Opinion
No. 218-2019-CV-198
04-27-2020
Legacy Global Sports, LP v. John St. Pierre, Travis Bezio, and North Atlantic Hockey, LLC d/b/a The Rinks at Exeter
ORDER
This case involves a dispute between Legacy Global Sports, LP ("Legacy") and 2 of its former employees, John St. Pierre ("St. Pierre") and Travis Bezio ("Bezio"). St. Pierre was a former CEO and Board member of Legacy who was removed from the Legacy Board and terminated. Bezio is a former officer of Legacy who was also terminated. In substance, Legacy claims that St. Pierre and Bezio violated their duties to Legacy by usurping corporate opportunities and using corporate resources for their own benefit while competing with Legacy through a corporation they controlled called North Atlantic Hockey, LLC, d/b/a The Rinks at Exeter ("the Rinks"). St. Pierre and Bezio dispute Legacy's claims and have brought a number of Counterclaims, seeking damages for wrongful termination, breach of contract, and fraudulent inducement.
The case has been pending since 2019 and has been the subject of considerable motion practice. A Second Amended Complaint ("SAC") has been filed and Defendants have responded. The parties have filed a number of pleadings in this case, and the Court addresses them in turn. Defendant has moved to dismiss Counts I and IV (Breach of Fiduciary Duty), Count XI (Conspiracy), and Counts XV and XVI ("Tortious Interference with Advantageous Contractual Relationships") of Legacy's SAC. For the reasons stated in this Order, the Rinks' Motion to Dismiss Counts I and IV is GRANTED; the Rinks' Motion to Dismiss Count XI is GRANTED; the Rinks' Motion to Dismiss Count XII is GRANTED WITHOUT PREJUDICE; and the Rinks' Motion to Dismiss Counts XV and XVI is GRANTED.
Legacy has moved to dismiss Count I (Wrongful Termination), Count II (Breach of Grant Agreement), Counts IV and V (Breach of Covenant of Good Faith and Fair Dealing), Count VI (Fraudulent Inducement), Count VII (Respondeat Superior), Count IX (Declaratory Judgment-Indemnification), Count X (Declaratory Judgment-Return of Board Seat), Count XI (Withholding of Company Records), and Count XII (Corporate Freezeout) of St. Pierre's Counterclaims. For the reasons stated in this Order, Legacy's Motion to Dismiss Count I (Wrongful Termination) is DENIED; Legacy's Motion to Dismiss Count II (Breach of Grant Agreement) is DENIED; Legacy's Motion to Dismiss Counts IV and V (Breach of Covenant of Good Faith and Fair Dealing) is GRANTED; Legacy's Motion to Dismiss Count VI (Fraudulent Inducement) is DENIED; Legacy's Motion to Dismiss Count VII (Respondeat Superior) is GRANTED; Legacy's Motion to Dismiss Count IX (Declaratory Judgment-Indemnification) is DENIED; Legacy's Motion to Dismiss Count X (Declaratory Judgment-Return of Board Seat) is DENIED WITHOUT PREJUDICE; and Legacy's Motion to Dismiss Count XII (Freezeout) is GRANTED.
Legacy has also moved to Dismiss or Stay Counterclaims brought by the proposed Intervenor, Maxick. Legacy's Motion to Dismiss is GRANTED WITHOUT PREJUDICE to any proceedings in the Delaware Courts.
I. The Rinks' Motion to Dismiss.
A. Counts I and VI: Breach of Fiduciary Duty
The Rinks seeks to dismiss Plaintiff's claim set forth in Counts I and VI of aiding and abetting a breach of fiduciary duty by St. Pierre and Bezio. Legacy asserts that St. Pierre and Bezio breached their fiduciary duties in part "by launching academy programs at [the Rinks], pursuing international programs and the expansion opportunity of a dormitory that should have been presented to Legacy." (SAC ¶¶ 86, 113.) Legacy also asserts that the Rinks hosted a showcase tournament with college coaches and professional scouts which competed improperly with Legacy. (SAC ¶ 56.) Legacy also asserts that the Rinks "substantially assisted" and "benefited from" its alleged breaches. (SAC ¶¶ 89 (as to St.Pierre), 116 (as to Bezio).)
The Rinks argues that the New Hampshire Supreme Court has never expressly adopted the tort of aiding and abetting a breach of fiduciary duty, citing Invest Almaz v. Temple-Inland Forest Prods. Corp., 243 F.3d 57, 82 (1st Cir. 2001). While this statement is correct, the First Circuit has concluded that if the question were squarely presented, the New Hampshire Supreme Court would accept the doctrine in accordance with the formulation of the Restatement (Second) of Torts § 876(b). Id. at 82-83. Under the Restatement, a person may be liable for aiding and abetting a breach of fiduciary duty if there is (1) a breach of fiduciary obligations, (2) knowing inducement or participation in the breach by the one aiding and abetting, and (3) damages as a result of the breach. Id.; see also Clare v. Bank of New Eng., No. 218-2013-CV-00687, 2013 N.H. Super. LEXIS 22, at *3-4, 9 (N.H. Super. Nov. 26, 2013) (accepting the view of the First Circuit). Legacy argues that the allegations that it makes against St. Pierre and Bezio, "set forth in the [SAC,] can be viewed as something committed on behalf of [the Rinks], as a fiduciary of Legacy Global, and/or in their personal capacities, in a manner that would liberally favor recognition of pending claims." (Pl. Obj. to Mot. by North Atlantic Hockey, LLC to Dismiss the SAC ("Pl. Obj."), at 14.) But Legacy set forth no facts from which the Court could make such an inference. It argues that the SAC sets forth that the Rinks participated in breaches with co-defendants by:
[L]aunching academy programs at [the Rinks], pursuing international programs and the expansion opportunity of a dormitory that should have been presented to and pursued at Legacy Global, by using and wasting Legacy Global goodwill and resources in doing so, and by diverting significant time and efforts of St. Pierre and Bezio to their competitive activities that should have been devoted to Legacy Global matters,[] (SAC ¶ 140), and that [the Rinks] exploited financing, intellectual property and other Legacy Global resources.
