Opinion
No. 2013-CV-012
04-09-2015
Alice Finn v. Ballentine Partners, LLC, successor to Ballentine Company Inc., Ballentine Co., Inc. f/k/a as Ballentine, Finn & Co., Company, Inc., Roy C. Ballentine, Kyle Schaefer, Claudio Shilo, Andrew McMorrow and Gregory Peterson
ORDER
Plaintiff Alice Finn ("Finn") brought an action against Defendants arising out her termination as CEO and expulsion as a shareholder of a closely held corporation, Ballentine Finn & Company, Inc. ("BFI") in 2009. She was awarded $6,440,756.00 damages by a panel of arbitrators ("First Panel"). After learning that stock in BFI was sold, she brought another action seeking damages pursuant to a so-called "Claw Back" provision of the Shareholders Agreement ("SHA"). On January 24, 2013, Finn filed suit in the Merrimack County Superior Court. Finn simultaneously filed a Motion to Stay and an order seeking referral of the case involving her right to Claw Back damages to arbitration. On June 12, 2013, this Court ordered the matter be referred to arbitration as her claim grows out of the SHA. A panel of arbitrators ("Second Panel") awarded Finn $600,000, and she has filed a Petition to Confirm the Award. Defendants object and have filed a Motion to Vacate the Award in Part. For the reasons stated in this Order, Defendants' Motion to Vacate the Award in Part must be GRANTED and Finn's Motion to Affirm the Award must be DENIED.
I
This case has a lengthy procedural history, which is detailed in the two arbitration awards that preceded this case. Finn and Roy Ballentine founded BFI in 1997 as a New Hampshire subchapter S corporation, with each owning one half of the company's stock. Prior to 2008, BFI sold some of the stock to four other individuals. In 2008, the other shareholders forced Finn out. BFI terminated her employment, and the remaining shareholders asserted they terminated her for cause. BFI then exercised its right to purchase Finn's shares at the price set in the Shareholder Agreement ("SHA") for "for cause" terminations. That price was 1.4 times earnings, which was lower than the fair market value of the shares at the time of the purchase of Finn shares by BFI.
Finn disputed the termination, and the case went to arbitration pursuant to the SHA. In 2009, the First Panel, consisting of Hon. Allen Van Gestel, Hon. Bruce Mohl and George Moore, Esq., entered an award in Finn's favor, finding that the termination was unlawful and awarding Finn $5,721,756.00 for the stock BFI forced her to sell at 1.4 times earnings (the "First Arbitration"). The $5,721,756.00 award was approximately 1.9 times earnings. The First Panel also awarded Finn $720,000.00 in lost wages, for a total award of $6,441,756.00. No appeal of this award was taken by either party.
Because the First Panel was concerned that BFI would not have sufficient liquidity to pay the award immediately, it authorized Defendants to pay part of the award to Finn immediately and authorized periodic payments through December 31, 2012. (Second Panel Award at 2.) In December 2009, just a few months after the First Panel issued its award, BFI, a subchapter S corporation, formed a LLC known as Ballentine Partners LLC ("BPLLC"). (Id.) BFI contributed all of its assets and certain of its liabilities to BPLLC and became its sole member with 100% of the outstanding membership interests. (Id. at 3.) On January 12, 2010, BFI changed its name to Ballentine & Company. (Id.)
Following the reorganization, Perspecta Investments, LLC ("Perspecta") purchased 4000 preferred units (reclassified shares) in BPLLC from Ballentine & Company (formerly BFI) equaling 40% membership interest in the business. (Id.) According to Defendants, it was necessary to sell some of the company stock to Perspecta in order to raise cash to satisfy the arbitration award. Under the First Panel Award, Finn was awarded $5,721,756 representing the discounted fair market value of her 37.5 percent interest in BFI. (Second Panel Award at 2.) Perspecta paid $7,000,000 for a 40 percent share in BPLLC (formerly BFI) plus a $280,000 capital contribution. (Id. at 3.)
Prior to her wrongful expulsion, Finn had held 37.5% of the shares of BFI.
Finn brought an action in this Court in 2013, alleging that she is entitled to relief under the "Claw Back" provisions of the SHA, which are contained in section 11 of the SHA. It provides as follows:
With her Complaint, she filed a Motion to Compel Arbitration.
