Opinion
No. 218-2019-CV-00198
11-21-2019
Legacy Global Sports, L.P. v. John St. Pierre, North Atlantic Hockey, LLC d/b/a The Rinks at Exeter and Travis Bezio
ORDER
This case involves a dispute between Legacy Global Sports, L. P. ("Legacy") a Delaware Limited Partnership, and John St. Pierre, ("St. Pierre") a former CEO and Board member of Legacy who describes himself as a co-founder and 8.46% owner of Legacy. Legacy seeks a preliminary injunction to prevent St. Pierre from engaging in business activities that would violate noncompetition obligations it alleges that he owes to Legacy. Legacy seeks relief based upon an offer of proof, and documents and affidavits submitted to the court. The offer of proof provided to the Court does not establish a basis to find that Legacy has met its burden of proving a likelihood of success on the merits and, most importantly, that it will suffer irreparable harm if relief is not granted. The Court does not foreclose the possibility that Legacy could renew its motion if it has more information available to it. But, on the present record, the Motion is DENIED.
I
This case was brought in the Rockingham County Superior Court in February, 2019. The parties filed a joint motion to have the matter transferred to the Business and Commercial Dispute Docket in August of this year. On August 26, 2019, St. Pierre filed a Motion for a Temporary Restraining Order requesting the Court order Legacy to provide financial information. He argued this information would permit him to determine whether or not he should exercise certain preemptive rights afforded him under § 7.5 of the Third Amended and Restated Limited Partnership Agreement to purchase certain Convertible Promissory Notes. That Motion was denied by Order dated Sept. 17, 2019.
Legacy filed a Motion for a Preliminary Injunction on August 29, 2019, shortly after the case was transferred to this Court. The precipitant for Legacy's motion appears to be a letter from St. Pierre about the scope of the noncompetition agreement. The letter provided in relevant part:
Additionally, this letter shall serve as notice that Mr. St. Pierre will be purchasing ice rinks and youth hockey programs outside of New Hampshire. Legacy has not responded to prior requests by The Rinks and Mr. St. Pierre that Legacy clarify its position concerning the scope of activities that, the Company contends, would compete with Legacy. Unless we hear otherwise by August 30, 2019, Mr. St. Pierre shall assume Legacy has no basis to object to Mr. St. Pierre's pursuit of these business interests.(Pl.'s Opp'n to John St. Pierre's Mot. for TRO, Ex. M.) Legacy never responded to the letter, instead filing a Motion for Injunctive Relief, on August 29, 2019.
The basic parameters of this litigation are outlined in the pleadings. Legacy currently engages in providing services to elite youth athletes, including youth hockey players and their families, at youth sports events and tournaments throughout North America and Europe. (Am. Compl. ¶ 10.) According to Legacy's papers, Legacy has 350 locations around the world and approximately 500 employees worldwide. (Id. ¶¶ 10-11.) A substantial portion of its business relates to youth hockey. (Id. ¶ 12.)
St. Pierre is one of the founders of Legacy. (Id. ¶ 13.) Defendant Travis Bezio ("Bezio") has been employed with Legacy since 2010 and has held a number of management positions with Legacy. (Id. ¶ 17.) According to the Amended Complaint, on April 30, 2018, Legacy and St. Pierre entered into a letter of agreement for a grant of Class C Units of Legacy to St. Pierre. (Id. ¶ 23.) On April 30, 2018, Legacy's Board approved grants of 50,000 Class C Units of the company to St. Pierre. (Id. ¶¶ 23-24.) (the "Grant Agreement"). On October 1, 2018, Bezio and Legacy Global entered into a letter of agreement for an additional Grant of Class C Units. (Id. ¶ 25.) Bezio received a grant of 80,306 Class C ownership units in Legacy, subject to certain vesting conditions. (Id. ¶ 26.) The grant agreements acted as consideration for noncompetition agreements signed by St. Pierre and Bezio. (Id. ¶ 30.).
Legacy's lawsuit involves claims that St. Pierre and Bezio engaged in competitive business activity which violated the noncompetition agreement that they had entered into with Legacy. (Id. ¶¶ 30, 81-157.) Legacy seeks money damages and injunctive relief, including enforcement of the noncompetition agreement. (Id. ¶¶ (i)-(iii).) St. Pierre and Bezio deny Legacy's claims of wrongdoing and have both brought Counterclaims.. (Answer to First Am. Compl. and Countercls. by Def. John St. Pierre, ¶¶ 11-80); (Def. Travis Bezio Answer and Countercl. to Pl. Legacy Global Sports LP's Am. Compl. ¶¶ 1-80.)