(Pl. Obj., at 14.)
It is doubtless true that on a Motion to Dismiss a court "must take a liberal approach to the technical requirements of pleadings." City of Keene v. Cleveland, 167 N.H. 731, 743 (2015). A court must "assume the truth of all well-pleaded facts alleged by the plaintiff and construe all inferences 'in the light most favorable to the plaintiff.'" Bohan v. Ritzo, 141 N.H. 210, 2013 (1996). New Hampshire is a notice pleading jurisdiction, and a complaint must do no more than set "the general character of the action and put [the] court and counsel on notice of the nature of the controversy." Pike Indus. v. Hiltz Constr., 143 N.H. 1, 4 (1998). But because New Hampshire is a notice pleading jurisdiction, a plaintiff must plead facts, and not merely legal conclusions. A trial court need not accept allegations in the complaint that are merely conclusions of law. Beane v. Beane & Co., 160 N.H. 708, 711 (2010). "The court must rigorously scrutinize the complaint to determine whether, on its face, it asserts a cause of action." Williams v. O'Brien, 140 N.H. 595, 597 (1995) (emphasis omitted).
Legacy's allegations do not meet the standard required of a complaint. There are no facts from which the Court could infer any purposeful intent on the part of the Rinks to provide the "substantial assistance or encouragement" required for an aiding and abetting claim. Restatement (Second) of Torts § 876(b).
Even if the allegations made against the Rinks were sufficient, Legacy alleges that St. Pierre and Bezio each owned 25% of the Rinks and that they were actively working on and developing expansion feasibility plans for the Rinks. (SAC ¶¶ 1, 58.) Legacy asserts that the individual defendants "acted in the interests and on behalf of their co-defendant, [the] Rinks," when "breaching their fiduciary and contractual duties" to Legacy. (Id. ¶¶ 1, 2, 58.) As explained infra, a corporation cannot conspire with its agents. It follows, therefore, that a corporation cannot aid and abet violations of the fiduciary duties St. Pierre and Bezio owed to Legacy. Buttonwood Tree Value Partners, L.P.v. R.I. Polk & Co., No. Civ.A. 9250-VCG, 2014 Del. Ch. LEXIS 141, at *15 (Del. Ch. 2014). The Rink's Motion to Dismiss Legacy's claim against the Rinks for aiding and abetting breach of fiduciary duty must be GRANTED.
B. Count XI: Conspiracy
A civil conspiracy is a combination of two or more persons, by concerted action, to accomplish an unlawful purpose or to accomplish some purpose not in itself unlawful by unlawful means. See generally Jay Edwards, Inc. v. Baker, 130 N.H. 41, 47 (1987). To the extent Legacy makes a claim for conspiracy to commit tortious interference with advantageous contractual relationships, the conspiracy claim must fail, because the underlying tort has not been adequately pled against the Rinks as explained infra. More importantly, even if such a claim existed, the agents and employees of a corporate entity acting within the scope of their employment or authority are legally incapable of conspiring together. Carney v. Town of Weare, No. 15-CV-291-LM, 2017 U.S. Dist. LEXIS 23790, at *41 (D.N.H. 2017); D.G. Whitefield, LLC v. Cate St. Capital, Inc., No. 218-2015-CV-1406, 2017 N.H. Super. LEXIS 16, at *28-29 (N.H. Super. 2017). Legacy alleges that St. Pierre and Bezio, who are shareholders of the Rinks, conspired with it "to betray Legacy Global, usurping corporate opportunities and wasting corporate resources for their own benefit and [for] the benefit of co-defendant Rinks at Exeter, in which St. Pierre and Bezio each owns a 25% interest. . ." (SAC ¶ 1.) (emphasis supplied). The Rinks' Motion to Dismiss must be GRANTED.
C. Constructive Trust: Count XII
Count XII of Legacy's SAC seeks that the Court impose a constructive trust on the Defendants "requiring them to hold their academy businesses and the fruits of their other wrongful acts for the benefit of Legacy Global." (SAC ¶ 147.) A constructive trust is an equitable remedy, which rests upon the principle that "restitution will be compelled to prevent unjust enrichment." Patey v. Peaslee, 101 N.H. 26, 29 (1957); In re Estate of Couture, 166 N.H. 101, 111-112 (2014). The doctrine is traditionally applied in cases in which a court of law might not be able to provide a complete remedy, such as cases in which property has been wrongfully conveyed. See e.g., Lamkin v. Hill, 120 N.H. 547, 551-552 (1980).
To establish a claim for a constructive trust, the moving party "must demonstrate by clear and convincing evidence that such action is warranted." See e.g., Walsh v. Young, 139 N.H. 693, 695 (1995). Cases in which a constructive trust coupled with tort claims is sought generally reflect a belief that a legal remedy is inadequate. See Cadle Co. v. Bourgeois, 149 N.H. 410, 419 (2003).
Legacy does assert a breach of fiduciary duty against St. Pierre and Bezio, and seeks a constructive trust in its request for relief, but it also seeks money damages. There is no reason to believe, from the allegations pled, that Legacy could not be made whole by an award of money damages if it succeeds. Count XII must therefore be DISMISSED WITHOUT PREJUDICE. If it appears that Legacy cannot prove a breach of fiduciary obligations by clear and convincing evidence and that it has no adequate remedy at law, it may well be entitled to a remedy of constructive trust.
D. Count XV and XVI Tortious Interference
In Counts XV and XVI, Legacy asserts that the Rinks committed the tort of tortious interference with advantageous contractual relations. Count XV alleges that the Rinks tortiously interfered with contracts between Legacy and St. Pierre, and count XVI alleges that the Rinks tortiously interfered with contracts between Legacy and Bezio. Legacy incorporates the allegations otherwise set forth in its Complaint, and alleges that the Rinks:
[I]ntentionally and wrongfully interfered with Legacy Global's contractual relationship with St. Pierre with improper motives and/or by improper means, including, as
set forth above, with the intention of usurping corporate opportunities belonging to Legacy Global, unauthorized use of employees, goodwill, intellectual property and other resources of Legacy Global, aiding and abetting breaches of fiduciary duty of Legacy Global's executives, and th[r]ough Bezio['s] intentional, tortious and bad faith acts that included the wrongful exploitation and waste of Legacy's resources and the destruction of evidence.(SAC ¶ 167.) Count XVI makes essentially the same allegations, alleging that the Rinks intentionally and wrongfully interfered with Legacy's contractual relationship with Bezio.