In the event that, within eight years of a Shareholder's sale of Founders' Shares pursuant to this Agreement (other than following a Discharge for Cause), there is either a Sale of the Corporation or the acquisition of Shares by an Acquirer, then the following provisions will apply:
11.1. The purchase price per Founders' Share determined under Section 7 shall be adjusted, and the Corporation or other Shareholders who purchased the Shareholder's Founders' Shares shall pay to the selling Shareholder, an amount per Share equal to the product of:
11.1.1. the amount by which the price per Share that was paid to the selling Shareholder is exceeded by the consideration per Share received by Shareholders in the Company Sale transaction or sale of an Acquirer . . . .
(SHA § 11.)
The parties apparently agreed that Finn was a "Founder" within the meaning of the SHA.
The parties apparently agreed that Finn was a "Founder" within the meaning of the SHA.
The "purpose of the Claw Back provision is to ensure that a Founder who sells his or her shares receives a portion of the profits from resale at a higher amount[.]" (Pl.'s Obj. 14.) Finn argued that Perspecta was an "Acquirer" within the meaning of the SHA. Under the SHA, an "Acquirer" is "any Person that acquires Shares in the Corporation primarily for investment purposes in an arm's length transaction, and is not actively and continuously involved in the day-to-day activities of the Corporation as an employee." (SHA § 1.2.)
Defendants argued in this Court in 2013 that Finn's claim was barred by principles of claim preclusion, and moved to dismiss. However, on June 12, 2013, this Court held that Finn's motion to stay proceedings and compel arbitration must be granted, and the issue of claim preclusion must be decided in arbitration. See (Order dated June 12, 2013 (McNamara, J.) (court index #23).) The parties selected three new arbitrators ("Second Panel"). The Second Panel considered and denied Defendants' res judicata and collateral estoppel defense. (Finn's Obj. to Mot. To Vacate in Part Ex. F.) After a five-day hearing, the Second Panel awarded Finn $600,000.00. Finn has moved to confirm the Second Panel's arbitration award in this Court, and the Defendants have objected and filed a Motion to Vacate the Award in Part.
II
Finn sought compensation under the "Claw Back" provision contained in section 11 of the SHA for the difference between what she was awarded for her 37.5% interest in BFI by the first panel ($5,721,756.00) and the sum BPLLC received from Perspecta for its shares in the LLC. She advanced numerous causes of action in her Statement of Claims in arbitration to recover the disputed funds: (1) Breach of Contract; (2) Breach of the Covenant of Good Faith and Fair Dealing; (3) Fraud; (4) Negligent Misrepresentation; (5) Violation of the New Hampshire Consumer Protection Statute, RSA chapter 358-A; (6) Unjust Enrichment; and (7) Declaratory Relief. (Second Panel Award). The Second Panel ruled against Finn on all of her claims except for the Unjust Enrichment claim. No party challenges the rulings on any claim except for the Unjust Enrichment claim; Finn seeks to confirm it and Defendants seek to vacate it.
A
In order to understand the Second Panel's reasoning in finding for Finn on the Unjust Enrichment claim, and Defendants' argument of claim preclusion, it is necessary to examine their decision on the contract claim in detail. The Second Panel found that "the findings of the first panel essentially resolve Finn's contract claim for 'Claw Back' benefits because the predicate facts needed to support a contractual 'Claw Back' claim were found against Finn by that panel." (Second Panel Award at 4.) The Second Panel found that based on the clear language of section 11 of the SHA, a seller of Founders' Shares, such as Finn, would be entitled to a future price adjustment for "Claw Back" benefits on a subsequent sale only in the event that three (3) conditions were met. First, the Founders' Shares had to have been purchased by BFI or its shareholders pursuant to the SHA. Second, the price paid for the shares purchased from the Founder must have been determined under section seven of the SHA. Third, there must be a sale of the corporation or the acquisition of shares by an acquirer from BFI or its successor or its shareholders within eight years of the original sale. (Id. at 5-6.)
