Brian s 1:1 Fitness, LLC. Jeremy Woodward NO CV ORDER

Transcription

1 MERRIMACK, SS SUPERIOR COURT Brian s 1:1 Fitness, LLC v. Jeremy Woodward NO CV ORDER Petitioner, Brian s 1:1 Fitness ( Brian s ) seeks injunctive relief against Respondent, Jeremy Woodward ( Woodward ), and requests the Court to enforce a Non- Competition Agreement entered into between the parties. Petitioner seeks to enjoin Woodward from: (a) engaging in services similar to those provided by Brian s for a client whom Brian s provided products or services for during the period of 24-months prior to the parties termination of their relationship; and (b) engaging in a venture or business similar to that of Brian s or that is in direct or indirect competition with Brian s within 25 miles of Brian s place of business in Concord and Hooksett, New Hampshire for a period of 24 months following the parties termination of their relationship. For the reasons stated in this order, the Petitioner s request for injunctive relief is DENIED WITHOUT PREJUDICE. An evidentiary hearing on the Petitioner s request shall be held at the Court s earliest convenience. I [I]njunctive relief in an equitable remedy, requiring the trial court to consider

2 the circumstances of the case and balance the harm to each party if relief were granted. Kukene v. Genualdo, 145 N.H. 1, 4 (2000) (citation omitted). Specifically, a preliminary injunction is a provisional remedy that preserves the status quo pending a final determination of the case on the merits. New Hampshire Dept. of Environmental Services v. Mottolo, 155 N.H. 57, 63 (2007) (citation omitted). In order to obtain a preliminary injunction, a party must show that: (1) a present threat of irreparable harm exists; (2) there is no adequate remedy at law; and (3) there is a likelihood of success on the merits. ATV Watch v. New Hampshire Dept. of Resources and Economic Development, 155 N.H. 434, 437 (2007) (citation omitted). II The hearing on Petitioner s Request for Preliminary Injunction was held on offers of proof, although counsel for the Respondent was given the opportunity to crossexamine Brian s principal. Brian s is a New Hampshire corporation engaged in the business of providing personal fitness training with places of business in Concord and Hooksett, New Hampshire. Woodward is an individual who provided personal fitness training services at Petitioner s facility in Concord. On March 22, 2007, after leaving Brian s, Woodward created Highpoint Fitness, LLC. The Secretary of State administratively dissolved that entity in However, on January 3, 2012, Woodward created another entity known as Highpoint Fitness, LLC ( Highpoint ). 1 Throughout the time that Woodward provided personal training services at Brian s, the parties entered into three agreements. The first agreement was dated February 22, 2007, and was entitled Employee Non-Compete Agreement. See 1 Woodward does not argue that the noncompete is not applicable to High Point for this reason

3 Petitioner s Complaint for Injunctive Relief and Monetary Damages ( Complaint ), Exh. A. However, that agreement is not relevant to these proceedings. A second agreement, signed on August 5, 2008, is the crux of this dispute and is entitled Non-Competition and Non-Disclosure Agreement. ( Non-Competition Agreement ). The agreement states that it is made between Brian s, as employer, and by Highpoint as contractor. Although the agreement is between Brian s and Highpoint, Woodward signed the agreement as the contractor. There is nothing to indicate that he did so in a representative capacity. In the agreement, the covenant not to compete has a 24 month duration period and is limited in scope to ventures or businesses within 25 miles of the owner's places of business in Concord and Hooksett, New Hampshire. The parties produced the third relevant agreement after the hearing and it is entitled Independent Contractor Agreement. This agreement states that its term run from January 1, 2012 through January 1, It states that it is between One-2-One Fitness, a New Hampshire Corporation and Highpoint Fitness of Jeremy Woodward. The document states that it is intended to outline the contractual agreement between the parties and it does not contain any language relating to noncompetition or trade secrets. The facts relevant to the operation of the businesses do not appear to be in dispute. Brian s operates a gym in Concord. The business model is based upon employing personal trainers who pay an agreed-upon fee to Brian s and provide personal training services performed at the facility, keeping profits they generate above the fee paid to Brian s. Woodward worked at Brian s as a personal trainer from early 2007 until late November or early December Woodward is now operating a competing business, - 3 -

