CSI Investment Partners II, L.P. v. Cendant Corp. (507 F. Supp. 2d 384, 2007)

OPINION

BATTS, District Judge.

Plaintiffs CSI Investment Partners II, L.P., CIS Acquisition Partners, L.P., Canterbury Mezzanine Capital, L.P., David C. Thompson, M. Gerard Keehan, Vineet Pruthi, Donald J. Shea, James M. Rothe, Michael Cossel, John J. Adams, Robert E. Richardson, Marilyn Schwartz, and Charles Caudle (collectively referred to as “Sellers” or “Plaintiffs”) sue Defendants Cendant Corporation (“Cendant”), Henry Silverman, Samuel Katz, and Cos-mo Corigliano based on alleged violations of a Stock Purchase Agreement (“SPA”). The SPA provided for the sale of Credentials Services International, Inc. (“Credentials”) by Sellers to Cendant for a set price of $125 million, plus an additional amount which was contingent on Credentials’ future performance (“Acquisition”). Plaintiffs allege, inter alia, that Cendant fraudulently induced them to agree to the contingent payment clause of the SPA by misrepresenting to Sellers that it would use certain marketing strategies to market Credentials’ products and by not informing them about a wide-scale accounting fraud within Cendant’s ranks. Cendant, while conceding the existence of “accounting irregularities” among its ranks, asserts that it did not fraudulently omit or misrepresent any information in the course of the SPA negotiations. Cen-dant also argues that, in any event, Sellers failed to inform Defendants that Credentials had allegedly violated the Fair Credit Reporting Act and breached a pri- or agreement with Non-Party Experian, Inc. This failure to inform, Defendants argue, is a defense to any liability they may owe Plaintiffs.

Plaintiffs have brought a securities fraud claim against all Defendants pursuant to 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j (“Count One”)a common law fraud claim against all Defendants (“Count Two”) ; three breach of contract claims against Cendant (“Count Three”, “Count Four”, and “Count Five”); a claim for breach of the covenant of good faith and fair dealing against Cendant (“Count Six”); an accounting claim against Cendant (“Count Seven”); a negligent misrepresentation claim against all Defendants (“Count Eight”); and a claim for declaratory relief against Cendant (“Count Nine”).

Cendant has brought a common law fraud counterclaim against all Counterclaim-Defendants (“Counterclaim One”); an indemnification counterclaim against all Plaintiffs (“Counterclaim Two”); a breach of fiduciary duty counterclaim against Plaintiffs Michael Cossel, Gerard Keehan, and Robert E. Richardson (“Counterclaim Three”); a breach of the covenant of lawful operation counterclaim against all Plaintiffs (“Counterclaim Four”); and an unjust enrichment claim against all Counterclaim-Defendants (“Counterclaim Five”).

Now before the Court are Cendant’s Motion for Summary Judgment on Counts One, Two, Three, Four, Six, Seven, and Eight, as well as Defendants Henry Silver-man and Samuel Katz’ Motion for Summary Judgment on Counts Two and Eight. Also before the Court are Counterclaim-Defendants’ Motion for Summary Judgment on all of Cendant’s counterclaims, Plaintiffs’ Motion for Summary Judgment on Count Four of the Third Amended Complaint, and Plaintiffs’ Motion for Sanctions for Pervasive Discovery Abuse and Spoliation of Evidence. For the reasons stated below, Defendant Cendant’s Motion for Summary Judgment shall be GRANTED IN PART and DENIED IN PART, Defendants Silverman and Katz’ Motion for Summary Judgment shall be GRANTED, Counterclaim-Defendants’ Motion for Summary Judgment on the Counterclaims shall be GRANTED, Plaintiffs’ Motion for Summary Judgment on Count Four of the Third Amended Complaint shall be GRANTED, and Plaintiffs’ Motion for Sanctions for Pervasive Discovery Abuse and Spoliation of Evidence shall be GRANTED IN PART and DENIED IN PART. As well, summary judgment shall be GRANTED in Plaintiffs’ favor on Count Three of the Third Amended Complaint.

I. BACKGROUND

A. The Parties

At all times relevant to the Complaint, Plaintiffs CSI Investment Partners II, L.P. (“CSI”) and CIS Acquisition Partners, L.P. (“CIS”) were limited partnerships managed by Counterclaim-Defendant Lincolnshire Management, Inc. (“Lincolnshire”). (Maloney Dep. 9-12, at Lawler Aff. of Jan. 30, 2007, Ex. 5.) Together, CSI and CIS held 80% of the interest in Credentials, a corporation which provided information to consumers about their credit reports. (Credentials Preliminary Prospectus JPHQ 00003, at Lawler Aff. of Jan. 30, 2007, Ex. 5.) Plaintiff Canterbury Mezzanine Capital, L.P. (“Canterbury”) is an investment fund which owned 10.8% of Credentials’ stock. (Maloney Dep. 51-52.)

According to a Credentials Prospectus, Credentials “provide[d] value-added programs that enable[d] customers to monitor the accuracy of their personal credit data that [was] collected and held by credit reporting bureaus.” (Credentials Preliminary Prospectus JPHQ 00003, at Lawler Aff. of Jan. 30, 2007, Ex. 1.) Credentials provided this information to its customers “in a readily understandable, readable format”. (Id.) It marketed its programs to consumers using “direct marketing techniques, consisting of direct mail and telemarketing campaigns conducted through endorsed co-marketing relationships with major credit card issuers ... such as banks, retailers, and oil companies.” (Id.)

The following Individual Plaintiffs were officers and/or employees of Credentials, and also owned shares in Credentials just prior to the Acquisition (Ex. A of the SPA, at Pis.’ 56.1 Stmt., Ex. 26 (hereinafter cited as “SPA”)): David C. Thompson (“Thompson”) joined Credentials in 1996 as Chief Financial Officer and by 1997 he was the Chief Executive Officer (Thompson Dep. 58:16-17, 64:5-65:5, at Lawler Aff. of Jan. 30, 2007, Ex. 12); M. Gerard Keehan (“Keehan”) was an executive vice president (Keehan Dep. 22:4-22, 29:16-19, at Lawler Aff. of Jan. 30, 2007, Ex. 13); Vineet Pruthi (“Pruthi”) was the Chief Financial Officer after Thompson was promoted to CEO (Pruthi Dep. 26:14-17, 37:4-9, at Lawler Aff. of Jan. 30, 2007, Ex. 4); Donald J. Shea (“Shea”) served as senior vice president of new products (Shea Dep. 31:7-10, 32:3-5, 39:20, 40:4, at Lawler Aff. of Jan. 30, 2007, Ex. 14); James M. Rothe (“Rothe”) served as senior vice president of sales (Rothe Dep. 8:19-23, 61:19-21, at Lawler Aff. of Jan. 30, 2007, Ex. 15); Michael Cossel (“Cos-sel”) served as executive vice president of operations and systems (Cossel Dep. 39:22-24, at Lawler Aff. of Jan. 30, 2007, Ex. 16); John A. Adams (“Adams”) became a vice president in July 1997(Adams Dep. 28:14-17; at Lawler Aff. of Jan. 30, 2007, Ex. 17); Robert E. Richardson (“Richardson”) became a vice president during the late summer of 1996 (Richardson Dep. 36:14-18, at Lawler Aff. of Jan. 30, 2007, Ex. 18); Marilyn Schwartz (“Schwartz”) was a senior vice president (Schwartz Dep. 35:6-20, at Lawler Aff. of Jan. 30, 2007, Ex. 19); and Charles Caudle (“Caudle”) preceded Thompson as the Chief Executive Officer, but then became vice chairman of the board in 1997(Caudle Dep. 21:17-19, 23:23, 56:8, at Lawler Aff. of Jan. 30, 2007, Ex. 20). Counterclaim-Defendant Tonya Carmichael worked at Credentials as a vice president of production. (Carmichael Dep. 19:23-25, at Lawler Aff. of Jan. 30, 2007, Ex. 22.) She was responsible for direct mail acquisition and fulfillment. (Id. at 19:7-22) Counterclaim-Defendants Steven J. Kumble and Thomas J. Maloney were Chief Executive Officer and president of Lincolnshire, respectively. (Kumble Dep. 44:13-16, at Lawler Aff. of Jan. 30, 2007, Ex. 7; Maloney Dep. 73:4-9, at Lawler Aff. of Jan. 30, 2007, Ex. 10.)

