Opinion
No. 218-2017-CV-1322
06-04-2018
John Meehan v. Jay Gould And Flatbread, Inc.
ORDER
The Plaintiff, John Meehan, brings this action against the Defendants, Jay Gould and Flatbread, Inc. (hereinafter "Gould" or "the Defendants"), seeking preliminary and permanent injunctive relief as well as monetary damages. Currently before the Court is Meehan's motion for preliminary injunctive relief, to which Gould objects. The Court held a hearing on the request for injunctive relief on April 25, 2018, at which Meehan, Gould, and Meehan's expert Wayne Geher, CPA, testified. For the following reasons, Meehan's Motion for Preliminary Injunction is DENIED.
The parties appropriately agreed to limited discovery prior to the evidentiary preliminary injunction hearing in order to make the hearing more meaningful.
I
The following facts are taken from the hearing and relevant pleadings. These facts are found for the purposes of this Order only. Meehan and Gould are business partners who jointly own a chain of flatbread pizza restaurants, named The Flatbread Co. There are restaurant locations in New Hampshire, Maine, Massachusetts, Rhode Island, Hawaii, and British Columbia. Meehan and Gould opened the first restaurant in Amesbury, Massachusetts in 1998. Since the opening of the first restaurant, Meehan and Gould have incorporated another corporate entity, Flatbread, Inc., which serves as a management company for each of the individual Flatbread Co. restaurants. Meehan and Gould own 30% and 70% of Flatbread, Inc., respectively. They own seven of the nine Flatbread Co. restaurants with the same 70%/30% ownership structure. Together, they own 50% of the other two restaurants, in Hawaii and British Columbia, meaning that Meehan owns 15% of those two restaurants, and Gould owns 35%.
The restaurant in British Columbia is named Creekbread.
Initially, at the time that the parties opened the first location, both Meehan and Gould were fully employed elsewhere. Meehan began working full-time for Flatbread, Inc. before Gould left his prior full-time position outside of Flatbread, Inc. Meehan generally performed the day-to-day management of Flatbread, Inc. Gould, while also involved, focused more on bigger-picture decisions and management. Over time, Meehan took on the position of "de facto" president of Flatbread, Inc.
Neither Meehan nor Gould received salaries until 2002, at which time they agreed that the restaurants were profitable enough to allow them to begin taking salaries. Meehan asserts that he and Gould explicitly agreed that they would always receive equal salaries, "as consideration for their ownership interests and as a principal return on their investment, regardless of the services (or lack thereof) that each was providing in furtherance of the business." (Pl.'s Compl. ¶ 28.) Gould disputes the existence of such an agreement. Meehan disputes whether Gould performed any actual work during the time Meehan was providing day to day management. Neither dispute is material to the court's conclusion. Meehan and Gould received equal salaries from 2002 until 2016. Those annual salaries began at $60,000, ultimately increasing to $250,000. Gould continues to receive a $250,000 annual salary.
While Flatbread, Inc. was in the initial stages of its expansion, Gould and Meehan made a practice of transferring funds from their more profitable restaurants to those in greater financial need. At the time, Meehan knew and approved of these transfers. Meehan asserts that such transfers are no longer appropriate, however, due to the company's increased size and the fact that the restaurants are profitable and self-sufficient, highlighting the fact that there is nothing in writing permitting these transfers. Gould testified that such transfers could still be useful to the company and that they are common practice in the industry.