At the second arbitration, the Defendants conceded that Perspecta was an "Acquirer" within the meaning of the SHA. But the Second Panel recognized that the First Panel found that Finn was involuntarily terminated without cause and that BFI and its Shareholders could not, therefore, have purchased her shares pursuant to the SHA, because involuntary termination without cause was not one of the enumerated "Events of Termination" triggering the option. (Id. at 6-7.) It also recognized that the First Panel had determined that the purchase price for Finn's shares could not be determined under section seven of the SHA because no option to purchase existed. (Id. at 7.) The Second Panel noted:
In fact, in the first arbitration Finn claimed that because her termination was wrongful and not permitted under the Shareholder Agreement, the purchase of her Founders Shares was not—and could not be—made "pursuant to the Agreement" and that the price for her shares could not, therefore, be "determined under section 7." Finn originally sought but elected not to pursue rescission of her stock sale to BFI, even though she believed the purchase of her stock was not allowed by the Shareholder Agreement. Rather, she opted not to seek the return of her stock and merely sought damages for the fair market value of her stock (independent of the specific pricing mechanism in Section 7).(Id. at 7 (emphasis added).)
The Second Panel stated that the First Panel had agreed that Finn's shares could not be valued independently under section seven of the SHA, and independently valued Finn's stock and awarded monetary damages. The First Panel had specifically addressed whether the 1.4 times revenue calculation in section seven of the SHA could be used as a measure of value and determined that "[o]n balance, the 1.4 multiple should be viewed as a 'fair' value to be paid when dealing with internal transfers of stock." (Second Panel Award at 8 (quoting First Panel Award).) The First Panel used a multiple of 1.9 times revenue for Finn's claim.
The Second Panel noted that Finn's position before it with respect to the "Claw Back" was "contrary to the position she advanced before the first panel and that served as the very basis of her award by the first panel." (Second Panel Award at 8.) Finding that Finn was bound by the First Panel's ruling that her stock was not purchased pursuant to the SHA and noting that she had filed no post-award motions and took no appeals, the Second Panel concluded that she "can't now change horses" and found that Finn had "no valid contract claim to 'Claw Back benefits.'" (Id. at 10.) Because the Second Panel found that Finn had no valid contract claim, it found no breach of any covenant of good faith and fair dealing. (Id.) However, the Second Panel did find in her favor on her unjust enrichment claim.
B
Finn argued she was entitled to unjust enrichment damages because "if she is not allowed to recover the difference between what the First Panel awarded her for her stock ($5,721,756) and what BPLLC received when it sold what was essentially her interest to Perspecta [the sale price was $7,280,000], the [Defendants] will be unjustly enriched." (Second Panel Award at 13.) As the Second Panel made clear:
Finn asserts that the only reason she is in a position where she was forced to sell her stock to BFI in January 2008 when she otherwise would not have done so is because the Respondents acted wrongfully by terminating her and purportedly exercising their option to purchase her Founders' Shares. Had Finn sold her stock under an "Event of Transfer," she would have been contractually entitled to "Claw Back" benefits when her shares were later sold by Ballentine & Company to Perspecta.(Second Panel Award at 13-14.)
Defendants argue that Finn's counsel admitted that her unjust enrichment claim was identical to the relief she would have received if the contractual "Claw Back" provision of the SHA applied. They argued that Finn could have taken her damage award for loss of wages and remained an investor or, in the alternative, sold her shares to BFI at the price multiple under section seven of the SHA—1.4 times revenue—and retained her contractual right to "Claw Back" benefits. Defendants, therefore, argued that because there was a contractual agreement between the parties—the SHA, covering the subject matter of the current dispute—Finn had no extra-contractual right to seek an equitable remedy, citing Axenics v. Turner Construction Co., 164 N.H. 659, 661 (2013).
The Second Panel rejected these arguments, because the First Panel had held that even if Finn had pursued rescission, "it was neither reasonable nor practical to try to undue [sic] the damage already done." (Second Panel Award at 17.) Because of the Defendants' wrongdoing, Finn, a Founding Shareholder, Director, and Executive Officer, could not effectively or realistically have been restored to her former position. (Id. at 17.) As the First Panel colorfully put it: "[h]ere it is far too late to restore the egg to its prior condition; it is broken beyond repair." (Second Panel Award at 17 (quoting First Panel Award at 27).)
