope NVP might uncover new

information does not, however, amount to prejudice.10

 

9 Vocus initially objected to Halm’s declaration in support of NVP’s motion for summary 

judgment on the basis that NVP had not included Halm in its expert disclosures due February 16, 

2016. At the hearing on the motion, Vocus formally withdrew that objection.

10 NVP also claims prejudice by way of certain strategic decisions it made, such as agreeing to 

vacate an earlier trial date, on the assumption that Vocus would not seek to withdraw its 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 9 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

10

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

In sum, despite the tardiness of Vocus’s motion and inability to provide a good reason for 

its delay, NVP has not shown that withdrawal of these admissions will prejudice its trial 

presentation. While lawyers should strive to avoid such oversight, forcing Vocus to adhere to its 

prior admissions does not serve truthseeking or judicial efficiency. Accordingly, Vocus’s request 

to withdraw its responses to NVP’s requests for admission 2-4 must be granted. 

B. Construction of the Term “EBITDA Margin Requirement”

Because the parties agree that Maryland law governs interpretation of the APA, see APA § 

7.06, Maryland’s rules of contract interpretation determine whether Vocus or NVP has the better 

reading of the term “EBITDA Margin Requirement.” Maryland employs an “objective theory of 

contract interpretation, giving effect to the clear terms of agreements, regardless of the intent of 

the parties at the time of contract formation.” Myers v. Kayhoe, 892 A.2d 520, 526 (Md. 2006). 

When interpreting the terms of a contract, the first step is to “determine from the language of the 

agreement itself what a reasonable person in the position of the parties would have meant” at the 

time the contract went into effect, id. (internal quotation marks omitted), by examining “the entire 

language of the agreement, not merely a portion thereof,” Jones v. Hubbard, 740 A.2d 1004, 1016 

(1999); see also Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1126 (4th Cir. 1993) (applying 

Maryland law). If the text of the contract is unambiguous, then there is no need to look to 

additional evidence about the parties’ intent. Goodman, 7 F.3d at 1126. “A contract is ambiguous 

if, when read by a reasonably prudent person, it is susceptible of more than one meaning.” Jones, 

7 F.3d at 1126.

If a contract term is unambiguous, then the moving party is entitled to judgment as a matter 

of law. Wash. Metro. Area Transit Auth. v. Potomac Inv. Props., Inc., 476 F.3d 231, 235 (4th Cir. 

2007) (applying Maryland law). If a term is ambiguous, however, a court may turn to the second 

step—examination of extrinsic evidence—to resolve whether summary judgment is appropriate. 

 

admissions. Such speculation regarding the impact of changing litigation positions does not rise to 

the level of a showing of prejudice.

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 10 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

11

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

See id. In the event extrinsic evidence “leaves genuine issues of fact respecting the contract’s 

proper interpretation, summary judgment must . . . be refused and interpretation left to the trier of 

fact.” Goodman, 7 F.3d at 1126 (internal quotation marks omitted). 

To determine whether the language of the APA is unambiguous requires breaking down 

the definition of “EBITDA Margin Requirement” into its component parts. The EBITDA Margin 

Requirement is a ratio. The “EBITDA” is the numerator, which the APA defines as North 

Social’s “cumulative earnings before interest, taxes, depreciation and amortization of the 

Business” during the applicable period of time. The denominator is “Revenue,” as defined by the 

APA. Thus, the parties’ decision to use two different words may be intentional and consequential. 

Indeed, the fact that the parties used “Revenue” and “earnings” in the same sentence bolsters 

NVP’s position that the two terms are intentionally different. NVP contends that the Financial 

Accounting Standards Board’s (“FASB”) definition of “earnings” should inform the 

understanding of “earnings” as used in the APA because the FASB is part of GAAP to which the 

APA requires all calculations accord. Halm Decl. ¶ 6; APA at A-3. According to the NVP, 

“earnings” are “a measure of the entity performance during a period[, which] measures the extent 

to which asset inflows (revenues and gains) associated with cash-to-cash cycles substantially 

completed during the period exceed asset outflows (expenses and losses) associated, directly or 

indirectly with the same cycles.” Halm Decl. ¶ 6. Thus, NVP’s reasonable understanding of 

“earnings” comports with the generally accepted method for calculating EBITDA. See Halm 

Decl. ¶¶ 6-7. 

