Opinion ID: 7622542
Heading Depth: 2
Heading Rank: 1

Heading: The Relevance of the Proviso

Text: Both parties agree that the use of the term “Change of Control” (the “Open Term”) was a scrivener’s error. They disagree, however, as to what term was intended in its place. The Zohar Funds argue that the “only reasonable interpretation of the [] MSA is that the parties intended the term ‘Change of Control’ . . . to be ‘Liquidity Event,’” Appellees’ Br. 14, and because the Liquidity Event here, the equity sale of Oasis, was insufficient to cover its debts, the proviso precludes PPMG’s receipt of the Transaction Fee. PPMG, on the other hand, contends that “Change of Control” should have read more than 50% of the total fair market value or total voting power . . . , or (z) the consolidation of [Oasis] with, or merger of [Oasis] with or into any other entity pursuant to a transaction in which any person . . . becomes the beneficial owner of the stock of [Oasis] constituting more than 50% of the total fair market value or total voting power of [Oasis]; provided, however, that, in each case, in order to constitute a qualifying Change of Control, the event must permit [Oasis] to pay all of its . . . outstanding debt. J.A. 849–50 (emphasis added). 4 “Change in Control”—a term defined in an addendum to the MSA that governs indemnification of employees for costs they might incur in litigation (“Annex A”). That reading would render the proviso irrelevant to the question of PPMG’s entitlement to the Transaction Fee. Appellant’s Br. 2. Under New York law, which governs the MSA, “[a] written agreement that is clear, complete and subject to only one reasonable interpretation must be enforced according to the plain meaning of the language chosen by the contracting parties.” Scotto v. Georgoulis, 932 N.Y.S.2d 120, 121 (N.Y. App. Div. 2011) (quotation omitted). Applying these principles, the Bankruptcy Court concluded that the Open Term was unambiguously read to mean “Liquidity Event” based on “the four corners of the MSA . . . because any other reading of the contract terms would be unreasonable.”4 J.A. 39. We agree for three reasons. First, PPMG’s construction contradicts the MSA’s plain text. Section 3(c) makes explicit at the outset that the definitions that follow are only “[f]or purposes of this Section 3(c),” indicating that the proviso relates to the definition of Liquidity Event and not to a different portion of the agreement. J.A. 849. For its part, Annex A likewise states that its definition of “Change in Control” is “[f]or 4 PPMG argues that the Bankruptcy and District Courts should have relied on the testimony of a signatory to the MSA that the term Liquidity Event was understood by the parties not to “depend[] on whether [Oasis’s] sales price exceed[ed] Oasis’s debt.” Appellant’s Br. 33 (quoting J.A. 329–30). But under New York law, “extrinsic evidence may be considered only if the agreement is ambiguous,” which is “determined within the four corners of the document,” and not where, as here, there is only one reasonable interpretation of the scrivener’s error. Scotto, 932 N.Y.S.2d at 121; see W.W.W. Assocs. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990); Sec. Plans, Inc. v. CUNA Mut. Ins. Soc’y, 769 F.3d 807, 816 (2d Cir. 2014). 5 the purposes of this Annex A.” J.A. 862. And while that definition does make use of the term “Liquidity Event” from Section 3(c)(ii)(D), it makes explicit its intent to incorporate a different part of the MSA by expressly referring to “clauses (y) [and] (z) of the definition of Liquidity Event” (relating to equity sales and mergers, respectively). Id. Had the parties intended the Open Term in Section 3(c)(ii)(D) to be “Change in Control” as defined in Annex A, we would expect no less explicit a cross-reference, but that textual clue is absent here. See Quadrant Structured Prods. Co. v. Vertin, 16 N.E.3d 1165, 1172 (N.Y. 2014) (“[I]f parties to a contract omit terms—particularly, terms that are readily found in other, similar contracts—the inescapable conclusion is that the parties intended the omission.”). Second is the context and structure of Section 3(c)(ii)(D). Because this entire section of the MSA serves to define “Liquidity Event,” it follows that the proviso in the last clause of the section qualifies the term being defined. In other words, the Open Term is most naturally read in context to mean the “Liquidity Event” itself, so as to impose a perfectly logical condition on a consultant’s receipt of a transaction fee for work it performed in connection with a successful equity sale, asset sale, or merger of a portfolio company: that “in each case . . . to constitute a qualifying [Liquidity Event], the event must permit” Oasis to “pay all of its . . . outstanding debt.” J.A. 850. Conversely, PPMG’s reading—that the Open Term refers to the defined term “Change in Control” in Annex A—results in a condition that borders on the absurd: that the indemnification of certain employees’ legal fees in litigating unsuccessful claims should somehow depend on whether Oasis’s sale price exceeds its liabilities. See McFarlane v. Altice USA, Inc., 6 524 F. Supp. 3d 264, 277 (S.D.N.Y. 2021) (“New York law . . . provides that a contract should not be interpreted to produce a result that is absurd, commercially unreasonable or contrary to the reasonable expectations of the parties.” (quotations omitted)). Finally, PPMG’s construction would render superfluous other portions of the MSA. A “Change in Control” for purposes of indemnity under Annex A occurs in only two of the three circumstances outlined in the Liquidity Event definition, excluding the third, that is, the sale of 80% of Oasis’s assets. J.A. 862. But the proviso applies “in each case” outlined in the Liquidity Event definition, including asset sales. J.A. 850. So, construing the Open Term to mean “Change in Control” would also render the phrase “in each case” either false or meaningless. See Glob. Funding Grp., LLC v. 133 Cmty. Rd., Ltd., 251 F. Supp. 3d 527, 531 (E.D.N.Y. 2017) (“In interpreting a contract under New York law, . . . a Court must consider the entire contract to avoid adopting an interpretation that would result in an inconsistency between provisions or that would render a particular provision superfluous.” (quotations omitted)). In sum, we agree with the Bankruptcy and District Courts that the Open Term unambiguously means “Liquidity Event,” and because the proviso applies to the Liquidity Event here, i.e., the equity sale, PPMG is only entitled to a Transaction Fee if Oasis’s sale price exceeded its outstanding debts.