The Second Panel found that the possible solutions that the Defendants argued were available to Finn to retain her contractual "Claw Back" rights "were not required under the Shareholder Agreement and neither was embraced by the first panel." (Second Panel Award at 18.) The crux of the Second Panel's conclusion was that:
While we agree with the Respondents that an unjust enrichment claim cannot be advanced where there is an available contract remedy identified, that legal principle cannot equitably pertain where the breaching party has, because of its wrongdoing, effectively eliminated the opposing party's contractual remedy, as happened here.(Id. at 19.)
To determine the amount of the award, the Second Panel used the "Claw Back" methodology, noting that the "sale price [of the stock purchased by Perspecta] does not lend itself to mathematical engineering." (Id. at 24.) The Second Panel awarded Finn $600,000 but emphasized that it was not awarding contractual "Claw Back" damages but "granting [Finn] equitable relief because Respondents wrongful conduct made contractual relief impossible." (Id.) Defendants do not challenge the Second Panel's calculation of damages, but rather challenge Finn's right to damages at all.
Among other things, the Claw Back methodology was based in part upon how long after the Founder left that BFI shares were sold. (Second Panel Award at 21.)
III
A
Arbitration awards are entitled to deference by courts. RSA 542:8 provides, in relevant part:
At any time within one year after the award is made any party to the arbitration may apply to the superior court for an order confirming the award, correcting or modifying the award for plain mistake, or vacating the award for fraud, corruption, or misconduct by the parties or by the arbitrators, or on the ground that the arbitrators have exceeded their powers. Where an award is vacated and the time within which the agreement required the award to be made has not expired, the court may in its discretion, direct a rehearing by the arbitrators or by new arbitrators appointed by the court.
By the terms of the statute, an arbitration award may be corrected or modified only upon a showing that the arbitrator committed "plain mistake." John A. Cookson Co. v. N.H. Ball Bearings, 147 N.H. 352, 356 (2001). An arbitration award may be vacated for plain mistake when it is determined that an arbitrator misapplied the law to the facts. Sherman v. Graciano, 152 N.H. 119, 120 (2005); Masse v. Commercial Union Ins. Co., 134 N.H. 523, 525 (1991).
At oral argument on the motions in this case, Finn suggested that a New Hampshire court's review of an arbitrator's application of the law is narrow. Finn asserted that even if the court disagrees with an arbitrator's interpretation of law, the reviewing court may not disturb it. This is the law in the federal courts, interpreting the Federal Arbitration Act, 9 U.S.C. § 9. For example, in First State Ins. Co. v. National Cas. Co., the Court noted:
A federal court's authority to defenestrate an arbitration award is extremely limited. Here, the sole inquiry is whether the arbitrators "even arguably" construed the underlying agreements and, thus, acted within the scope of their contractually delineated powers. A legal error (even a serious one) in contract interpretation is, in and of itself, not a sufficient reason for a federal court to undo an arbitration award. Only if the arbitrators acted so far outside the bounds of their authority that they can be said to have dispensed their "own brand of industrial justice" will a court vacate the award. Put another way, as long as an arbitration award "draw[s] its essence" from the underlying agreement, it will withstand judicial review—and it does not matter how "good, bad, or ugly" the match between contract and the terms of the award may be.First State Insurance Co. v. National Cas. Co., No. 14-1644, 2015 WL 1263147, at *3 (1st Cir. March 15, 2015) (internal citations omitted).
In holding that an arbitrator did not exceed his powers in authorizing class arbitration, the United States Supreme Court noted that under federal law, because the parties bargained for the arbitrator's construction of the agreement, an arbitral decision even arguably construing or applying the contract must stand, "regardless of the court's view of its (de)merits." Oxford Health Plans v. Sutter, 133 S.Ct. 2064, 2068 (2013). The rare circumstance in which an arbitrator's decision may be voided under federal law is illustrated by Stolt-Neilsen, in which arbitrators held that class arbitration should be allowed under the parties' arbitration clause because the agreement was silent on the issue, and they believed that arbitration should be allowed as a matter of sound policy. Stolt-Neilsen v. AnimalFeeds Int'l Corp., 559 U.S. 662, 674-75 (2010). In such a case, the arbitrator exceeds his powers, because the task of an arbitrator is to interpret and enforce a contract, and not make public policy.
