Opinion
NO. 2013-CV-041
02-12-2013
Michael S. Platts v. Timothy W. Walsh and appli-tec, inc.
ORDER
The Petitioner, Michael S. Platts, ("Platts"), seeks declaratory and injunctive relief against the Respondents, Timothy W. Walsh ("Walsh") and appli-tec, inc ("appli-tec"). Specifically, Petitioner seeks a preliminary injunction prohibiting the Respondents from taking any further action in regards to Petitioner's position as an officer, shareholder, or director of appli-tec. Petitioner further requests that the Respondents be enjoined from encumbering or transferring any asset of appli-tec without a written agreement from the Petitioner or order from this Court. Petitioner also seeks an order granting him access to the appli-tec building and an order allowing him to return to work to continue his role in the management and operation of appli-tec. The Court held a hearing on the issue of preliminary injunctive relief on February 1, 2013. For the reasons stated in this Order, the Petition for Preliminary Injunction Relief and Declaratory Judgment is DENIED.
The corporation is referred to as "appli-tec, inc." in lower case letters.
I
The majority of the material facts are not in dispute. Appli-tec was incorporated in Massachusetts on April 14, 1983. The bylaws of the corporation were also created in 1983. The Petitioner began his employment with appli-tec in 1997 and became a stockholder and director at that time. As such, the Petitioner signed a number of agreements with appli-tec, including: a Proprietary Information and Noncompetition Agreement dated December 10, 1997; a Stockholders' Agreement, which allowed the corporation to repurchase his stock under some circumstances dated December 31, 1998; and an Employment Agreement also dated December 31, 1998. Respondent Walsh signed identical agreements.
On June 1, 2006, appli-tec filed an "Application for Certificate of Authority for Profit Foreign Corporation" with the New Hampshire Secretary of State. The application listed Walsh and Platts as directors of the Corporation. On September 1, 2006, the Board of Directors and Stockholders of appli-tec held a Special Joint Meeting. The minutes of the meeting identify the Petitioner as Treasurer, Secretary, and Director. Respondents' Objection to Request for Preliminary Injunction ("Objection"), Exh. E. The result of this Meeting was the first affirmative vote to surrender appli-tec's charter in Massachusetts and become a domestic corporation in New Hampshire with an address of 7 Industrial Way, Unit One, Salem, New Hampshire 03079. The minutes of the Meeting also stated that "Timothy W. Walsh and Michael S. Platts are hereby authorized to execute and file with the appropriate authorities, any and all documents on behalf of the Corporation to effectuate this resolution." The Articles of Incorporation for appli-tec were filed with the New Hampshire Secretary of State on September 28, 2006. The Massachusetts charter of appli-tec was surrendered to the Massachusetts Secretary of State on October 5, 2006.
Because the New Hampshire Business Corporation Act has no provisions for domestication of a foreign corporation, it is not uncommon to surrender the corporate charter in the state the corporation is moving from and then create articles of incorporation in this state.
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After appli-tec moved from Massachusetts to New Hampshire in 2006, the Federal Employer Identification Number for it remained unchanged. None of the shareholders declared a dividend from the surrender of the charter of the Massachusetts Corporation or took capital gains from the sale of stock in the Massachusetts Corporation. Petitioner's paychecks from appli-tec reflected the same Federal Employer Identification Number before and after the move to New Hampshire. In addition to representing to the IRS, through using the same Federal Employer Identification Number, that the Massachusetts and New Hampshire corporations are the same company, Respondent Walsh has produced a number of documents that describe appli-tec as having been established in Massachusetts and then moving to New Hampshire in 2006.
On January 14, 2013, Respondent Walsh delivered to Petitioner a notice that he was being terminated from his employment with appli-tec effective immediately. Petitioner was further advised that the Board of Directors would meet on January 25, 2013, at which time there would be a vote to terminate his employment, remove him as an officer and director of the corporation, and exercise the corporation's right to repurchase his stock in appli-tec. Upon receipt of this notice, Petitioner sought ex parte relief from the Court and the Court granted the stay of the Board of Directors meeting. The instant motion for declaratory and preliminary injunctive relief followed.
Petitioner asserts that any meeting of the Board of Directors scheduled to terminate his employment, remove him from his position as an officer and a director, and repurchase his stock in the corporation would be unlawful. Specifically, Petitioner contends the meeting would be unlawful because there are two corporations: "appli-tec Massachusetts" and "appli-tec New Hampshire." According to the Petitioner, his employment agreement is with "appli-tec New Hampshire." He asserts that when appli-tec moved to New Hampshire in 2006, no officers or directors were ever elected. Therefore, Petitioner concludes that the Board of Directors from appli-tec Massachusetts does not have the authority to hold a meeting regarding his employment with appli-tec New Hampshire or the repurchase of his stocks. Petitioner further contends that when appli-tec moved to New Hampshire, no shares were issued and no bylaws were created. Petitioner concludes that the bylaws of the Massachusetts corporation and the shareholder agreement relating to it cannot be applicable in the absence of independent bylaws and a shareholder agreement specifically established in New Hampshire.
Petitioner contends that the rights and liabilities as between the parties must be defined by this Court, rather than by the shareholder agreement and bylaws of the corporation incorporated in Massachusetts. He further concludes that he is entitled to relief enjoining the Respondents from calling to order a meeting of the Board of Directors for the purposes of terminating his employment, removing him from his position as officer and director, and repurchasing his stocks and further contends he is entitled to an order for immediate reinstatement of his position. The Court disagrees.