Defendant Cendant was a corporation organized under the laws of the state of Delaware with its principal place of business located in the state of New Jersey. (Third Am. Compl. ¶ 10; Cendant Am. Answer ¶ 10.) Cendant was created when CUC International, Inc. (“CUC”) and HFS Incorporated (“HFS”) merged in December 1997 (“CUC-HFS merger”). (Cen-dant Form 10K at SAR 14503, at Lawler Aff. of Jan. 30, 2007, Ex. 25.) Cendant provided various membership-based consumer services, travel services, and real estate services. (Id.) Cendant also furnished for its customers a service known as PrivacyGuard, which provided, among other things, credit histories. (Id. at SAR 14526.) Prior to the CUC-HFS merger, Defendant Henry Silverman (“Silverman”) was the Chief Executive Officer of HFS, while Defendant Samuel Katz (“Katz”) was its Senior Vice President of Acquisitions. (Third Am. Compl. ¶¶ 11-12; Am. Answer ¶¶ 11-12.) After the CUC-HFS merger, Silverman became Cendant’s President and Chief Executive Officer, and Katz became Cendant’s Executive Vice President of Strategic Development. (Third Am. Compl. ¶¶ 11-12; Am. Answer ¶¶ 11-12.) Defendant Cosmo Corigliano (“Corigli-ano”) was Chief Financial Officer of Financial Services at Cendant (Lawler Aff. of Jan. 30, 2007 ¶ 27; Third Am. Compl. ¶ 13); he was terminated for his role in an accounting fraud which he precipitated at CUC and which will be discussed in more detail at Section 1(D), infra. (Lawler Aff. of Jan. 30, 2007, Ex. 26.) The fraud was the basis of charges for wire fraud and conspiracy to which Corigliano ultimately pleaded guilty in the United States District Court for the District of New Jersey. (U.S. v. Corigliano, Crim. No. 00-379(WHW) (D.N.J.), Tr., Jun. 14, 2000, at Lawler Aff. of Jan. 30, 2007, Ex. 48.)

B. Credentials’ Pre-Acquisition Business Arrangements

Credentials obtained the names of potential customers for its credit monitoring products by entering into agreements with banks and other entities. (Counterclaim-Defs.’ 56.1 Stmt. ¶ 16; Counterclaim Pis.’ 56.1 Stmt. ¶ 16.) In exchange for a percentage of Credentials’ sales revenue, the banks furnished Credentials with their customers’ identifying information and gave Credentials permission to use that information to contact those customers. {See, e.g., Pis.’ 56.1 Stmt, on Count Four, Ex. 1.)

The credit reporting agency relevant to the instant Motions is TRW, Inc., a predecessor of Experian, Inc. (“Experian”). On October 18, 1994, Credentials executed a contract with Experian, in which Expe-rian agreed to supply credit reports to Credentials, so that Credentials in turn could market its credit report services to Experian’s customers. (Consumer Credit Subscriber Service Agreement ¶ 1.1, at Counterclaim-Defs.’ 56.1 Stmt., Ex. 4 (hereinafter “Experian Agreement”); Counterclaim-Defs.’ 56.1 Stmt. ¶ 6; Am. Answer at 68 ¶ 14.) The Experian Agreement provided that:

[Credentials] shall promptly identify to [Experian] all of its present members and all of its future members added from time to time and shall also promptly notify [Experian] when a member’s membership lapses or is canceled for any reason. [Experian] shall furnish to [Credentials] when requested by CIS as described herein all credit information it routinely provides to consumers when they request their [Experian] Reports and shall identify to [Credentials] all codes used therein and their respective meanings. In order to facilitate the provision of such credit information, [Expe-rian] shall provide to [Credentials] real-time, on-line access to [Experian] Reports.

(Experian Agreement, ¶ 1.1.) The Experi-an Agreement further provided that “[Ex-perian] shall provide to [Credentials] access to [Experian] Reports in the format in which it routinely discloses [Experian] Reports to consumers.” {Id. ¶ 1.3.) Also stated in the Experian Agreement was Credentials’ promise to “have on file written permission from every [Credentials] member to so obtain a[n] [Experian] Report and provide it to the member.” {Id. ¶4(&).)

Credentials contacted Experian’s and other potential customers using various marketing practices, including direct mail. (Pis.’ 56.1 Stmt. ¶ 47; Defs.’ 56.1 Stmt. ¶ 47; Cossel Dep. 52:15-25, at Lawler Aff. of Jan. 30, 2007, Ex. 16.) Beginning in or about August 1996, Credentials also used a method known as “one-step telemarketing”. (Counterclaim-Defs.’ 56.1 Stmt., Ex. 83.)

One-step telemarketing was a method by which Credentials telemarketers would record a customer’s giving oral permission to access her credit report before sending it to her. (Sheehan Dep. 40:15-43:9; at Counterclaim-Defs.’ 56.1 Stmt., Ex. 10.) The one-step telemarketing script used by Credentials opened with a description of its credit report service and proceeded to explain that a customer who joined Credentials would receive a copy of her credit report. (Counterclaim-Defs.’ 56.1 Stmt., Ex. 5, at Trilegiant CSI/CEN 000029.) The telemarketer then asked the customer whether she wanted to begin an introductory membership with Credentials and receive a copy of her credit report. (Id. at Trilegiant CSI/CEN 000030.) If the customer agreed to receive the credit report, the telemarketer began recording the conversation (with the customer’s permission), and then verified the customer’s identification information. (Id. at Trilegiant CSI/ CEN 000030-000031.) During the recorded portion of the conversation, the telemarketer clarified that the information was being verified to ensure that the customer would “get an accurate credit report ....” (Id. at Trilegiant CSI/CEN 000031.)

Once a Credentials telemarketer had recorded the customer’s oral permission, Credentials would contact a credit reporting agency for a copy of the customer’s credit report. After receiving a customer’s credit report from Experian, Credentials provided it to a print vendor in tape format who would print it and supply a hard copy of it to Credentials. (Credentials Preliminary Prospectus at JPHQ 00032, at Lawler Aff. of Jan. 30, 2007, Ex. 1.) Credentials sent the hard copies to the new customer, along with a welcome letter to Credentials, a letter containing “information from Experian about [the customer’s] credit report and credit rights”, and a general brochure about the uses of credit reports. (Lawler Aff. of Feb. 28, 2007, Exs. 43-45.)

In early 1997, Credentials had decided to pursue an Initial Public Offering (“IPO”) 0f its stock, and had begun marketing Credentials to investors. (Maloney Dep. 191:22-194:19, at Lawler Aff. of Jan. 30, 2007, Ex. 10; Defs.’ 56.1 Stmt. ¶ 53; Pis.’ 56.1 Stmt. ¶ 53.) The IPO valued Credentials at $160,000,000.00 to $210,000,000.00. (Pis. 56.1 Stmt., Ex. 79, at 1125.) Later that year, Credentials had postponed its IPO due to an unreceptive IPO market. (Maloney Dep. 197:2-14, at Lawler Aff. of Jan. 30, 2007, Ex. 10.)