It is apparent that this view of the law is different from that taken by the New Hampshire Supreme Court, which affords no deference to an arbitrator's determination as to what the controlling law is. For example, in New Hampshire Ins. Co. v. Bell, the Court set aside an arbitrator's decision as to whether intra-policy stacking of uninsured motorist benefits was permissible under the insurance policy issued to the defendant, noting that "[this] purely legal issue is ultimately for this court to determine." 121 N.H. 127, 129 (1981). Similarly, in Walsh v. Amica Mut. Ins. Co., the Court considered the issue of whether or not an arbitration panel was plainly mistaken in concluding that the plaintiff's injury arose out of the use of an underinsured motor vehicle by interpreting the "arising out of" language of the policy de novo, affording the arbitrators' award no deference. 141 N.H. 374, 375-76 (1996).
In Sherman v. Graciano, the New Hampshire Supreme Court reviewed an arbitrator's determination of contract ambiguity using the same rules of contract interpretation that it would have used had it been reviewing the determination of the trial court. 152 N.H. at 121 ("Because the agreement is a contract, we apply the general rules of contract interpretation in our review . . . [w]e conclude that art. II, section c is not ambiguous and that it clearly provides that a departing physician is entitled to receive twenty five of the collections received by the entire corporation. Language exists in the agreement to support the conclusion . . . .").
Finn does not argue that the federal standard is mandated by principles of preemption. The Court must therefore examine the Second Panel's Award to determine if it complies with New Hampshire law.
Cf. Marmet Health Care Center Inc. v. Brown, 132 S.Ct. 1201 (2010) (holding that a West Virginia Supreme Court decision that an arbitration clause in a nursing home admission agreement violated West Virginia public policy was preempted by the Federal Arbitration Act).
B
In this case, the Defendants do not challenge the facts found by the Second Panel; rather, they challenge the application of the law to those facts. Defendants seek only to vacate that portion of the Award by which the Second Panel granted Finn damages on a claim of unjust enrichment. (Defs.' Mot. to Vacate Award in Part, ¶ 1.) Defendants make a number of arguments. First, Defendants argue that the Second Panel's finding that res judicata did not bar Finn's claim constitutes plain mistake. (Defs.' Mem. of Law Supp. Mot. to Vacate in Part at 11.) Second, Finn argues that the Second Panel also erred in finding an exception to the rule of Axenics, 164 N.H. at 659, which prevents a party from recovering on a theory of unjust enrichment when there is a valid, express contract covering the subject matter at hand. Finally, Defendants argue that the panel erred by failing to dismiss Finn's unjust enrichment claim on the grounds of judicial estoppel. Because the Court finds that Finn's claim is barred by settled principles of res judicata, the Court need not consider the latter two arguments.
C
Res judicata bars the relitigation of any issue which was determined, or could have been determined, in a prior action. Appeal of Town of Seabrook, 163 N.H. 635, 654 (2012). Under New Hampshire law, two causes of action are the same for res judicata purposes when they arise from the same factual transaction. Dillon v. Select Portfolio Servicing, 630 F.3d 75, 81 (1st Cir. 2011). In Eastern Marine Constr. Corp. v. First Southern Leasing, the Court, citing Restatement (Second) of Judgments, embraced the modern trend "to define cause of action collectively to refer to all theories on which relief could be claimed on the basis of the factual transaction in question" and "rejected the view that the term is synonymous with the particular legal theory in which a party's claim or relief is framed." Eastern Marine Const. Co. v. First Southern Leasing, 129 N.H. 270, 274-75 (1987) (citing RESTATEMENT (SECOND) OF JUDGMENTS §§ 24-25). Reviewing the reported decisions of the New Hampshire Supreme Court, the United States Court of Appeals for the First Circuit has noted that the New Hampshire Supreme Court has repeatedly defined res judicata with reference to the Restatement (Second) of Judgments. Sutcliffe v. Epping School Dist., 584 F.3d 314, 325 (1st Cir. 2009). Section 24 of the Restatement, titled "Dimensions of 'Claim' for Purposes of Merger or Bar-General Rule Concerning 'Splitting,'" provides:
(1) When a valid and final judgment rendered in an action extinguishes the plaintiff's claim pursuant to the rules of merger or bar (see §§ 18, 19), the claim extinguished includes all rights of the plaintiff to remedies against the defendant with respect to all or any part of the transaction, or series of connected transactions out of which the action arose.
