Opinion
No. 218-2019-CV-1780
04-12-2020
High Liner Foods (USA), Inc. v. Chad Groves
ORDER
Plaintiff High Liner Foods (USA), Inc. ("High Liner") has brought an action against its former employee, Chad Groves ("Groves") alleging that Groves has breached contractual noncompetition, nonsolicitation and nondisclosure obligations running in favor of High Liner. On a preliminary basis, High Liner seeks injunctive relief, prohibiting Groves from utilizing its confidential information and working for a competitor Trident Seafoods Corporation, ("Trident") in the area of frozen seafood. A hearing was held on this case on February 12, 2020 and extensive post hearing briefing followed. For the reasons stated in this Order, pending trial on the merits, the Court enjoins Groves from:
(a) engaging in the frozen seafood retail and wholesale industry, as well as the frozen and fresh scallop industry, for 12 months following his termination date of Oct. 2, 2019; and
(b) directly or indirectly soliciting or accepting the business of customers of High Liner and potential customers of Trident which were serviced or solicited by
Groves at High Liner; and
(c) disclosing or misusing High Liner's confidential information, as defined in the employment agreements he signed with High Liner.
Groves has represented that he has been voluntarily complying with the provisions he challenges and has been "sidelined" at Trident since beginning employment. (Def.'s Mem. of Law in Supp. of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 4.)
Groves has represented that he has been voluntarily complying with the provisions he challenges and has been "sidelined" at Trident since beginning employment. (Def.'s Mem. of Law in Supp. of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 4.)
I
While many of the basic facts do not appear to be in significant dispute, both parties draw different inferences from them. Both parties have filed extensive memoranda, with supporting affidavits. The following recitation of the facts is drawn from those pleadings and the affidavits. The findings made on this motion for preliminary injunctive relief are for purposes of the motion only and are not binding upon the parties.
High Liner is a Delaware corporation with its principal place of business in Portsmouth, New Hampshire. (Compl. ¶ 2.) High Liner is a North American processor and marketer of "value-added" frozen seafood. (Id.¶ 8.) It sells retail products throughout the United States, Canada and Mexico under a variety of labels in most grocery and club stores. (Id.) Groves was employed as High Liner's Vice President, Field Sales Food Service for High Liner until his termination, which was effective October 2, 2019. (Id.¶ 3); (Answer ¶ 3.) The parties do not dispute that Groves was hired by High Liner in 2015 as Director of Field Sales, although, as explained infra, they apparently dispute precisely when the hiring took place. They agree that he stayed in that role until December 20, 2016 when he accepted a promotion as High Liner's Vice President of Field Sales Food Service. (Compl. ¶ 3); (Answer ¶ 3.) Groves is now employed by Trident, as its Vice President of National Accounts. (Compl. ¶ 3); (Answer ¶ 3.) High Liner asserts that part of Groves's job responsibilities at High Liner was to develop and maintain business relationships and goodwill with its key customers. (Compl. ¶ 9.) Groves agrees that maintaining business relationships and goodwill with some customers was one of his job responsibilities, but he denies that he was the "point person" for any single customer or that it was his responsibility to maintain and develop business relationships with every food-service distributor in the United States. (Answer ¶ 9.)
High Liner claims that Groves is bound by the provisions of three agreements: a 2015 Employment Agreement, a 2016 Employment Agreement which was entered into when he received his promotion, and a 2019 Release Agreement which Groves signed when he was terminated by High Liner. Groves asserts that the 2015 Employment Agreement is barred by RSA 275:70 and disputes the enforceability of the other agreements.
A. The 2015 Employment Agreement
The 2015 Employment Agreement provided that during and after his employment relationship with High Liner Groves would not "use or disclose . . . Confidential Information" without High Liner's written consent." (Compl. Ex. A § 6 (b).) It defines "Confidential Information" to include, among other things "financial information, reports, and forecasts; . . . market or sales information or plans; customer lists; and business plans, prospects and opportunities . . . which have been discussed or considered by the management of the Company." (Compl. Ex. A § 6 (a).) It also includes information developed by Groves in the course of his employment with the Company and other information to which Groves may have had access in connection with his employment. (Id.)
The Agreement provided that Groves would not, during his employment with High Liner and for twelve months thereafter, directly or indirectly, engage, participate, invest or assist in any competing business. (Compl. Ex. A § 6 (d).) A "Competing Business" was defined as "the frozen seafood industry (e.g. research, fishing, harvesting, manufacturing, processing, wholesale or distribution) in the United States or Canada as well as the fresh and frozen scallop industries" in the United States. (Compl. Ex. A § 6 (d).) Groves agreed that because it would be difficult to measure damages that might result from breach, High Liner would be entitled to injunctive relief in the event of breach. (Compl. Ex. A § 6 (f).)