4 approximately 2 miles from Brian s location in Concord. Through an offer of proof presented by the principle of Brian s, it appears that since Woodward left, three other personal trainers have left to offer services out of Woodward's competing business, resulting in a loss of $5,000 a month. Brian s has closed another business location due to the financial hardship and is attempting to change his business model. Brian s now seeks to enforce the Non-competition Agreement between Brian s and Woodward. Woodward makes four principle arguments in response. At the outset, Woodward argues that the [R]espondent, Jeremy Woodward, is not a party to the [2008] contract that is the subject of Petitioner s complaint, attached as [P]etitioner s Exhibit B. The Non-Competition and Non-Disclosure Agreement attached as [E]xhibit B in Petitioner s complaint is by and between Brian s 1:1 Fitness, LLC and Highpoint Fitness, LLC of which the [R]espondent Jeremy Woodward was the sole member. Objection, 3. Second, he asserts that the 2008 agreement is not applicable to him because he was not an employee of Brian s. Rather, Woodward asserts that the agreement was merely a lease agreement and not a contract of employment or subcontractor agreement, the consideration for which was payment of rent to Brian s 1:1 Fitness, LLC by Highpoint Fitness, LLC in return for use of space and equipment Neither the Respondent nor Highpoint Fitness, LLC received any compensation or additional consideration from the Petitioner during the contract term to support the burden of noncompetition or non-disclosure. Objection of the Respondent to Petition for Injunctive Relief ( Objection ), 4. Third, he argues that the agreement is overbroad. Finally, he argues that Peti

5 tioner has not established that he has suffered irreparable harm. The Court will address each argument in turn. III Woodward's claim that he is not liable under the 2008 agreement is based upon the general rule that a manager or member of an LLC, acting as an agent of an LLC, is protected from personal liability for making a contract when acting within his authority to bind the LLC. Mbahaba v. Morgan, 163 N.H. 561, 565 (2012). Thus, where an LLC enters into a contract, the manager s signature on the contract, with or without a designation as to his representative capacity, does not render him personally liable under the contract. Id. Here, the 2008 agreement between the parties recites that it was between Brian s 1:1 Fitness and Highpoint Fitness LLC, an individual residing at 60 Auburn St., Concord, NH. (Emphasis added). Highpoint is not an individual and does not reside any place. Moreover, Jeremy Woodward signed the agreement and there is no indication he did so in a representative capacity. The interpretation of a contract is ultimately a question of law. Behrens v. S.P. Construction Co., 153 N.H. 498, 500 (2006). When interpreting a written agreement, a reviewing court must give the language used by the parties its reasonable meaning, considering the circumstances and the context in which the agreement was negotiated and reading the document as a whole. Id. at 503. Absent ambiguity, the parties intent must be determined from the plain meaning of the language used in the contract. Ryan James Realty v. Villages at Chester Condominium Association, 153 N.H. 194, 197 (2006)

6 The language of a contract is ambiguous if the parties to the contract could reasonably disagree as to its meaning. Birch Broadcasting, Inc. v. Capitol Broadcasting Corporation, Inc., 161 N.H. 192, 196 (2010). At the very least, the language of the 2008 non-compete agreement, which purports to be between an LLC described as an individual with a residence and which is signed by an individual who was the sole member of the LLC, with no indication that he is signing in a representative capacity, is ambiguous. Thus, the Court must consider extrinsic evidence to interpret the agreement. When the extrinsic evidence is considered, there can be no doubt that the agreement must be applied to Woodward personally. First, Highpoint has no other members or employees other than Woodward. Second, the business in which Woodward was engaged, through his LLC, was personal services. The record before the Court indicates that those services were only provided by him and that clients paid him. Indeed, the exhibits offered by Woodward in connection with the establishment of his new business emphasize Woodward's personal qualities. His new business is called Jeremy's Boot Camp and material from his website, which he produced at the hearing, emphasizes Woodward s qualities and accomplishments. It is also well settled that in determining the intention of the parties to a contract, a court must consider their actions after the contract was executed. See, e.g., Auclair v. Bancroft, 121 N.H. 393, 395 (1981); Spectrum Enterprises Inc. v. Helm Corporation, 114 N.H. 773, 776 (1974). Considering all of the circumstances here, it is apparent that the personal training business relied heavily upon individual relationships and the parties so understood in entering into an agreement that the contract was intended to bind Woodward individually. No party disputes that the business model for personal training - 6 -

