Opinion
No. 218-2019-CV-00198
09-17-2019
Legacy Global Sports, L.P. v. John St. Pierre, North Atlantic Hockey, LLC d/b/a The Rinks at Exeter and Travis Bezos
ORDER
This case involves a dispute between Legacy Global Sports, L. P. ("Legacy") a Delaware Limited Partnership, and John St. Pierre, ("St. Pierre") a former CEO and Board member of Legacy who was removed from the Legacy Board and who describes himself as a co-founder and 8.46% owner of Legacy. This case has been pending in the Rockingham County Superior Court since February, 2019. The parties filed a joint motion to have the matter transferred to the Business and Commercial Dispute Docket in August of this year. On August 26, 2019, St. Pierre filed a Motion for a Temporary Restraining Order, seeking that the Defendants be ordered to provide financial information which will permit him to determine whether or not he should exercise certain preemptive rights afforded him under § 7.5 of the Third Amended and Restated Limited Partnership Agreement ("LPA") to purchase certain Convertible Promissory Notes. Legacy objects. Because the Court finds that St. Pierre has not established that he will suffer irreparable harm unless injunctive relief is granted, his request for injunctive relief is DENIED.
I
A hearing was held on the Motion for a Temporary Restraining Order on Thursday, August 29, 2019. The pleading had been filed on August 26, 2019, reciting 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. St. Pierre seeks an order that the Court stay the deadline for St. Pierre to exercise his preemptive rights until Legacy releases information that he claims should already have been provided to him in accordance with § 7.5 of the LPA. At the hearing, the parties agreed to extend the deadline past August 30, although they apparently disagree about when the deadline will run.
Both parties agree that, pursuant to § 13.9 of the LPA, Delaware law governs the substantive rights and obligations of the parties. However, the parties have consented to this lawsuit proceeding in the New Hampshire Superior Court, and the procedural rules governing New Hampshire cases are therefore applicable. See Keeton v. Hustler Magazine, 131 N.H. 6, 13 (1988); Ferrin v. General Motors Corporation, 137 N.H. 423, 428 (1993). Under New Hampshire law, this Court should issue a preliminary injunction where there is an immediate danger of irreparable harm to the party seeking injunctive relief, there is no adequate remedy at law, and the party seeking injunctive relief has established that it will likely succeed on the merits. New Hampshire Dep't of Envtl. Servs. v. Mottolo, 155 N.H. 57, 63 (2007). The hearing proceeded by offers of proof and the Court therefore makes no findings of fact which will bind the parties in this case. The following synopsis of the claims of the parties is drawn primarily from the Amended Complaint, Answer and Counterclaims.
Delaware law is essentially the same. See S.I. Management, et al. v. Weninger, 707 A.2d 37, 40 (Del.1998).
Legacy currently engages in providing services to elite youth athletes, including youth hockey players and their families, at youth sports events and tournaments throughout North America and Europe. (Am. Comp. ¶ 10.) According to Legacy's papers, Legacy has 350 locations around the world and approximately 500 employees worldwide. (Id. ¶¶ 10-11.) A substantial portion of its business relates to youth hockey. (Id. ¶ 12.)
St. Pierre is one of the founders of Legacy. (Id. ¶ 13.) Defendant Travis Bezio ("Bezio") has been employed with Legacy since 2010 has held a number of management positions with Legacy. (Id. ¶ 17.) According to the Amended Complaint, on April 30, 2018 Legacy and St. Pierre entered into a letter of agreement for a grant of Class C units of Legacy to St. Pierre. (Id. ¶ 23.) On April 30, 2018 Legacy's Board approved grants of 50,000 class C units of the company to St. Pierre. (Id. ¶¶ 23-24.) On October 1, 2018, Bezio and Legacy Global entered into a letter of agreement for an additional Grant of Class C Units. (Id. ¶ 25.) Bezio received a grant of 80,306 class C ownership units in Legacy, subject to certain vesting conditions. (Id. ¶ 26.) Pursuant to the grant agreements, St. Pierre and Bezio entered into noncompetition agreements. (Id. ¶ 30,.)