B. The 2016 Employment Agreement
Groves was offered a promotion to Vice President, Field Sales Food Service in December, 2016. The offer letter explained that the promotion was contingent upon his signing agreements for confidentiality, non-competition and non-solicitation. The 2016 Employment Agreement required Groves to agree that he would not work for any competitor of High Liner's in any capacity "that would require [him] to solicit business from any customer or potential customer of [High Liner] serviced or solicited by [Groves] during [his] service with [High Liner]." (emphasis added); (Compl. Ex. C § 1 (a).) The Agreement also provided that he would not "solicit business from any seafood customer or potential customer of [High Liner's] who is located in or has its head office in any county or district in which [Groves] engaged in solicitation or servicing of business for [High Liner] during the last two years of" his employment with High Liner. (emphasis added); (Compl. Ex. C § 1 (b).) The 2016 Employment Agreement also required Groves to keep confidential, and refrain from using, all information known or used by him in his business and not publicly known. This includes customer information, current and prospective customer names and addresses, buying habits and references, customer contract information, pricing and sales policy techniques and concepts and business opportunities. (Compl. Ex. C § 2.)
C. The 2019 Release Agreement
Groves was terminated in 2019. He executed a Release Agreement which provided him with $30,693 in severance pay, confirmation that he would not be required to pay any of the $87,430 in tuition that High Liner had paid toward his M.B.A. degree, outplacement assistance for 6 months, and COBRA premiums for 3 months. (Compl. Ex. D.) In the Release Agreement, Groves acknowledged and agreed that the existing noncompetition agreements that he entered into while employed by High Liner remained in effect and were incorporated by reference. (Compl. Ex. D § 7 (c).) In addition, Groves agreed to a specific 6 week period of noncompetition that began immediately following the termination of his employment on October 2, 2019. (Compl. Ex. D § 7 (b).) This prohibited him from engaging in any competing business specifically including Trident, as well as several other companies. (Id.)
II
Groves first argues that he was not privy to any "Confidential Information" entitled to protection belonging to High Liner.
A. High Liner's Claim that Groves was Exposed to Confidential Information
High Liner has filed an Affidavit of Senior Director Tania Albanese and a Supplemental Affidavit of Ms. Albanese to support its claim that it is entitled to injunctive relief. (Pl.'s Mem. of Law in Support of Pl.'s Mot. to Seal (1) Ex. A.) ("Albanese Aff."); (Pl.'s Memo. of Law in Support of Pl.'s Mot. to Seal (2) Ex. A.) ("Albanese Suppl. Aff."). Groves has filed an Affidavit and a Supplement Affidavit to refute High Liner's claims. (Attach. to Def.'s Mem. of Law in Support of its Obj. to Pl.'s Mot. for a Prelim. Inj.) ("Groves Aff."); (Suppl. Aff. of Chad Groves). While there is no dispute about the positions that Groves held at High Liner, the parties dispute what information was available to Groves in those positions.
High Liner asserts that during Groves' employment it gave him access to highly confidential information pertaining to strategies with respect to (1) customer development (2) business operations and (3) product innovation through access to its business plans. (Albanese Aff. ¶ 10.) In June, 2019, Albanese prepared a document called 2020 "Business Plan - Food Service National Accounts." (Albanese Aff. ¶ 13); (Albanese Aff., Ex. 3.)
High Liner makes much of the fact that Groves was exposed to its 2020 Business Plans, which it asserts provided Groves with intimate knowledge of High Liner's strategies. These include identifying lower margin lines of business High Liner planned to exit, specific revenue goals for specific customers, and details specific to increase sales. (Albanese Aff. ¶¶ 14-24.) High Liner argues vigorously that, in essence, Groves was given access to highly confidential information that revealed information about which of its national accounts High Liner can least afford to lose, which accounts it is most in danger of losing, and which accounts it is focused on expanding. (Albanese Aff. ¶¶ 23-24, 27.)
Apparently in 2019 there were 2 documents prepared: a document called 2020 Business Plan-Food Service National Accounts and a document called 2020 Business Plan Foodservice Food Service Business Plan which can be referred as the "2020 Business Plan," and were discussed at a July 19, 2019, meeting called "Lessons Learned." Copies of both documents are attached as Exhibits 3 and 4 to the Albanese Affidavit.