On October 29, 1997, Credentials entered an Agreement with Citibank, whereby Citibank accepted a commission in exchange for permitting Credentials to market its credit report services to Citibank’s customers. (“Citibank Agreement”). (Pis.’ 56.1 Stmt, on Count Four, Ex. 1.) The Citibank Agreement provided that a customer would be “enrolled” in Credentials’ program when she “orally [agreed] during the course of a Telemarketing Solicitation to enroll in the Program” (Pis.’ 56.1 Stmt, on Count Four, Ex. 1, at § 4.1), and that Credentials would thereafter “mail membership fulfillment kits to all new Program members”, which included a “Credit Report” (Pis.’ 56.1 Stmt, on Count Four, Ex. 1, at §§ 4.1 & 4.4). Section 5.1(b) of the Citibank Agreement ensured that Credentials would pay Citibank at least $9,000,000.00 by January 15, 1999 even if Credentials did not obtain enough new members to warrant $9,000,000.00 in commission payments:

For the period starting with the effective date hereof through December 1998, [Credentials] shall pay [Citibank] total compensation based on net membership revenue, as set forth in Article 5.1(a) above, that is not less than nine million dollars ($9,000,000.00). Should the compensation paid to [Citibank] based on net membership revenues for such period be less than nine million dollars ($9,000,000.00), [Credentials] shall remit to [Citibank] on or before January 15, 1999, the difference between the compensation paid as of December 31, 1998, and nine million dollars ($9,000,000.00).

(Pis.’ 56.1 Stmt, on Count Four, Ex. 1, § 5.1(b).)

C. CUC and HFS Merge to Form Cen-dant

A Joint Proxy Statement sent to CUC and HFS shareholders on August 28, 1997 to approve the CUC-HFS merger described HFS as “one of the foremost global services providers .... [providing] services to consumers through intermediaries in the travel and real estate industries.” (Pis.’ 56.1 Stmt., Ex. 1 at CSI/CEN 257168.) The Joint Proxy Statement described CUC as:

a leading technology-driven membership-based consumer services company, providing approximately 69 million members with access to a variety of goods and services worldwide. These memberships include such components as shopping, travel, auto, dining, home improvement, lifestyle, vacation exchange, credit card and checking account enhancement packages, financial products and discount programs .... CUC’s membership activities are conducted principally through its Comp-U-Card division ....

(Pis.’ 56.1 Stmt., Ex. 1 at CSI/CEN 257168.) According to Defendant Silver-man — who was on the HFS side of the deal — CUC had reported a 20-30% annual earnings growth in the years prior to the CUC-HFS merger. (Silverman Dep. 7:15-8:6; Pis.’ 56. 1 Stmt., Ex. 3.) Silver-man reported to a major economic news publication that “Every time I was nervous, [CUC] would show up with another quarter of spectacular earnings .... [CUC] was producing 20% to 30% growth in a company where nobody worked. Once you overlaid our standards, we figured this could be a gold mine.” (Pis.’ 56.1 Stmt., Ex. 4 at SAR 05368.)

CUC touted its use of “cross-marketing” as one of the reasons for its financial success. Cross-marketing involved the marketing of services of one of CUC’s service lines to the existing customers of another service line. (Thompson Dep. 52:19-53:3, at Pis.’ 56.1 Stmt., Ex. 29.) CUC routinely used cross-marketing to generate business for itself and for companies it had acquired prior to the CUC-HFS merger. The success of the cross-marketing method and CUC’s exceptional revenue performance were significant factors in HFS’ decision to merge with CUC. (Pis.’ 56.1 Stmt., Ex. 1 at CSI/CEN 257190; Silverman Dep. 14:8-15:18, at Pis.’ 56.1 Stmt., Ex. 3.)

During the due diligence conducted in preparation for the CUC-HFS merger, Silverman admits to being rebuffed when he asked for correct financial statements from CUC. (Silverman Dep. 66:9-68:10, at Pis.’ 56.1 Stmt., Ex. 3.) Silverman did not obtain complete and accurate financial information from CUC even after the CUC-HFS merger, as well as into early 1998. (Pis.’ 56.1 Stmt., Ex. 56 at CAA/CSI 00035.) Cendant was formed in December 1997 when CUC and HFS merged. (Cen-dant Form 10K, at Lawler Aff. of Jan. 30, 2007, Ex. 25 at SAR 14503.)

D. Discovery of the CUC Accounting Fraud and Acquisition of Credentials by Cendant

Around the time of the CUC-HFS merger, Defendant Katz called Counterclaim-Defendant Lincolnshire about the possibility of Cendant’s acquiring Credentials. (Kumble Dep. 155:14-156:23, at Pis.’ 56.1 Stmt., Ex. 15; see also Lawler Aff. of Jan. 30, 2007, Ex. 40.) Lincolnshire’s CEO Steve Kumble has testified that Katz told him the phone call was being made on Silverman’s behalf. (Kumble Dep. 8:16-22, at Pis.’ 56.1 Stmt., Ex. 15.) Following that initial conversation, on December 19, 1997, Lincolnshire sent Katz a letter which forecasted revenues for Credentials in 2000 of $158 million. (Lawler Aff. of Jan. 30, 2007, Ex. 38 at CSI/CEN 001035.) On January 16, 1998, Credentials sent a proposed Letter of Intent to Cendant, which set forth a proposed non-binding $175 million purchase price. (Lawler Aff. of Jan. 30, 2007, Ex. 43; Defs.’ 56.1 Stmt. ¶63; Pis.’ 56.1 Stmt. ¶ 63.)

Due diligence commenced. The parties agree that Defendant Katz — along with Defendant Corigliano, Amy Lipton, and Frank Murphy — were the main liaisons for Cendant during that period. (Defs.’ 56.1 Stmt. ¶ 59; Pis.’ 56.1 Stmt. ¶ 59; Maloney Dep. 236:25-237:24, 268:8-269:6, at Lawler Aff. of Jan. 30, 2007, Ex. 10.) While Sil-verman was not directly involved with the negotiations, Katz testified that he had periodic discussions with Silverman about the progress of the Acquisition negotiations (Katz Dep. 36: 6-9, at Pis.’ 56.1 Stmt., Ex. 23), that he discussed with Sil-verman the idea of changing the up-front price for Credentials from $175 million to $125 million before proposing that price structure to Sellers (Katz Dep. 37:15-38:21, at Pis.’ 56.1 Stmt., Ex. 23), that he updated Silverman when the up-front purchase price of Credentials actually changed (Katz Dep. 37:10-15, at Pis.’ 56.1 Stmt., Ex. 23), and that he advised Silver-man about negotiations related to the hold-back and earn-out provisions in the SPA (Katz Dep. 37:10-15, at Pis.’ 56.1 Stmt., Ex. 23). Moreover, Maloney testified that Katz told him that he kept Silverman well-apprised of the status of the Acquisition. (Maloney Dep. 56:13-20, at Pis.’ 56.1 Stmt., Ex. 14.)