Complicating matters are subparts (b) and (c), which further define those commissions to 

be included in the calculation of “EBITDA.” Subpart (b) clarifies that “Revenue recognized by 

[Vocus] for sales of [North Social’s] products and services conducted by [Vocus] or its Affiliates 

(other than [North Social])” must be included when calculating EBITDA. APA at A-4 (emphasis 

added). In addition, subpart (c) sweeps into the EBITDA calculation “sales commission[s]

(regardless of whether such amount is paid) equal to thirty-five percent (35%) of such [Vocus]-

generated Revenue.” Id. (emphasis added). Vocus convincingly argues that these subparts imply 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 11 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

12

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

that “earnings” might actually mean “Revenue” because the APA does not offer any explanation 

as to why Vocus-generated earnings should be treated differently from earnings generated by 

North Social. These subparts therefore render the definition of “EBITDA Margin Requirement”

ambiguous.

The extrinsic evidence in the record does not definitively favor Vocus or NVP. Vocus has 

proffered evidence to suggest its interpretation of “EBITDA” is consistent with the parties’ intent 

at the time they drafted the APA. According to Richard Rudman, Vocus’s former Chairman of the 

Board, President, and CEO, Vocus insisted on the EBITDA Margin Requirement “because [it] 

wanted North Social to operate as a cost-effective and profitable business, and not simply to 

generate a high volume of sales without regard to profitability.” Rudman Decl. ¶ 5. NVP’s 

attorney who helped draft and negotiate the APA also agrees that the purpose of the two-percent

limitation “was to assure the principals of NVP had an incentive during the two-year earn-out 

period to sign-up large numbers of customers and to assure that they did not attempt to earn the 

full earn-out payment under the APA by signing a few large revenue contracts and then leave the 

business before the end of the earn-out period.” O’Neil Decl. ¶ 4. To that end, the parties agreed 

to exclude from the calculation of “Revenue” sums received from a single customer that exceeded 

two percent of North Social’s total revenue. In other words, the purpose of this two-percent

limitation was designed to ensure that NVP could not satisfy the earn-out requirements by 

securing one large contract. Rudman Decl. ¶¶ 6-7; Herrington Decl. Ex. 3, Vintz Dep. at 

194:20-195:8.11 Vocus contends that utilizing gross revenue as the nominator and “Revenue” as 

the denominator does not yield an accurate measure of profitability—a reasonable contention in 

these circumstances. Moreover, Vocus points out that it always calculated the EBITDA Margin 

Requirement using common terms in the nominator and the denominator (revenue instead of 

 

11 In reply, NVP submitted a declaration of NVP’s attorney who helped draft the APA, John 

O’Neil. O’Neil offers facts about the drafting process and the parties’ alleged intentions. See 

O’Neil Decl. ¶¶ 1-3. Vocus initially objected to this declaration, but withdrew the objection at the 

hearing.

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 12 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

13

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

“Revenue”), which supports its position that there must be some symmetry in the ratio to measure 

profitability accurately.

In contrast, NVP’s owner, Alex Bernstein, states that he never believed the EBITDA 

Margin calculations would be subject to the two-percent limitation. Bernstein Decl. ¶ 5. That 

contention is difficult to square with NVP’s current position that “Revenue” should serve as the 

denominator.12 These competing versions of the contract negotiation create a genuine dispute of 

material fact as to whether the parties intended to incorporate the two-percent limitation into 

calculations of the EBITDA Margin Requirement. Accordingly, resolution of this dispute is not 

amenable to summary judgment.