Although High Liner argued in its opening memorandum that Groves played a part in preparing the 2020 Business Plans, Groves denies having any part in preparing the plan and asserts it was prepared without his input. (Pl.'s Memo. of Law in Supp. Of Pl.'s Mot. for a Prel. Inj. at 9.); (Groves Aff. ¶ 26.) In its reply memorandum, High Liner apparently concedes that Groves did not draft the plan, but it asserts that he "undoubtedly received the 2020 Business Plan and was responsible for intimately knowing its contents since his team was responsible for executing it." (Pl.'s Reply to Def.'s Obj. to Pl.'s Mot. for a Prelim. Inj. at 5, n. 3); (Albanese Supp. Aff. ¶¶ 7-8.) Specifically, High Liner asserts that it gave Groves highly confidential information relating to the prices and profit margins for the products sold to each of its customers. (Albanese Aff. ¶ 25.) It claims it is extraordinarily vulnerable to focused competition related to a specific limited group of core customers. (Albanese Aff. ¶ 32-35.) This is because it relies on certain high-volume customers to absorb large amounts of the company's production costs, and thus lower its marginal cost per product. (Id.)
Significantly, High Liner alleges that Groves was also present at meetings where High Liner discussed its strategies with respect to Trident Seafoods, including analysis and development of strategies related to pricing margins and market share. (Albanese Aff. ¶ 9.) High Liner claims that it therefore has an interest in protecting its confidential information by enforcement of the various restrictive covenants Groves agreed to. Groves also claims that the information he obtained while employed at High Liner was "not of current strategic value" and that the business strategies he was exposed to were "widely available in the industry and/or derived from well-known principals of sales and marketing strategy." (Groves Aff. ¶ 36.) Having reviewed the 2020 Business Plan, the Court cannot accept this representation. Even a cursory perusal of the Plan supports Albanese's affidavits and her representations about the extent and detail of strategic information in the plans.
An unredacted copy of the 2020 Business Plan was filed under seal.
B. Groves' Response to High Liner's Claims
Groves focuses on the distinctions in various seafood line products and argues that he did not service Commercial National Accounts, and that therefore much of the information High Liner claims is confidential was not relevant to his work. He states there are five different kinds of accounts in the seafood industry: (1) Food Service Distribution, companies that sell primarily to restaurants; (2) Noncommercial National Accounts, companies that sell to entities that offer food service, but that is not their primary business, such as hospitals and colleges; (3) Commercial National, large chain restaurants that provide items for use in restaurants; (4) Industrial Accounts companies that use a product as an ingredient in their product; and (5) Retail Accounts, accounts which produce products for direct sale to customers.
Groves argues that he was not responsible for Industrial Accounts, Retail Accounts, or Commercial National Accounts while at High Liner. (Def.'s Mem. of Law in Supp. of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 4-5.) But the parties dispute what constitutes Commercial National Accounts in the context of this business. (Pl.'s Reply to Def.'s Obj. to Pl.'s Mot. for a Prelim. Inj. at 3, n.2.) It appears that Groves's definition of a Commercial National Account is crabbed. Groves also argues that High Liner and Trident do not compete in all markets, noting that of the 38 species of fish sold by both companies there are only 12 overlapping fish species. (Groves Aff. ¶ 21.) But High Liner claims that the majority of both companies' sales are made up of popular species such as cod, pollock, shrimp, salmon, cod and tilapia. (Albanese Supp. Aff. ¶ 18.)
Groves also claims that his knowledge of High Liner's operation does not involve products or markets in which Trident operates. But Groves admits that he will be responsible for managing people who handle all 5 types of accounts at Trident, including Food Service Distribution accounts, Noncommercial National Accounts and Commercial National Accounts. (Groves Aff. ¶ 20.) A fair analysis of Groves's Affidavit indicates that the reporting people at Trident that he manages have direct responsibility for selling customers overlapping frozen seafood species sold by High Liner. (e.g., Groves Aff. ¶¶ 20, 34.)
Groves disputes High Liner's claim that he was involved in servicing or oversight of commercial national accounts at High Liner and that he shared responsibility with Ms. Albanese on commercial national accounts. (Compare Groves Aff. ¶¶ 19-22 with Albanese Aff. ¶¶ 4-10.) However, the Albanese Affidavit, filed under seal, contains detailed descriptions of Groves's work and his role at High Liner, which is supported by his job description as contained in the documents related to his employment.