Essentially, St. Pierre alleges that he has been the victim of a corporate freeze out. (Answer to First Am. Compl. and Countercls. by Def. John St. Pierre, ¶¶ 137-189.) St. Pierre alleges wrongful termination (Count I), breach of the October 1, 2018, Grant Agreement which would have provided him with Class C units (Count II), breach of the implied covenant of good faith and fair dealing with respect to the LPA (Count IV), and with respect to the Grant Agreement (Count V) and Fraudulent Inducement (Count VI). (Id. ¶¶ 137-174.) St. Pierre also brings a claim of respondeat superior (Count VII). He seeks a declaration that the restrictive covenants in the Grant Agreement are unenforceable (Count VIII) and asserts a claim for indemnification (Count IX). (Id. ¶¶ 175-186.)
Bezio has also brought a wrongful termination counterclaim (Count I) as well as counterclaims alleging breach of the implied covenant of good faith and fair dealing with respect to the Grant Agreement and Wage Claim under RSA 275 (Counts II and IV). (Def. Travis Bezio Answer and Countercl. to Pl. Legacy Global Sports LP's Am. Compl. ¶¶ 209-228.) He too seeks a declaration that the restrictive covenants provided in Grant Agreement are unenforceable, and seeks indemnification for his attorneys' fees. (Id. ¶¶ 220-234.). Bezio has also brought a wrongful termination counterclaim (Count I) as well as counterclaims alleging breach of the implied covenant of good faith and fair dealing with respect to the Grant Agreement and Wage Claim under RSA 275 (Counts II and IV). (Id. ¶¶ 209-228.) He too seeks a declaration that the restrictive covenants provided in Grant Agreement are unenforceable, and seeks indemnification for his attorneys' fees. (Id. ¶¶ 220-234.). Both St. Pierre and Bezio claim that they are entitled to indemnification for attorney's fees as a result of defending the litigation brought by Legacy under the LPA. (Answer to First Am. Compl. and Countercls. by Def. John St. Pierre, ¶¶ 183-B); (Def. Travis Bezio Answer and Countercl. to Pl. Legacy Global Sports LP's Am. Compl. ¶¶ 220-234.)
St. Pierre asserts in substance that he was wrongfully terminated by Legacy and frozen out of its management. His claim that the restrictive covenants are unenforceable is particularly important to this motion because:
(a)Legacy terminated St. Pierre without cause, and in bad faith, (b) Legacy prevented St. Pierre from realizing any consideration for the covenant not to compete, (c) the covenant, which would prevent St. Pierre from working anywhere in the world, in any capacity even tangentially related to Legacy's business is overbroad, and (d) Legacy has not proved that it acted in good faith so as to justify modifying the covenant; and Legacy breached its obligations under the grant agreements.(St. Pierre's Obj. to Legacy Global Sports, L.P.'s Mot. for Prelim. Inj., at 2.)
II
At the outset of the litigation, the parties stipulated, and the Court ordered, that St. Pierre would refrain from any involvement in a so-called "dormitories project" during the pendency of the litigation. (Pltf.'s Mot. for a Prelim. Inj., at 2.) But, the August 27, 2019, letter from St. Pierre is the genesis of this Motion.
Legacy states in its papers that St. Pierre's August 27, 2019, letter is merely a "vague threat of imminent unlawful competition," but it nonetheless asserts that the letter provides a basis for injunctive relief. (Id at 17.) The relief it seeks is an order that the Court "enjoin St. Pierre from acquiring any ownership interest in any ice rinks and youth hockey programs pending expedited discovery and further orders of this Court." (Id.)
Legacy claims that St. Pierre's anticipatory repudiation of the noncompetition agreement will cause it irreparable harm. Despite this, Legacy acknowledges that St. Pierre has sought to challenge the scope of the covenants by a Declaratory Judgment Counterclaim. The counterclaim is subject to a pending Motion to Dismiss. Legacy argues that even if the Court found the noncompete covenant unreasonable, under New Hampshire law, Legacy Global could still be entitled to equitable relief in the form of reformation or partial enforcement. (Id. at 14 - 15.) In fact, the Stock Grant itself specifically provides that:
If, at the time of enforcement of this Section 9, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law.(Id., Ex. A, ¶ 9(d).)
A
In prior litigation regarding St. Pierre's right to exercise convertible rights, the parties agreed that pursuant to § 13.9 of the LPA, Delaware law governs the substantive rights and obligations of the parties. The noncompetition agreement at issue here is part of the April, 2018, Stock Grant, which specifically provides for interpretation under Delaware law. (Id., Ex. A, ¶ 12 (e).) The New Hampshire Supreme Court has held that, where parties to a contract select the law of a particular jurisdiction to govern their affairs, that choice will be honored if the agreement has a "significant relationship" to that jurisdiction. Hobin v. Coldwell Banker Residential Affiliates Inc., 144 N.H. 626, 628 (2000); Allied Adjustment Services v. Heney, 125 N.H. 698, 700 (1984). The Court has further held that where a corporation is incorporated in the state to which the choice of law provision refers, the agreement bears a significant relationship to that state. Hobin, 144 N.H. at 628-29; Heney, 125 N.H. at 700; see also Allot Communications, Ltd. v. Cullen, 2010 WL 6620308 (N.H. Super. Feb. 7, 2010); Meyer v. Callahan, 2010 WL 4916563 (D.N.H. Nov. 29, 2010).