A plaintiff states a claim for intentional interference with contractual relationships by alleging that (1) the plaintiff had an economic relationship with a third party; (2) the defendant knew of this relationship; (3) the defendant intentionally and improperly interfered with this relationship; and (4) the plaintiff was damaged by such interference. Tessier v. Rockefeller, 162 N.H. 324, 338 (2011) (emphasis omitted). Legacy has set forth the elements of an intentional interference claim, but has not set forth any facts from which the claim could be made. A court need not accept allegations which are merely conclusions of law. Beane v. Beane & Co., 160 N.H. at 711; Chasan v. Village of Eastman, 128 N.H. 807, 814 (1986). The Rink's Motion to Dismiss for intentional interference with contractual relationships must be GRANTED.
II. Legacy's Motion to Dismiss St. Pierre's Counterclaims I, II, IV-VII and IX-XIII
A. Count I: Wrongful Termination
St. Pierre was an at-will employee of Legacy until Nov. 28, 2019, when he was terminated. Counterclaim I alleges wrongful termination and incorporates the allegations of the rest of the Answer to the SAC and Amended Counterclaims ("ANS"). St. Pierre alleges:
165. After he signed the October 1, 2018 grant agreement, St. Pierre objected to proposed unlawful and predatory actions by Board members and officers that constituted a breach of their fiduciary duties to Legacy and its Limited Partners. The proposed actions concerned deliberately and artificially devaluing the Company, and then orchestrating an additional round of capital funding in which controlling Limited Partners could increase their interest in Legacy and dilute the holdings of minority Limited Partners.
166. As a result of St. Pierre's objections, Legacy, through its Board members and officers, terminated St. Pierre's employment on the basis of false accusations that he competed against Legacy through the Rinks, and engaged in other alleged acts of disloyalty.
167. Legacy's termination of St. Pierre was motivated by bad faith and malice. Further, Legacy terminated St. Pierre for engaging in conduct that public policy encourages, and for refusing to engage in conduct that public policy condemns.
168. Among other reasons, Legacy terminated St. Pierre: to prevent his class C units from vesting; to eliminate his involvement in the management and operation of the Company so that he could not oppose wrongful conduct by Griffin and other Board members; in retaliation for him objecting to accounting improprieties by Griffin and Irwin and their efforts to devalue the Company to the detriment of minority Limited Partners; and to use St. Pierre as a "scapegoat" for Legacy's alleged poor performance.
(ANS. ¶¶ 165-168.)
The parties agree that the relevant standard is whether or not the Plaintiff's pleadings are reasonably susceptible of a construction that would permit recovery. Clark v. N.H. Dep't of Employment Sec., 171 N.H. 639, 645 (2019). And they agree that New Hampshire law applies to St. Pierre's employment by Legacy.
Under New Hampshire law, an at-will employee may assert a claim for wrongful termination if he establishes the employer acted in bad faith, with malice, or in retaliation for performing an act that public policy would encourage or refused to do an act which public policy would condemn. Cilley v. N.H. Ball Bearings, Inc., 128 N.H. 401, 405 (1986). Of course, legal conclusions are not sufficient; a plaintiff must plead facts. Beane v. Beane & Co., 160 N.H. at 711. Legacy argues that St. Pierre has not adequately made a claim, because he "relies on speculative allegations of supposed impropriety related to a down round of financing or alleged efforts by other executives to devalue the company." (Pl.'s Mot. Dismiss Counts I, II, IV-VII and IX-XIII of St. Pierre's Countercl. ("Pl.'s Mot. Dismiss"), at 7.) But even a cursory examination of the Counterclaims shows that they are insufficient to state a cause of action for wrongful termination. A challenge to an employer's truthfulness and/or refusing to participate in acts of deception are acts which public policy would encourage. Cilley, 128 N.H. at 406; McKenzie v. Linehan, 158 N.H. 476, 481 (2009).
Legacy alleges that "to the extent that St. Pierre is claiming that by raising these valuation issues to various Board members, he has gained protected whistleblower status, his common law wrongful termination claim based on such allegations is foreclosed." (Pl.'s Mot. Dismiss, at 8.) However, RSA ch. 275-E:5, part of the New Hampshire Whistleblower Statute, specifically states that "this chapter shall not be construed to diminish or impair... any common law rights." Legacy's Motion to Dismiss Counterclaim I must be DENIED.
B. Breach of Contract: Count II Grant Agreements
Count II of St. Pierre's Counterclaim seeks damages based upon a claim that he entered into Grant Agreements in April 2018 and October 2018, and that the Grant Agreements provided that Class C units allocated to St. Pierre would only vest if St. Pierre remained employed by Legacy. (ANS ¶¶ 171-72.) St. Pierre alleges:
173. In breach of the grant agreements, Legacy wrongfully terminated St. Pierre's employment for pre-textual reasons, and then alleged that St. Pierre had no further interest in the Class C Units;
174. Legacy breached the grant agreements by terminating St. Pierre for wrongful, pretextual reasons, in part to prevent his Class C units from vesting.
(ANS ¶¶ 173-174.)
Legacy moves to dismiss, arguing that Count II must fail because it is predicated upon the existence of a wrongful termination claim. (Pl.'s Mot. Dismiss, at 12.) However, the Court has held that St. Pierre's Counterclaims state a wrongful termination cause of action. At least at the pleading stage, the claim that the wrongful termination was intended to prevent St. Pierre's Class C units from vesting is sufficient. Legacy's Motion to Dismiss Counterclaim II must be DENIED.
