Opinion
No. 226-2019-CV-00671
12-09-2019
Richard Ronzio, individually and derivatively on behalf of Eco Stoneworks, LLC, CRJ Properties, LLC and Eco Stone South, LLC v. Joshua Tannariello, Christopher Katsoupis, and Eco Stone USA, LLC and Eco Stoneworks, LLC, CRJ Properties, LLC and Eco Stone USA, LLC, Nominal Defendants
ORDER
Plaintiff Richard Ronzio ("Ronzio") has brought direct claims against Joshua Tannariello ("Tannariello") and Christopher Katsoupis ("Katsoupis") (collectively, the "Individual Defendants") alleging that he has been frozen out of and lost his interest in Eco Stoneworks, LLC, ("Eco Stoneworks"), CRJ Properties ("CRJ"), and Eco Stone South, LLC ("Eco South"). He and the Individual Defendants are members of Eco Stoneworks, Eco South, and CRJ. Ronzio alleges that the Individual Defendants have breached and violated the operating agreements of the LLCs, their fiduciary duties and obligations of good faith and fair dealing, and have converted corporate opportunities for their own benefit. He alleges that they have prevented him from receiving his due share of business earnings and profits and terminated his employment unlawfully. He seeks preliminary injunctive relief. For the reasons stated in this Order, the request for preliminary injunctive relief is DENIED.
The parties have filed a number of procedural motions. Defendants have filed a Motion to Strike Plaintiff's Reply Brief In Support of Plaintiff's Motion for Preliminary Injunction. The Motion is DENIED. Defendants have also filed a Motion for Leave to File a Surreply. The Motion is GRANTED. --------
I.
While the background facts in this case are not subject to dispute, the facts which relate to the rights and liabilities of the parties are in sharp dispute. The parties have briefed the Motion for Preliminary Injunctive Relief, but no evidentiary hearing has been held. The Court must therefore proceed upon the affidavits and documents filed by the parties in assessing whether or not the Plaintiff has met the standard for injunctive relief.
The parties agree that Tannariello, Katsoupis and Ronzio are the founders and equal members of Eco Stoneworks, CRJ, and Eco South. (Compl. ¶ 5.) Eco Stoneworks and CRJ are New Hampshire limited liability companies that maintain a principal place of business in Milford, New Hampshire. (Compl. ¶¶ 24-25.) Eco Stoneworks is a producer, supplier, and installer of countertops based in Milford, New Hampshire and leases space owned by CRJ to operate its business. (Compl. ¶ 32.) Eco Stoneworks was hired to complete a few jobs in Florida, and the members realized they had the potential to expand the business there. (Compl. ¶ 48.) In order to do so, Eco South was formed jointly by Tannariello, Katsoupis, and Ronzio in 2018, in Florida. (Compl. ¶ 26.) Eco South is a Florida limited liability company with a principal place of business in Miramar Beach, Florida. (Compl. ¶¶ 21, 26.) Eco South is a supplier and installer of countertops manufactured primarily in Asia and shipped directly to customer locations for installation. (Compl. ¶¶ 32-33.)
Ronzio's claims of corporate freeze-out, theft of corporate opportunities, and forced lowball buyout all have their genesis in his exclusion from the business in 2018. (Compl. ¶¶ 124-190.) There appears to be no dispute that Ronzio left the business in 2018 due to a substance abuse problem. In fact, Ronzio does not dispute that he had a substance abuse problem. (Compl. ¶ 15.) But he asserts that Tannariello and Katsoupis have "always known of" his issues with substance abuse, which have "never interfered with the success of the business and have been under control since he became verifiably clean in December, 2018." (Id.) Ronzio does not dispute that he agreed to take medical leave for drug treatment, which commenced on December 10, 2018.
But here the positions of the parties diverge. Ronzio argues the Individual Defendants insisted that he undergo drug treatment as a pretext for their plan to take over the business. (See e.g., Compl. ¶¶ 63-75.) His allegations are set forth in detail in the Complaint, which has been sworn to by Ronzio. He alleges that Katsoupis sought to eliminate a member of the LLC to increase the profits of the other 2 members and, when he would not go along with an attempt to betray Tannariello so that he could be removed, he "made himself a target." (Compl. ¶¶ 53-62.) According to Ronzio, Katsoupis and Tannariello "hatched a scheme that exploited Ronzio's need to address a long-standing issue with drug use" by "falsely promising to permit Ronzio's expeditious return to work as before once 'clean,' and to be fairly paid during his absence." (Mem. Supp. Pl.'s Mot. Prelim. Inj. Relief at 6.)
According to Ronzio:
- On December 10, 2018, [Ronzio] entered medical leave and checked into a hospital for a drug-related procedure and permanently ceased using drugs.