7 requires the personal trainer to pay the gym a fixed rental and then collect payment from his clients. Accordingly, the Court finds that, based on the circumstances surrounding the ambiguity, the 2008 Non-Competition was intended to apply to Woodward as well as Highpoint. 2 Woodward argues that because he operated an LLC he is not personally responsible for any of the obligations of the LLC pursuant to RSA 304-C: 25. While it is not necessary to reach the question, because the Court finds that the contract applies to Woodward by its terms, this statute would be inapplicable in the circumstances of this case. A party may not use the corporate form to promote an injustice or fraud. Mbahaba, 163 N.H. at (assuming, but not deciding, that the doctrine of piercing the corporate veil with respect to corporations applies to limited liability companies). It would be unjust, under the circumstances of this case, to allow a person to avoid the responsibilities both parties reasonably expected him to undertake simply because he signed an agreement using his wholly-owned LLC. The noncompetition agreement, therefore, is binding upon Woodward personally. IV The fact that the Non-Competition Agreement is binding upon Woodward personally does not end the inquiry. The Court must consider whether Non-Competition Agreement is enforceable. Under settled New Hampshire law, contracts in restraint of trade or competition are not favored. Merrimack Valley Wood Products v. Near, 152 N.H. 192, 197 (2005). Such contracts must be narrowly construed. Id. In considering the reasonableness of a restrictive covenant ancillary to an employment contract, the New 2 The parties agreed that Woodward was an employee of Brian s for a very short time, if at all. The court - 7 -

8 Hampshire Supreme Court has established a three-pronged test: first, whether the restriction is greater than necessary to protect the legitimate interests of the employer; second whether the restriction imposes an undue hardship upon the employee; and third, whether the restriction is injurious to the public interest. Syncom Industries v. Wood, 155 N.H. 73, 79 (2007). As to the first prong, the covenant not to compete is valid only to the extent that it prevents an employee from appropriating assets that legitimately belong to the employer. Concord Orthopedics Professional Association v. Forbes, 142 N.H. 440, 443 (1997). In Concord Orthopedics, the New Hampshire Supreme Court held that while a former employer possessed a legitimate business interest in prohibiting a former employee from competing for existing patients, no such legitimate interest existed as to new patients because the legitimate interests of the employer generally extend only to those areas in which the employee had actual client contact. Id. at 443. In Syncom, the New Hampshire Supreme Court stated that: The first step in determining the reasonableness of a given restraint is to identify the legitimate interests of the employer, and to determine whether the restraint is narrowly tailored to protect those interests. Legitimate interests of an employer that may be protected from competition include: the employer s trade secrets that have been communicated to the employee during the course of employment; confidential information communicated by the employer to the employee, but not involving trade secrets, such as information on a unique business method; an employee s special influence over the employer s customers, obtained during the course of employment; contacts developed during the employment; and the employer s development of goodwill and a positive image. Syncom, 155 N.H. at 79 (citations omitted). Here, the 2008 Non-Competition Agreement executed between the parties states in relevant part that: therefore finds to 2007 employment agreement inapplicable to this case

