PAUL J. BARBADORO, District Judge.
Scott Baker has sued Paul Montrone, Paul Meister, Perspecta Holdings LLC, and several related entities. His principal claims are based on the Americans with Disabilities Act of 1990 ("ADA"), 42 U.S.C. § 12101 et seq., and the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. § 354-A ("Section 354-A"). This Memorandum and Order addresses defendants' motion to compel arbitration of Baker's companion claims for fraudulent inducement, breach of fiduciary duty, unjust enrichment, and breach of contract.
The First Circuit Court of Appeals has yet to identify the proper standard of review for a motion to compel arbitration.
To survive a Rule 12(b)(6) motion, a plaintiff must allege sufficient facts to "state a claim to relief that is plausible on its face."
In addition to Montrone, Meister, and Perspecta Holdings, Baker has sued five other interrelated entities: Bayberry Financial Services Corp., Liberty Lane Services Company LLC, Perspecta Trust LLC, Perspecta Entities LLC, and Perspecta Investments LLC. Am. Compl., Doc. No. 30 at 1. I begin by describing the relationships among the institutional defendants and then turn to the agreements that serve as the basis for defendants' demand for arbitration.
Meister and Montrone directly or indirectly control all of the institutional defendants. Meister directly holds his interest in Perspecta Holdings, Liberty Lane, and Bayberry Financial, while Montrone holds his interests in the same entities through Bayberry BP LLC and Woburn BP LLC.
Baker was hired to work at Perspecta in 2009. Doc. No. 30 at 3-4. Throughout his employment, Baker reported to Montrone and Meister — Perspecta's co-founders and managers. Doc. No. 30 at 5. In addition to a base salary and a bonus, Baker's offer of employment included a promise that "on [his] start date, [he would] initially be awarded stock options representing 3% of the equity in Perspecta over and above a base starting value of $15,000,000 . . . [and that a]dditional grants would be considered in the future on a periodic basis as recommended by the Compensation Committee." Doc. No. 30 at 3. Notwithstanding this promise, Baker did not receive an equity interest in Perspecta or any related business until 2012. Doc. No. 30 at 4.
Baker entered into the 2012 Equity Agreement with Perspecta Holdings on July 2, 2012. Doc. No. 35-3 at 2. The Company's Limited Liability Company Agreement recognizes two classes of membership interests that are referred to as "Class A Units" and "Class B Units." Doc. No. 35-4 at 19. Class A Units represent capital interests and Class B Units represent profit interests. Doc. No. 35-4 at 19. The 2012 Equity Agreement granted Baker sufficient Class B Units to give him a right to 20% of Perspecta Holdings' profits when the units became fully vested. Doc. No. 35-3 at 14. One thousand of Baker's Class B units vested immediately upon execution of the Agreement, with the remainder vesting at a rate of 500 units annually until his interest fully vested on January 1, 2015. Doc. No. 35-3 at 3.
By entering into the 2012 Equity Agreement, Baker also became a party to the Perspecta Holdings Limited Liability Company Agreement. Doc. No. 35-3 at 2. That agreement includes the following arbitration clause ("2012 Arbitration Clause"):
Doc. No. 35-4 at 36. The LLC Agreement also defines "Agreement" as:
Doc. No. 35-4 at 4. Accordingly, disputes between the parties concerning the enforcement or interpretation of the 2012 Equity Agreement are subject to the 2012 Arbitration Clause because the Equity Agreement is an "Admission Agreement." Doc. No. 35-3 at 2.
The 2012 Equity Agreement permitted Perspecta Holdings to repurchase units awarded to Baker at a defined "Repurchase Value" if Baker's employment were terminated. Doc. No. 35-3 at 3-4. Baker, in turn, was entitled under a "Put Right" provision to require Perspecta Holdings to repurchase his units at a specified percentage of the Repurchase Value, which varied depending upon when the repurchase occurred. Doc. No. 35-3 at 7.