- On December 17, 2018, [Ronzio] was discharged from the hospital but barred from returning to work by the [Individual Defendants], who demanded that he check into a 30-day treatment program while promising (again) that he would be
welcomed back once he completed the program and would be paid "slightly" reduced compensation in the meantime. In fact, the [Individual Defendants] distributed a total of $57,000 to Ronzio while taking multiples of that amount for themselves.(Mem. Supp. Pl.'s Mot. Prelim. Inj. Relief at 6-7, citing Compl. ¶¶ 49-97.) Ronzio alleges that he relied on what he characterizes as the "deliberately deceitful statements and actions" of the Individual Defendants "by extending his stint in the drug treatment program. . . signing certain corporate documentations placed in front of him during his absence, forbearing from taking legal or other measures to force his way back into employment, and otherwise abiding by the requests of the [Individual Defendants] until he received the May 30[, 2019] letter" that "revealed the freeze-out and financial squeeze-out that they had schemed. (Mem. Supp. Pl.'s Mot. Prelim. Inj. Relief at 13.)
- On December 19, 2018, the [Individual Defendants] terminated [Ronzio] as co-Manager of the Business without telling him.
- On December 21, 2018, [Ronzio] checked into a 30-day drug treatment program and while in the program, the [Individual Defendants] insisted that [Ronzio] continue rehab for several additional months before returning to work by June 2019.
- On May 30, 2019, the [Individual Defendants] delivered a letter to [Ronzio] apprising him of his termination as a Manager and employee of the Business, and that all benefits (including medical) and compensation would immediately cease. He has since received $0 dollars as the [Individual Defendants] continue to pay themselves.
The Individual Defendants dispute Ronzio's claims and argue that their decision to remove him was made in order to restore the stability of the business. In support of their Objection to the Motion for Preliminary Injunctive Relief, the Individual Defendants have filed the Affidavit of Stephen Stepanek, a business consultant for Eco Stoneworks. He states:
3. I had done some consulting for the company when it was established. In 2018, I was engaged again. It quickly became apparent the company was experiencing
significant financial challenges due in large part to Richard Ronzio's addiction to heroin and fentanyl.(Aff. of Stephen Stepanek, in Supp. Def.'s Obj. to Pltf.'s Mot. Prelim. Inj. Relief.)
4. I personally observed Mr. Ronzio at meetings and while working at Eco in what I believed to be a very drugged state—I believe the term high as a kite would be an appropriate description. On one occasion, while outside the facility in Milford, NH (where Stone is worked on and moved with machinery) I saw Mr. Ronzio incoherent and barely functioning apparently having just taken drugs.
5. I believed as the company's business consultants—and I told the other 2 owners—that Mr. Ronzio posed a threat both to himself and to others at the company given the equipment and heavy slabs of stone that were being moved and worked on. I participated in discussions with Mr. Ronzio where we urged him to go to rehab and he resisted.
6. Ultimately, the company terminated Mr. Ronzio's employment since he was unable to perform his duties satisfactorily and was a real problem for the company, its customers and its vendors. Indeed, I had learned that his addiction was known to employees and vendors. At the time he was terminated as an employee, Mr. Ronzio was told that the company might take him back but there was no commitment in any way.
7. After he was terminated as an employee, it became increasingly apparent that Mr. Ronzio had contributed substantially to problems that the company both on the sales side and the supply side. Without Mr. Ronzio as an employee the company was substantially stronger and profitable.
Apart from his wrongful termination and freeze-out claims, Ronzio alleges that the Individual Defendants have transferred business and opportunities belonging to Eco Stoneworks and Eco South to a new entity controlled by them, Eco Stone USA. (Compl. ¶¶ 80-81, 83.) Ronzio alleges that the Individual Defendants are "cooking the books" by "placing earnings into Eco Stone USA, which [Ronzio] does not own, and related expenses. . . into Eco Stoneworks, which [Ronzio] does partially own." (Mem. Supp. Pl.'s Mot. Prelim. Inj. Relief at 8.) In support of his claims, he has provided the Affidavit of Wendy Renard, who holds a bachelor's degree in accounting, has 25 years of experience as a bookkeeper and as an accounting services provider through companies in a variety of industries, and who was employed part-time as a bookkeeper for Eco Stone works from January, 2015 through July, 2019. (Aff. of Wendy Renard, ¶¶ 2-4.) She states in relevant part:
33. During the last months of my employment, I was instructed to book all income generated from fabricated jobs to Eco Stone works and to book all income generated from prefabricated projects to Eco USA.(Aff. of Wendy Renard, ¶¶ 33-35.)
34. The business included on the books of echo USA all income and associated direct expenses (e.g., payments to subcontractors or for product), but retained all other expenses and overhead (e.g., salaries, accounting, travel) on the books of Eco Stoneworks.
35. As a result, the book value of Eco USA was artificially inflated and the book value of Eco Stoneworks artificially deflated.