9 WHEREAS the Contractor acknowledges that the Contractor s business relationship with the Owner does and will provide the Contractor with Confidential Information, including, but not limited to, trade secrets, client lists and other confidential and proprietary client information, marketing and business plans, methods of sales, innovative training and demonstration techniques and other confidential and proprietary information (hereinafter collectively referred to as Confidential Information ) all of which is unavailable to the general public and to individuals or entities working in the same or similar industry; and WHEREAS, the Contractor acknowledges that the Confidential Information, if used in competition with the Owner or if disclosed without authority could cause serious and irreparable harm to the Owner. Contractor agrees that he/she shall not, during the term of his relationship or upon termination of said relationship make available, reveal or disclose to any person, firm, corporation, partnership, proprietorship or other business organization or entity or use for his own benefit any information or data as set forth hereinabove and herein below. Petitioner s Complaint for Injunctive Relief and Monetary Damages ( Petition for Injunction ), Exh. B. However, this broad recitation is inconsistent with the Independent Contractor Agreement, which governed the relationship of the parties between January 1, 2012 and January 1, That agreement makes it very clear that Woodward, as an independent contractor, was not subject to the control of Brian s and was not likely to receive information or training about Brian s business. The 2011 agreement provided in relevant part that: 1.4 Time and Place for Performance of Services. The parties agree that the Services to be rendered by the Contractor for the Company shall be rendered as may be agreed to between the parties from time to time. The Company acknowledges that it has no right to otherwise specify the time when the Contractor shall render specific services, and that the Contractor has full discretion and authority to otherwise perform the Services. 1.5 Supervision of Work. The parties agree that the Company has no right to control the steps in the process of performance of the Services, and may only specify the result desired to be accomplished. 1.6 Training. The Contractor shall be responsible for any and all education and training required by him in order to perform the Services

10 1.7 Supplies, Tools and Equipment. The Contractor shall provide at its sole expense, all supplies, tools and equipment necessary for the Contractor to perform the services in a professional manner Not An Employee. The Company and the Contractor agree and understand that the Contractor is an independent contractor for federal employment tax purposes and all other purposes and that the Company shall have no responsibility for the obligations incurred or assumed by the Contractor. Additionally, the Contractor agrees to: (c) Pay all taxes with respect to all amounts paid by the Company to the Contractor hereunder, including self-employment taxes. In conforming with the foregoing status of the parties, nothing herein shall be interpreted as preventing the Contractor from entering into similar agreements with others, or holding himself out to the public as available to engage in such agreements with others (d) The Contractor shall determine the means and manner of performance of the Services rendered pursuant to this Agreement. The Contractor shall not be subject to the direction or control of the Company, except to the extent that such direction or control may be specifically required by applicable law or regulation, and to the extent that the Company may direct the result to be obtained by the performance of the Contractor s services Respondent s Second Supplement to Objection to the Petition for Injunctive Relief, tab 6 (emphasis added). Based on this agreement, there can be no question that the relationship between Brian s and Woodward was that of an employer/independent contractor. As the court noted in Edix Media Group, Inc. v. Mahani, 2006 WL (Del. Ch. December 12, 2006) *7 n.30, "[f]ew jurisdictions have directly addressed the effect of independent contractor status on the enforceability of covenants not to compete. Most jurisdictions allow such agreements with an independent contractor, subject to limitations similar to those on employees. See Eichmann v. National Hospital and Health Care Services, Inc., 719 N.E.2d 1141, 1146 (Ill. App. 1999) (judicial scrutiny of a

11 covenant not to compete with an independent contractor would be as strict where relationship was similar to employment); Bristol Window and Door, Inc. v. Hoogenstyn, 650 N.W.2d 670, (Mich. App. 2002) (finding that covenant not to compete in independent contractor relationship can be enforced so long as it is reasonable); Jenkins v. Jenkins Irrigation, Inc., 259 S.E.2d 47, (Ga. 1979) (finding that independent contractor s covenant should be analyzed the same as one between an employer and employee). In Edix Media Group, Inc., the court noted that some jurisdictions have taken the Delaware position, that the nature of the relationship constitutes one factor in considering the enforceable scope of a non-compete agreement. EDIX Media Group, Inc. v. Mahani, 2006 WL at *7 n.30, citing Hope Found, Inc. v. Edwards, 2006 WL (S.D. Ind. April 12, 2006) * 9. See also Starkings Court Reporting Services, Inc. v. Collins, 313 S.E.2d 614 (N.C. App. 1984) (finding that a covenant not to compete exceeded the legitimate interests of the employer in an independent contractor context) The New Hampshire Supreme Court has never considered restrictive covenants in the context of an independent contractor relationship. However, the New Hampshire test for the reasonableness of a covenant is particularly fact sensitive; it requires a court to determine the legitimate interests of the employer that may be protected from competition. Syncom, 155 N.H. 79. Ultimately, the New Hampshire approach is based on the Restatement(Second) Contracts 188, which requires that a court consider whether an ancillary restraint from competition is "unreasonably in restraint of trade". Technical Aid Corporation v. Allen, 134 N.H. 1, 8 (1991). Such an analysis is fact based; it requires that a reviewing court understand the nature of the transaction before it. The nature of the transaction may be significantly affected by whether or not a party to it is