In late 2015, Montrone informed Baker that the 2012 Equity Agreement would be terminated and replaced with a new and "much better" agreement. Doc. No. 30 at 8. In fact, however, Meister and Montrone intended that the new agreement would "purposely decrease the value of Baker's stake in Perspecta in anticipation of a planned, but undisclosed termination." Doc. No. 30 at 15.
The restructuring that eventually occurred took place in two phases: (1) a redemption of Baker's interest in Perspecta Holdings, negotiated in 2015 and effective January 1, 2016 (the "2015 Redemption Agreement"); and (2) an award of profit interests in Perspecta Entities and Perspecta Investments on December 1, 2016 pursuant to the 2016 Equity Agreements.
Perspecta Holdings and Baker agreed in the Redemption Agreement that the company would redeem Baker's interest in Perspecta Holdings for $886,000. Defs.' Mem. of Law in Support of Mot. to Compel Arbitration, Doc. No. 35-1 at 2. Neither party alleges that the redemption was triggered by either of the events prescribed by the 2012 Equity Agreement (namely, Baker's termination or a "Put Right" redemption initiated by Baker). Rather, the redemption was the product of an independent agreement between Montrone and Meister (as managers of Perspecta Holdings) and Baker. Doc. No. 35-1 at 2.
Baker alleges that the redemption price received for his interest in Perspecta Holdings was "unreasonably low." Doc. No. 30 at 16. He states that he knew at the time that the price was low, but that he relied upon Montrone's representations that he would not be harmed by the low redemption price because his new equity award would be "much better." Doc. No. 30 at 16. Specifically, Baker was told that the award would give him "true equity" and be more similar to the equity plans used by another related entity, Ballentine Partners. Doc. No. 30 at 15. Baker understood this to mean that his Class B profit interests would be replaced with Class A capital interests. Doc. No. 30 at 15. Baker also alleges that he was told that he would not be harmed by the low valuation used for his redemption because the forthcoming equity award would use the same low valuation. Doc. No. 30 at 26. Baker claims that he relied on Montrone's representations that the new equity award would be superior to the 2012 Equity Agreement and he asserts that he would not have redeemed his interest in Perspecta Holdings if he had known the content of the 2016 Equity Agreements. Doc. No. 30 at 19.
Baker and Montrone first discussed the terms of a new equity award during a January 2016 meeting, where Baker told Montrone that he was not in an emotional position to negotiate the terms but trusted Montrone's representations that the new plan would be an improvement.
In late 2016, Baker was presented with the 2016 Equity Agreements, which granted him unvested profit interests in Perspecta Entities (a 7.1% stake) and Perspecta Investments (a 4.55% stake). Doc. No. 30 at 18. These units vested at a rate of 25% per year, starting on December 31, 2016. Perspecta Entities Equity Award, Doc. No. 35-7 at 3; Perspecta Investments Equity Award, Doc. No. 35-11 at 3.
Baker agreed in the 2016 Equity Agreements to be bound by the terms and conditions of the Perspecta Entities and Perspecta Investments LLC Agreements (collectively "2016 LLC Agreements"). Doc. No. 35-7 at 2; Doc. No. 35-11 at 2. The Equity Agreements also each specifically provide that:
Doc. No. 35-7 at 8; Doc. No. 35-11 at 8.
Section 13 of the 2016 LLC Agreements (collectively "2016 Dispute Resolution Procedures") establish an elaborate process for the resolution of disputes. Parties must first attempt to resolve a dispute through negotiation. Doc. No. 35-8 at 31; Doc. No. 35-12 at 31. They must then turn to mediation if negotiation fails. Doc. No. 35-8 at 31; Doc. No. 35-12 at 31. If mediation does not resolve the matter, and if the Company is party to the Dispute, the procedures specify that "[t]he company shall determine in its sole discretion whether the dispute will be subject to arbitration in accordance with Section 13.4 or subject to adjudication in accordance with Section 13.4.9." Doc. No. 35-8 at 32; Doc. No. 35-12 at 32. If the company elects to arbitrate, Section 13.4.1 states that "the party commencing the dispute must submit the matter to binding arbitration in accordance with the American Arbitration Association ("AAA") rules and procedures for the arbitration of commercial disputes." Doc. No. 35-8 at 32; Doc. No. 35-12 at 32. Section 13.4.9 provides, however, that:
Doc. No. 35-8 at 33; Doc. No. 35-12 at 33. Section 13.5, captioned "Adjudication," then applies "[i]n the event that a Dispute is subject to adjudication in accordance with Section 13.3, or for injunctive or equitable relief as provided in Section 13.4.9." Doc. No. 35-8 at 34; Doc. No. 35-12 at 34.