At the same time due diligence on the Acquisition was beginning, Silverman— along with other officers from the HFS side of Cendant — began to learn that CUC’s financial data was not correct. At a February 1, 1998 Cendant meeting attended by Silverman, Corigliano stated that adjustments would need to be made to the numbers that CUC had previously provided for an earnings release. (U.S. v. Walter A. Forbes & E. Kirk Shelton, No. 02 Cr. 264(AWT) (D.Conn.), Trial Transcript, Testimony of Steve Monaco [former CFO of HFS] at 2094:14-2095:18; see also Wilkie Farr & Gallagher Memorandum, dated Apr. 23, 1998 at CAA/CSI 03523, at Pis’. 56.1 Stmt., Ex. 53.) At an Audit meeting on February 3, 1998, Cendant’s auditors reported that improper accounting methods had been used by CUC to calculate some of its 1997 earnings. (Forbes Dep. 56:6-57:18, at Pis.’ 56.1 Stmt., Ex. 55; see also Wilkie Farr & Gallagher Memorandum, dated Apr. 23, 1998 at CAA/CSI 03524-25, at Pis’. 56.1 Stmt., Ex. 53.)

Around the same time as HFS’ revelations about CUC’s earnings misrepresentations, Cendant alleges that it was learning that “the prospects for [Credentials’] product were less favorable than the sellers had represented; and therefore, the values of those cash flows from the relationships and the members that they had, was substantially less than the value sought by the sellers.” (Katz Dep. 25:17-23, Lawler Aff. of Jan. 30, 2007, Ex. 39.) Defendants, however, have not stated when Sellers made these purported misrepresentations about Credentials’ performance, but there are no purported misrepresentations on the record to which Katz could have been referring other than the December 19, 1997 letter sent to him from Lincolnshire which estimated, among other things, Credentials’ potential revenue in 2000 as $158 million. (See supra, citing Lawler Aff. of Jan. 30, 2007, Ex. 38 at CSI/CEN 001035.)

In any event, on February 10, 1998, Credentials, CSI, and Cendant executed a revised Letter of Intent. (Pis.’ 56.1 Stmt., Ex. 22.) That letter set forth an “aggregate purchase price” in the sum of $125 million paid in cash at closing, plus a “contingent payment”. (Id.) The terms of the contingent payment were defined as follows:

In the event and to the extent that the new net memberships acquired by [Credentials] for the year ending December 31, 1998 shall exceed one (1) million, then [Cendant] shall pay an additional amount ... equal to the product of the number of net new memberships acquired for the year ending December 31, 1998 in excess of one (1) million and $25.

(Pis.’ 56.1 Stmt., Ex. 22, Schedule A.) Plaintiff Thompson has testified that, counter to Katz’ testimony, Cendant’s purported skepticism about Credentials’ benchmarks was not the reason that Cendant insisted on the contingent payment clause. Indeed, Maloney has testified that after February 10, 1998, Defendant Corigliano and Anne Pember “agreed that the membership projections that were prepared by Credentials for fiscal year '98 were reasonable.” (Maloney Dep. 329:22-330:12, at Pis.’ 56.1 Stmt., Ex. 14.)

Silverman has testified that on March 7, 1998, Corigliano admitted to him that CUC’s numbers had included at least $100 million in non-recurring income. (Silver-man Dep. 113:8-115:18, at Pis.’ 56.1 Stmt., Ex. 3.) An audit report produced by Cen-dant states that around this time, “Silver-man concluded that [CUC’s records] clearly demonstrated an intent to use merger reserves to manage earnings and that is not permissible.” (Pis.’ 56.1 Stmt., Ex. 56 at CAA/CSI 00037.)

On Sunday, March 8, 1998, at a meeting attended by numerous Cendant officials, including Katz, Silverman discussed what he had learned about CUC. (Pis.’ 56.1 Stmt., Ex. 68 at CAA/CSI 01470; Pis.’ 56.1 Stmt., Ex. 56 at CAA/CSI 00038.) Katz testified that at that meeting: “[t]here was discussion about the two items relative to the historical financial results of CUC in the 1997 period ... including a number of nonrecurring items of income, and the magnitude of those nonrecurring items.” (Katz Dep. 133:15-134:23, at Pis. 56.1 Stmt., Ex. 23.) Katz also testified that at the meeting there was discussion about “an open adjustment developed in the audit .... [and] whether or not that [amount] was a material amount.” (Katz Dep. 134:23-135:1, Pis.’ 56.1 Stmt., Ex. 23.) James Buckman, who also attended the meeting, described some of the discussion at the March 8, 1998 meeting as follows:

The gist of [the meeting was about how] Scott Forbes [former HFS officer] had been up visiting the CUC offices meeting with the accounting people as well as [former CUC officer] Kirk Shelton because Scott was — we were in the throes of changing the reporting structure for the financial reporting.

And that he had been approached— Scott had been approached by Kirk Shelton at some point suggesting to Scott they were planning, “they” meaning the people at CUC, the former CUC, were planning on utilizing some of the reserves that had been established in connection with — I believe our merger, but it may have been a prior merger reserve, I don’t have a recollection of that, to utilize them in the ensuing months of that year, 1998, to enhance or to include in revenues of the company, and he asked Scott to be aware of that and to — if he could think of a creative way to do that or something to that effect. Henry [Silverman] indicated, one, that he was — he was very unhappy to hear that ... they were proposing to do that because, you know, best he could tell, and as was confirmed by Scott and Mike, that would be inappropriate, it would be improper.

Secondly, that if they need to do that, then what in the heck is happening to their businesses up there if they’re not performing as well as they have been projected [sic] to be performing.

Three, if they got this problem this year, 1998, perhaps they’ve had similar problems in the past, and he was concerned about that because he didn’t know the answer to that question, whether or not they had those problems and whether or not anything improper had been done in those prior years.

Four, ... that as we had discussed earlier, this really caused him to have a real problem with Shelton and Corigliano for not having come forward earlier to him and said “We have a problem with our business.”

(Buckman Dep. 115:8-116:25, at Pis. 56.1 Stmt., Ex. 59.) Despite having attended this March 8,1998 meeting, Katz has testified that April 13, 1998 — three days after the SPA’s closing — was the first time he recalled hearing about “actual or potential accounting irregularities on the CUC side of the Cendant business”. (Katz Dep. 131:2-6, at Lawler Aff. of Jan. 30, 2007, Ex. 39.)

On March 9, 1998, Silverman met with Corigliano and other Cendant officers— not including Katz — to discuss further the non-recurring income items in CUC’s records. (Silverman Dep. 141:9-149:15, at Pis.’ 56.1 Stmt., Ex. 3; Pis.’ 56.1 Stmt., Ex. 56, at CAA/CEN 00038.) According to Cendant’s audit reports, Silverman stated at the meeting that:

He felt betrayed and deceived because no one at CUC had told him that in order to meet their 1998 numbers the company would have to take $165 million of reserves into income. He felt that he had been deceived because CUC was not the business that they had been led to believe that it was. No one had told him that 25% of their earning for 1997 were non-operating or non-recurring.

(Pis.’ 56.1 Stmt., Ex. 56, at 00039.)