Legacy's lawsuit involves claims that St. Pierre and Bezio engaged in competitive business activity which violated the noncompetition agreement that they had entered into with Legacy. (Am. Comp. ¶¶ 30, 81-157.) Legacy seeks money damages and injunctive relief, including enforcement of the noncompetition agreement. (Id. ¶¶ (i)-(iii).)
St. Pierre and Bezio deny Legacy's claims of wrongdoing. (St. Pierre's Answer to Pl.'s Compl. ¶¶ 11-80; Bezio's Answer to Pl.'s Compl. ¶¶ 1-80.) St. Pierre and Bezio have both brought Counterclaims. (St. Pierre's Countercl. to Pl.'s Compl. ¶¶ 137-189; Bezio's Countercl. to Pl.'s Compl. ¶¶ 209-234.) Essentially, St. Pierre alleges that he has been the victim of a corporate freeze out. (St. Pierre's Countercl. to Pl.'s Compl. ¶¶ 137-189.) St. Pierre alleges wrongful termination (Count I), breach of the October 1, 2018 Grant Agreement which would have provided him with Class C units (Count II), breach of the implied covenant of good faith and fair dealing with respect to the LPA (Count IV) , and with respect to the Grant Agreement (Count V) and Fraudulent Inducement (Count VI). (Id. ¶¶ 137-174.) St. Pierre also brings a claim of respondeat superior (Count VII). He seeks a declaration that the restrictive covenants in the grant agreement are unenforceable (Count VIII) and asserts a claim for indemnification (Count IX). (Id. ¶¶ 175-186.)
Both St. Pierre and Bezio claim that they are entitled to indemnification for attorney's fees as a result of defending the litigation brought by Legacy under the LPA. (St. Pierre's Countercl. to Pl.'s Compl. ¶¶ 183-B; Bezio's Countercl. to Pl.'s Compl. ¶¶ 220-234.)
Bezio has also brought a wrongful termination counterclaim (Count I) as well as Counterclaims alleging breach of the implied covenant of good faith and fair dealing with respect to the Grant Agreement and Wage Claim under RSA 275 (Counts II and IV). (Bezio's Countercl. to Pl.'s Compl. ¶¶ 209-228.) He too seeks a declaration that the restrictive covenants provided in Grant Agreement are unenforceable, and seeks indemnification for his attorneys' fees. (Bezio's Countercl. to Pl.'s Compl. ¶¶ 220-234.)
II
St. Pierre seeks preliminary equitable relief. (St. Pierre's Countercl. to Pl.'s Compl. ¶ B.) He alleges in his Motion for a Temporary Restraining Order that in June, 2019 Legacy replaced existing bank loans (which carried interest rates of 5.5%) 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's Mem. in Supp. of Mot. for TRO, 1.) St. Pierre alleges that the Convertible Notes accrue interest at a rate of 15% per annum. (Id. at 1.) In addition, they are convertible to equity at a 50% discount "thereby allowing JRC and Gen Cap to substantially increase their ownership and control over Legacy." (Id. at 2.)
St. Pierre alleges that he is the 8.46% owner of Legacy. (Id. at_3.) He owns 2.14% through an entity called Maxick, Inc., of which he is the sole shareholder, and 6.23% through his ownership in another entity, Legacy Global Sports Holdings, Inc. (LGSH"). (Id.) He also claims that under the LPA he has a preemptive right to participate in the purchase of the Convertible Notes on a pro rata basis. (Id. at 2.) He alleges that if he does not participate, his interest in Legacy will be substantially diluted. (Id.) He asserts that JRC owns 35.3% of Legacy's units and GenCap owns 21.9% of the units, making them together the majority unit holders. (St. Pierre's Mem.in Supp. of Mot. for TRO, 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.) Legacy claims 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's Mem. in Opp. to St. Pierre's Mot. for TRO, 5.) Legacy claims that while Maxick and LGSH have the preemptive rights under LPA§ 3.1 (f), St. Pierre only holds Class C Units. (Id.)