In early 2016, Gould and Meehan hired an advisor to review the company's finances. In response the financial advisor's recommendations, Gould instituted certain personnel changes, reportedly believing that the growing company would benefit from leadership with greater experience in the restaurant and corporate world. In May of 2016, Gould informed Meehan that he had begun searching for Meehan's replacement as de facto president of Flatbread, Inc., and that Meehan would be terminated as soon as Gould found a suitable replacement. Gould eventually hired Jason Lyon to replace Meehan as president, and Lyon officially took on the role as of October of 2016. Lyon had previously worked for The Common Man, another local, well-established restaurant chain, for several years. In addition to Meehan, Gould replaced Flatbread Inc.'s Construction Director and Controller, as well as its outside CPA. Gould asserts that these changes were made in order to fill those positions with individuals who were "experienced in the full service, multi-unit restaurant sector that could handle the company's size and growth." (Defs.' Obj. Req. Prelim. Inj. ¶ 12.) While testifying, Meehan conceded that Flatbread Inc.'s new employees are "restaurant professionals" and that Flatbread now has a "competent experienced team in place."
After he was replaced as president, Meehan's salary (as de facto president, not his salary for his services as a board member) was gradually phased out over one year, rather than immediately cut off. He received $4,807.69 weekly for six months, and then $1,923.07 for another six months. Currently, Meehan receives a $25,000 annual salary (plus health insurance) for his services as a Flatbread, Inc. board member. Meehan also continues to receive distributions from Flatbread, Inc. In 2017, Meehan received approximately $192,600 in distributions, more than in any previous year. Gould testified that Meehan will likely receive approximately the same amount in distributions in 2018. Meehan continues to enjoy the use of a company vehicle, attends quarterly ownership meetings, has access to company book-keeping records, and is reimbursed for various business-related expenses.
In 2016, Meehan and Gould discussed the possibility of Gould buying Meehan's interest in Flatbread, Inc. As part of those conversations, Meehan and Gould jointly commissioned a valuation of the business. This initial appraisal valued the company at $3.1 million. Meehan believed that this number was too low, and hired someone else to review the initial appraisal. Meehan's second appraisal valued the company at $7.2 million. The buyout discussions led nowhere, and Meehan now contends that Gould commissioned the initial appraisal intending to undervalue the company, thus inducing Meehan to sell his ownership interest to Gould "at significantly less than fair market value." (Pl.'s Compl. ¶ 66.)
Since Meehan has left managment, Gould has had access to a company credit card for business-related expenses. Meehan contends that Gould has abused that privilege, charging certain personal expenses to the credit card in addition to business-related charges. Meehan presented expert testimony through Wayne Geher, CPA, ("Geher") at the hearing regarding Gould's use of the company credit card. Geher testified that, after examining Gould's company credit card statements, he was able to identify several charges he believed to have been for Gould's personal expenses. He reached these conclusions, he testified, through reviewing the credit card statements with Meehan, and having Meehan explain to him the various charges. Importantly, while Geher testified that he believed certain of Gould's expenses to be questionable, he did not believe that there were any IRS violations. Geher also testified that "to the best of [his] knowledge, [Flatbread, Inc.] is still profitable," and that there was no evidence that Flatbread would not remain profitable were it to continue in the status quo.
Meehan filed this suit on November 15, 2017. He alleges that:
Gould has engaged in a systematic campaign to reduce and ultimately eliminate Meehan's employment, starve Meehan of any salary in consideration for his employment, and to reduce the frequency and regularity with which distributions are issued from Flatbread, Inc., and all the Flatbread restaurant entities.
. . . Gould has acted in bad faith and arbitrarily, focusing on his own financial gain at the expense of Meehan and Flatbread, Inc. and in an effort calculated to induce Meehan to sell his 30% interest for significantly less than fair market value, allowing Gould to become the sole owner of Flatbread, Inc., and the Flatbread restaurant entities and exercise complete control over the venture and its profits.
. . . Gould reduced Meehan's role and ultimately terminated him and eliminated Meehan's annual $250,000 salary, while maintaining his own annual salary at $250,000.
. . . Gould began spending extravagantly on what he deemed 'business expenses,' including chartering flights to purported business appointments and for which he obtained reimbursement from Flatbread, Inc., while beginning to reject Meehan's routine requests for reimbursement based on business needs, in order to squeeze more money out of Flatbread, Inc. for his own benefit and away from Meehan.