(2) What factual grouping constitutes a "transaction", and what groupings constitute a "series", are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.
Citing this section, the New Hampshire Supreme Court has stated that the doctrine of res judicata "bars the relitigation of any issue that was, or might have been raised with respect to the subject matter of the prior litigation . . . . The claims extinguished include all rights to remedies with respect to all or any part of the transaction or series of connected transactions, out of which the first action arose." Grossman v. Murray, 141 N.H. 265, 269 (1969). "Cause of action" has been defined as "the right to recover, regardless of the theory of recovery." Eastern Marine Const. Co., 129 N.H. at 274.
The New Hampshire Supreme Court has adhered to the Restatement rule which is followed by the majority of American courts. Kalil v. Town of Dummer Zoning Board of Adjustment, 159 N.H. 725, 730 (2009). The rule is, obviously, intended to promote certainty in legal relations and to promote judicial economy by limiting repetitive litigation. Osman v. Gagnon, 152 N.H. 359, 362 (2005); see generally G. MacDonald, 5 Wiebusch on New Hampshire Civil Practice and Procedure § 57.19 (2010). Plainly, the "Claw Back" claim arises from the transaction that was the subject of the first arbitration. Finn does not argue otherwise.
Defendants argue that the Second Panel committed plain error in finding that Defendant's conduct prevented Finn from obtaining or retaining her "Claw Back" rights. According to Defendants:
Finn had two options available to her to preserve the Claw Back: (1) sell her shares at 1.4 times revenue and hope for a Claw Back amount; or (2) retain her shares and exercise the control those shares gave her.(Defs.' Mem. Supp. Mot. to Vacate at 21.)
The First Panel found that rescission was not practical, even if Finn had pursued it, because it was neither reasonable nor practical to try to undo the damage already done. (Second Panel Award at 17.) The First Panel recognized that "because of the [Defendant's] wrongdoing a Founding Shareholder, Director and Executive Officer . . . [Finn] could not effectively or realistically be restored to her former position." (Second Panel Award at 17 (quoting First Panel Award at 28).) The First Panel stated:
Rescission is an equitable remedy [and] the circumstances of [this] particular case may not favor its employment. Indeed, Finn does not seek rescission, thereby "having a knowledgeable choice of damages instead of rescission." Consequently, we find that the interests of the corporation and of Finn will be furthered best by limiting [her] remedy to an assessment of damages.(First Panel Award at 28 (internal citations omitted and emphasis supplied).)
The Second Panel also recognized that Finn had made an election of remedies in the first arbitration:
[I]n the first arbitration Finn claimed that because her termination was
wrongful and not permitted under the Shareholder Agreement, the purchase of her Founders' Shares was not-and could not be-made "pursuant to the Agreement" and that the price for her shares could not, therefore, be "determined under Section 7." Finn originally sought but elected not to pursue rescission of her stock sale to BFI, even though she believed the purchase of her stock by BFI was not allowed by the Shareholder Agreement. Rather, she opted not to seek the return of her stock and merely sought damages for the fair market value of her stock . . . .(Second Panel Award at 7 (emphasis supplied).)
Defendants recognize that the Second Panel rejected the first option of reinstatement as one that Finn was not required to exercise because being a passive investor, even one with a "trump card" vote, was not an acceptable option. (Defs.' Mem. Supp. Mot. to Vacate at 21-22.) Defendants argue that "[b]ut while these options may not have been acceptable to Finn, if she placed a high value on her Claw Back rights, they were clearly available to her." (Id. at 22.)