Ironically, Groves's Supplemental Affidavit, in which he challenges Ms. Albanese's knowledge of his work tends to support High Liner's position because it establishes the high level at which Groves functioned at High Liner, and the knowledge he has of its business. (Groves Supp. Aff. ¶¶ 2-4.) He states that during the time he worked at High Liner, Ms. Albanese was never his direct supervisor or manager but that he "considered her to be a peer." (Groves Supp. Aff. ¶ 2.) While he states that he does not have any understanding of how she would be knowledgeable about his job duties or the details of his work, he is apparently quite knowledgeable about Ms. Albanese's work, her responsibilities and the manner in which Ms. Albanese handled "Commercial National Accounts." (Groves Supp. Aff. ¶¶ 4-5.) It is apparent from review of Groves's affidavit that he is extremely knowledgeable about High Liner's work, its RFP process and its customers. (e.g., Groves Supp. Aff. ¶¶ 5-8.)
Groves concedes that he reviewed the 2020 Business Plan. (Groves Aff. ¶ 26.) But he states that the information in it is not sufficiently detailed to allow him to use it for competitive advantage. (Groves Aff. ¶¶ 33-36.) Groves does not dispute High Liner's allegation that at least the 2020 Business Plan as it related to Food Service Distributors was developed for him to execute as head of High Liner's noncommercial national accounts and distribution accounts. (Albanese Aff. ¶¶ 13-26); (Albanese Supp. Aff. ¶ 7.)
Groves concedes that, as Albanese's Affidavit states, he participated in various meetings regarding High Liner's financial strategies. He claims however:
Importantly, however, many of the meetings at High Liner took the form of conference calls lasting nearly an entire work day, or even multiple days. Due to the length of the meetings and the need to perform other work, Groves would typically only join meetings for the portions that were relevant to his business area: foodservice distribution a non-commercial national accounts. Groves would generally not call in for or otherwise participate in portions of these prolonged meetings that involved commercial national accounts, industrial accounts, or retail accounts.(Def.'s Mem. of Law in Supp. of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 8.)
Groves essentially responds to High Liner's evidence that he was provided access, as a high level employee, to High Liner's confidential business information with an argument that he did not pay attention to it. He argues that "[t]hroughout Ms. Albanese's discussion of the 2020 Business Plan, she references material that might have been available to Groves if he had reviewed her 2020 Business Plan. He did not." (Def.'s Mem. of Law in Supp. of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 6.)
It strains credulity that a high level employee such as Groves, the Vice President of Field Sales Food Service, responsible for budgeted product sales of $549.3 million and reporting directly to High Liner's Chief Executive Officer, would not pay close attention to a Business Plan presented at an annual corporate meeting, which he was expected to execute. The Court finds, for purposes of the preliminary injunction hearing, based upon the affidavits and offers of proof, that High Liner has established that Groves was exposed to Confidential Information within the meaning of the 2015 and 2016 Employment Agreements executed by Groves that is proprietary to High Liner and can be used to its detriment by competing businesses.
III
A. Standard for Preliminary Injunctive Relief
A preliminary injunction is an extraordinary remedy that preserves the status quo pending a final determination on the merits. New Hampshire Dep't of Envtl. Servs. v. Mottolo, 155 N.H. 57, 63 (2007). An injunction will issue if there is an immediate danger of irreparable harm to the party seeking injunctive relief and there is no adequate remedy at law. Murphy v. McQuade Realty, Inc. 122 N.H. 314, 316 (1982). There is authority for the proposition that the court must consider whether or not grant of injunctive relief is in the public interest. UniFirst Corporation v. City of Nashua, 130 N.H. 11, 14 (1987).
High Liner bases its right to injunctive relief on the restrictive covenants which it entered into with Groves. Groves does not, however, dispute that he owes High Liner confidentially obligations. He states that he "does not resist an order from this Court reiterating his ongoing confidentially obligations as contained in the asserted agreements or any obligation to refrain from soliciting employees from High Liner for a period of 12 months" but asserts that the interests protected by those agreements do not justify preventing him from assuming his new role at Trident. (Def.'s Mem. of Law in Supp. of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 10.) He argues that High Liner cannot establish a likelihood of success on the merits because the restrictive covenants he entered into are overbroad making them unenforceable. Groves first argues that the 2015 Employment Agreement is not enforceable in light of RSA 275:70.
A. RSA 275:70
RSA 275:70 protects employees from being presented with a noncompetition agreement as a condition of employment after they have substantially changed their position in reliance upon an offer of employment. Compare Granite Inv. Advisors, Inc. v. Timm 2013 N.H. Super. LEXIS 5 *19-20 (N.H. Super. March 28, 2013) (decided prior to the effective date of RSA 275: 70). The statute provides in relevant part:
Any employer who requires an employee who has not previously been employed by the employer to execute a noncompete agreement as a condition of employment shall provide a copy of such agreement to the potential employee prior to the employee's acceptance of an offer of employment. A noncompete agreement that has not been disclosed to an employee as required by this section shall not be enforceable against the employee, but all other provisions of any employment, confidentiality, nondisclosure, trade secret, intellectual property assignment, or any other type of an employment agreement or provision shall remain in full force and effect.