C. Counterclaim IV and V: Breach of the Implied Covenant of Good Faith and Fair Dealing
Counterclaims IV and V seek damages for breach of the implied covenant of good faith and fair dealing. In Counterclaim IV, St. Pierre alleges that "Legacy used false allegations that St. Pierre violated a non-compete clause in the grant agreements as a pretext to remove him from the Board and deny him his right under the Limited Partnership Agreement ("LPA") to designate a member of the Board." (ANS ¶ 185.) Counterclaim V states that "[a]fter St. Pierre signed the October 2018 grant agreement, Legacy falsely accused him of violating the non-compete clause in the grant agreements, removed St. Pierre from the Board, and wrongfully terminated his employment as the company's CEO and President. (ANS ¶ 190.) In both counts, St. Pierre asserts that these allegations give rise to a separate cause of action for breach of the implied covenant of good faith and fair dealing, which is a part of every contract under Delaware law. Under Delaware law, the implied covenant of good faith and fair dealing inheres in every contract and "requires a party in a contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits of the bargain." Kuroda v. SPJS Holdings, LLC, 971 A.2d 872, 888 (Del. Ch. 2009); Gerber v. Enter. Prods. Holdings, LLC, 67 A.3d 400, 418 (2013). But the term "good faith" contemplates faithfulness to the scope, purpose, and terms of the parties' contract and does not turn on a court's belief of what is morally right or equitably appropriate under the circumstances but, rather, on the contract itself and what the parties would have agreed upon, had the issue arisen when they were bargaining. Allen v. El Paso Pipeline GP Co., LLC 113 A.3d 167, 183 (2013). Under Delaware law, a party cannot assert a claim for breach of the implied covenant of good faith and fair dealing that is based exactly upon the same acts which are said to be in breach of express covenants. Kelly v. McKesson HBOC, Inc., Civ.A. 99C-09-265WCC, 2002 WL 88939, at *10 (Del. Super. Jan. 17, 2002).
Ultimately, a breach of the implied covenant of good faith and fair dealing is simply a breach of a term of the contract. A party who pleads a breach of an express term of a contract can hardly assert a breach of contract based upon the same term, alleging that it is implied. But that is what St. Pierre is attempting to do. Legacy's Motion to Dismiss Counterclaims IV and V must be GRANTED.
D. Fraudulent Inducement
Counterclaim VI is entitled "Fraudulent Inducement." The allegations setting forth the claim are sparse. St. Pierre alleges that:
196. On October 1, 2018, St. Pierre executed a second grant agreement that allocated 1,716,129 Class C Units to him. St. Pierre executed the second grant agreement in reliance on representations by Legacy, through its attorney, Jason Howe, that the non-complete clause in the grant agreement applied only to his eligibility to receive class C Units, and did not otherwise restrict him from engaging in any activities either before or after his employment with Legacy ended.
197. Legacy intended for St. Pierre to rely on Howe's representations.
198. Legacy knew it would repudiate Howe's representations at the time they were made.
199. St. Pierre justifiably relied on Legacy's misrepresentations.
200. St. Pierre has suffered, and continues to suffer, damages as a result of Legacy's misrepresentations.
(ANS ¶¶ 196-200.)
The parties appear to agree that St. Pierre's claim of fraudulent inducement does not arise from the terms of the contract but, rather, from representations made to induce him to enter into the contract. (Pl.'s Mot. Dismiss, at 15-19.) Therefore, New Hampshire, rather than Delaware, law applies. Berlin Station, LLC v. Babcock & Wilson Const. Co., No. 214-2014-CV-00014, 2015 WL 4163048 (N.H. Super. June 1, 2015). Legacy argues that St. Pierre's fraud claim has not been pled with particularity, as required by New Hampshire law. Lamprey v. Britton Const. Co., 163 N.H. 252, 262-263 (2012); Snow v. Am. Morgan Horse Ass'n, Inc., 141 N.H. 467, 468 (1996). However, St. Pierre quotes verbatim the representation that he alleges to be fraudulent. (ANS ¶ 80; Def.'s Obj. Mot. Dismiss, at 16.) Legacy argues forcefully that St. Pierre could not reasonably have relied upon the representations made, in light of the prior relationship between the parties and the fact that St. Pierre was "a sophisticated businessman and a former CEO and ownership unit holder of Legacy Global." (Pl.'s Mot. Dismiss, at 18.) However, Legacy's argument is ultimately factual in nature and, on a Motion to Dismiss, a court must accept all the well pleaded facts as true, taking all reasonable inferences in the plaintiff's favor. Bohan v. Ritzo, 141 N.H. at 213.
Legacy also argues that St. Pierre does not explain why he has not tendered back all of his consideration in a timely way to rescind the agreement. (Pl.'s Mot. Dismiss, at 17.) It is doubtless true that if a plaintiff seeks rescission based upon a fraudulent concealment he must tender the benefit received under the contract, because the contract is voidable. Hair Excitement, Inc. v. L'Oreal U.S.A., Inc., 158 N.H. 363, 369 (2009); Restatement (Second) of Contracts § 7. However, a tort claim may exist when there has been a fraudulent concealment which results in a person obtaining a benefit which was not bargained for because of one party's deceit. Coutu v. State, No. 2015-CV-488, 2017 WL 1051159, at * 3 (N.H. Super. Mar. 15, 2017); Restatement (Second) of Torts § 530. Legacy does not seek rescission, but alleges damages as a result of the alleged fraudulent inducement to contract. (ANS ¶ 200.) Count VI, therefore, sets forth a tort but not a contract claim, and Legacy's Motion to Dismiss must be DENIED.
In fact, the New Hampshire Supreme Court has recognized an action for negligent inducement to contract. Wyle v. Lees, 162 N.H. 406, 411 (2011).
E . Respondeat Superior
Counterclaim VII asserts a "respondeat superior" claim against Legacy for "wrongful and tortious acts" by Legacy's "members, officials, and employees." (Id.) The rule that an employer is liable for the actions of his agent, within the scope of the employee's employment, can hardly be questioned. However, it is equally unquestionable that the doctrine of respondeat superior is not an independent cause of action but merely a legal principle which holds a principal responsible for the actions of his or her agent. Moore v. Mortg. Elec. Registration Sys., Inc., 848 F. Supp.2d 107, 120 (D.N.H. 2012); Dent v. Exeter Hosp. Inc., 155 N.H. 787, 792-793 (2007); Porter v. City of Manchester, 155 N.H. 149, 152 (2007). Legacy's Motion to Dismiss Counterclaim VII must be GRANTED.