The Court agrees. In substance, the First Panel found that Finn did not fail to mitigate her damages by not seeking rescission or by allowing her shares to be purchased at 1.4 times earnings. This ruling was plainly correct. As a general rule, a party cannot recover damages for loss he could have avoided by reasonable efforts. See Grenier v. Barclay Square Commercial Condo. Owners' Ass'n, 150 N.H. 111, 119 (2003) (recognizing that a party seeking damages "must take all reasonable steps to lessen his or her resultant loss."). As the Restatement notes,
[I]t is sometimes said that it is the "duty" of the aggrieved party to mitigate damages but this is misleading, because he incurs no liability for his failure to act. The amount of loss that could reasonably have been avoided by stopping performance, making substitute arrangements or otherwise is simply subtracted from the amount that would otherwise have been recoverable as damages.RESTATEMENT (SECOND) OF CONTRACTS § 350, cmt. B.
The Defendants bore the burden in the first arbitration of proving that the Plaintiff failed to mitigate her damages, Grenier, 150 N.H. at 119, and the law does not require the Plaintiff to have made a perfect decision, but only a reasonable one. See Joseph M. Perillo, Corbin on Contracts, § 57.11 (2005) ("The doctrine of avoidable consequences merely requires reasonable efforts to mitigate damages."). The finding by the First Panel that Finn was not required to repurchase her stock and seek reinstatement was essentially a factual finding that Finn was not required to mitigate her damages by seeking rescission or reinstatement. This factual finding, for which there is ample evidence, establishes that Finn made an election of remedies in the first arbitration. Finn never appealed the First Panel's finding, and it is binding upon her. (Def.s' Mem. Supp. Mot. to Partially Vacate Award at 20 n. 16.)
Defendants also argue that "by virtue of the [First] Panel's award of fair market value, Finn actually did receive the benefits she claimed the 'Claw Back' was designed to give her. (Defs.' Mem. Supp. Mot. To Vacate in Part at 23) (emphasis omitted). The argument that the Second Panel made Finn whole, as the First Panel claimed to do, has support in the Second Panel's Award itself:
By allowing Finn to secure equitable "Claw Back" benefits under a theory of "unjust enrichment," we find the path for calculating contractual "Claw Back" benefits under the Shareholder Agreement to be instructive but not binding. We are crafting an equitable remedy, not a contractual one. Our goal, as was the goal of the first panel, is to make Finn "as whole as possible" and to recognize her "reasonable expectations."
Defendants also argue that even if Plaintiff could not have sought rescission, she could have argued for inclusion of "Claw Back" damages by seeking equitable relief:
[Finn] could have asked the [First] Panel to grant her the right to a future Claw Back as part of its award. Had the panel concluded that such an award was merited based on its view of the Defendants' conduct and the other findings it made in the [First] Arbitration, Finn would have avoided the bar of res judicata and Defendants could have challenged that award if they chose to do so.(Id. at 24.) The Second Panel simply did not address this claim.
Finn has set forth no reason why she could not have sought an equitable remedy in the first arbitration to ensure that she would have been in the same position that she would have been but for the breach of the SHA and for the wrongful termination. She could have requested a remedy that paralleled the remedy available to her in the "Claw Back" provisions of the agreement. She does not dispute that the First Panel awarded equitable remedies such as periodic payments of her award or remedies contingent upon future events including appointment of a CPA to monitor Defendants' obligation to pay Finn either 1.4 million or 14% of BFI's gross revenues, whichever is higher, Ballentine's obligation to execute documents relating to life insurance, and Finn's obligation to execute documents after payment was finalized. (Id. at 18.) The Court assumes that damages for Claw Back rights were likely too speculative at the time of the first trial for the arbitrators to make a monetary award, or include them in their valuation of Finn's stock. Van Hooijdonk v. Langley, 111 N.H. 32, 34 (1971); Wilko of Nashua, Inc. v. Tap Realty, 117 N.H. 843, 849-50 (1977). But as Defendants note in their reply:
Indeed, the fact that she did not do so suggests, but does not establish, that the First Panel's award was intended to compensate her for all potential losses from breach of the agreement and wrongful termination, including the potential for "Claw Back" damages.