It also asserts that these Class C units were forfeited in connection with termination of St. Pierre's employment with Legacy. (Legacy's Mem. in Opp. to St. Pierre's Mot. for TRO, 4.)
St. Pierre tacitly concedes 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. However, he makes two arguments. First, he alleges 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. (Third Decl. of John St. Pierre ¶ 4.) He first asserts in his declaration that in 2016 he owned 12.56% of Legacy through LGSH and was provided the opportunity to invest him to his proportional share of the company in a convertible debenture. (Id. ¶ 2.) He formed Maxick in 2016 when Legacy issued its first convertible debenture for the sole purpose of investing in Legacy. (Id. ¶ 3.) St. Pierre further asserts that in January 2018, Legacy issued a second convertible debenture of $1 million and Legacy again allowed him and other LGSH shareholders to participate in the convertible debenture. (Third Decl. of John St. Pierre ¶ 5.) He avers that he was provided the opportunity to participate for additional money, that other shareholders opted not to participate, and that he invested his proportional share of $125,600 (12.56% of the 1 million) plus an additional $24,800 that was not invested by other shareholders for a total of 150,400 through Maxick. (Id. ¶ 5.) Legacy has not refuted this affidavit, and the Court therefore assumes it to be correct.
Second, Maxick has moved to intervene in the case, to join in St. Pierre's counterclaims and join in St. Pierre's pending motion in an attempt to moot Legacy's standing argument. (St. Pierre's Reply in Supp. of Mot. for TRO, 3.)
Traditionally, the right of a party to intervene in pending litigation has been freely allowed as a matter of practice. LaMarche v. McCarthy, 158 N.H. 197, 200 (2008); see generally, Gordon J. MacDonald, Wiebusch on New Hampshire Civil Practice and Procedure, § 6.25 (3rd Ed. 2010). The New Hampshire Supreme Court has stated that it is within the trial court's discretion to grant intervenor statute but that a trial court should grant a Motion to Intervene if the party seeking to intervene has a right involved in the trial and a direct and apparent interest therein. See Snyder v. New Hampshire Savings Bank, 134 N.H. 32, 35 (1991). There is no doubt that Mixick has a direct and apparent interest in the litigation, because Maxick is a class C unit holder and therefore has preemptive rights under § 3.1 of the LPA.
The Court believes that the law governing procedural matters such as intervention is that of the forum state, despite the fact that, under §13.9 of the LPA, Delaware law applies to the substantive rights of the parties.
While Legacy has not yet objected to Maxick's Motion to Intervene, which was only filed on September 9, 2019, it has signaled in its Opposition to St. Pierre's Motion for a Temporary Restraining Order that it will object to the intervention, on the ground that § 13.9 of the LPA requires that disputes between shareholders be litigated in Delaware. (Legacy's Mem. in Opp. to St. Pierre's Mot. for TRO, 14.) Legacy reasons that while St. Pierre and it had voluntarily proceeded in this Court on the specific claims asserted between each other, the contract rights that Maxick and LGSH have are distinct and not separately enforceable and there is a separately enforceable obligation to litigate them in Delaware. (Id.)
However, Legacy stipulated to transfer to the Business and Commercial Dispute Docket of the Superior Court and in doing so entered into a stipulation that "if accepted by the BCDD, the BCDD shall have jurisdiction over all pending claims, defenses and motions."(Assented to Mot. for Transfer to Business and Commercial Dispute Docket, Ex. A ¶ 2.) The claim raised by the parties in this case is essentially whether or not Legacy has complied with the provisions of the LPA. Legacy does not argue that the underlying claim it brought against St. Pierre should have been brought in Delaware but concedes that Legacy and St. Pierre "have voluntarily proceeded in this court on the specific claims asserted between each other..." (Legacy's Mem. in Opp. to St. Pierre's Mot. for TRO, 14.)