F. Indemnification and Declaratory Judgment
In Counterclaim IX, St. Pierre seeks indemnity for attorney's fees and costs under the LPA, which he alleges requires Legacy to indemnify him for attorney's fees and other losses brought against him as a result of his position as a Board member and employment as the Company's CEO and President. (ANS ¶¶ 210-211.) Legacy objects, arguing that § 5.6 of the LPA prohibits indemnification for violations of the implied covenant of good faith and fair dealing, gross negligence, fraud, bad faith or willful misconduct, or breach of any duty owed to the company. According to Legacy, these "are precisely the claims that Legacy has alleged against St. Pierre in this action and are the sole basis for his incurring legal expenses and facing potential liability." (Pl.'s Mot. Dismiss, at 20.) Legacy argues that enforcing an indemnification provision for St. Pierre's intentional misconduct would violate public policy. St. Pierre points out that the indemnification agreement is governed by Delaware law, which specifically authorizes indemnification agreements such as those contained in the LPA. 8 Del.C § 145. Legacy puts the cart before the horse. Its claims remained to be proven. Delaware courts generally hold that it is premature to consider indemnification prior to final disposition of the underlying action. Marino v. Patriot Rail Co., LLC,, 131 A.3d 325, 346 (Del. Ch. 2016). In fact, Delaware law encourages indemnification in order to encourage capable individuals to serve as corporate directors, "secure in the knowledge that expenses incurred by them in upholding their honesty and integrity as directors will be borne by the corporation they serve." Heffernan v. Pac. Dunlop GNB Corp., 965 F.2d 369, 375 (7th Cir. 1992) (citing MCI Telecommunications Corp. v. Wanzer, No. 88-1390, 1990 Del. Super. LEXIS 222 (Del. Sup. June 19, 1990)). Legacy's Motion to Dismiss must be DENIED.
G. Counterclaim X: Declaratory Relief
Legacy moves to dismiss St. Pierre's claim for return of his Legacy Global Board seat as a result of Legacy's alleged breach of the LPA, alleging that a declaratory judgment is a remedy, rather than a cause of action. St. Pierre seems to assert a right to a remedy based upon the causes of action he raises in the other Counterclaims. Legacy's Motion to Dismiss is GRANTED without prejudice to St. Pierre's right to petition the Court for appropriate equitable relief based upon the findings made in this case.
H. Counterclaim XII: Corporate Freezeout
In Counterclaim XII, captioned "Corporate Freeze-out/Breach of Fiduciary Duty," St. Pierre asserts that he has suffered damages, "as a result of Legacy's breaches of fiduciary duties/corporate freezeout." (ANS ¶ 226.) However, Legacy points to § 6.1 of the LPA in which the parties disclaim the existence of fiduciary duties by each of the limited partners to the company and to one another. (Pl.'s Mot. Dismiss, at 24.) Delaware courts uphold such waivers. Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 253 (Del. Sup. 2017); Morris v. Spectra Energy Partners, No. Civ.A. 12110-VCG, 2018 WL 2095241, at *5 (Del. Ch. May 7, 2018). Moreover, no individual partners have been sued by St. Pierre, and under Delaware law, a corporation owes no fiduciary duty to its shareholders. In re Wheelabrator Techs., Inc. Shareholder Litig., 1992 WL 212595, at *9 (Del. Ch. Sept. 1, 1992).
More importantly, a freezeout claim is properly brought by a minority shareholder against a majority shareholder. Such a claim is not proper against the corporation itself, without an action brought against the individuals for whom the corporation acts. Legacy's Motion to Dismiss must be GRANTED.
III. Legacy's Motion To Dismiss Bezio's Counterclaims I-III
A. Counterclaims I and II
In Counterclaim I, Bezio claims that he was wrongfully terminated. In Counterclaim II, he essentially restates his claim of wrongful termination as a breach of the covenant of good faith and fair dealing, asserting that as a result of the wrongful termination by Legacy, he did not receive certain class C units which were granted upon condition that he be employed at the time Legacy moved to dismiss. The parties agree that the law of New Hampshire applies to Bezio's claim. Under New Hampshire law, wrongful termination is a tort. Porter v. City of Manchester, 151 N.H. 30, 39 (2004). An at-will employee may assert a claim for wrongful termination if he establishes that the employer acted in bad faith, with malice or in retaliation for performing an act that public policy would encourage or refusing to do an act which public policy would condemn. Id. at 38.
Bezio was not terminated but resigned. He alleges, however, that he was constructively discharged. (Def. Bezio's Answer and Countercls. to Pl.'s Second Am. Compl. ("Countercl.") ¶ 211.) Under New Hampshire law, an employee who claims constructive discharge must allege and prove that the employer, motivated by bad faith, retaliation, or malice, rendered the employee's working conditions so difficult and intolerable that a reasonable person would be forced to resign. Lacasse v. Spaulding Youth Ctr., 154 N.H. 246, 249 (2006); Clark v. N.H. Dep't of Emp't Sec., 171 N.H. 639, 646 (2019).
Bezio alleges that Legacy's Board members engaged in a series of events that ultimately led to his constructive discharge. (Countercl. ¶ 211.) He alleges that, beginning in June 2018, Legacy Board members, including Ron Cain, began to falsely accuse St. Pierre and Bezio of competing through the Rinks with Legacy, in an effort to disparage and discredit St. Pierre and Bezio and, ultimately, to get them removed from Legacy. (Id. ¶ 201.) Bezio alleges that in October 2018, Legacy's Board made changes to various agreements and that Legacy required Bezio to sign a new Grant Agreement to condition the issuance of class C units upon his acceptance of a noncompete/nonsolicitation clause. (Id. ¶¶ 209-210.) He alleges that very soon after the signing, Ron Cain and other Legacy Board members engaged in a series of events which led to his constructive discharge, preventing any of the Class C units from vesting. (Id. ¶ 211.)