It would appear that Delaware law therefore applies to interpretation of the noncompetition clause in the Stock Grant. Although it is not perfectly clear from the papers, it seems that the parties have assumed that New Hampshire law is applicable to interpretation of the agreement, and have devoted most of their briefings to discussion of New Hampshire cases.
B
Both parties executed documents clearly indicating an agreement that such documents be interpreted under Delaware law. However, for purposes of this Order, the Court notes that regardless of whether New Hampshire or Delaware law is applied, the result would be the same. Both New Hampshire and Delaware public policies encourage free trade and discourages covenants not to compete. Concord Orthopedics Professional Association v. Forbes, 142 N. H. 440, 443 (1997); Tristate Courier & Carriage, Inc. v. Berryman, 2004 WL 835886 at *15 (Del.Ch. April 15, 2004).
Of course if all parties were to explicitly agree that New Hampshire and not Delaware law should be applied to this case, it would seem reasonable to do so.
Under Delaware law, when a party seeks enforcement of a noncompetition agreement, the Court must determine whether the agreement is reasonable in scope and duration both geographically and temporally. Then, the court must assess the legitimate economic interest of the party seeking to enforce the covenant. McCann Surveyors, Inc. v. Evans, 611 A.2d 1, 3 (Del. Ch. 1987); All Pro Maids, Inc. v. Layton, No. CIV.A. 058-N, 2004 WL 1878784, at *8 (Del. Ch. Aug. 9, 2004), aff'd, 880 A.2d 1047 (Del. 2005) Assuming the Court finds the agreement reasonable in scope, it must then balance the equities between the parties. See e.g., Elite Cleaning Co., Inc. d/b/a. Elite Building Services v. Capel Artesian Water Co., Inc., 2006 WL 1565161 at *3 (Del Ch. June 2, 2006). The party seeking enforcement of a noncompetition agreement bears the burden of showing the reasonableness of the covenant. Id. New Hampshire law is in accord. Under New Hampshire law, to determine the reasonableness of a covenant not to compete a trial court must consider (1) whether the restriction is greater than necessary to protect the legitimate interests of the employer; (2) whether the restriction imposes an undue hardship upon the employee; and (3) whether the restriction is injurious to the public interest. Syncom Industries Inc. v. Wood, 155 N.H. 73, 79 (2007).
The agreement between the parties specifically allows partial enforcement of a noncompetition agreement if a reviewing court finds it to be overbroad. (Pltf.'s Mot. for a Prelim. Inj., Ex. A, ¶ 9(d).) New Hampshire courts, following the majority view of the RESTATEMENT (SECOND) CONTRACTS § 184 (2), will reform an overly broad restrictive covenant where the party seeking enforcement establishes good faith in the execution or performance of the contract. Smith, Batchelder & Rugg v. Foster, 119 N.H. 679, 685 (1979). And, of course, this is consistent with the general equitable principle that he who seeks equity must have clean hands. See e.g., Cornwell v. Cornwell, 116 N.H. 205 (1976); Nakahara v. NS 1991 Am. Trust, 718 A.2d 518, 522 (Del.Ch. 1998).
C
While the parties may choose substantive law to govern in their agreements, the procedural rules governing New Hampshire cases are applicable in litigation in New Hampshire. See Keeton v. Hustler Magazine, 131 N.H. 6, 13 (1988); Ferrin v. General Motors Corporation, 137 N.H. 423, 428 (1993), "the local law of the forum state determines the manner of enforcing a judgment." RESTATEMENT (SECOND) CONFLICT OF LAWS § 131 (Supp. 2019). The RESTATEMENT specifically notes that the law of the forum "determines such questions as whether the enforcement should be by way of levy of execution and sale, whether equitable remedies, such as the appointment of a receiver and the granting of an injunction are available, and whether the judgment debtor can be subjected to arrest. RESTATEMENT (SECOND) CONFLICT OF LAWS § 131, cmt. A (emphasis supplied); see e.g., Texaco Inc. v. Pennzoil Co., 784 F.2d 1133, 1156 (2d Cir. 1986); Travenol Laboratory, Inc. v. Turner, 228 S.E.2d 478, 483 (N.C.App. 1976).