II
"[I]njunctive relief is an equitable remedy, requiring the trial court to consider the circumstances of the case and balance the harm to each party if relief were granted." Kukene v. Genualdo, 145 N.H. 1, 4 (2000) (citation omitted). Specifically, a "preliminary injunction is a provisional remedy that preserves the status quo pending a final determination of the case on the merits." New Hampshire Dept. of Environmental Services v. Mottolo, 155 N.H. 57, 63 (2007) (citation omitted). Whether temporary or permanent, "the issuance of injunctions . . . has long been considered an extraordinary remedy." Id. In order to obtain a preliminary injunction, a party must show that: (1) a present threat of irreparable harm exists; (2) there is no adequate remedy at law; and (3) there is a likelihood of success on the merits. ATV Watch v. New Hampshire Dept. of Resources and Economic Development, 155 N.H. 434, 437 (2007) (citation omitted).
Here, Petitioner has failed to satisfy the Court that he is likely to succeed on the merits. As a threshold matter, a corporation's bylaws and charter are considered to be contracts among a corporation's shareholders and directors. Jana Master Fund, Ltd. v. CNET Networks, Inc., 954 A.2d 335, 338 (Del. Ch. 2008). Therefore, general principles of contract interpretation apply when determining how corporate instruments such as bylaws must be interpreted. Harrah's Entertainment, Inc.v. JCC Holding Co., 802 A.2d 294, 309 (Del. Ch. 2002); Hibbert v. Hollywood Park, Inc. 457 A.2d 337, 342-343 (Del. 1983); Stolaw et al v. Greg Manning Auctions, et al, 258 F.Supp.2d 236, 249 (S.D.N.Y. 2012) (decided under New York law). In New Hampshire, where a contract is ambiguous, "it must be determined, under an objective standard, what the parties ... mutually understood the [ambiguity] to mean." Birch Broadcasting, Inc. v. Capitol Broadcasting Corp., Inc., 161 N.H. 192, 196 (2010). In making this determination, the intentions of the party "may be inferred from the situation of the parties and their actions after the contract was executed." Id. at 197. "How the parties acted with regard to the contract is considered a part of the relevant circumstances". Spectrum Enterprises, Inc. v. Helm, 114 N.H. 773, 776 (1974).
Similarly, and even in instances where the language of a corporation's bylaws are unambiguous, "courts have long held that bylaws may be amended or established by custom or by acquiescence in a course of conduct by those authorized to enact them." Franklin v. SKF USA Inc., 126 F.Supp.2d 911, 922 (E.D.Pa. 2000) (applying Delaware law), quoting In re Osteopathic Hosp. Ass'n of Del., 195 A.2d 759, 762 (Del. 1963); In re Ivey & Ellington, 42 A.2d 508, 509 (Del. Ch. 1945). "Usually the course of conduct relied on to effect the change must have continued for such a period of time as will justify the inference that the stockholders had knowledge thereof and impliedly consented thereto." Ivey & Ellington, 42 A.2d at 509. Whether a bylaw has been established by a particular course of conduct is a question of fact and the burden to establish such a course of conduct is on the party seeking to enforce the bylaws so established. Id. at 509-510.
Here, the circumstances of the creation of the New Hampshire corporation create no ambiguity about whether or not the parties intended to create a new corporation and surrender the charter of the Massachusetts corporation but arguably establishes some ambiguity about what bylaws were to govern their relationship in the New Hampshire corporation.
Considering the facts presented at the hearing, the Court finds that the Respondents have met their burden in this preliminary stage of litigation to demonstrate that the bylaws established to govern the parties' relationship when appli- tec was incorporated in Massachusetts are applicable to the corporation established in New Hampshire "by custom or by acquiescence in a course of conduct by those authorized to enact them." Franklin v. SKF USA, Inc. 126 F.Supp.2d 1922. The record reflects that Petitioner is listed as an officer and director of appli-tec. Further, the minutes from the Special Joint Meeting of the Board of Directors held in 2006 to vote on the move to New Hampshire reflect that the Petitioner and Respondent Walsh were the parties responsible for executing and filing any and all documents on behalf of the corporation with the New Hampshire Secretary of State to finalize the move. Importantly, the record also reflects the shareholders of appli-tec did not declare a dividend from the surrender of the charter of the Massachusetts Corporation nor did they take capital gains from the sale of stock in the Massachusetts Corporation. Perhaps most tellingly, the facts before the Court indicate that once appli-tec moved from Massachusetts to New Hampshire, the same Federal Employer Identification Number remained in use and appeared on Petitioner's pay checks both before and after the move. All parties before the court appear to have behaved in the years following the surrender of the Massachusetts and the New Hampshire corporation creation, as if the bylaws established to govern the former Massachusetts corporation were applicable to the new New Hampshire corporation. Based on this record, the Respondents have established that the corporate bylaws in use in Massachusetts were established by custom and acquiescence in a course of conduct once the corporation moved to New Hampshire. Therefore, those bylaws control.
It follows that Petitioner cannot sustain his burden to establish that he has a likelihood of success on the merits in his Petition for Declaratory and Injunctive Relief. Respondents are entitled to proceed with any lawful action in accordance with the bylaws of the corporation. Petitioner's request for injunctive relief must be DENIED.
SO ORDERED.
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Richard B. McNamara,
Presiding Justice
RBM/