Bezio also alleges that he told Legacy's president, Steve Griffin, that there was a possible misstatement about Legacy's financials which would have a $400,000 impact and should be corrected because it was inappropriate to fail to correct a material misstatement. (Id. ¶ 214.) Bezio became aware of incidents of sexual harassment of one of his female colleagues who was a key member of his team. (Id. ¶ 218.) He alleges that he objected when he learned that another Legacy employee removed this individual from an important project in retaliation for her reporting of harassment. (Id.) Bezio also alleges that he brought a history of inappropriate comments by a Legacy employee concerning the national origin of a vendor and a former employee to his superior, and Legacy's antipathy towards him increased when he raised these concerns. (Id. ¶ 216.) According to the Counterclaim, the harassment eventually resulted in the individual filing a Complaint with the New Hampshire Commission for Human Rights. (Countercl. ¶ 218.)
Bezio alleges that he refused to participate in Legacy's effort to malign St. Pierre and, when he did so, his relationship with other Board members significantly deteriorated. (Countercl. ¶ 217.) Finally, he alleges that :
220. Having no success at forcing Bezio into a weapon against St. Pierre, Griffin turned his attention to Bezio's removal, making a series of statements and taking a series of actions in retaliation against Bezio. These actions and statements directly led to Bezio's constructive discharge from Legacy. These actions and statements included among others: (a) Griffin removed Bezio from key projects that Bezio had developed as business responsibilities and was overseeing--as just one example, Griffin deliberately scheduled the annual sales meeting for a time Bezio was on a scheduled vacation, of which Griffin was aware, for a division Bezio was the general manager of and the purpose of the meeting was to plan for the entire budget year; (b) Griffin avoided meeting with Bezio to discuss business efforts although Bezio was a direct report to him and could not adequately perform his job without meeting with Griffin concerning these issues; (c) immediately prior to Christmas
2018, Griffin stated that "I am going to sick the attorneys on Travis to ruin his [Christ]mas and then I am going to terminate him in January"; (d) Griffin directly communicated with vendors and subordinates, including those falling directly within Bezio's divisional budget, and despite the fact he was available, in an effort to shut Bezio out of meaningful communications which resulted in Bezio not being kept informed with respect to information necessary for him to perform and also impacted Bezio's relationship with these vendors and subordinates, who did not understand why Bezio was not in the loop. For example, during efforts to acquire a new entity (falling directly within Bezio's responsibilities) Griffin excluded Bezio from any involvement after the disagreement regarding St. Pierre[]; and (e) Griffin made false statements about Bezio's work with the Rinks including such statements as St. Pierre and Bezio were doing some really "shady" stuff and reiterating Cain's and others' comments that Bezio was improperly competing.
221. Ultimately, it became impossible for Bezio to continue to work at Legacy and as he stated in a March 15, 2019 letter to Griffin, he resigned his employment effective at the end of the business day "because I feel forced [to] do so. I feel like Legacy has taken a series of actions to push me out, effectively terminating me without cause."
(Countercl. ¶¶ 220-221.)
Legacy recognizes that on a Motion to Dismiss it cannot challenge the factual allegations made by Smith. Its principal argument appears to be that Bezio cannot satisfy the public policy prong of a wrongful termination claim because "the Legislature has proscribed (sic) those situations in which an employee can sue for adverse employment action or retaliation based on complaints of harassment or discrimination, which forecloses a common-law remedy for wrongful termination in favor of only statutory remedies." (Pl.'s Mot. to Dismiss Counts I-III of Def. Bezio's Countercl. ("Pl.'s Mot. Dismiss Counts I-III"), at 6-7.) According to Legacy, "the New Hampshire Legislature has set the boundaries of actionable discrimination and retaliation claims" by statute. (Id. at 7.)
However, the New Hampshire Supreme Court has permitted wrongful discharge claims based upon violation of public policy even where a statute allows for a private right of action. See Karcher v. BayBank FSB, 147 N.H. 525, 537 (2002). (New Hampshire Whistleblower Protection Act); Bliss v. Stow Mills, Inc., 146 N.H. 550, 555 (2001) (Federal Surface Transportation Assistance Act of 1982). A wrongful discharge claim is a tort, and the public policies which prohibit termination of an at-will employee are products of common-law determination. Porter v. City of Manchester, 151 N.H. at 39. There is no controlling New Hampshire Supreme Court authority which suggests that the availability of a statutory remedy necessarily bars a wrongful termination claim based upon that statute's policy. See generally Faulkner v. Mary Hitchcock Memorial Hospital, No. 12-CV-482-SM, 2013 U.S. Dist. LEXIS 161800, at *3 (D.N.H. Nov. 13, 2013).
Legacy argues that Smith's allegations about being removed from key projects and excluded from matters falling within his responsibility are not "sufficiently severe, repetitive, pervasive or ongoing to state a constructive discharge claim," citing a number of cases from the United States District Court for the District New Hampshire. See generally Slater v. Town of Exeter, No. 07-CV-407-JL, 2009 WL 737112, at *8 (D.N.H. March 20, 2019); (Pl.'s Mot. to Dismiss Counts I-III, at 13.). However, the New Hampshire Supreme Court has emphasized that the termination element of a claim may be satisfied by proof of a constructive discharge "which occurs when an employer renders an employee's working conditions so difficult and intolerable that a reasonable person would feel forced to resign." Lacasse v. Spaulding Youth Ctr., 154 N.H. at 248-249. Use of the term "reasonable" implies the judgment of a jury; it is only in the rare case that a court can find that, as a matter of law and public policy, it is insufficient to take a wrongful termination case from the jury. See, e.g., Short v. School Admin. Unit No. 16, 136 N.H. 76 (1992). At least at the pleading stage, Legacy's Motion to Dismiss must be DENIED.