12 an employee, or an independent contractor. As the court in EDIX explained: The traditional employee/employer relationship usually involves a much more intimate relationship than that of an independent contractor. Independent contractors maintain a greater degree of control over how they accomplish tasks; remain engaged to a much greater extent in a distinct occupation or business (as opposed to an employee, who may be asked to perform other reasonable tasks as required); and traditionally work with a lesser degree of supervision WL , at *7, citing RESTATEMENT (SECOND) OF AGENCY 220(c). Further, [i]f a person is an independent contractor, that fact may signal a greater likelihood that he has brought his own strengths and abilities to the joint enterprise. Hope Found, Inc., 2006 WL , at *9. For these reasons, the legitimate protectable interests of an employer seeking to enforce a restrictive covenant against an independent contractor may be considerably limited as compared to enforcement against an employee. Id.; EDIX, 2006 WL , at *8. As gleaned from the record, the arrangement between Brian s and Woodward allowed for Brian s to match customers seeking a personal trainer with Woodward however, Brian s involvement ended there. According to the Independent Contractor Agreement, Woodward was permitted to personally train the customers according to his own strategies and plans. Woodward would have been the only individual responsible for determining a customer s goals and designing a program to reach those goals; he was not subject to direction by Brian's. Both the traditional and statutory relationships between employers and employees reflect a closer bond: the employer pays a percentage of the employee s social cost (through tax contributions or Social Security payments), must accept greater legal duties, and is responsible for the employee s torts in negligence. At the very least, this suggests that independent contractors have less access to

13 legitimately confidential information of their employers: [f]irms will, in general, invest a greater amount of firm-specific know-how in employees than in contractors engaged in a distinct occupation. EDIX, 2006 WL at *7. It is not clear what percentage of Woodward s clients was provided by Brian's and what percentage came to him as a result of his own marketing efforts. In determining whether any customer list qualifies as a trade secret, courts place great weight upon whether competitors could assemble a similar list through information in the public domain without a similar expenditure of time and money. EDIX, 2006 WL at *6; Starkings Court Reporting Services, 313 S.E.2d at Moreover, the Independent Contractor Agreement provides that Woodward was not prohibited from entering into similar agreements with others or holding himself out to the public as being available to provide similar services to others during the period of his Agreement with Brian s. This would appear to directly contravene the terms of the Non-Competition Agreement. To the extent Woodward's clients came from Brian s customer lists, they were the product of Brian s goodwill. Indeed, it is conceivable that customers who came to the facility because they had learned that Woodward was employed there, could still be considered the product of Brian s marketing efforts, and therefore could be considered part of its protected goodwill. On the current record, Brian s cannot meet its burden to demonstrate that the interests it seeks to protect through the Non-Competition Agreement are legitimate business interests based on the nature of its relationship with Woodward. However, the unusual circumstances of this case and the necessity that the court closely scrutinize the

14 factual aspects of the parties relationship require that an evidentiary hearing be held, to identify the legitimate interests of the employer, and to determine whether the restraint is narrowly tailored to protect those interests. Syncom, 155 N.H. 79. SO ORDERED. 4/5/13 s/richard B. McNamara DATE Richard B. McNamara, Presiding Justice RBM/