Groves argues that the 2015 Agreement is invalid because he accepted employment from High Liner after a dinner meeting with a High Liner employee named Chris Mulder on June 19, 2015, during which an offer of employment was written on a napkin ("the Napkin Memo"). (Groves Aff. ¶ 1, Ex. 1.) Groves states that the terms of the offer included a base salary of $175,000, a bonus structure, two signing bonuses, a car stipend, and an agreement for a mileage reimbursement rate. (Groves Aff. ¶ 2, Ex.1.)
The Napkin Memo is dated, and does recite some of the terms Groves references, but it does not include all of the terms Groves eventually agreed to, and it is not signed by either party. (Groves Aff. Ex. 1.) Groves states that he "accepted the job on the spot" and "notified my employer the following week" and then "asked Mr. Mulder when I could expect to start onboarding into my new position." (Groves Aff. ¶ 3.) Mulder responded by email:
dude(Groves Aff., Ex. 2.)
always takes longer than expected.
I will fill you in tomorrow
the deal on the napkin is still official place holder
The critical issue is whether or not the Napkin Memo was a binding contract, which would invoke the provisions of RSA 275:70. Groves received an "official offer letter from High Liner" on Wednesday, July 1, 2015 via email. (Groves Aff., Ex. 3.) The email included 7 attachments including a PDF called "Chad Groves Offer Letter PDF" and "Chad Groves Employment agreements." (Affidavit of Laura Tello Ex. 1.) Though sent on July 1, 2015, the attached offer letter was dated June 29, 2015. (Id.) This letter specifically states that "this offer is contingent on you signing . . . the Employment Agreement." (Id.)
The 2015 Employment Agreement included the restrictive covenants. On July 2, 2015 Groves signed both his offer letter and the 2015 Employment Agreement and returned them to High Liner. (Affidavit of Laura Tello ¶ 8, Ex. 2.) High Liner has produced an email sent by Groves to High Liner Human Resources employee Joe Wentworth on July 23, 2015, approximately 3 weeks after Groves received, signed, and returned the 2015 Employment Agreement in which he stated:
I am putting in my notice at my current job on the 31st when our bonus is paid out. We have our national sales meeting the following week, and I assume they will not want me to attend, so I will be able to start with High Liner the week of the 3rd, but I will not be 100% sure until the 31st.(Affidavit of Laura Tello, Ex. 4.)
Groves has also introduced the Affidavit of Chris Mulder, who apparently left High Liner on April 1, 2019. (Affidavit of Chris Mulder ¶ 1.) Mulder states that when he met with Groves in June, 2015, he discussed the offer of employment, and created the Napkin Memo with the key points of the compensation package that High Liner was offering. (Affidavit of Chris Mulder ¶ 4.) Mulder states that he told Groves Human Resources would "generate paperwork" for him to be signed, and he neither discussed a noncompetition agreement with Groves nor showed him a noncompetition agreement. (Affidavit of Chris Mulder ¶ 5.) According to Mulder, after Groves orally accepted the offer, he "sent him a number of emails to get him up to speed prior to his start date." (Affidavit of Chris Mulder ¶ 6.)
Groves takes the position that an enforceable contract was created during the dinner meeting he had with Mulder and evidenced by the Napkin Memo. High Liner asserts that no agreement was made until after Groves signed his offer letter and the 2015 Employment Agreement and returned them to Wentworth. In support of its position, High Liner references the emails between the Mulder and Wentworth. It notes that after Wentworth informed Mulder that Groves had returned to sign offer an employment agreement Mulder replied, "Excellent news!!" High Liner argues this exclamation indicates that "he had not believed that Groves had formally accepted an offer at the June 19, 2015 dinner." (Pl.'s Reply to Def.'s Obj. to Pl.'s Mot. for a Prelim. Inj. at 13.) High Liner also notes that Groves informed High Liner he would be "putting in notice" at his current job on July 31 when his bonus was paid and would be able to start with High Liner the week of August 3. (Id. at 14.)
Groves states in his Supplemental Affidavit that he had advised his supervisor, who was his mentor, that he intended to resign shortly after the June 19, 2015, dinner meeting, which resulted in the Napkin Memo. He did this because he did not want to be transferred to another city, but he and his supervisor had agreed that he would delay his resignation until July 31, 2019, after bonuses were distributed. (Grove's Supp. Aff. ¶ 14.) Groves states that he regarded this conversation with his supervisor as his "notice" to his former employer, Cargill, but he acknowledges "that I also gave a formal written 'notice' to the Human Resources Department on or about my last day of work." (Id.)