Following his May 2017 meeting with Montrone and Meister, Baker experienced what he refers to as "pressure . . . to resign." Doc. No. 30 at 12. On December 1, 2017, Perspecta's counsel informed Baker that his last day of employment would be December 8, 2017. Doc. No. 30 at 13. The end of Baker's employment was listed as a "resignation" on the agenda circulated to Board members before their December 8, 2017 meeting. Doc. No. 30 at 13. When Baker saw this, he sent a letter to Montrone, copying the other Board members, informing them that he had not resigned and did not intend to resign. Doc. No. 30 at 13.
At the December 8, 2017 Board meeting, Baker alleges he was told that his employment was "ending," with no indication whether the termination was for cause or without cause. Doc. No. 30 at 13. Meister conceded that as of December 8, 2017, Perspecta considered Baker's termination to be "without cause," but that Perspecta changed Baker's termination to "for cause" as defined in the 2016 Equity Agreements following Baker's initiation of proceedings with the Equal Employment Opportunity Commission ("EEOC") and the New Hampshire Human Rights Commission ("HRC"). Doc. No. 30 at 13.
Under the terms of the 2016 Equity Agreements, if Baker had been terminated without cause, his interests in Perspecta Entities and Perspecta Investments would have accelerated and vested. Doc. No. 30 at 20. However, once his termination was categorized as for cause, his stake in both companies was forfeited. Doc. No. 30 at 20.
Baker's Amended Complaint consists of nine counts. Counts I-V describe alleged violations of the ADA and Section 354-A. Doc. No. 30 at 20-25. His remaining counts raise common law claims of fraudulent inducement, breach of fiduciary duty, unjust enrichment, and breach of contract.
Baker alleges in Count VI that Montrone, Meister, and Perspecta Holdings fraudulently induced him to redeem his 20% profit interest in Perspecta Holdings. This allegation is twofold: first, Baker asserts that defendants knowingly misrepresented the value of his units; and second, Baker claims that Meister and Montrone represented to him that his redeemed interest in Perspecta Holdings would be replaced with a "much better" equity plan, even though Meister and Montrone in fact planned to reduce Baker's interest as a part of an undisclosed plan to terminate him. Doc. No. 30 at 25-28. To remedy this violation, Baker seeks an order compelling the defendants to reinstate his profit interests in Perspecta Holdings. Doc. No. 30 at 27-28.
Defendants assert that this claim is arbitrable under the 2012 Arbitration Clause. Defs.' Renewed Mot. to Compel Arbitration, Doc. No. 51 at 2.
Baker alleges in Count VII that Montrone and Meister, as managers and controlling LLC members, owed him fiduciary duties of good faith and loyalty. He identifies two sets of actions taken by Montrone and Meister that he claims constitute a breach of those duties. First, he alleges that Montrone and Meister breached their fiduciary duties by inducing Baker to redeem his Perspecta Holdings profit interest at an unreasonably low price, freeze him out of the business, and ultimately terminate him. Doc. No. 30 at 28-30. Second, Baker alleges that, once his equity was reduced, Montrone and Meister breached their fiduciary duties by seeking to force his resignation and, ultimately, terminating him in a manner that caused him to forfeit his profit units in Perspecta Entities and Perspecta Investments. Doc. No. 30 at 28-30. Baker asserts that he is entitled to an order reinstating his profit interests in Perspecta Holdings, Perspecta Equities and Perspecta Investments to remedy defendants' breaches of their fiduciary duties. Doc. No. 30 at 30.
