Clarke v. TRIGO U.S., 1:22-cv-01917

Background

Clarke sold Supplier Management Solutions (SMS) to TRIGO in January 2019 under a Purchase and Sale Agreement (PSA) that included up to $20M in earnout payments tied to EBITDA; TRIGO paid $58.5M at closing. Clarke also formed SSD to hold his SMS interests.
TRIGO’s U.S. aerospace quality-management footprint was small (two managers and hourly inspectors), but the PSA provided that TRIGO would contribute its profitable U.S. aerospace quality contracts to SMS’s EBITDA for earnout purposes.
After closing, Clarke determined SMS should build a quality-management business internally (he proposed and led a $1M plan); TRIGO’s board approved funding and the parties amended the earnout five times, extending Clarke’s earnout period and adjusting EBITDA treatment to protect Clarke from negative EBITDA from the new quality business.
SMS secured some quality-management contracts in late 2019; TRIGO paid Clarke $4M (2019) and $1,275,220 (part of 2020/early amendments). The COVID-19 pandemic and internal turnover later disrupted revenue.
SMS pursued a potential enterprise contract with L3Harris; L3Harris postponed a final decision in Dec. 2020 and later awarded only a small single-segment contract in May 2021. In June 2021, after SMS’s President resigned, TRIGO told Clarke to pause business development for 90 days; Clarke resigned as consultant in July 2021.
TRIGO advanced $2M to SSD under the fifth amendment; Clarke executed an absolute, unconditional personal guaranty. SMS did not hit the EBITDA thresholds under the fifth amendment; TRIGO sued for repayment; Clarke and SSD counterclaimed that TRIGO breached PSA section 3.4(e).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Did TRIGO "force" SMS to build a quality-management business in breach of PSA §3.4(e)(vi)?	TRIGO misrepresented its U.S. quality infrastructure, then compelled SMS to create the business, distracting SMS and reducing EBITDA.	Clarke rejected TRIGO’s limited U.S. resources and himself drove the decision and plan to build the business; TRIGO approved funding and amended earnouts to mitigate impacts.	Court: Clarke/SSD failed to prove TRIGO forced the build; Clarke principally initiated and led the build.
Did TRIGO’s June 16, 2021 instruction to Clarke to pause business development breach §3.4(e)(iii)/(vi) and cause loss of the L3Harris enterprise contract?	The pause prevented Clarke from closing L3Harris and other deals, costing the earnout.	The pause was a good-faith stability measure after the President’s resignation; L3Harris had postponed a decision earlier and the award was speculative.	Court: Pause was reasonable business judgment; causation was speculative—plaintiffs failed to prove breach or damages.
Does TRIGO’s alleged breach excuse repayment of the $2M advance (and thus defeat Clarke’s guaranty)?	TRIGO’s breaches caused lost opportunities and thus SSD’s repayment obligation should be excused.	The guaranty is absolute, unconditional, irrevocable; SSD did not hit EBITDA thresholds and Clarke waived defenses; post-execution creditor misconduct exception does not apply because plaintiffs failed to prove actionable breach or causation.	Court: Guaranty enforceable; TRIGO entitled to $2M plus pre-judgment interest and fees; counterclaim judgment for TRIGO.
Were TRIGO exhibits (e.g., DX 77) admissible despite Clarke’s objections?	Clarke objected (later asserted lack of personal knowledge) to certain exhibits.	TRIGO argued timely listing and admissibility; objections were not properly specified under Rule 26(a)(3)(B).	Court: Objections waived for failure to state grounds in time; DX 77 admitted (and any challenged portion was also admissible as Clarke’s statement).

Key Cases Cited

Krock v. Lipsay, 97 F.3d 640 (2d Cir. 1996) (New York choice-of-law provisions are given full effect)
Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631 F.3d 42 (2d Cir. 2011) (elements of a breach-of-contract claim under New York law)
Cooperatieve Centrale Raiffeisen-Boerenleenbank v. Navarro, 25 N.Y.3d 485 (N.Y. 2015) (absolute guaranties are enforced according to plain terms; defenses are limited)
Greenfield v. Philles Records, 98 N.Y.2d 562 (N.Y. 2002) (complete, clear, unambiguous written agreements are enforced according to their plain meaning)
Compagnie Financiere de CIC et de L’Union Europeenne v. Merrill Lynch, 188 F.3d 31 (2d Cir. 1999) (contract construction principles and guaranty analysis)
Kenford Co., Inc. v. Erie County, 67 N.Y.2d 257 (N.Y. 1986) (damages must be proven to a reasonable certainty and directly traceable to the breach)