Throughout the Sellers’ and Defendants’ negotiations for the Acquisition of Credentials, Defendants never told Sellers about the CUC accounting fraud. Defendants do not dispute this. Plaintiffs’ witnesses also testify that Defendants fraudulently misrepresented their intent to market aggressively Credentials’ products, particularly as to their intent to cross-market Credentials’ products to Cendant’s pre-ex-isting customers. For example, Maloney stated that Cendant repeatedly assured them that it would use cross-marketing to promote Credentials’ products, and that it was committed to increasing Credentials’ membership:

The people at Credentials, Cosmo Corig-liano and Sam Katz were the ones, Anne Pember as well, that told me that they would use their muscle and we would far exceed the numbers that we had anticipated in terms of net new members because of the efforts that Cendant would make separate and apart from adding members that Credentials was intending to add to their core membership base. (Maloney Dep., 48:20-25, at Pis.’ 56.1 Stmt., Ex. 14; see also Malo-ney Dep., 49:15-23; Thompson Dep. 257:9-258:17, at Pis.’ 56.1 Stmt., Ex. 29.) Maloney, as well as Credentials’ CFO Allan Weinstein (Ex. 41, Weinstein Dec. ¶ 1), further testified that Defendant Katz told them during negotiations that despite any contingent payment clause, Sellers would “get back what [they] originally discussed, the [$175 million] IPO price.” (Maloney Dep. 55:16-17; Weinstein Dep. 260:13-17, at Pis.’ 56.1 Stmt., Ex. 19.) Other parts of Wein-stein’s deposition testimony further describe Defendants’ representations that they would cross-market and market aggressively:

Q Did anyone from Cendant tell you prior to April 10, 1998, that CUC, as opposed to Cendant, engaged in the practice of cross-marketing during calendar year 1997?

A Absolutely. I mean that’s how they accrue their member base.

Q Do you know the extent of Cendant’s cross-marketing during that period of time?

A I think that was the whole concept of the reason between the merger between HFS and CUC. Again, these are the guys that developed the new, you know, fast ball, and you know, everyone in the industry was sort of following it and interested in it and this was sort of the new powerful engine in direct marketing.

Q .... Were you ever told anything about which products were being cross-marketed or how many dollars were being generated by cross-marketing during the period of December 17, 1997, and April 10, 1998, by Cendant?

A I don’t remember any specific information. It was their — the number one thing they talked about and everything I saw in connection with them. I mean, it was their business plan, it was their engine of growth, it was the most important thing to that business, from everything that I was able to read and find and see.

(Weinstein Dep. 253:7-255:2, at Pis.’ 56.1 Stmt., Ex. 19.) Weinstein also has testified as to Cendant’s assurances about its cross-marketing expertise that Cendant said: “ ‘Guys, we know how to do this, you know, you know how we’ve grown our membership .... [Ljook how we’ve grown and we know this business and we have the marketing muscle necessary to drive the business much better than you guys ....’” (Weinstein Dep. 273:25-274:3, 302:4-7, at Pis.’ 56.1 Stmt., Ex. 19.)

Defendants refute all of Plaintiffs’ evidence about Cendant’s assurances, but only by denying in their memoranda that any of those statements were made, referring to them in their papers as “alleged oral statements”. (See, e.g., Defs.’ Mem. of Law at 13.)

To refine Cendant’s marketing obligations under the SPA — particularly in light of the contingent payment clause— the parties drafted a new version of the SPA on March 17, 1998 which included the following language at Section 5.11:

Cendant will use reasonable commercial efforts to cause the products of [Credentials] to continue to be marketed substantially in accordance with the general historical practices of Cendant’s Comp-U-Card division for marketing products similar to those offered by [Credentials], it being understood that Cendant shall not be deemed to be in breach of this [provision] as a result of any change in such marketing practices that in Cen-dant’s good faith judgment is necessary to comply with applicable law or the requirements of third parties under any Material Agreement ... or that is consistent with changes in the general marketing practices of the industry in which [Credentials] competes.[]

(Pis.’ 56.1 Stmt., Ex. 28, § 5.11.) Sellers have referenced testimony by Allan Wein-stein which suggests that the parties’ purpose for requiring Cendant to adhere to its “general historical practices” was to ensure that Cendant cross-marketed Credentials’ products:

Q Was there anything in the contingent payment covenants suggested by the sellers that required cross-marketing by Cendant?

AI think that’s what 5.11 was.

(Weinstein Dep. 283:16-22, at Pis.’ 56.1 Stmt., Ex. 19.) According to Maloney:

That was a big part of the negotiation was [sic] making sure that we would get our contingent earnout and the assurance that Cosmo gave us and Sam also did, but primarily Cosmo, was that they were going to be able to, quote/unquote, market the hell out of the file and eross-market it and that we wouldn’t have any fears of making our earnout and that it would get us back to the IPO price. Those conversations were kind of continuous because as we would change provisions and negotiated the earnout and things of that nature, I wanted to get assured that we were going to make money on the earnout. Otherwise, I didn’t want to sell the business. I didn’t want to really sell the business at 125. If I thought all we were going to get was 125, I would have just called the sale off.

(Maloney Dep. 320:4-21, Pis.’ 56.1 Stmt., Ex. 14.) Defendants, without any factual support other than the text of Section 5.1 itself, argue that nothing in Section 5.11 required them to cross-market Credentials’ services with Cendant’s. (Defs.’ Mem. of Law at 15.)

Despite this new SPA provision and despite Defendants’ representations that they would cross-market and market aggressively Credentials’ products, on March 19, 1998, Corigliano wrote to the Cendant executive committee that he did “not expect to add members in excess of the contingency level”, and that they added the contingent payment clause because Cendant was “unable to get comfortable with [Credentials’] 1998 budget.” (Defs.’ 56.1 Stmt., Ex. 49, at CSI/CEN 066158.)

Not only do Defendants dispute in their Memoranda Sellers’ reading of Section 5.11, but they also assert that Sellers improperly withheld information from Cen-dant during the Acquisition negotiations about Credentials’ use of one-step telemarketing. However, due diligence provided Cendant with access to various documents which would have alerted Cendant about Credentials’ use of one-step telemarketing. Lincolnshire Senior Associate Allan Weinstein testified that during due diligence, Cendant was granted access to Credentials’ financial records “like any other buyer”. (Weinstein Dep.' 218:3-20, 231:2-14, at Counterclaim-Defs.’ 56.1 Stmt., Ex. 21.) In-House Counsel for Cendant Jennifer Taub testified that she received some of Credentials’ marketing materials prior to the Acquisition, though she did not recall whether she received Credentials’ telemarketing scripts. (Taub Dep. 7:6-8:12, 26:24-27:21, at Counterclaim-Defs.’ 56.1 Stmt., Ex. 47.)

Among the documents to which the parties agree Cendant had access were the Experian Agreement and the Citibank Agreement. (Counterclaim-Defs.’ 56.1 Stmt. ¶ 105; Counterclaim-Pis.’ 56.1 Stmt. ¶ 105; Pis.’ 56.1 Stmt, on Count Four, Ex. 1.) Also available was an internal memorandum written by a Cendant employee during due diligence which states: “I assume this is due to the fact that F[ull]F[illment] contains a credit report. Doesn’t credit report up-front suppress marketing?” (Counterclaim-Defs.’ 56.1 Stmt., Ex. 51, at CSI/CEN 038616.) Sellers argue that this memorandum is a written memorialization of Cendant’s knowledge of Credentials’ use of up-front, “[i.e., one-step]”, telemarketing (Counterclaim-Defs.’ 56.1 Stmt. ¶ 102), whereas Defendants contend that, whether this memorandum refers to “one-step telemarketing” is merely an “assumption” made by a person who did hot himself write the memorandum (Villa-no Dep., 75:22-76:2, at Counterclaim-Defs.’ 56.1 Stmt., Ex. 52). Sellers also allegedly gave a PowerPoint presentation to Cendant in which they stated that Credentials made an “Immediate Delivery of First Credit Report”. The parties disagree on whether “Immediate Delivery” is a reference to one-step telemarketing. (Counterclaim-Defs.’ 56.1 Stmt., Ex. 53 at WGM CSI 001519; Counterclaim-Defs.’ 56.1 Stmt. ¶ 104; Counterclaim-Pis.’ 56.1 Stmt. ¶ 104.)