However, the Individual Defendants have produced the affidavit of an accountant named Collette M. Foggo who avers that she was hired by Eco Stoneworks and Eco Stone USA to perform accounting and bookkeeping functions at the request of the Individual Defendants. Foggo recites that she was "hired to clean up the books and records." (Aff. of Foggo ¶ 2.) She further recites:
3. Wendy Renard had previously provided accounting and bookkeeping services for [Eco Stoneworks and Eco Stone USA]. In reviewing the books and records of the [Eco Stoneworks and Eco Stone USA ] that had been maintained by Wendy Renard, I found them to be in a state of disarray. I identified a number of errors and nonconformities that I have corrected or am in the process of correcting.(Def.'s Mot. Leave to File Surreply, Ex. A, Aff. of Foggo ¶¶ 3-4.)
4. In addition, the allocation of revenue and expenses among the companies needed to be completely overhauled and corrected to accurately reflect the business operations of Eco Stoneworks, Eco South and Eco USA.
Plaintiffs' Reply Memorandum and, for that matter, Defendants' Surreply Memorandum take starkly different views of the available documents. To choose just one example, Defendants assert that it was necessary to form Eco USA without Ronzio because he refused to sign a line of credit ("LOC"). But Plaintiff flatly states "[i]t is not true that [Ronzio] refused to sign a LOC for the National Aegment (Eco South), thus necessitating the formation of Eco USA without [Ronzio]." (Reply Br. in Further Supp. Pl.'s Mot. Prelim. Inj. at 5.) In support of his Reply Memorandum, Plaintiff produced an unsigned proposed affidavit of a former employee of Eco Stoneworks, Nathan Curran, which would support his position. (See id. at 4, n. 4.) However, Defendants have moved to strike the affidavit asserting that Curran refused to sign the affidavit "because it did not accurately reflect his statements or views." (Def.'s Mot. Leave to File Surreply at 5, n. 3.). Ronzio asserts that Curran refused to sign the proposed affidavit because he was offered a job at Eco Stoneworks. (Reply Br. in Further Supp. Pl.'s Mot. Prelim. Inj. at 4, n.4.)
II.
The New Hampshire Supreme Court has never explicitly adopted the tort of corporate freeze-out, although it has assumed its existence arguendo. Thorndike v. Thorndike, 154 N.H. 443, 446 (2006); Kennedy v. Titcomb, 131 N.H. 399, 403 (1989). This Court has previously held that if the question were squarely presented, the New Hampshire Supreme Court would find that majority shareholders owe an actionable fiduciary obligation to minority shareholders. See Meehan v. Gould, No. 218-2017-CV-01322, 2019 WL 3519455, at *5 (N.H. Super. July 31, 2019). Defendants do not appear to dispute that, if the facts alleged in the Complaint were true, they would state a cause of action. They focus, however, on the significant factual disputes presented by the parties' papers.
A
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. Dupont v. Nashua Police Dep't, 167 N.H. 429, 434 (2015); New Hampshire Dep't of Envtl. Servs. v. Mottolo, 155 N.H. 57, 63 (2007); see also Kukene v. Genualdo, 145 N.H. 1, 4 (2000).
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." Gordon J. MacDonald, Wiebusch on New Hampshire Civil Practice and Procedure, § 19.07, at 19-5 (4th ed. 2014). 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). Moreover, although injunctions must be rooted in an irremediable harm, a plaintiff's likelihood of success on the merits is the test's "main bearing wall." Allstate Ins. Co. v. OneBeacon American Ins. Co., 989 F. Supp.2d 143, 147 (D. Mass. 2013); see also Weaver v. Henderson, 984 F.2d 11, 12 (1st Cir. 1993) ("The sine qua non of that formulation is whether the plaintiffs are likely to succeed on the merits."). The sharply disputed positions of the parties, all supported by affidavit, make it impossible for the Court to find that the Plaintiff has established a likelihood of success on the merits. For this reason, injunctive relief is not available to the Plaintiff.
B
Moreover, even assuming that the Plaintiff had established a likelihood of success on the merits, the Court cannot find that the Plaintiff will suffer irreparable harm based on his loss of income. If "damages can compensate the moving party, a preliminary injunction is not appropriate." SEIU Health Care Mich. v. Snyder, 875 F. Supp. 2d 710 (E.D. Mich. 2012). 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).
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). This is so because "'[t]he loss of . . . an ongoing business representing many years of effort and the livelihood of its . . . owners, constitutes irreparable harm. What plaintiff stands to lose cannot be fully compensated by subsequent monetary damages.'" hiQ Labs, Inc. v. LinkedIn Corp., 938 F.3d 985, 993 (9th Cir. 2019) (quoting Roso-Lino Beverage Distributors, Inc. v. Coca-Cola Bottling Co., 749 F.2d 124, 125-26 (2d Cir. 1984); NACM-New England, Inc. v. Nat'l Ass'n of Credit Mgmt., 927 F.3d 1, 5 (1st Cir 2019). But Plaintiff has not established a likelihood on the record before the Court that the business will be destroyed unless the Court grants equitable relief.
It follows that the Motion for Preliminary Injunctive Relief must be DENIED.
SO ORDERED
12/9/19
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/