17‐1059‐cv
Vista Outdoor Inc. v. Reeves Family Trust, et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS
GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH
THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC
DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A PARTY CITING TO A
SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY
COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
City of New York, on the 14th day of February, two thousand eighteen.
PRESENT:
JOHN M. WALKER, JR.,
GERARD E. LYNCH,
DENNY CHIN,
Circuit Judges.
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VISTA OUTDOOR INC.,
Plaintiff‐Counter‐Defendant‐Appellee,
v. 17‐1059‐cv
REEVES FAMILY TRUST, MICHELLE
WILKENS, JEREMY WILKENS, KYLE
REEVES,
Defendants‐Counter‐Claimants‐Appellants.
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FOR PLAINTIFF‐APPELLEE: ADAM H. OFFENHARTZ (James L. Hallowell,
Jonathan D. Fortney, William J. Moccia, on the
brief), Gibson, Dunn & Crutcher LLP, New
York, New York.
FOR DEFENDANT‐APPELLANT: ALAN A. GREENBERG (Thomas C. Rickeman,
Claire‐Lise Y. Kutlay, on the brief), Greenberg
Gross LLP, Costa Mesa, California, and
Jonathan A. Harris, on the brief, Harris, St.
Laurent & Chaudhry LLP, New York, New
York.
Appeal from the United States District Court for the Southern District of
New York (Rakoff, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the order and final judgment of the district court is
AFFIRMED.
Defendants‐counter‐claimants‐appellants Reeves Family Trust, Michelle
Wilkens, Jeremy Wilkens, and Kyle Reeves1 (collectively the ʺSellersʺ) appeal from the
district courtʹs order and final judgment entered March 13, 2017, awarding plaintiff‐
counter‐defendant‐appellee Vista Outdoor Inc. (ʺVistaʺ) damages on its claims for, inter
alia, breach of contract, tortious interference with contract, and breach of the implied
1 Although not a signatory to the relevant purchase agreement, Kyle Reeves was a de facto Seller,
who controlled the actions of the Reeves Family Trust, which was a signatory to the Purchase Agreement,
through his mother who was the Trustʹs sole trustee.
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covenant of good faith and fair dealing and dismissing the Sellersʹ claims. The district
court explained its reasoning in the March 13, 2017, order and judgment as well as in its
opinion and order entered February 13, 2017, granting partial judgment in favor of
Vista, and its memorandum and order entered March 10, 2017, denying the Sellersʹ
motion for reconsideration. We assume the partiesʹ familiarity with the underlying
facts, procedural history, and issues on appeal.
Construed in the light most favorable to the Sellers, the facts are
summarized as follows: Vista, a designer, manufacturer, and marketer of outdoor
sports and recreation products, purchased Jimmy Styks, a designer, manufacturer, and
marketer of stand‐up paddleboards, in July 2015. Jimmy Styks was founded by Kyle
Reeves and Jeremy Wilkens in 2009 and was owned, prior to the Vista acquisition, by
Jeremy Wilkens, Wilkensʹs wife Michelle Wilkens, and the Reeves Family Trust, an
irrevocable trust whose sole trustee is Reevesʹs mother. In exchange for ownership of
Jimmy Styks, Vista agreed to pay the Sellers $40 million at the closing of the deal and up
to an additional $40 million contingent on Jimmy Styks meeting or exceeding certain
gross profit benchmarks annually over the three years succeeding the acquisition (the
ʺearn‐outʺ). This was laid out in a document the parties refer to as the Purchase
Agreement. For the period from July 1, 2015, to July 3, 2016, under the Purchase
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Agreement, the Sellers would receive a minimum earn‐out of $1 million if gross profits
equaled a certain threshold with the potential payout increasing incrementally to a
maximum of $10 million if profits equaled or exceeded a higher specified threshold.
After Vistaʹs acquisition of Jimmy Styks, both Jeremy Wilkens and Reeves
accepted employment with Vista to help Jimmy Styks integrate into Vistaʹs business.2
As July 3, 2016, approached, Jeremy Wilkens and Reeves became increasingly
concerned that gross profits would not reach the threshold necessary to trigger their
earn‐out. Thus. they concocted a plan to inflate Jimmy Styksʹ gross profits. Beginning
around March 8, 2016, they started, in their capacity as Vista employees, the process of
acquiring, on behalf of Vista, one million Jimmy Styks branded stickers from a Chinese
manufacturer. They planned to buy the stickers for Vista using Vista funds, then place
the stickers for sale on the Jimmy Styks website, and then purchase all the stickers in
their personal capacity, using their own funds, to inflate Jimmy Styksʹs gross profit for
the 2016 earn‐out period, just days before the deadline.
On May 26, 2016, after the stickers were delivered into Jimmy Styksʹs
possession, Reeves, Jeremy Wilkens, and Michelle Wilkens each placed a small order of
2 As Reeves is a Canadian citizen, he was hired as an independent contractor rather than an
employee.
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stickers, using their personal funds. Then, several days before the end of the earn‐out
period, on June 22, 2016, the Sellers placed an order for nine hundred thousand Jimmy
Styks stickers at $3.99 or $4.99 a piece, a price they had set themselves, for a total of $4
million worth of stickers. The Sellers, excluding the Reeves Family Trust which had not
authorized the transaction, admit that they attempted to purchase the stickers to trigger
their 2016 earn‐out. If they had succeeded, because of the way the Purchase Agreement
structured the earn‐out, they would have received $10 million for their investment of $4
million.
When Vista executives learned of the Sellersʹ order of stickers, they
blocked the transaction and terminated Reeves and Jeremy Wilkens from their
positions. On July 19, 2016, Vista sued the Sellers. Vista asserted claims of breach of
contract, tortious interference with contract, and breach of the implied covenant of good
faith and fair dealing, and requested a declaratory judgment. The Sellers responded
with counterclaims of their own ‐‐ for breach of contract, breach of the implied covenant
of good faith and fair dealing, and claims based on their termination.
As noted above, the district court granted summary judgment for Vista
and denied the Sellersʹ motion for reconsideration. On March 13, 2017, the district court
entered its order and final judgment awarding Vista a total of $126,642 plus interest.
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On appeal, the Sellers do not dispute the core factual findings of the
district court, but rather argue that they were within their legal rights to procure one
million stickers on behalf of Vista in their capacity as Vista employees, and then
purchase the stickers from Vista using personal funds for $4 million, for the admitted
purpose of triggering the earn‐out of $10 million, netting themselves a profit of
approximately $6 million in the process.
We review a district courtʹs grant of summary judgment de novo. Clear
Channel Outdoor, Inc. v. City of New York, 594 F.3d 94, 103 (2d Cir. 2010). We ʺconstru[e]
the evidence in the light most favorable to the non‐moving party and draw[] all
reasonable inferences in its favor.ʺ Mitchell v. City of New York, 841 F.3d 72, 77 (2d Cir.
2016). We review the denial of a motion for reconsideration for abuse of discretion.
Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 52 (2d Cir. 2012).
ʺ[R]econsideration will generally be denied unless the moving party can point to
controlling decisions or data that the court overlooked.ʺ Id. (citation and internal
quotation marks omitted).
The Sellers first argue that it was error for the district court to grant Vista
summary judgment on its claim that the Sellers breached the implied covenant of good
faith and fair dealing. We disagree. The district court correctly concluded that Jeremy
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and Michelle Wilkens breached the implied covenant of good faith and fair dealing as a
matter of law. Under New York law, ʺimplicit in every contract is a covenant of good
faith and fair dealing which encompasses any promises that a reasonable promisee
would understand to be included.ʺ N.Y. Univ. v. Continental Ins. Co., 87 N.Y.2d 308,
318(N.Y. 1995) (citations omitted). Accordingly, ʺneither party shall do anything which
will have the effect of destroying or injuring the right of the other party to receive the
fruits of the contract.ʺ Sec. Plans, Inc. v. CUNA Mut. Ins. Socʹy, 769 F.3d 807, 817 (2d Cir.
2014) (citation and internal quotation marks omitted). The Sellers do not dispute the
facts, but argue essentially that nothing in the Purchase Agreement prohibited them
from personally purchasing approximately one million stickers from Jimmy Styks to
boost gross profits to trigger the earn‐out. The goal of the earn‐out was to reflect the
full value of Jimmy Styks at the time of acquisition and to compensate the Sellers if the
business was more valuable than it was anticipated to be at the time of acquisition. To
the extent the Sellers argue that the earn‐out served some alternate purpose, such as
creating an incentive to the Sellers to continue growing the acquired company in their
role as employees, they have presented no evidence to support that assertion. In any
event, even if that were the purpose of the earn‐out, Vistaʹs rights would still be
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undermined by the Sellersʹ attempted sticker purchase, because that purchase would
not reflect organic growth through potentially replicable sales.3
Though Michelle Wilkens did not work for Vista and did not place the
ultimate sticker order herself, her collusion with Jeremy Wilkens and Reeves to buy the
earn‐out breached the implied covenant of good faith and fair dealing.4 As Vistaʹs
request for declaratory relief simply sought a declaration that the Sellers breached the
implied covenant of good faith and fair dealing, we also affirm the district courtʹs
decision to grant such relief.