Defendants argue that the first part of Baker's breach of fiduciary duty claim is arbitrable pursuant to the 2012 Arbitration Clause. Doc. No. 51 at 2. Although they do not specifically argue that the second part of their claim is arbitrable, I assume for purposes of analysis that if it is, it is because of the arbitration clause embedded in the 2016 Dispute Resolution Procedures.
Baker's allegations of unjust enrichment again deal with two distinct sets of facts. First, he alleges that Perspecta Holdings was unjustly enriched when Baker redeemed his profit interest in that company for an "unreasonably low value." Doc. No. 30 at 30. Second, Baker alleges that Perspecta Entities and Perspecta Investments were unjustly enriched when his termination was changed from "without cause" to "for cause," resulting in the forfeiture of his unvested profit units in those companies. Doc. No. 30 at 31. Baker again argues for an order reinstating his profit units in Perspecta Holdings, Perspecta Equities, and Perspecta Investments to remedy defendants' unjust enrichment. Doc. No. 30 at 31.
Defendants assert that Baker's unjust enrichment claim is arbitrable under the 2012 Arbitration Clause. Doc. No. 51 at 3. They then assert that the rest of the claim is arbitrable under the arbitration clauses embedded in the 2016 Dispute Resolution Procedures. Doc. No. 51 at 3.
Baker alleges in Count IX that Perspecta Entities and Perspecta Investments were contractually obligated to grant him profit units as set forth in the 2016 Equity Agreements and that the vesting of those units should have accelerated upon his "without cause" termination. Doc. No. 30 at 32-33. He claims that the "post hoc" change from a "without cause" termination to a "for cause" termination constituted a breach of that contract, which wrongfully resulted in the forfeiture of his unvested units. Doc. No. 30 at 32-33. To remedy this violation, Baker seeks an order compelling defendants to reinstate his profit units in Perspecta Equities and Perspecta Investments. Doc. No. 30 at 33.
Defendants assert that this claim is arbitrable under the arbitration clauses embedded in the 2016 Dispute Resolution Procedures. Doc. No. 51 at 2-3.
I begin by acknowledging the strong federal presumption in favor of arbitration.
Defendants base their demand for arbitration in part on the 2012 Arbitration Clause and in part on the somewhat differently worded arbitration clauses embedded in the 2016 Dispute Resolution Procedures. I examine their arguments with respect to each clause in turn.
Defendants argue that Baker's fraudulent inducement claim and parts of his fiduciary duty and unjust enrichment claims are subject to the 2012 Arbitration Clause. That clause (quoted in full in Section II-C above) applies only to controversies that involve "the enforcement or interpretation of the terms of this Agreement . . . ." Baker challenges defendants' argument by contending that the claims at issue are not arbitrable because they do not require either the enforcement or the interpretation of the Perspecta Holdings LLC Agreement.
As a preliminary matter, I note that Baker's argument is based upon the mistaken assumption that only claims that require the enforcement or interpretation of the
To state a claim for fraudulent inducement, a plaintiff must show that the defendant (1) made a misrepresentation; (2) had the purpose to induce the plaintiff to act or refrain from action in reliance on that misrepresentation; (3) the plaintiff acted in justifiable reliance upon the misrepresentation; and (4) the plaintiff suffered some pecuniary loss. Restatement (Second) of Torts § 525 (1977).
Baker's allegation, in essence, is that he justifiably relied on the defendants' knowing misrepresentations that the 2012 Equity Agreement would be replaced with a "much better" award, and that the 2016 Equity Agreements left him worse off. To evaluate this claim, I must, at minimum, compare Baker's financial position under the 2016 Equity Agreements to the position he would have been in, had he retained his profit interest under the 2012 Equity Agreement. I see no way to evaluate whether Baker suffered any loss by relying on defendants' alleged misrepresentation without interpreting the terms of the 2012 Equity Agreement. Because the plain text of the Perspecta Holdings LLC Agreement unambiguously consigns such interpretative issues to the arbitrator, Baker's fraudulent inducement claim is within the scope of the arbitration clause and must be arbitrated.
"To establish liability for the breach of a fiduciary duty, a plaintiff must demonstrate that the defendant owed her a fiduciary duty and that the defendant breached it."
Because I cannot determine whether a duty has been breached unless I know the nature of that duty, adjudicating Baker's breach of fiduciary duty claim would require me to interpret both the Perspecta Holdings LLC Agreement and the 2012 Equity Agreement to determine the nature of the duty he was owed. Section 5.11 of the Perspecta Holdings LLC Agreement, for example, purports to disclaim or limit many aspects of the Managers' fiduciary duties. Doc. No. 35-4 at 16. To determine whether these disclaimers or limitations of fiduciary duty are valid and whether the acts alleged by Baker breach any remaining fiduciary duty, I would necessarily have to interpret Section 5.11. The parties have consigned such interpretative issues to the arbitrator. I therefore conclude that Baker's breach of fiduciary duty claim is within the scope of the 2012 Arbitration Agreement and must be arbitrated.
"Unjust enrichment is an equitable remedy, found where an individual receives `a benefit which would be unconscionable for him to retain.'"
I see no logical way to determine the reasonable value of Baker's interest in Perspecta Holdings under the 2012 Equity Agreement without interpreting the Agreement. I would need, for example, to determine whether Baker's interest had vested at the time he redeemed it, and what, if any, redemption price he was entitled to under the 2012 Equity Agreement's put right provision. This would require me to interpret, at minimum, Sections 1(c) and 4 of the 2012 Agreement. Doc. No. 35-3 at 3, 7. Yet again, this is a matter of interpretation that the parties have consigned to the arbitrator. Thus, Baker's unjust enrichment claim against Perspecta Holdings is within the scope of the arbitration clause and must be arbitrated.
Defendants argue that Baker's remaining claims are subject to the arbitration clauses embedded in the 2016 Dispute Resolution Procedures. Baker responds by contending that his claims are exempt from arbitration pursuant to the equitable relief exemption contained in Section 13.4.9 of the 2016 LLC Agreements. This disagreement turns on whether Section 13.4.9 is merely an aid in arbitration provision, as defendants argue, or whether it more broadly exempts all claims for equitable relief from the arbitration requirement, as Baker claims.
I resolve this dispute by using general rules of contract interpretation.
Here, the plain language of Section 13.4.9 establishes that all claims for equitable relief are exempt from the arbitration requirement. This is so because Section 13.4.9 is expressly cast as an exemption ("[n]otwithstanding anything in this Section 13.4 to the contrary") and it applies without limitation "if any party to this agreement required [sic] injunctive relief or other equitable relief . . . ." Doc. No. 35-8 at 33; Doc. No. 35-12 at 33. Because Section 13.4.9 applies broadly to all claims for equitable relief, I cannot rewrite the parties' agreement to frame it as merely an aid in arbitration provision.
Any claim that Section 13.4.9 is merely an aid in arbitration provision is further undermined when Section 13.4.9 is construed together with the rest of Section 13. Section 13.3.1 treats Section 13.4.9 as an alternative to arbitration rather than an aid in arbitration provision because it requires the company to determine whether a dispute involving the company "will be subject to arbitration in accordance with Section 13.4 or subject to adjudication pursuant to Section 13.4.9." Doc. No. 35-8 at 32 (emphasis added); Doc. No. 35-12 at 32 (emphasis added). Section 13.3.2 treats Section 13.4.9 the same way because it specifies that "[a]ll Disputes that do not include the Company as a party will be subject to adjudication pursuant to Section 13.4.9,
Defendants cite several cases from other circuits in which a court construed a broad equitable exemption from a comprehensive arbitration clause as an aid in arbitration provision.
For the reasons explained above, defendants' renewed motion to compel arbitration, Doc. No. 51, is granted with respect to Count VI against Montrone, Meister, and Perspecta Holdings; Count VII against Montrone and Meister for claims arising under the 2012 Equity Award; and Count VIII against Perspecta Holdings. The motion is denied with respect to Count VII against Montrone and Meister for claims arising under the 2016 Equity Award; Count VIII against Perspecta Entities and Perspecta Investments; and Count IX against Perspecta Entities and Perspecta Investments.
