Summary Judgment Granted to Analysis Group Client in Self-Dealing Transactions Dispute

May 26, 2017

Analysis Group client Vista Outdoor, a public company supplying outdoor sports and recreation products, was granted a declaratory judgment that the defendants in this case improperly entered self-dealing transactions to hit profit targets contained in Vista's purchase agreement for Jimmy Styks, a manufacturer of stand-up paddleboards. U.S. District Judge Jed S. Rakoff found that the transactions were entered into solely for the purpose of triggering an “earnout” payment to the founders of Jimmy Styks, two of whom were employed by Vista at the time of the transactions in question.

An Analysis Group team including Vice Presidents Samuel Weglein and Ran Wei and Affiliate Orlando Visbal was retained on behalf of Vista to support two testifying experts, Analysis Group Principal Elizabeth Eccher and Academic Affiliate Scott Meadow of The University of Chicago Booth School of Business. In their responses to the defendants' expert reports, Dr. Eccher concluded that the attempted transactions lacked the economic substance necessary for revenue recognition under generally accepted accounting principles (GAAP). Mr. Meadow concluded that, contrary to the defendants' assertions, Vista had no economic incentive to keep Jimmy Styks' profits under the earnout threshold, and that Vista made reasonable efforts to effectively integrate Jimmy Styks.  

Judge Rakoff cited the arguments put forth by Dr. Eccher and Mr. Meadow in granting summary judgment in Vista's favor and dismissing all related claims and counter-claims. In his order, Judge Rakoff wrote, “[The defendants] hoped to stick [Vista] with a $10 million 'earnout' payment to the executives. … Thanks, however, to the age-old doctrine of good faith and fair dealing…in the end it is these executives who are stuck.”