B. Count III Indemnification
Like St. Pierre, Bezio seeks indemnification as an employee or officer of Legacy under the LPA. Legacy moves to dismiss his claim by an argument that proceeds from the same flawed premise as its argument against St. Pierre; that said allegations against Bezio have been proven. The indemnification agreement is governed by Delaware law, which specifically authorizes indemnification agreements such as those contained in the LPA. 8 Del.C § 145. As discussed above, Delaware law actually encourages indemnification in the interest of encouraging directors to uphold their honesty and integrity without competing financial considerations in mind. Heffernan v. Pac. Dunlop GNB Corp., 965 F.2d 369, 375 (7th Cir. 1992) (citing MCI Telecommunications Corp. v. Wanzer, 1990 Del. Super. LEXIS 222 (Del. Sup. June 19, 1990)). Legacy's Motion to Dismiss Bezio's Counterclaim III must be DENIED.
C. Request for Attorney's Fees
Finally, Legacy, while stating that it recognizes that attorney's fees may be awarded for a party who engages in vexatious litigation, that such a claim is not a separate cause of action, and that it intends to bring such a motion to obtain fees against Bezio at an appropriate later stage of the case, argues Bezio's claim for attorney's fees should be dismissed now. (Pl. Mot. Dismiss Counts I-III, at 19.) It seeks that the Court should dismiss Bezio's paragraph 250 of his Counterclaim, in which he asserts that he should be awarded attorney's fees because Legacy acted in bad faith.
The general rule in New Hampshire is that parties pay their own attorney's fees. In the Matter of Mallett & Mallett, 163 N.H. 202, 211 (2012). But an award of attorney's fees may be granted by a court which finds that a party has engaged in bad faith litigation. Frost v. Comm'r, N.H. Banking Dep't, 163 N.H. 365, 377-78 (2012). Such a determination is made by the trial court at the end of the litigation. Fat Bullies Farm, LLC v. Devenport, 170 N.H. 17, 30-31 (2017). There is some irony in the fact that Legacy appears to recognize as much, but nonetheless has decided to complicate the motion practice in this case by filing pleadings on a futile Motion to Dismiss. The Motion is DENIED.
IV. Legacy's Motion to Dismiss or Stay Maxick's Claims
A. Maxick's Intervention in the Motion for a Temporary Restraining Order Hearing
Maxick's position in this litigation is unusual. It arises out of the Motion for a Temporary Restraining Order filed on August 6, 2019 by St. Pierre, in which he alleged that Legacy was required to provide him with certain information which would permit him to determine whether or not he should exercise certain preemptive rights he claimed he had under § 7.5 of the LPA. He alleged that Legacy had imposed an August 30, 2019 deadline for St. Pierre to exercise preemptive rights to participate in the purchase of convertible promissory notes issued by Legacy. He sought an order that the Court extend the deadline and a hearing was held on his request for a Temporary Restraining Order on August 29, 2019 on offers of proof.
There appears to be no dispute that in June 2019 Legacy replaced existing bank loans by issuing $5.6 million in convertible promissory notes to two of its largest limited partners, Jefferson River Capital ("JRC") and Generation Capital ("GenCap"). St. Pierre alleges that these transactions resulted in JRC and GenCap controlling the Board and diluting the interests of other limited partners. (ANS ¶¶ 142-162.) St. Pierre asserts a Counterclaim, based upon his allegation that these transactions have resulted in "diluting the interests of Maxick [and] other limited partners." (Id. ¶ 142.) In Counterclaim XI, he alleges that Legacy's failure to produce the documents requested constitutes a breach of the LPA, which caused him damage. (Id. ¶¶ 220-221.)
St. Pierre alleges that the Convertible Notes accrue interest at a rate of 15% per annum. (St. Pierre's Mem. in Supp. of Mot. for TRO, at 1.) In addition, they are convertible to equity at a 50% discount "thereby allowing JRC and GenCap to substantially increase their ownership and control over Legacy." (Id. at 2.)
St. Pierre alleged in his Motion for a Temporary Restraining Order that under the LPA he had a preemptive right to participate in the purchase of the Convertible Notes on a pro rata basis. (St. Pierre's Mem. in Supp. of Mot. for TRO, at 2.) He alleged that if he does not participate, his interest in Legacy will be substantially diluted. (Id.) He asserted that JRC owns 35.3% of Legacy's units and GenCap owns 21.9% of the units, making them together the majority unit holders. (Id. at 3.) Under § 3.1(f) of the LPA, qualifying limiting partners, which include Class A, Class AA and Class D partners, are provided preemptive rights which allow them to purchase additional ownership units in Legacy prior to the issuance of any equity securities to any person. (Id. at 8.)
But Legacy argued in its Objection to St. Pierre's Motion for a Temporary Restraining Order that St. Pierre has no preemptive rights or information rights under the LPA because he is not a Class A, Class AA or Class D partner. Legacy Global Sports, L.P. v. St. Pierre, et al., No. 218-2019-CV-00198, 2019 WL 4507281, at *3 (N.H. Super. Sept. 17, 2019); (Pl.'s Opp. to St. Pierre's Mot. TRO, at 5.). Legacy claimed that while Maxick and LGSH have the preemptive rights under LPA § 3.1(f), St. Pierre only holds Class C Units, and is not a Class A, Class AA or Class D partner. (Id.)
It also asserts that these Class C units were forfeited in connection with termination of St. Pierre's employment with Legacy. (Pl.'s Opp. to St. Pierre's Mot. TRO, at 4.) --------
St. Pierre tacitly conceded that, by the language of the LPA, he is not entitled to exercise preemptive rights because he does not hold Class C units of the LPA. Legacy Global Sports, L.P. v. St. Pierre, et al., No. 218-2019-CV-00198, 2019 WL 4507281, at *3 (Sept. 17, 2019). However, he claimed he had standing to make a claim for 2 different reasons; first, he alleged that on two prior occasions Legacy agreed for him and other LGS shareholders, including Ron Cain and Mitch Larnard to participate outside of LGS holdings, through entities formed by them. Id. Second, he alleged he was able to obtain Class C units in the past through Maxick. He formed Maxick in 2016 when Legacy issued its first convertible debenture for the sole purpose of investing in Legacy. Id.