The distinction that Legacy seeks to make between St. Pierre's counterclaims and Maxick's claims is too narrow. The fact that the Motion to Intervene was not pending at the time of the transfer to the BCDD is not significant; under settled New Hampshire law, as in most jurisdictions, including the federal courts, Motions to Intervene are freely granted and such a Motion was within the reasonable contemplation of the parties. See Snyder, 134 N.H. at 35. Moreover, the purpose of the BCDD is to streamline litigation and ensure that matters are determined promptly. It would be inconsistent with that goal to require the same issues between related parties to be litigated in Delaware. The Court therefore need not consider the issue of whether Legacy has waived the strict requirements of the LPA by a course of conduct. The Court therefore finds that, at least for the purpose of this motion, St. Pierre has standing to seek injunctive relief regarding his claim that Legacy has not provided shareholders with the appropriate documentation in order to determine whether to exercise preemptive rights.
III
St. Pierre asserts that he has a likelihood of success on the merits because under the LPA, Legacy has an obligation to produce financial information to each Holder. (St. Pierre's Mem. in Supp. of Mot. for TRO, 14.); (Carter Aff. Ex.1, § 7.5.) In addition, prior to the issuance of securities to any person, Legacy must provide holders with the opportunity to purchase their proportional share of the securities. (Carter Aff. Ex.1, §3.1(f) (i)-(iii).) Alternatively, if Legacy offers and sells units to one or more partners without first offering the units to all holders, Legacy must provide holders with the opportunity to provide their pro rata portion of the units under "substantially the same terms and conditions" as previously offered to the purchasing partners. (Carter Aff. Ex.1, §§ 3.1(f)(i), (v).)
LPA 3.1 (f) (i) defines "Holder" as a Class AA partner, a Class A partner or a Class D partner. (Carter Aff. Ex.1, § 3.1(f)(i).)
St. Pierre's merits claim is that Legacy has not complied with its disclosure requirements. (St. Pierre's Mem. in Supp. of Mot. for TRO, 14.) He asserts that on June 20, 2019 he and other limited partners received a one-page notice from Legacy which stated that on June 7, 2019 Legacy issued Convertible Notes to JRC and GenCap in the amounts of 3.5 million and $2,174,183 respectively. (Carter Aff. Ex. 2.) The notice stated that the Convertible Notes accrue interest at 15% per annum and are "convertible to units [in Legacy] in certain circumstances." (Id.) The notice also stated that holders of Legacy Class AA and Class A units would have the opportunity to acquire their pro rata portion of the Convertible Notes on the same terms and conditions as offered to JRC and GenCap. (Id.) However, the notice provided no information about the terms and conditions. (Id.) On July 16, 2019, in response to Legacy's notice, St. Pierre requested information pursuant to § 3.1 of the LPA. (Carter Aff. Ex. 3.) The parties traded email and exchanged some information. St. Pierre alleges that the information which has been produced is inadequate under § 7.5 of the LPA. (St. Pierre's Mem. in Supp. of Mot. for TRO, 14.).
In support of its motion for preliminary relief, St. Pierre has obtained an affidavit from Stacy Udell, CPA ("Udell"). (Udell Aff. ¶ 3.) Udell has reviewed the information produced by Legacy and concluded that the information produced is not adequate to allow holders to determine whether or not to exercise their rights. (Id. ¶¶ 10-12.) Legacy has filed no memorandum or expert disclosure in opposition to the Udell affidavit. For purposes of this Order, the Court therefore concludes that St. Pierre has established a likelihood of success on the merits of his claim that Legacy has failed to provide shareholders with adequate information in order to determine whether to exercise preemptive rights, a disregard of its obligations under§ 7.5 of the LPA.
IV
St. Pierre claims that he will suffer irreparable harm and is therefore entitled to injunctive relief because he has not been provided the information necessary to exercise his rights as a holder. (St. Pierre's Mem.in Supp. of Mot. for TRO, 19.) Legacy argues that St. Pierre is not entitled to injunctive relief because:
To the extent that Legacy Global could be found to have breached any contractual obligations to Maxick or LGSH to provide sufficient information under the LPA (it has not), and either Maxick or LGSH suffers damage as a result of a decision to invest or not invest additional funds into the company as a result of a lack of such information, such damages would consist of monetary losses that can be reasonably calculated. St. Pierre has certainly not demonstrated otherwise.Legacy's Mem. in Opp. to St. Pierre's Mot. for TRO, 19.)