Under New Hampshire law, "the issuance of injunctions, either temporary or permanent, is an extraordinary remedy." Murphy v. McQuade, 122 N.H. 314, 316 (1982). A Court should issue a preliminary injunction only where there is an immediate danger of irreparable harm to the party seeking injunctive relief, there is no adequate remedy at law, and the party seeking injunctive relief has established that it will likely succeed on the merits. New Hampshire Dep't of Envtl. Servs. v. Mottolo, 155 N.H. 57, 63 (2007); see also Kukene v. Geualdo, 145 N.H. 1, 4 (2000).
Delaware law is essentially the same. See S.I. Management, et al. v. Wininger, 707 A.2d 37, 40 (Del.1998).
A party seeking an injunction bears the burden of establishing its entitlement to relief. Mottolo 155 N.H. at 63. "The fact that the petitioner is at present in danger is not enough; the petitioner must also be threatened with a harm which cannot be cured by any legal means." G. MacDonald, Wiebusch on New Hampshire Civil Practice and Procedure, § 19.07, p. 19-5 (3rd Ed. 2010). A petitioner's need for injunctive relief must be present and immediate. Meredith Hardware, Inc. v. Belknap Realty Trust, 117 N.H. 22, 26 (1977). A mere possibility or fear that injury may occur is insufficient to justify equitable relief. Id. It is only available where there is "imminent danger of great and irreparable damage." Wason v Sanborn, 45 N.H. 169, 171 (1862).
III
As is often the case in requests for preliminary injunction, which are based upon offers of proof, the Court is faced with starkly contradictory versions of the facts. Legacy represents that it removed St. Pierre from its board with cause. Legacy claims it "discovered overwhelming evidence of St. Pierre's involvement in accounting irregularities in Legacy Global, along with competitive activities, including development of youth athletes and sports events and the building of dormitories, including but not limited to his capacity as an equity holder of defendant North Atlantic Hockey LLC." (Pltf.'s Mot. for a Prelim. Inj., at 2.) It asserts that "on January 22, 2019 Legacy's then Vice President of Finance, Jason Mitchell, signed a written confession that implicated St. Pierre and accounting irregularities." (Id. at 9.)
St. Pierre vigorously disputes these claims. St. Pierre claims that immediately after he executed the April, 2018, Grant Agreement, Legacy set in motion a freeze out effort designed to remove him from Legacy's Board and terminated him as President and CEO of Legacy without cause. (St. Pierre's Obj. to Legacy Global Sports, L.P.'s Motion for Prelim. Inj., at 11-12.) It is, or should be, apparent that the claims of the parties turn upon credibility of witnesses, and cannot be decided on affidavits and exhibits.
Moreover, Legacy's papers display no more than a desultory explanation of why it would be harmed if injunctive relief is not granted: "St. Pierre appears to be undertaking efforts to build a competitive robust sports program like that run by Legacy Global (Pltf.'s Mot. for a Prelim. Inj., at 3) (emphasis supplied); "if St. Pierre is permitted to act on the "vague yet imminent threat that St. Pierre will be purchasing ice rinks and youth hockey programs, such activities would cause significant and irreparable harm to Legacy Global." (Pltf.'s Mot. for a Prelim. Inj., at 15.) The parties specifically agreed within the noncompetition agreement that it could be modified by a reviewing court if found to be overbroad. But, the reasonableness of a noncompetition agreement requires analysis of the facts.
At the hearing on Legacy's request for preliminary injunctive relief, the Court suggested that the Motion should be heard after the parties engaged in limited discovery, but Legacy chose to proceed on offers of proof. --------
A restraint on competition must be narrowly tailored in both geography and duration to protect the employer's legitimate interest. Kan-Di-Ki d/b/a/Diagnostic Laboratories, v. Suer, 2015 WL 4503210 at *19 (Nov. 24, 2015); Syncom Industries, Inc. v. Wood, 155 N.H. 73, 80-84 (2007). Here the covenant restrains St. Pierre from competing with Legacy, "in the United States, Canada, Dominican Republic, England, Finland, Sweden, Norway, and any other jurisdiction in which any of the Legacy Companies does business immediately prior to the termination of your employment." (Pltf.'s Mot. for a Prelim. Inj., Ex. A ¶ 9(a).) But, Legacy failed to present information regarding the market for its services. The Court cannot assess the reasonableness of a geographical restriction without evidence of the market for the services provided.
In sum, the evidence available to the Court does not provide a basis to find that Legacy has met its burden of proving a likelihood of success on the merits or, most importantly, that it will suffer irreparable harm if relief is not granted. The Court does not foreclose the possibility that Legacy could renew its Motion if it has more information available to it. However, on the record before the Court, the Motion must be DENIED.
SO ORDERED
11/21/19
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/