Allan Weinstein has stated in his Declaration that he had personally informed Cendant representatives, including Corigli-ano, Anne Pember, and Amy Lipton, about Credentials’ use of one-step telemarketing. (Weinstein Dec. ¶ 5.) But when asked about the Experian Agreement at his deposition, Weinstein also testified that whether “Credentials was getting written permission from customers” was “an operational detail that [he] wouldn’t have concerned [himself] with ....” (Weinstein Dep. 136:17 137:6, at Lawler Aff. of Jan. 30, 2007 of Feb. 28, 2007, Ex. 55.) Moreover, according to CUC senior vice president Peter Wragg, Cendant monitored Credentials’ and other competitors’ marketing activities well before Cendant considered acquiring Credentials, and thus would have been aware of Credentials’ use of one-step telemarketing even before the exchange of due diligence materials. (Wragg Dep. 15:16-18:10, 61:2-65:19, at Counterclaim-Defs’ 56.1, Ex. 9.)

On April 9, 1998 (the day before the Acquisition), Cendant convened an analyst call. On the call, Silverman told the market that Cendant’s “fundamentals [were] great”, and that the “financial issues ... really [were] zero”. (Pis.’ 56.1 Stmt., Ex. 38 at CAA/CSI 02459.) He further noted: “[W]here we expect to report earnings next month we would also expect to report a record number of gross ads in the membership business. So ... membership has never been better.” (Pis.’ 56.1 Stmt., Ex. 38, at CAA/CSI 02465.) Silverman was asked about this analyst call at his deposition:

Q Did you fully disclose to the marketplace, sir, everything you know about CUC and what you learned on March 6 and your feelings that HFS shareholders had gotten a bad deal? Did you fully disclose that on April 9, 1998?

A We disclosed what we believed to be appropriate.

(Silverman Dep. 287:12-20, at Pis. 56.1 Stmt., Ex. 3.)

Also on April 9, 1998, Steven Speaks, the controller for Cendant’s CUC division, advised Scott Forbes and Steve Monaco (who were Cendant officers formerly of HFS) that CUC’s irregular accounting practices produced falsely inflated revenues for CUC. (Pis. 56.1 Stmt., Ex. 74, at ¶ 4b.) According to Speaks, the CUC product which benefitted most from the fraudulently reported revenues was Credentials’ competitor, PrivacyGuard. (Pis. 56.1 Stmt., Ex. 74, at ¶ 4b.) After the analyst call, Scott Forbes informed Silver-man what he had learned from Speaks. (S. Forbes Dep. 195:18-196:6, 198:4-25.) (Pis.’ 56.1 Stmt., Ex. 55.)

E. The Stock Purchase Agreement

Sellers and Cendant executed the SPA on April 10, 1998. (Lawler Aff. of Jan. 30, 2007, Ex. 54; Counterclaim Defs.’ 56.1 Stmt., Ex. 1.) It provided for the sale of Credentials’ stock to Cendant. The final purchase price provision provided as follows:

The purchase price for the Shares (the “Purchase Price”) shall consist of (i) an aggregate amount (the “Closing Date Purchase Price”) equal to (x) $125,000,000 less (y) the sum of (A) the . amount of Indebtedness outstanding immediately prior to the Closing (B) $146,291.64 (which the parties agree represents the aggregate amount of all Excess Severance Obligations the amount of which is known by [Credentials] as of the Closing Date) plus (C)(1) $425,000 (which the parties agree represents the aggregate amount of the settlement payment made by [Credentials] on March 26, 1998 pursuant to the Richards Settlement Agreement) and (2) $2,000,000 (which the parties agree represents the amount of the settlement payments being made by [Credentials] on the date hereof pursuant to the Ferry Settlement Agreements) plus (D) $600,000 (which amount represents 50% of the fees and expenses described in Section 3.1(o) of the Disclosure Schedule), and (ii) the Contingent Payment, if any, payable as provided in Section 2.1(d). The Closing Date Purchase Price shall be subject to post-Closing adjustment as provided in Section 2.2 and shall be payable as provided in Section 2.1(c).

(Counterclaim-Defs.’ 56.1 Stmt., Ex. 1 (“SPA”), § 2.1(b) (emphasis supplied).) Section 2.1(d) prescribed the following for an additional contingent payment:

If and to the extent that the aggregate number of Net New Memberships exceeds the Membership Threshold Amount, then Cendant shall pay to the Sellers in accordance with this Section 2.1(d) an additional amount (the “Contingent Payment”) equal to the excess, if any, of (A) the product of (i) the number of Net New Memberships in excess of the Membership Threshold Amount multiplied by (ii) twenty-five dollars ($25) minus (B) the product of Net New Memberships added by [Credentials pursuant to a provision in its October 29, 1997 Agreement with Citibank (South Dakota), N.A., at Counterclaim-Defs.’ 56.1 Stmt., Ex. 49, § 5.1(f) ] multiplied by (ii) twelve dollars ($12). Promptly following March 31,1999, [Credentials] shall deliver to the Sellers’ Representative a certificate signed by a duly authorized officer of [Credentials] setting forth the number of new one-year and separately multi-year memberships added by [Credentials] during each month of the 1998 calendar year .... Promptly following each calendar quarter during the calendar year ending December 31, 1999 and the calendar quarter ending March 31, 2000, [Credentials] shall deliver to the Sellers’ Representative a certificate signed by a duly authorized officer of [Credentials] setting forth the number of Net New Memberships ... as of the last day of such immediately preceding calendar quarter and the Contingent Payment, if any, payable by Cendant with respect to such calendar quarter, calculated in accordance with Section 2.1(d)(iii) below ....

(SPA, § 2.1(d).) The contingent payment was in part dependent on the efforts Cen-dant took to market Credentials’ products, which Section 5.11 of the SPA required to be “reasonable commercial efforts ... in accordance with the general historical practices of [CUC].” (See SPA, § 5.11, quoted at Section 1(D), supra.)

The SPA also contained twenty-two pages of warranties and representations (SPA, §§ 3.1, 3.2, & 3.3). According to the SPA, “[t]he obligations of Cendant to consummate the Acquisition and other transactions contemplated by [the SPA]” were subject to the satisfaction at or prior to the Closing of the representations and warranties. (SPA, § 6.2.) Among the warranties was Credentials’ representation to Cendant that it “is, and has been, in compliance in all material respects with all applicable laws”. (SPA, § 3.1(f) (i).) Credentials also warranted that it:

is not and, to the knowledge of [Credentials] no other party is, in default in any material respect under any such agreement, commitment arrangement, lease, insurance policy or other instrument, whether entered into in the ordinary course of business or otherwise and whether written or oral and there has not occurred any event that, with the giving of notice or the lapse of time or both, would constitute such a default.

(SPA, § 3.1(p).) The parties agree that the Experian Agreement was among those referenced in the Section 3.1(p) warranty.