The Court notes that in his initial Affidavit Groves stated that he accepted the job from Mulder on the spot at the dinner meeting and "notified my employer the following week." (Groves Aff. ¶14.) Groves asserts he "did not recall the sending" the email about when he was going to inform his former employment until after he saw High Liner's papers.
Whether or not a contract exists is a factual question, which must be decided by a trier of fact. Durgin v. Pillsbury Lake Water Dist., 153 N.H. 818, 821 (2006). There must be a meeting of the minds in order to form a valid contract. Simonds v. City of Manchester, 141 N.H. 742, 746 (1997). A meeting of the minds occurs when the parties assent to the same terms. Behrens v. S. P. Const. Co., 153 N.H. 498, 501 (2006).
The parties to the contract between Groves and High Liner were not Groves and Mulder, but Groves and High Liner, and it does not appear that Mulder had authority to employ Groves. The communications between Mulder and Groves plainly illustrate they both understood that no offer could be accepted until Human Resources "generated paper," and gave him a formal offer in writing. The Napkin Memo was a "place holder," akin to a letter of intent. It did not constitute the complete agreement between the parties. Moreover, even if it were considered a binding contract, the terms were modified and memorialized before Groves accepted it. Similarly, the party to the employment contract Groves had with his former employer, Cargill, was Cargill and not his unnamed supervisor.
Groves may well have, as he states in his Supplemental Affidavit, given notice to his immediate supervisor so that he could "backfill any vacant position and onboard [his] replacement." (Groves' Supp. Aff. ¶ 14.) But just as a contract was formed with High Liner when Groves signed the offer letter and contract containing all the terms of the proposed employment agreement, his contract with Cargill ended when he gave formal notice to the Human Resources Department at Cargill.
Based upon the affidavits and offers of proof, the Court finds that Groves was not presented with the noncompetition agreement after leaving a former position to accept a new position at High Liner. Therefore, RSA 275:70 is not applicable to the 2015 Employment Agreement.
IV. Enforceability of the Covenants
New Hampshire has recognized that employers may utilize restrictive covenants to protect confidential information. ACAS Acquisitions, (Precitech), Inc. v. Hobert, 155 N.H. 381, 389 (2007). But the public policy of the State of New Hampshire encourages free trade and discourages covenants not to compete. Concord Orthopaedics Prof'l Ass'n v. Forbes, 142 N.H. 440, 443 (1997). Such agreements are narrowly construed. Merrimack Valley Wood Products v. Near, 152 N.H. 192, 197 (2005). Therefore, restrictive covenants are valid and enforceable if they are supported by consideration, and if the restraint is reasonable, given the particular circumstances of the case. Id. Groves does not dispute that the covenants at issue are supported by consideration.
To determine the reasonableness of a covenant not to compete, the New Hampshire Supreme Court has applied 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 Indus., Inc. v. Wood, 155 N.H. 73, 79 (2007). This three-part test apparently finds its genesis in the Restatement (Second) of Contracts, § 188. Technical Aid Corp. v. Allen, 134 N.H. 1, 8 (1991).
A. The Legitimate Interest of the Employer
The first step in determining the reasonableness of a restrictive covenant is to identify the legitimate interests of the employer, and to determine whether the restraint is narrowly tailored to protect those interests. Merrimack Valley, 152 N.H. at 197. The New Hampshire Supreme Court has stated:
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 the 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 (quoting Nat'l Employment Ser. Corp. v. Olsten Staffing Svc., 145 N.H. 158, 160 (2000).
The restrictive covenants here are intended to protect confidential business information, which High Liner uses to compete with other businesses, and its goodwill. Goodwill is generally understood to refer to the benefit and advantage that accrues to a business's positive reputation in the eyes of customers and potential customers that enable it to retain their patronage and obtain new business. HCC Specialty Underwriters Inc. v. Woodbury, 289 F. Supp. 3 rd, 303, 319 (D.N.H. 2018) (Applying Massachusetts law).
Employers also have a legitimate interest in protecting information about their customers gained by employees during the course of their employment. Technical Aid, 134 N.H. at 9. A noncompetition agreement is reasonably necessary to protect the legitimate business interest where the employee has had substantial contact with his employer's confidential information during his employment, including customer lists. Nationwide Mut. Ins. Co. v. Santo Ins. & Fin. Serv., Inc., 2010 N.H. Super. LEXIS 20 *18 (N.H. Super. April 21, 2010).