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But even if, for argument's sake, it is assumed that calculation of such damages was too speculative at the time of the [first] arbitration, there was an easy solution to the problem. As Defendants pointed out in their Memo (at 17), Finn has never explained why she could not have asked the [First] Panel to award additional damages for loss of the Claw Back as a future remedy if, in fact, a sale occurred in the future . . . .(Defs.' Reply to Finn's Obj. to Vacate Second Arbitration Award in Part at 11.)
There is no question that the [First] Panel could have awarded contingent, future relief. The proof on that point is that it did so . . . .
IV
But whether Finn could have obtained a remedy other than the remedy she received in the first arbitration is irrelevant to the issue of res judicata. It is well settled that "a subsequent suit based on same cause of action as a prior suit is barred even though the plaintiff is prepared in the second action (1) to present evidence or grounds or theories of the case not presented in the first action, or (2) to seek remedies or forms of relief not demanded in the first action." Eastern Marine Const. Corp., 129 N.H. at 275 (citing RESTATEMENT (SECOND) OF JUDGMENTS § 25). The Court finds the New Hampshire Supreme Court's citation to the Restatement (Second) of Judgments critical. Comment C to the RESTATEMENT (SECOND) OF JUDGMENTS § 25, titled "Attempts to recover increased damages," provides in relevant part:
Typically, even when the injury caused by actionable wrong extends into the future and will be felt beyond the date of judgment, the damages awarded by the judgment are nevertheless supposed to embody the money value of the entire injury. Accordingly, if a plaintiff who has recovered a judgment against a defendant in a certain amount becomes dissatisfied with his recovery and commences a second action to obtain increased damages, the court will hold him precluded; his claim has been merged in the judgment and may not be split. It is immaterial that in trying the first action he was not in possession of enough information about the damages past or prospective or that the damages turned out in fact to be unexpected larger and in excess of the judgment. . . .RESTATEMENT (SECOND) OF JUDGMENTS § 25, cmt. C (emphasis supplied).
This rule has been applied by a number of courts. Illustrative is Diaz v. Indian Head Inc., 686 F.2d 558, 564 (7th Cir. 1982), in which the court held that a plaintiff who had been wrongfully terminated could not bring an action to recover fringe benefits which could not be reliably determined until after the trial of the case concluded. The court noted that "the question could have been resolved either by declaratory and injunctive relief or by a determination of liability which would have been res judicata in suits for future installments." Id. at 563 (citing Gasbarra v. Ohio-Park Industries, 655 F.2d 119, 121 (7th Cir. 1981)); see also Savvidis v. City of Norwalk, 21 A.3d 842, 846 (Conn. App. Ct. 2011) (rejecting a claim that a later claim for damages arising under the City's denial of a certificate of occupancy could not have been brought in the first action because the financial damages could not been only ascertained, noting that damages resulting from a single wrong are routinely sought in the same action and not through piecemeal or repetitive litigation); Johnson v. SCA Disposal Services of New England, 931 F.2d 970, 976 (1st Cir. 1991).
V
Consideration of New Hampshire law prohibiting claim splitting leads inexorably to the conclusion that the arbitrators misapplied New Hampshire law, and thereby fell into plain mistake. Moreover, while the prohibition against claim splitting can produce harsh results in some circumstances, it causes no unjust result here, where Finn's counsel, based on the record before this Court, "at least had professionally imputed, if not actual, knowledge" of the potential for further damages, and Finn elected the remedy she received. Johnson, 931 F.2d at 976. The Second Panel's application of the rules of res judicata is flatly inconsistent with settled New Hampshire law. See Eastern Marine Const. Co., 129 N.H. at 274-75; RESTATEMENT (SECOND) OF JUDGMENTS § 24. As a result, Defendants' Motion to Vacate the Award in Part must be GRANTED and Finn's Motion to Affirm the Award must be DENIED. SO ORDERED. 4/9/15
DATE
s/Richard B. McNamara
Richard B. McNamara,
Presiding Justice
RBM/
(Defs.' Memo. Supp. Mot. To Vacate in Part at 23) (citing Second Panel Award at 19). However, the Second Panel's finding that Defendants were unjustly enriched is premised upon factual findings. Factual findings can be set aside by a court only by showing that the arbitrators committed "plain mistake." John A. Cookson Co., 147 N.H. at 356. Such a showing has not been made in the instant case.