The SPA further provided for Cendant to retain a Holdback Amount of $16,200,000.00 from the initial $125,000,000.00 purchase price. (SPA, § 2.3(c).) The Holdback Amount was insurance against some of Credentials’ potential liabilities. One such potential liability was Credentials’ responsibility to compensate Citibank for any amount of commissions less than $9,000,000.00 owed under Section 5.1(b) of the Citibank Agreement. See Section 1(B), supra. To that end, the SPA fashioned a schedule by which Cendant would pay Sellers portions of the Holdback Amount in the amounts of: (1) $3,500,000.00 within ten business days of February 15, 1999, and (2) $3,200,000.00 within ten business days of March 31, 1999, provided that, at the time each of these two payments was due, the commissions paid to Citibank under the Citibank Agreement had equaled or exceeded $9,000,000.00. (SPA, § 2.3(c).) Specifically, the SPA provided that:

Within ten (10) Business Days following (x) the earliest of (i) February 15, 1999, (ii) the date on which the aggregate amount of all commission payments made by [Credentials] to Citibank from October 29, 1997 through December 31, 1998 pursuant to the Citibank Agreement exceeds $11,000,000 (iii) December 31, 1998 if, on such date, the amount of commission payments made by [Credentials] from October 29, 1997 through December 31, 1998, together with commission payments owed but not yet paid to Citibank for such period, equal or exceed $9,000,000, Cendant shall pay to [Sellers] ... an aggregate amount equal to the amount, if any, by which the amount required to be paid by Sellers pursuant to ... [the Citibank Agreement] as of December 31, 1998 is less than $3,500,000, and (y) March 31, 1999, Cendant shall pay to [Sellers] an aggregate amount equal to the amount, if any, by which the amount required to be paid by Sellers pursuant to ... [the Citibank Agreement] as of December 31, 1998 is less than $3,200,000 ....

(SPA, § 2.3(c).)

An additional $2,000,000.00 portion of the Holdback Amount was reserved for potential liabilities under other sections of the SPA, namely, Sections 8.1(a)(i), 8.1(a)(ii), 8.1(a)(iv), 8.1(b)®, and 8.1(b)(ii) of the SPA:

Within ten (10) Business Days following the later of (i) September 10, 1999 and (ii) the date that is ninety (90) days after the Final Disposition Date, Cendant shall pay to the Sellers ... an aggregate amount required to be paid by [Sellers] pursuant to ... Sections 8.1(a)(i), 8.1(a)(ii), 8.1(a)(iv), 8.1(b)®, and 8.1(b)(ii) of [the SPA] to such date less than $2,000,000.

(SPA, § 2.3(d).) Sections 8.1(a)®, 8.1(a)(ii), 8.1(a)(iv), 8.1(b)®, and 8.1(b)(n) of the SPA contained, in relevant part, Sellers’ promise that they would jointly and severally indemnify and hold harmless Cendant and Credentials against any losses resulting from, arising out of, or based upon any failure by Credentials or Sellers to perform any of their covenants or obligations to be performed on or prior to the Closing Date. (SPA, §§ 8.1(a)(1) & 8.1(b)®.)

The parties further agreed to a clause providing that indemnification would be the “sole remedy for any claim for monetary damages arising out of or relating to [the SPA] or the transactions contemplated hereby, other than any claim based upon or arising out of the fraud of any party hereto.” (SPA, § 8.6.) Under the “sole remedy” provision, Cendant also agreed that it would “not seek indemnification payments directly from any of the Sellers except to the extent that the Hold-back Amount has been (or would be as a result of any indemnification hereunder) reduced to zero .... ” (SPA, § 8.6.)

The SPA also included a merger clause, which stated:

This Agreement (including the documents and the instruments referred to herein), and any other agreement among the parties entered into contemporaneously herewith, constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement may be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought.

(SPA, § 9.5.) Cendant and Sellers further agreed that the SPA would be “governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of laws thereof’. (SPA, § 9.6.)

F. Credentials After The Acquisition

Sellers have submitted evidence that after the Acquisition Cendant never cross-marketed or marketed aggressively Credentials’ membership services. For example, Peter Wragg, who was in charge of Credentials’ services after the Acquisition, was asked at his deposition:

Q .... And just to clarify, what we’re talking about right now is a list of names essentially owned by Cendant to which it can market whatever service it deems appropriate?

A That seems fair.

Q Do you know whether Cendant did in fact market Credentials to any of the names we just talked about?

AI don’t remember.

Q Who in your opinion would know the answer to that question?

A If you hadn’t asked who I could remember, I would have said me.

(Wragg Dep. 129:12-25, at Pis.’ 56.1 Stmt., Ex. 89.)

Cendant documents corroborate this point. An internal Cendant record lists various Cendant divisions which were cross-marketed with one another following the Acquisition, but Credentials was not among them. (Pis.’ 56.1 Stmt., Ex. 90; Melchionno Dep. 211:17-215:2, at Pis.’ 56.1 Stmt., Ex. 91.) Other Cendant documents show that in June 9,1998, Cendant had cut back, or was planning to cut back, on various marketing campaigns of Credentials’ services. (Pis.’ 56.1 Stmt., Ex. 92, at CSI/CEN 252317.) For example, at that time, Cendant decided to market Credentials’ services to 50,000 PNC customers instead of 200,000, to 100,000 GE Capital customers instead of 1,000,000, to 100,000 Mercantile customers instead of 250,000, and to 350,000 Wachovia customers instead of 600,000. (Pis.’ 56.1 Stmt., Ex. 92, at CSI/CEN 252317; Melchionno Dep. 125:4-131:18, 135:23-137:9, at Pis.’ 56.1 Stmt., Ex. 91.)

In July of 1998, Cendant conducted marketing trials which tested a telemarketing script used by Credentials prior to the Acquisition (“Credentials Control”) against two scripts created by Cendant. (Counterclaim-Defs.’ 56.1 Stmt., Ex. 61, Ex. 62.) The Cendant scripts were each known as “Cendant Legal”. One “Cendant Legal” test script bore the code 6200003CIT; the other bore the code 6200004CIT. (Counterclaim-Defs.’ 56.1 Stmt., Ex. 61, Ex. 62.) The Credentials Control script and 6200003CIT offered a membership for $49; 6200004CIT offered a membership for $98. (Counterclaim-Defs.’ 56.1 Stmt., Ex. 61, Ex. 62.) The Credentials Control script garnered 1.73 sales per hour; 6200003CIT garnered 1.59 sales per hour; 6200004CIT garnered 1.52 sales per hour. (Counterclaim-Defs.’ 56.1 Stmt., Ex. 61, Ex. 62.) The Credentials Control script and 6200004CIT used one-step telemarketing. (Counterclaim-Defs.’ 56.1 Stmt. ¶ 135; Counterclaim-Defs.’ 56.1 Stmt., Ex. 5.) 6200003CIT, however, was not produced by Cendant during discovery. (Counterclaim-Defs.’ 56.1 Stmt. ¶ 148.) But not only is there no affirmative proof that 6200003CIT was a two-step telemarketing script, there also is an internal Cendant memorandum to Silverman stating that “a portion of Citibank marketing”, i.e., scripts with “CIT” in the code, were not changed to two-step telemarketing until September 1, 1998. (Counterclaim-Defs.’ 56.1 Stmt., Ex. 38.) Cendant employee Elizabeth Sheehan also testified that all one-step telemarketing was halted at Cendant after the Acquisition, except as to Citibank customers. (Sheehan Dep. 36:19-38:13, at Counterclaim-Defs.’ 56.1 Stmt., Ex. 10.)

On August 27, 1998, Cendant sent Sellers notice of a class action lawsuit filed on June 15, 1998 in the Northern District of Illinois against Credentials. (See Frerichs v. Credentials Services International, Inc., No. 98 Civ. 3684(JBG) (N.D.Ill.1998), Compl., at Pis.’ 56.1 Stmt, on Count Four, Ex. 7.) The plaintiffs in that lawsuit alleged that Credentials violated the Fair Credit Reporting Act by failing to get their written authorization before obtaining and sending them their credit reports. (See Frerichs Compl., at Pis.’ 56.1 Stmt., Ex. 7). Cendant defended Credentials in the Frerichs lawsuit {see Frerichs Answer, at Pis.’ 56.1 Stmt, on Count Four, Ex. 12), and sought indemnification from Sellers pursuant to the “indemnification as sole remedy” clause of the SPA. (Pis.’ 56.1 Stmt, on Count Four, Ex. 7.)