High Liner has made a compelling showing that Groves was exposed to its confidential business information. Groves argues that the covenant is overbroad because it is greater than necessary to protect High Liner's interest as he was "not an executive-level manager at High Liner." (Def.'s Mem. of Law in Support of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 17.) This claim is unsupported by the record. Groves was privy to "confidential information relating to High Liner's overall goals and strategies, tracking, and performance for High Liner's commercial national accounts, non-commercial national accounts, distribution accounts, industrial accounts, and retail accounts, all of which he is now responsible for at Trident Seafoods." (Albanese Supp. Aff. ¶ 23.) Groves reported directly to the CEO of High Liner and managed over $500M in sales. Although he claims not to have paid attention to it, he was privy to High Liner's confidential business strategy plans.
B. Whether the Restriction is Reasonably Necessary
Groves neither challenges the geographic scope of the noncompetition agreements nor the 12-month time limitation in the noncompetition agreements. But he argues that the 2015 Employment Agreement is overbroad because it defines "competing business" as the "frozen seafood industry (e.g. research, fishing, harvesting, manufacturing, processing, and wholesale or distribution)." (Compl., Ex. A 2015 Employment Agreement.) Groves argues that this language would restrict him from investing in a scalloping research business. (Def.'s Surreply to Pl.'s Reply to Def.'s Obj. to Pl.'s Mot. for a Prelim. Inj. at 6.) High Liner asserts that Grove's argument creates a straw man, because this case relates to the sale of frozen seafood. Even so, High Liner points out that in a frozen seafood industry dependent on sustainable fisheries management, companies such as High Liner routinely engage in research both with respect to product innovation and safeguarding and streamlining existing supplies and supply lines. (Pl.'s Reply to Def.'s Obj. to Pl.'s Mot. for a Prelim. Inj. at 20.) Therefore, the term research is clearly a part of a reasonable description of High Liner's business activities and is not indicative of bad faith. (Id.)
The 2016 Employment Agreement raises a more serious issue in the provisions which purport to restrict Groves from soliciting any "current or prospective customer of High Liner serviced or solicited by him during his employment." (Compl., Ex. C 2016 Employment Agreement ¶ 1 (b)). The 2016 Employment Agreement also attempts to limit Groves from directly or indirectly soliciting business for many seafood customer or potential customer of High Liner who is located in or has its head office in "any country or district in which [he] engaged in solicitation or servicing of business for [High Liner] during the last two years of" his employment. (Id.)
Recognizing the overbreadth of the phrase, High Liner suggests that the agreement can "and should fairly be interpreted" to refer to potential customers of Groves new employer Trident that were serviced or solicited by Groves at High Liner. The Court believes this construction is strained. (Pl.'s Reply to Def.'s Obj. to Pl.'s Mot. for a Prelim. Inj. at 18, n. 9.)
The New Hampshire Supreme Court has specifically recognized that when the employer seeks to protect its goodwill with customers, a covenant that restricts the former employee from soliciting business from prospective customers may sweep too broadly. See Concord Orthopaedics, 142 N.H. at 443. A company has a protectable and legitimate interest in prohibiting a former employee from competing for existing customers by appropriating the good will of its business. Yet, in the ordinary course no legitimate interest exists as to customers with which the former employee had no contact. This is because in such a case the former employee is not using its former employer's goodwill to compete. Id. at 443.
The key is whether the employer has a protectable interest. G. Giesel, 15 Corbin on Contracts, § 80.16 (Rev. Ed. 2003). A noncompetition agreement can justify restrictions on competition related to all company customers, including those with which the employee had little or no direct contact if the employee "gained significant knowledge or understanding of these customers during the course of his or her employment." Syncom,155 N.H. at 80. High Liner has not established that merely by being a high-level employee of High Liner, Groves somehow can utilize High Liner's goodwill to solicit companies that High Liner never dealt with. The limitation on competing by soliciting prospective customers is overbroad.
However, that is not the end of the matter. The New Hampshire Supreme Court has held in a number of cases that if the restrictive covenant is overbroad, an employer may be entitled to equitable relief in the form of reformation or partial enforcement of the covenant upon a showing of his good faith in the execution of the employment agreement. Technical Aid Corporation v. Allen, 134 N.H. 1, 20, (1991); Smith Batchelder & Rugg v. Foster, 119 N.H. 679, 683 (1979); Timm, 2013 N.H. Super. LEXIS 5 * 13. This approach is favored by commentators. See Corbin § 80.5 at 140: ("The approach of enforcing the restriction to the extent it is reasonable is the approach preferred by many modern courts and is in fact a superior approach. Courts generally decline to find an employer acted in good faith where a noncompetition agreement is imposed on an employee only after he has left his prior employment and began working for his new employer. Technical Aid, 134 N.H. at 10; Smith Batchelder & Rugg, 119 N.H. at 683; Merrimack Valley, 152 N.H. at 193; Timm, 2013 N.H. Super. LEXIS at *21. But that is not the case here. Groves entered into noncompetition agreements and 2015 and 2016 before he accepted employment or promotion. To refuse to enforce this agreement entirely due to a minor deviation from the reasonableness standard is too harsh a result given the lack of precision of the reasonableness analysis and the recognized benefit of unreasonably restrictive covenants. Corbin, § 80.15, at 140.