Legacy apparently concedes that under Delaware law, as under New Hampshire law, a limited partner can bring an action against a general partner for breach of a duty which causes a specific injury to a limited partner. In re Cencom Income Partners, L.P., 2000 WL 130629 *3 (Del. Ch. Jan. 27, 2000); Kessler v. Gleich, 156 N.H. 480, 492 (2007).
St. Pierre primarily relies upon Sealy Mattress Co. of New Jersey v. Sealy, Inc., 532 A.2d 1324, 1340-1341 (Del. Ch. 1987) for the proposition that where an equity holder is called upon to make a decision about a transaction but has not received sufficient information to make an informed decision about whether to participate in a transaction, the inability to make that choice constitutes irreparable harm.
Sealy, however, involved a decision of the shareholders whether to accept the merger price of a proposed cash out merger of a parent corporation into a wholly-owned subsidiary of its majority shareholder. The court noted that it represented an unusual case:
[W]hile situations might arise where violations of this character would arguably not warrant an injunctive remedy, and this extreme set of circumstances where (i) the Board has made no informed decision, (ii) the Board is uniquely situated to make determinations concerning Sealy's value, and (iii) the Board has not disclosed material facts to the minority shareholders, an injunction is clearly the most appropriate remedy to vindicate the statutory mandate... and the policies underlying the fiduciary obligation of full disclosure.Sealy, 532 A.2d at 1341.
Critically, the Sealy court noted that injunctive relief is appropriate in cases where damages would be difficult to assess. Sealy, 532 A.2d at 1341 (citing In re Anderson, Clayton Shareholders Litigation,519 A.2d 669, 676 (Del. Ch. 1986)). In Sealy, the court recognized the "difficulty of assessing damages in a parent-subsidiary merger in a trial occurring long after the event" and noted that "in this case that difficulty is particularly significant, because due to the status of... antitrust judgments, damages may be highly difficult to calculate." Id.
No such uncertainty exists in this case. St. Pierre is not seeking to enjoin a transaction, because the transaction has already occurred. While there is authority in Delaware courts for the proposition that an uninformed stockholder vote constitutes irreparable harm, analysis of cases in which such relief is granted involved situations where the court must "unscramble the eggs" and consider a post hoc analysis of what would have occurred had shareholders been provided with appropriate information. See, e.g., ODS Technologies, L.P. v. Marshall, 832 A.2d 1254, 1262-1263 (Del. Ch. 2003).
Moreover, St. Pierre has not shown that the two entities which are holders are ready willing and able to make the investment into Convertible Notes if offered the opportunity to do so.
There is no reason to believe that damages could not be calculated if it appears that St. Pierre or entities in which he is a shareholder have suffered economic harm as a result of the failure to invest. St. Pierre's claim is essentially that he cannot determine whether or not the price at which he has been offered Convertible Notes is a fair price, because he has not been provided adequate information. In such a case, damages can easily be calculated by determining the price he was offered versus the appropriate price, and "a monetary remedy to compensate plaintiff for these damages would be adequate." Retirement Board of Allegheny County v. Rothblatt, No. 4946-CC, 2009 WL 3349262, at *2 (Del. Ch. 2009).
Since damages can be calculated if in fact St. Pierre proves after trial that Legacy has violated the LPA, he has an adequate remedy at law and he is not entitled to injunctive relief. It follows that the request for preliminary injunctive relief must be DENIED.
In light of this conclusion the Court need not consider the argument that St.Pierre is not entitled to equitable relief because he comes to the Court with unclean hands. Cornwell v. Cornwell, 116 N.H. 205, 210 (1976). --------
SO ORDERED
9/17/19
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/