The Sellers respond that even if they did breach the implied covenant of
good faith and fair dealing, their actions did not result in any damages. See Berley
Indus., Inc. v. City of New York, 45 N.Y.2d 683, 686 (N.Y. 1978). They argue that the
purchase price of the stickers they acquired for Vista (over $60,000) cannot be
3 The Sellers argue that the Purchase Agreement expressly ties the earn‐out to their achieving the
target profits as measured by GAAP, that GAAP would count the net proceeds from the sticker sale as
profit, and that the covenant of good faith cannot trump the accounting rules specified in the contract.
But the specification of an accounting method does not mean that any transaction producing results that
would be counted as profit using that method is legitimate under the contract. More specifically, it does
not authorize the Sellers to engage in a self‐dealing artificial transaction contrived entirely to exchange a
$4 million payment that had no relevance to the performance of Jimmy Styks as a company or the Sellers
as managers for a $10 million return payment, thereby making a $6 million personal profit at Vistaʹs
expense.
4 The Sellers also argue that Vista breached the implied covenant of good faith and fair dealing by
blocking their sticker purchase. We disagree. Vista had strong reasons to block the sticker purchase,
including that the purchase would have violated Vistaʹs code of business ethics.
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considered damages because Vista initially approved the sticker purchase and is still in
possession of the stickers. Though Vista did approve the sticker purchase, it did not
know about the scheme motivating the purchase and thus did not knowingly ratify the
purchase. See Holm v. C.M.P. Sheet Metal, Inc., 455 N.Y.S.2d 429, 432 (4th Depʹt. 1982).
Moreover, since the time of the purchase the stickers have become ʺworthlessʺ to Vista
and are not salable.5 Accordingly, the district court did not err as a matter of law in
assessing damages in the amount of the sticker purchase to Vista.
The Sellers next argue that the district court erroneously concluded that
Kyle Reeves tortiously interfered with the Purchase Agreement. Again, we disagree. It
is undisputed that Reeves was a principal engineer of the sticker scheme and
encouraged the Wilkenses to join the scheme. Indeed, Reeves ordered the stickers using
his authority as an employee of Vista and made them available for purchase on the
Jimmy Styks website. As the sticker scheme breached the implied covenant of good
faith and fair dealing, the district court did not err in granting summary judgment
holding that Reevesʹs inducement of these actions, encouraging and motivating the
breach, constituted tortious interference.
5 The Sellers argue that issues of fact remain about the residual value of the stickers. But Vista
offered evidence that it had written off the entire cost of the stickers because they could not be sold and
the Sellers offered no evidence at all as to their potential value.
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Lastly, the Sellers contest the district courtʹs holding that they breached
Section 2.5 of the Purchase Agreement by failing to pay a portion of the amount owed.
Section 2.5 of the Purchase Agreement required the parties to reconcile Jimmy Styksʹs
estimated pre‐closing balance sheet with its balance sheet at closing. Pursuant to this
arrangement, the Reeves Family Trust and the Wilkenses owed Vista $132,284, but only
paid half of that. Vista first delivered to the Sellers a closing balance sheet, which
indicated the amount due within sixty days of closing, as called for by the Purchase
Agreement, and then provided a revised estimate on September 25, 2015. Jeremy and
Michelle Wilkens paid half of what was due: $66,142. It is undisputed, however, that
the Reeves Family Trust never paid the remainder.
The Sellers raise two arguments in their defense. First, they argue that
Vista is equitably estopped from collecting the remaining balance from Jeremy and
Michelle Wilkens because Vista told them by e‐mail that they only had to pay half. This
argument is meritless. By paying half the outstanding balance, Jeremy and Michelle
Wilkens reduced their liability but did not shield themselves from having to satisfy
their contractual obligations. Second, the Sellers contend that Vista failed to notify the
Reeves Family Trust of its outstanding obligation, waiving any obligation to pay under
the Purchase Agreementʹs notice requirement. Though the Reeves Family Trust was
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not directly sent the revised estimate by Vista, it received notice of the new calculations
through Mr. Wilkens and it does not contend that it was prejudiced. See Fortune
Limousine Serv., Inc., v. Nextel Commcʹns, 826 N.Y.S.2d 392, 395 (1st Depʹt 2006) (Under
New York law, ʺstrict compliance with contractual notice provisions need not be
enforced where the adversary party does not claim the absence of actual notice or
prejudice by the deviation.ʺ). Accordingly, we affirm the district courtʹs finding that the
Sellers are liable for the remainder of the amount due under the Purchase Agreement.
. . .
We have considered the Sellersʹ remaining arguments and find them to be
without merit. Accordingly, we AFFIRM.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
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