Maxick moved to intervene in the litigation, which the Court recognized as "an attempt to moot Legacy's standing argument." Legacy Global Sports, L.P. v. St. Pierre, et al., No. 218-2019-CV-00198, 2019 WL 4507281, at *3. Recognizing that Legacy had not yet had the opportunity to file a written Objection to Maxick's Motion to Intervene, the Court allowed it to intervene for purposes of the Motion for a Temporary Restraining Order to determine the merits of St. Pierre's request.
Ultimately, the Court declined to provide equitable relief, and made no findings, even on a preliminary basis, about whether or not St. Pierre was entitled to information, concluding that if he had a valid claim, he would be able to obtain money damages. Id. at *6. The Court's preliminary ruling, for purposes of the Motion for a Temporary Restraining Order, that Maxick would be permitted to intervene, therefore, does not bind the Court. The Court specifically noted that it made no determination as to whether or not Legacy waived any rights under the LPA, and held only that, for purposes of the Motion, St. Pierre had standing to seek injunctive relief. Id. at *4. The Court's Order allowing Maxick to intervene at best constituted dicta, unnecessary to the ultimate decision.
B. Maxick's Interest in this Litigation
St. Pierre's claims that he suffered money damages as a result of Legacy's failure to provide him information arise out of his relationship with and employment by Legacy. The SAC specifically references his employment at Legacy, his role as President and CEO of Legacy, and the fact that he was required to become a party to Legacy Global's Third Amended and Restated Limited Partnership Agreement. (SAC ¶¶ 15, 17, 38.) Legacy's action against St. Pierre and his Counterclaims in large part involve intentional torts and claims relating to his at-will employment, which all parties agree are governed by New Hampshire law. As cogently explained in Legacy's Reply, "the genesis of this lawsuit lies in Legacy Global's claims that St. Pierre, individually, breached his fiduciary duties to Legacy Global in New Hampshire, usurped corporate opportunities for his own benefit in New Hampshire, and [for] the benefit of co-defendants Bezio and the Rinks (a New Hampshire entity not subject to jurisdiction in Delaware), and breached his non-competition covenants by actions taken in New Hampshire." (Pl.'s Reply in Supp. Mot. Dismiss or, in the Alternative, Stay All Claims by Non-Party Maxick, Inc. ("Pl.'s Reply"), at 3.) St. Pierre's Counterclaims may fairly be said to arise out of the transaction or occurrence that is the subject matter of Legacy's claim and do not require for their adjudication the presence of third parties over whom the court cannot acquire jurisdiction. Super Ct. R. 10(a).
On the other hand, Maxick was not sued by Legacy. Two of its three claims, corporate freezeout and respondeat superior, are, as explained in the portions of this Order dealing with identical claims made by St. Pierre, problematic at best. Maxick's principal claim is based entirely upon the LPA to which it and St. Pierre are signatories, and which provides that it is to be interpreted in accordance with Delaware law and, most importantly, contains a mandatory forum selection clause requiring all disputes regarding the LPA to be brought in Delaware. (LPA § 13.9.)
As long as the transaction bears some reasonable relationship to the forum, New Hampshire enforces forum selection clauses. RSA 508-A:3; Strafford Tech. v. Camcar Div. of Textron, 147 N.H. 174, 176 (2001). Sophisticated parties are entitled to make reasoned judgments about what law and what forum should govern their rights. Triple C Real Estate Invs., LLC v. Shelter for Living, No. 217-2019-CV-00757, 2020 WL 119599, at *2 (N.H. Super. Jan. 10, 2020); Cate St. Capital v. Whitefield, No. 218-2013-CV-00734, 2013 WL 10399704, at *2 (N.H. Super. Nov. 25, 2013).
Maxick does not dispute the choice of law provision in the LPA, but asserts that Legacy has waived its right to proceed under the forum selection clause of the LPA. It argues that "Legacy chose New Hampshire as the forum for its claims against St. Pierre concerning the LPA and other, related matters. Having established jurisdiction here, Legacy cannot object to Maxick intervening in asserting rights." (Maxick's Obj. to Mot. to Dismiss, at 7.) However, there is nothing in the record to suggest that Legacy ever consented to litigating disputes which relate solely to the contractual relationship of members of a limited partnership in New Hampshire. Legacy vigorously objected to Maxick's Motion to Intervene at the Temporary Restraining Order stage of this litigation.
As noted in the September 17, 2019 Order denying St. Pierre's Motion for a Temporary Restraining Order, Maxick's Motion to Intervene was an attempt to avoid dismissal of St. Pierre's individual claim that his rights were violated as a result of notice requirements, because he held Class C Units as the sole shareholder of Maxick. St. Pierre's basic argument is that the Court should disregard the corporate form:
St. Pierre is Maxick's founder, sole owner, and sole officer/director. (Amended Counterclaims ¶¶ 9, 61.) St. Pierre founded Maxick to hold his investment in Legacy, and the Company currently holds 2.14% of Legacy's limited partnership units. (See id. ¶ 51.) Legacy concedes that St. Pierre owns another 8.37% of Legacy through LGSH. (Id at ¶ 61.) St. Pierre signed the LPA not on his own behalf, but as Maxick's President and authorized representative. Legacy concedes that the distinction between St. Pierre and Maxick for purposes of the LPA, is a distinction without a difference.
(Obj. at 9.)
However, New Hampshire and Delaware law both respect the corporate form. Norwood Group, Inc. v. Phillips, 149 N.H. 722, 724 (2003); Bandera Master Fund LP v. Boardwalk Pipeline Partners, LP, No. Civ.A. 2018-0372-JTL, 2019 WL 4927053 (Del. Ch. Oct. 7, 2019). Parties who have chosen to benefit by utilizing a corporate form in one circumstance may not complain when use of the corporate form places them in a less advantageous position in another. Moreover, the LPA specifically provides that "no failure by a party to insist upon the strict performance of any covenant, duty, agreement or condition of this agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition." (LPA § 13.12.) Maxick can obtain complete relief in the Delaware action brought against it in accordance with the forum selection clause of the LPA. Accordingly, Legacy's Motion to Dismiss its claims must be GRANTED WITHOUT PREJUDICE.
SO ORDERED
4/27/2020
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/