C. The Balance of Harms
Based upon the Court's review of the documents submitted with the Albanese affidavit, and particularly the 2020 Business Plan, the Court finds, for the purpose of this Order, that High Liner has a legitimate business interest in protecting its confidential information. It has acted in good faith. The 2015 Employment Agreement was presented to Groves before he accepted employment and before he terminated his prior employment. The 2016 Employment Agreement was presented to him in connection with a promotion; and the 2019 release restrictive covenant was presented to him in connection with a substantial severance pay.
Groves does not challenge the geographic or temporal limitations of the noncompetition agreements. The noncompetition agreements do not restrict Groves from working in any other part of the food industry or even in the fresh seafood industries. High Liner asserts that Trident does in fact have a fresh seafood division, but Groves leads the frozen seafood team in which he competes with his former employer. (Pl.'s Reply to Def.'s Obj. to Pl.'s Mot. for a Prelim. Inj. at 18, n. 8.) If the noncompetition agreement is limited to prohibiting Groves from directly or indirectly soliciting or accepting the business of customers of High Liner and potential customers of Trident which were serviced or solicited by Groves while working for High Liner, then the legitimate interests of High Liner, which acted in good faith, will be protected. These interests outweigh the potential harm to Groves who has breached his contract with High Liner.
An award of damages would not be sufficient to put High Liner in the position it would have been in but for breach of the employment agreements, because it can be extraordinarily difficult to quantify damages caused by loss of confidential information or goodwill. HCC Specialty Industries Inc. v. Woodbury, 289 F. Supp. 3 rd, 303, 323 (D.N.H. 2018). New Hampshire courts generally find that loss of goodwill is immeasurable and irreparable harm. USI Ins. Sys., LLC v. Guarino, 2013 N.H. Super. LEXIS 19 *19 (Sept. 10, 2013). High Liner is not seeking to prevent Groves from performing work in a specific geographical region which would require him to relocate. Compare Nationwide Insurance Co., 2010 N.H. Super LEXIS 20 *20. He is able to work in the food industry or even in the fresh seafood industry. Moreover, any harm to the defendant is a direct result of the defendant's breach of his contractual obligations. Contour Design, Inc. v. Chance Mold Steel Co., 2010 U.S. Dist. LEXIS 121761 (D.N.H. Oct. 22, 2010). Finally, there is a public interest in ensuring that legally enforceable contracts are enforced in circumstances in which breach would result in immeasurable harm. Cf. HCC Specialty Underwriters, Inc. v. Woodbury, 289 F.Supp. 3d 303, 320 (D.N.H. 2018).
The Court finds that High Liner is entitled to enforce the provisions of the restrictive covenants which purport to limit Groves from soliciting customers of High Liner to that were serviced by Groves during his employment at High Liner. Accordingly, on a preliminary basis the court enjoins Groves from:
(a) engaging in the frozen seafood retail and wholesale industry, as well as the frozen and fresh scallop industry, for 12 months following the date of this Order; and
(b) directly or indirectly soliciting or accepting the business of customers of High
Liner and potential customers of Trident which were serviced or solicited by Groves at High Liner; and
(c) Disclosing or misusing High Liner's confidential information, as defined in the Employment Agreements he signed with High Liner.
Groves has represented that he has been voluntarily complying with the provisions he challenges and has been "sidelined" at Trident since beginning employment. (Def.'s Mem. of Law in Supp. of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 4.) --------
Groves has represented that he has been voluntarily complying with the provisions he challenges and has been "sidelined" at Trident since beginning employment. (Def.'s Mem. of Law in Supp. of its Obj. to Pl.'s Mot. for a Prelim. Inj. at 4.) --------
The Court does not believe that any confidential information has been referenced in this Order. However, the Order shall not be part of the Court's public file until April 25, 2019. It will be made public after that date unless either party files a motion to redact confidential information from this Order, with a supporting memorandum, and a proposed redacted Order.
SO ORDERED
4/12/2020
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/