. . . Gould has simultaneously authorized the issuance of distributions from Flatbread, Inc. and the Flatbread restaurant entities only based on his personal financial needs and in an effort to starve Meehan of cash and induce him to sell his ownership interests at a below-market value.(Pl.'s Compl. ¶¶ 9-13.) Meehan asserts that Gould's actions constitute a "breach of [his] fiduciary duty to Meehan, breach of contract, breach of [the] implied covenant of good faith and fair dealing, and intentional interference with Meehan's employment agreement with Flatbread, Inc." (Id. ¶ 16.)
Meehan requests a preliminary injunction ordering: (1) the "immediate reinstatement" of his employment with Flatbread, Inc., and his $250,000 salary; (2) that Gould make no profit distributions until the resolution of this action, and place any net profits "into a separate interest-bearing account"; (3) that Gould order no further monetary transfers between or among the individual Flatbread restaurants; and (4) that Flatbread, Inc. may not make any expenditures "other than those expenses incurred in the ordinary course of business for the necessary, ordinary, and customary expenses of these Flatbread entities as were historically incurred prior to January 1, 2016." (Id. at 17.) Gould objects, arguing that Meehan has failed to meet the prerequisites for preliminary injunctive relief.
II.
"The issuance of injunctions, either temporary or permanent, has long been considered an extraordinary remedy." New Hampshire Dep't of Envt'l. Servs. v. Mottolo, 155 N.H. 57, 63 (2007) (citation omitted). "A preliminary injunction is a provisional remedy that preserves the status quo pending a final determination of the case on the merits." Id. (citation omitted). In order to obtain preliminary injunctive relief, a party must demonstrate: (1) they are in "immediate danger of irreparable harm," (2) "there is no adequate remedy at law," and (3) "that [they] would likely succeed on the merits." Id. (citations omitted).
"Irreparable injury based on financial loss alone will only be found where the potential economic loss is so great as to threaten the existence of the plaintiff's business or when 'financial ruin' will result." Anderson, et al v. Lagos, et al, 2013 WL 9883967 (N.H. Super. Jan. 18, 2013), aff'd 166 N.H. 752 (2014) (citation omitted). If, however, "damages can compensate a moving party, a preliminary injunction is not appropriate." Id. (quotation omitted). See also, DeNovellis v. Shalala, 135 F.3d 58, 64 (1st Cir. 1998); Vera, Inc. v. Tug Dakota, 769 F.Supp. 451, 454 (E.D. N.Y. 1991). Injunctive relief is similarly "unwarranted where the harm will occur, if at all, only in the indefinite future." Bardsley v. Powell, et al., 916 F.Supp. 454, 458 (E.D. Pa. 1996).
Meehan argues that a preliminary injunction is necessary because he is in imminent danger of irreparable harm due to the loss of his income, and because Flatbread, Inc. is in danger of irreparable harm under the current leadership. Meehan argues that the reduction in his annual salary from $250,000 (as de facto president) to $25,000 (as a board member) constitutes irreparable harm. There is, however, no evidence that Meehan could not be compensated by damages if the Court ultimately rules in his favor on the merits. See Anderson, 2013 WL 9883967 (if "damages can compensate a moving party, a preliminary injunction is not appropriate").
Furthermore, it is undisputed that Meehan continues to receive distributions from Flatbread, Inc. In 2017, he received nearly $200,000 in distributions. That was Flatbread, Inc.'s largest amount of distributions to date. Meehan is currently on track to receive approximately the same amount in distributions in 2018, if not more. Thus, while Meehan has certainly experienced a reduction in his income, the Court is hard pressed to find that while receiving over $200,000 annually (including the distributions and his salary as a board member), plus health insurance, Meehan is suffering "irreparable harm." Moreover, the fact that Meehan waited approximately one year after his termination before filing the instant action suggests that Meehan's current financial situation is not nearly as dire as he would have the Court believe, thus militating against a finding of likely irreparable harm.