On September 23, 1998, Cendant executed on Credentials’ behalf an amendment to the Citibank Agreement. That amendment provided that Credentials “shall mail three million Direct Mail solicitations to [Citibank] cardholders in October 1998, rather than the nine million pieces originally scheduled, and ... the November 1998 insert originally scheduled shall be canceled, and [Credentials] shall not be obligated to market through such insert or to pay the related insert fee.” (Pis.’ 56.1 Stmt., Ex. 97.)

By the end of 1998, Cendant was compiling data on its marketing efforts for Credentials and PrivacyGuard. According to a chart produced by Cendant, 256,778 customers joined Credentials in May of 1998; 269,250 customers joined Credentials in June of 1998; 154,028 in July of 1998; 83,651 in August of 1998; 178,090 in September of 1998; 57,933 in October of 1998; 45,611 in November of 1998; and 630 in December of 1998. (Pis.’ 56.1 Stmt., Ex. 98, at 007657.) In January of 1999, zero customers joined Credentials. (Pis.’ 56.1 Stmt., Ex. 98, at 007657.) As for Privacy-Guard, 569,746 new customers joined in March of 1998; ,474,684 new customers joined in April of 1998; 419,226 in May of 1998; 311,818 in June of 1998; 302,954 in July of 1998; 347,959 in August of 1998; 312,676 in September of 1998; 323,313 in October of 1998; 341,596 in November of 1998; and 408,059 in December of 1998. (Pis.’ 56.1 Stmt., Ex. 98, at 007657.) Defendants also have submitted an Officers’ Certificate — with no contemporaneous corroborating materials — which states that Cendant added 1,002,978 gross new one-year Credentials memberships and 295,066 gross multi-year memberships between April and December of 1998. (Lawler Aff. of Jan. 30, 2007, Ex. 55.) Plaintiffs not only dispute the accuracy and admissibility of the Officers’ Certificate (Pis.’ 56.1 Stmt., ¶ 86), but they also contend that the approximately 58,000,000 potential customers it added through various marketing strategies and agreements in 1997 alone (see Pis.’ 56.1 Stmt., Ex. 17, at WGM/CSI 001524-25), in addition to Cendant’s own very large pool of potential customers, belies any argument by Defendants that the number of new Credentials customers Cendant alleges to have recruited was favorable. This is especially so, in light of the 557,000 new members Sellers added to Credentials’ membership base during the year prior to the Acquisition. {See Defs.’ 56.1Stmt. ¶ 86; Pis.’ 56.1 Stmt., ¶ 56.)

Between January and March of 1999, Cendant began to convert Credentials’ membership data into Cendant’s own electronic database. (Pis.’ 56.1 Stmt, on Count Four, ¶49.) Sellers contend that these efforts resulted in “a substantial amount of confusion and turmoil”, including data errors and tracking problems. (Pis.’ 56.1 Stmt, on Count Four, ¶ 49, citing Pis.’ 56.1 Stmt, on Count Four, Exs. 28-35.) Two of Cendant’s witnesses testified that the pre-conversion data maintenance system was “shut down” and “turned off’ after the conversion. (Hilinski Dep. 118:7-24, at Pis.’ 56.1 Stmt, on Count Four, Ex. 25; Willey Dep. 66:22-67:3, at Pis.’ 56.1 Stmt, on Count Four, Ex. 24.) Gregory Hilinski also testified about the data conversion: “I don’t remember if there was anything that was really lost or not, no.” (Hilinski Dep. 148:5-6, at Pis. C4 56.1 Stmt., Ex. 25.) However, Cendant itself admitted, after being ordered by Judge Eaton to serve “all financial statements and reports of any kind concerning Credentials for the years 1998 through 2000” (Doc. 94, Memorandum & Order, at Pis. C4 56.1 Stmt., Ex. 37 at 2), that “[rjevenue based information for 1997 and 1998 has not been found”. (Defendant’s Amended Responses to Plaintiffs’ Interrogatories 7 & 8 Contained in the Second Set of Document Requests and Interrogatories, at Pis.’ 56.1 Stmt, on Count Four, Ex. 38).

On March 1,1999, Cendant furnished for Sellers an Officer’s Certificate which stated its calculation for the amount of Citibank-related holdback payment owed to Sellers under the first tranche of Section 2.3(c). According to Cendant, commissions paid to Citibank as a result of Credentials’ marketing efforts to Citibank customers had amounted to $8,437,824.00. (Pis.’ 56.1 Stmt, on Count Four, Ex. 4.) That amount was $562,176.00 less than the $9,000,000.00 in commissions that Credentials promised Citibank in the Citibank Agreement. After including 7% interest as required by the SPA, Cendant determined that the first tranche of the Section 2.3(c) Holdback Amount owed to Sellers was $3,120,935.00. (Pis.’ 56.1 Stmt, on Count Four, Ex. 4.) On or about March 1, 1999, Cendant paid Sellers $3,120,935.00. (Pis.’ 56.1 Stmt, on Count Four ¶ 13; Pis.’ 56.1Stmt, on Count Four, Ex. 4; Defs.’ C4 56.1Stmt. ¶ 13.)

On April 14, 1999, Cendant informed Sellers that it would not release the $3,200,000.00 due under the second Section 2.3(c) tranche of the Holdback Amount, citing the liability Credentials might incur from the Frerichs lawsuit as the reason for its withholding payment. (Pis.’ 56.1 Stmt, on Count Four, Ex. 15.) In that same letter, Cendant renewed its request for indemnification for any Frerichs liability. (Pis.’ 56.1 Stmt, on Count Four, Ex. 15.)

On May 7, 1999, Sellers sent a letter to Cendant asserting that they believed Cen-dant’s March 1,1999 calculation of the first Section 2.3(c) tranche of the Holdback Amount was “incomplete”. In that letter, Sellers requested more information from Cendant to corroborate its computation. (Pis.’ 56.1 Stmt, on Count Four, Ex. 5.) Sellers allege that Cendant never responded to their letter (Pis.’ 56.1 Stmt, on Count Four ¶ 17), whereas Defendants contest the truth of that allegation but provide no evidence that Cendant actually did respond to Sellers’ letter (Defs.’ C4 56.1 Stmt. ¶ 17). To corroborate their concerns, Sellers have submitted internal records from Citibank, including a table labeled “Net Revenue 1998 Forecast @ FYF12”, which they say indicate that Citibank received $9,697,970.00 in commissions. (See Ex. A of Pearson Decl., at Pis.’ 56.1 Stmt, on Count Four, Ex. 6; Pearson Decl. ¶ 6, at Pis.’ 56.1 Stmt, on Count Four, Ex. 6; T. Katz Dep. 149:15-151:11, at Pis.’ 56.1 Stmt., Ex. 47.) According to these Citibank records, Sellers contend Cendant owes them the balance of the first $3,500,000.00 tranche, which, after adding the interest required under the SPA, equals $562,176.00.

On May 10,1999, Cendant provided Sellers with a Contingent Payment Certifícate which, according to Defendants, reflected that the Net New Memberships for the preceding quarter had been 662,163. (Defs.’ 56.1 Stmt., Ex. 55.) The Membership Threshold was 830,316, and therefore, according to Defendants, Cendant did not owe Sellers any contingent payments. (Pis.’ 56.1 Stmt., Ex. 55.)

On September 1, 1999, Sellers sent a letter to Cendant asserting their position that Cendant’s withholding of the second Section 2.3(c) tranche of the Holdback Amount was improper. (Pis.’ 56.1 Stmt, on Count Four, Ex. 16.) Cendant responded the next day, asserting that it