C. The Effect of Vocus’s Non-Rule 36 Admissions

NVP further argues that Vocus cannot prevail because it and its employees have already 

made legally binding admissions. Because Vocus is granted leave to withdraw its Rule 36 

admissions, NVP cannot rely on those as a basis to grant NVP summary judgment. NVP 

nonetheless argues that Vocus’s answer to the SAC similarly undercuts its counterclaims. The 

second amended complaint states that Vocus “made certain payments as required by the [APA] 

but failed to make other required payments.” SAC ¶ 9. In the answer, Vocus admitted “that it 

made certain payments as required by the [APA].” Ans. to SAC ¶ 9. According to NVP, this 

legally binding admission compels the conclusion that NVP satisfied the EBITDA Margin 

Requirement throughout the earn-out period. This response, however, is not the smoking gun

NVP contends. Vocus’s answer is similarly susceptible to the reading that Vocus paid NVP $7 

million to acquire North Social, which it did. It could also mean that Vocus paid NVP the first tier 

 

12 NVP argues that Vocus’s proffered equation produces an absurd result and does not sync with 

the purposes of the APA. To illustrate the point, NVP offers a hypothetical single sale. In a 

situation where NVP spent $90,000 to secure a contract worth $100,000, the two-percent

limitation would operate to exclude all but $20,000 from NVP’s gross revenue calculations. 

According to NVP, this would result in a margin of -350%. See NVP Reply at 8. The trouble 

with this hypothetical scenario is that NVP is focusing on a single sale rather than multiple sales 

over an extended period of time to track the profitability of North Social. Rudman Decl. ¶ 5. 

Thus, NVP’s example pertaining to a single transaction is not necessarily absurd because it could 

have sought additional contracts to counteract the effects of the single negative margin. 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 13 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

14

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

earn-out payments—a fact neither party disputes. Vocus has not, however, definitively admitted

that NVP satisfied the EBITDA Margin Requirements.

Next, NVP insists admissions by a Vocus 30(b)(6) witness and a stipulation to submit 

accounting issues to the special master establish that NVP satisfied the EBITDA Margin 

Requirement during the relevant time period. Federal Rule of Civil Procedure 30(b)(6) permits a 

party to name as the deponent a corporation provided the party describes “with reasonable 

particularity” the subject matter for examination. The corporation must then designate a person to 

testify on its behalf. Fed. R. Civ. P. 30(b)(6). Such depositions produce evidence, but the 

30(b)(6) deponent’s testimony is not tantamount to a judicial admission. Erickson v. Microaire 

Surgical Instruments LLC, No. C08-5745BHS, 2010 WL 1881942, at *2 (W.D. Wash. May 6, 

2010). NVP cannot therefore argue that Vocus is judicially bound by the testimony of its 30(b)(6) 

witness. If NVP wishes to probe the cause of Vocus’s change in position, it may do so during 

cross-examination. Finally, the stipulation to engage the assistance of the special master includes 

no stipulations or admissions about NVP’s satisfaction or failure to satisfy the EBITDA Margin 

Requirement. See Dkt. 58. Indeed, the stipulation does not even mention the EBITDA Margin 

Requirement. Accordingly, no judicial admission definitively establishes that NVP is entitled to 

summary judgment.

D. Estoppel

NVP seeks summary judgment for the additional reason that it believes Vocus is equitably 

estopped from challenging NVP’s satisfaction of the EBITDA Margin Requirement. Equitable 

estoppel applies when a party’s voluntary conduct precludes him or her “from asserting rights 

which might perhaps have otherwise existed . . . as against another person, who has in good faith 

relied upon such conduct, and has been led thereby to change his position for the worse.” Knill v. 

Knill, 510 A.2d 546, 549 (Md. 1986) (internal quotation marks omitted). To enjoy the benefits of

equitable estoppel, NVP must prove (1) that Vocus’s voluntary conduct or representation (2) 

caused NVP to rely on that conduct (3) to its detriment. Hill v. Cross Country Settlements, LLC, 

936 A.2d 343, 364 (Md. 2007); see also Knill, 510 A.2d at 550 (“[T]he party who relies on an 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 14 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

15

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

estoppel has the burden of proving the facts that create it.”).

Indisputably, Vocus never used the two-percent limitation when calculating EBITDA; the 

record definitively establishes that point. This record does not, however, demonstrate that the only 

conclusion a fact finder could reach is that NVP relied upon Vocus’s computations to its 

detriment. NVP points to various periods of time when Vocus informed NVP that it may not 

satisfy the EBITDA Margin Requirement. See Bernstein Decl. ¶ 10. When faced with the 

possibility of falling short, “NVP made substantial efforts” to reduce expenses and to increase 

revenues to meet the demands of the EBITDA Margin Requirement. Bernstein Decl. ¶ 9.d. In 

addition, Bernstein declares that he authorized additional expenses after he learned that North 

Social had satisfied the EBITDA Margin Requirement for a specific period of time. Bernstein 

Decl. ¶ 9.e. NVP’s argument is, in other words, that it would have done everything possible to 

achieve the EBITDA Margin Requirement had it been aware of the proper calculation method. 

NVP can only claim the benefits of equitable estoppel, however, if it refrained from taking 

certain actions to satisfy the EBITDA Margin Requirement using “Revenue” because Vocus 

continued to calculate EBITDA using gross revenue. See Hill, 936 A.2d at 364 (holding that 

plaintiff had not demonstrated detrimental reliance because she received $70,261.26 more at 

settlement than she otherwise would have received). Right now, NVP’s evidence falls short of 

this mark. NVP has not identified which actions they would have taken to secure the right to 

demand payment under the APA. Accordingly, because there remains a genuine dispute about the 

proper definition of “EBITDA” and whether NVP detrimentally relied upon Vocus’s erroneous 

calculation, the doctrine of equitable estoppel does not bar Vocus’s counterclaims from advancing. 

At trial, NVP will have the opportunity to present a fulsome case for the application of equitable 

estoppel under these circumstances.

E. Waiver

NVP’s final argument in favor of summary judgment is that Vocus intentionally 

relinquished its known right to challenge NVP’s satisfaction of the EBITDA Margin Requirement. 

See Taylor v. Mandel, 935 A.2d 671, 686 (Md. 2007) (defining “waiver”). “A party to a contract 

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 15 of 16
ORDER GRANTING MOTION FOR LEAVE TO WITHDRAW ADMISSIONS AND DENYING MOTION FOR SUMMARY JUDGMENT

CASE NO. 14-cv-00337-RS

16

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

United States District Court

Northern District of California

waives its rights under that contract if it (1) intentionally continues performance under the contract 

after (2) learning of a breach.” MJ Harbor Hotel, LLC v. McCormick & Schmick Rest. Corp., 599 

F. Supp. 2d 612, 621 (D. Md. 2009) (citing Pumphrey v. Pelton, 245 A.2d 301, 304 (Md. 1968)). 

This record does not establish that Vocus waived its right to enforce the EBIDTA Margin 

Requirement. Indeed, the record definitively establishes that Vocus was initially ignorant of the 

calculating error. Ultimately, NVP may prove that Vocus did not, in fact, commit an accounting

error. If Vocus’s position is correct, however, then NVP cannot possibly show that Vocus 

knowingly and intentionally chose to use the wrong method for calculating EBITDA. NVP’s 

motion for summary judgment must therefore be denied.

V. CONCLUSION

Vocus is granted leave to withdraw its responses to NVP’s requests for admission 2, 3, and 

4. NVP has failed to demonstrate that no reasonable fact finder could find for Vocus with respect 

to its claims of unjust enrichment or money had and received. Its motion for summary judgment 

must therefore be denied. Trial of this action will take place July 25-27, 2016, and then will 

resume August 2 and continue as necessary.

IT IS SO ORDERED.

Dated: March 22, 2016

______________________________________

RICHARD SEEBORG

United States District Judge

Case 3:14-cv-00337-RS Document 116 Filed 03/22/16 Page 16 of 16