Finn v. Ballentine Partners, LLC
| Decision Date | 12 June 2013 |
| Docket Number | NO. 212-2013-CV-0012,212-2013-CV-0012 |
| Parties | Alice Finn v. Ballentine Partners, LLC, successor to Ballentine & Company, Inc., Ballentine & Company, Inc. f/k/a, Ballentine Finn & Company, Inc., Roy C. Ballentine, Kyle Schaffer, Claudio Shilo, Andrew McMorrow and Gregory Peterson |
| Court | New Hampshire Superior Court |
Plaintiff Alice Finn ("Finn") brought an action against Defendants arising out of a Shareholder Agreement ("SHA") between the parties. Finn's claim seeks damages for breach of contract, breach of the covenant of good faith and fair dealing, negligent misrepresentation, and a violation of New Hampshire's Consumer Protection Statute. At the same time, Finn filed a Motion to Stay Proceedings and to Compel Arbitration, to which Defendants object. For the reasons stated in this Order, the Motion to Stay is GRANTED, and the parties are ordered to arbitrate this dispute in accordance with section 23.1.1 of the SHA.
The parties do not seriously dispute most of the facts underlying this case, and the Court relies on the facts as detailed in the arbitration award that preceded this case. Finn and Roy Ballentine founded Ballentine Finn & Company, Inc. ("BFI") in 1997 as a New Hampshire subchapter S corporation, with each owning one half of the company's stock. Eventually, BFI sold some of the stock to four other individuals. In 2008, theother shareholders forced Finn out. BFI terminated her employment, and the remaining shareholders assert they terminated her for cause. BFI exercised its right to purchase Finn's shares at the price set in the SHA for "for cause" terminations. The share price was 1.4 times earnings, which was lower than the fair market value of the shares at the time of the purchase. Finn disputed the termination, and the case went to arbitration pursuant to the SHA. In 2009, a panel of arbitrators—Hon. Allen Van Gestel, Hon. Bruce Mohl and George Moore, Esq. —entered an award in Finn's favor, finding that the termination was unlawful and awarding Finn $5,721,756.00 for the stock BFI forced her to sell. This figure is approximately 1.9 times earnings. The panel also awarded Finn $720,000.00 in lost wages, for a total award of 6,441,756.00.
BFI paid part of this award to Finn immediately and then paid the balance in January 2010. According to Finn, after she received the final payment, BFI's successor in interest disclosed that it had sold part of its stock to a company called Perspecta. According to Defendants, it was necessary to sell some of the company stock to Perspecta in order to raise cash to satisfy the arbitration award.
Finn argues she is entitled to relief under the so-called "claw back" provisions of the SHA, which is contained in section 11 of the SHA. It provides as follows:
SHA § 11. Finn claims that the "purpose of the Claw Back provision is to ensure that a founder who sells his or her shares receives a portion of the profits from resale at a higher amount[.]" Pl.'s Obj. 14. Her argument is that Perspecta was an "Acquirer." Under the SHA, an "Acquirer" is "any Person that acquires Shares in the Corporation primarily for investment purposes in an arms length transaction, and is not actively and continuously involved in the day-to-day activities of the Corporation as an employee." SHA § 1.2.
Defendants explain that in arbitration, Finn argued that there was no cause for her termination, and BFI could not purchase her shares at 1.4 times earnings pursuant to the SHA, and that she was therefore entitled to greater compensation. They argue that the arbitrators accepted her position and awarded damages, and therefore BFI never purchased her shares pursuant to the section 11.1 of the SHA. Defendants also assert that Finn's claims are barred by preclusion principles, and this case should be dismissed.
Finn disputes this argument, but more importantly, she argues that the issue of preclusion must be decided in arbitration and not by this Court. The SHA governs arbitration:
SHA § 23. Finn alleges that her attempts to negotiate directly with Defendants have failed, and pursuant to section 23.1.1 of the SHA, she is entitled to arbitrate this dispute. Defendants counter that this Court should decide whether arbitration is proper: "In one sense, Finn's Motion raises a simple question: who decides the threshold or 'gateway' issue of whether a defense of collateral estoppel or res judicata bars an arbitration—the court or the arbitrator?" Mem. Support Defs.' Obj. Pl.'s Mot. Stay 3 (emphasis in original). The Court agrees that this is the central issue.
(Emphasis added). Apart from their defense on the merits, Defendants argue that the dispute in this case does not "arise out of such contract," because Finn did not sell her stock to the company pursuant to section 1.4 of the SHA, but rather received an arbitration award. However, section 23.1.1 of the SHA does not limit its applicability to disputes "arising from the contract." It broadly applies to "dispute[s] between the parties." SHA § 23.1.1. Similarly, while Defendants assert that they do not request mediation—a condition precedent to arbitration—they admit that they would not be willing to mediate in light of their belief that Finn's claims are barred by preclusion.
Defendants' argument that Finn's claims are barred by preclusion is more persuasive. In support of this argument Defendants rely on two cases in which the New Hampshire Supreme Court declined to decide the merits claims in arbitration on the doctrine of collateral estoppel. Farm Family Mut. Ins. Co. v. Peck, 143 N.H. 603, 607 (1999) (); Metro. Ins. Co. v. Ralph, 138 N.H. 378, 381 (1994) (). The Supreme Court did not directly address this issue presented in this case in either Farm Family or Metro Ins.
In Farm Family, the New Hampshire Supreme Court held that collateral estoppel barred a plaintiff's claim for worker's compensation benefits resulting from an accident because the department of labor's administrative worker's compensation tribunal had already decided the injury did not result from the workplace accident. However, in Farm Family the insurance carrier had apparently filed a bill in equity in the Superior Court to bar arbitration, and the injured worker seems to have not objected to having the matter resolved by a court rather than by an arbitrator. Farm Family, 143 N.H. at 604. Because both parties can waive arbitration, like any contractual right, and the Supreme Court did not address the issue of whether a court may consider a claim of collateral estoppel over a party's objection, Farm Family provides the Court with little guidance.
Similarly, in Metro Ins., an insurance carrier brought a declaratory judgment action asserting that insured's uninsured motorists claim—which had been previously resolved in arbitration—could not go forward because the insured's claim was barred by collateral estoppel. 138 N.H. at 381. The case contains no discussion of whether a courtmay consider a claim of collateral estoppel over the parties' objections, and it provides no information about whether the parties had simply agreed to have the matter resolved by a court rather than an arbitrator.1
Forthrightly recognizing that "although the case law may generally favor referral of these defenses to arbitration, there is no definitive decision on this issue from the U.S. Supreme Court and there is ample case law favoring the opposite result[,]" Defendants argue that this Court should decide the preclusion issue because an arbitrator is in no better position than a judge to decide preclusion, and the parties did not expressly reserve this issue for arbitration. Mem. Support...
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