Opinion
SUCV201902618BLS2
08-27-2019
VERTO MANAGEMENT, LLC v. JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.)
File Date: August 29, 2019
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Sanders, Janet L., J.
MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION
Janet L. Sanders, Justice
This case arises from the defendant’s decision to terminate the plaintiff as its agent in managing certain of the defendant’s investments. The Verified Complaint alleges among other things that this is in breach of a contract between the parties that created that principal-agent relationship. The case is now before the Court on plaintiff’s Motion for a Preliminary Injunction. That motion asks the Court to require the defendant to continue to employ the plaintiff as its agent and more generally, to desist from engaging in any action in derogation of the parties’ contract. This Court concludes that the Motion must be Denied.
BACKGROUND
The allegations set forth in the Verified Complaint are summarized only to the extent relevant for this motion. The defendant John Hancock Life Insurance Company (John Hancock) has certain investment assets that are managed by a subsidiary HRNG. Those assets consisted of timberland and agricultural assets. In 2011, a decision was made to expand into the area of renewable energy. Because HRNG, including its CEO, William Peressini, lacked any expertise in such assets, it recruited Glenn Smith to join the organization. While working at HRNG, Smith proposed acquiring certain assets held by Enviva, which was in the wood pellet production industry. Smith, described in the Complaint as "among the global leaders" in that industry, already had a "positive relationship" with Enviva. An agreement was ultimately negotiated between John Hancock and Enviva creating a new limited liability company (Enviva Holdings, Inc.) that permitted John Hancock to invest in Enviva’s wood pellet plants.
In 2017, HRNG made a decision to no longer pursue renewable energy investments. Perissini proposed to Smith a possible "lift out" whereby a third-party company would be created to manage the renewable energy assets. That included management of the Enviva relationship. Smith negotiated this "lift out" with Peressini and others at John Hancock who were part of its investment team. The third-party company would become the plaintiff Verto.
On January 30, 2018, John Hancock and Verto entered into a Renewable Energy Investment Management Agreement (REIMA). Under the REIMA, Verto was to manage all John Hancock’s existing renewable energy investments and, "on a non-exclusive basis," identify other renewable energy investment opportunities. See Exhibit E to Verified Complaint. Section 32 of the REIMA defines the circumstances under which John Hancock could terminate the agreement. Under that provision, John Hancock could not terminate during the first four years of the REIMA except for cause and with 90 days prior written notice.
In early 2019, certain John Hancock representatives expressed displeasure with the Enviva relationship and informed Verto of John Hancock’s desire to "get out of this whole program as soon as possible." Verto was able to negotiate certain changes in the relationship in an attempt to meet John Hancock’s concerns. John Hancock was not satisfied and on July 19, 2019, informed Verto via email that Verto would no longer represent John Hancock with respect to Enviva. It followed that up with a letter stating that Verto was to no longer manage other existing assets going forward and declaring John Hancock’s intention to have those assets managed in house. Smith responded to these demands by stating that John Hancock was in breach of the REIMA and that terminating Verto would drive it out of business. This lawsuit ensued.
In opposition to the Motion, John Hancock submitted the Affidavit of Scott Navin, a John Hancock Vice President. That affidavit states that certain investments that Verto has managed- including the investment in the wood pellet production plants that are the subject of the agreement with Enviva- have "not performed as anticipated." As a result, John Hancock determined that it was in its best interest to have a "direct relationship" with those investments in order to protect their value. The affidavit states that the investments are funded from John Hancock’s general account and that it has a duty to its policyholders to manage those investments wisely. John Hancock denies having terminated the REIMA: although Verto has been instructed to refrain from management duties, John Hancock did not direct Verto to cease providing any other services under the REIMA. Indeed, John Hancock has continued to pay Verto for the services that it has rendered, including a payment of $574,376 sent to Verto on August 15, 2019, the day before this lawsuit was filed. The next payment under the REIMA is not due until November 15 of this year.
DISCUSSION
The standard that this Court applies to the Motion before it is well established. The moving party must show a likelihood of success on the merits together with irreparable harm if no injunction issues. The Court must then balance this risk of harm against the risk of harm to the opposing party if the injunction is improvidently granted. Packaging Industries v. Cheney, 380 Mass. 609, 616 (1980). Verto makes out a compelling case that John Hancock has breached the REIMA in its decision to terminate Verto’s role as an independent manager of existing energy renewable assets. However, this Court is not convinced that the balance of harms weighs in its favor. Moreover, the request for relief is extraordinary in that Verto is asking the Court to require John Hancock to continue to employ Verto as its agent with virtually unfettered authority to manage assets that belong not to Verto but to John Hancock. To impose upon John Hancock an affirmative duty to maintain that kind of relationship even as John Hancock itself has lost trust and confidence in Verto is simply not supported by the case law, more particularly the law of agency.
It cannot be disputed that the relationship between Verto and John Hancock is indeed that of principal and agent. As the Restatement (3d) of Agency makes clear: "Notwithstanding any agreement between principal and agent, an agent’s actual authority terminates ... if the principal revokes the agent’s actual authority ..." Restatement (3d) of Agency, § 3.10(1); see also Bailey v. Astra Tech, Inc., 84 Mass.App.Ct. 590, 598 (2013) (relying on this section of the Restatement). This power to revoke the agent’s authority "is not extinguished because an agreement between principal and agent states that the agent’s actual authority shall be irrevocable or shall not be revoked except under specific circumstances." Commentary (b) to Restatement (3d) of Agency, § 3.10. The rationale for this power to revoke is that agency is a consensual relationship; the principal is in effect calling back what "could be characterized as an extension of its own legal personality." Id. Certainly, the agent can still complain that the revocation of authority constitutes a breach of contract. However, with regard to a remedy, the agent cannot seek specific performance. Id. If this Court were to allow this Motion, however, that would be exactly what the Court would be ordering, if only preliminarily.
Verto argues that without the relief that it seeks, it will be put out of business. Given the circumstances presented here, this Court is not persuaded that this supports granting the injunction sought, for several reasons. First, Verto still has the responsibility under the REIMA to identify new potential investments, and to provide the services necessary for the acquisition of any such investment opportunities. John Hancock has not indicated any intent to terminate those responsibilities or not to pay for them if the services are performed. Second, John Hancock does not currently owe Verto any money for any services rendered to date. The quarterly payment due on August 15, 2019 was timely made and the next payment is not due until November. Thus, it is not entirely clear that John Hancock is in breach of the REIMA in a way that has inflicted any harm upon Verto at this point. Finally, this is not the kind of economic loss that amounts to irreparable harm. Compare Hull Municipal Lighting Plant v. Massachusetts Municipal Wholesale Electric Co., 399 Mass. 640, 643 (1987) (court could, by way of an injunction, require monthly payments to be made to moving party, a public corporation, since a failure to make the payments could interfere with its "ability to provide low, cost efficient services to its customers," which were municipal electric systems). It is true that Verto was created specifically for the purpose of managing John Hancock’s renewable energy investments and that without that business, it may very well fail. But John Hancock is Verto’s only client and the investments Verto manages belong only to John Hancock; terminating that relationship would not have any direct impact on anyone else.
For these reasons, Plaintiff’s Motion for a Preliminary Injunction is DENIED .