Meehan was replaced as president by Mr. Lyon in October of 2016. He did not file this action until November of 2017. Gould first informed Meehan that he was searching for Meehan's replacement in May of 2016. --------
There is similarly no evidence that Flatbread, Inc. is in danger of irreparable harm. It is doubtless true that an injunction is proper to prevent destruction of a business. Engine Specialties, Inc. v. Bombardier Ltd., 454 F.2d 527 531 (1st Cir. 1972); Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197, 1205 (2d Cir. 1970). But while "the destruction of a business is an irreparable injury which can be appropriately remedied with injunctive relief," "[a] preliminary injunction is not an appropriate remedy in circumstances where the plaintiff will experience only a partial loss of business short of complete destruction." Augusta News Co. v. News Am. Pub. Inc., 750 F. Supp. 28, 32 (D. Me. 1990) (citations omitted). In Augusta News Co., the court found that a "ten percent loss of business cannot constitute irreparable injury justifying the radical remedy of a preliminary injunction." Id. at 33. Other courts have found that loss of business well excess of ten percent would not necessarily constitute irreparable harm. See Stendig Internat'l, Inc. v. B & B Italia, S.p.A., 633 F.Supp. 27, 28 n. 3 (S.D.N.Y. 1986) (holding that loss of thirty percent of the plaintiff's business did not constitute irreparable harm justifying injunctive relief). Ultimately, the quantification can only be considered in the context of the particular business. As the Augusta News Co. court opined that "[e]ven a fifty percent loss of business . . . is insufficient to support the granting of a preliminary injunction in the absence of a clear showing by [the plaintiff] that it will thereby be destroyed." Augusta News Co., 750 F.Supp. at 33.
Here, Meehan presented no evidence that Flatbread, Inc. is in fact in danger of losing any percentage of its business or of being destroyed. Indeed, he presented no evidence that the company is in any financial distress at all. It is undisputed that in 2017, Flatbread, Inc. was able to make its largest ever disbursements, and that it is on track for to me similar disbursements in 2018. Meehan conceded at the hearing that Flatbread, Inc.'s new employees are "restaurant professionals" and that Flatbread now has a "competent experienced team in place." While Meehan's expert CPA Geher testified that that while some of Gould's use of his company credit card may have been questionable, he also testified that Gould's use did not rise to the level of an IRS violation. Geher also testified that he did not believe Flatbread, Inc. to be in any financial distress.
Furthermore, while Meehan claims that Flatbread's practice of comingling assets could prompt a creditor bank to call Flatbread's line of credit, this claim appears to be speculative at best. Meehan produced no evidence at the hearing that such an outcome was permitted by any loan documents or is at all likely. Moreover, he testified that commingling was common practice in the past and that his objection to its continuing was that such transfers were no longer needed. The Court cannot find, based on this evidence that Flatbread, Inc. is in danger of being "destroyed," and thus irreparably harmed, as a result of Gould's actions.
III
The issuance of injunctions has long been considered an extraordinary remedy. Murphy v. McQuade Realty, Inc., 122 N.H. 314, 316 (1982). A preliminary injunction is a provisional remedy that should not issue unless there is an immediate danger of irreparable harm to the party seeking injunctive relief and no adequate remedy at law. ATV Watch v. Department of Resources and Economic Development, 155 N.H. 434, 437 (2007); New Hampshire Department of Envt'l. Servs. v. Mottolo, 155 N.H. at 63. Where a court finds that a party has failed to demonstrate a likelihood of immediate and irreparable harm in the absence of injunctive relief, the court need not address the other criteria for injunctive relief, whether the petitioner has an adequate remedy at law and whether the petitioner has established a likelihood of success on the merits: "[w]here, as here, there is an insufficient showing as to both imminence and harmfulness, the very reason for granting a preliminary injunction disappears". Augusta News Co. v. News America Publishing, Inc., 750 F. Supp. at 34.
It follows that Meehan's Motion for Preliminary Injunction must be DENIED.
SO ORDERED
6/4/18
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice