FP UC Holdings, LLC v. Hamilton

Decision Date27 March 2020
Docket NumberC.A. No. 2019-1029-JRS
PartiesFP UC HOLDINGS, LLC, FPMCM, LLC, and FAST PACE MEDICAL CLINIC, PLLC, Plaintiffs, v. JAMES W. HAMILTON, JR. and LYNN ASHLEY HAMILTON, Defendants.
CourtCourt of Chancery of Delaware
MEMORANDUM OPINION

Gregory B. Williams, Esquire and E. Chaney Hall, Esquire of Fox Rothschild LLP, Wilmington, Delaware and Jeffrey J. Bushofsky, Esquire and Timothy R. Farrell, Esquire of Ropes & Gray LLP, Chicago, Illinois, Attorneys for Plaintiffs.

Travis S. Hunter, Esquire and Tyler E. Cragg, Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware and Grant A. Wright, Esquire and Max D. Wright, Esquire of Wright Law, P.C., Tuscumbia, Alabama, Attorneys for Defendants.

SLIGHTS, Vice Chancellor

This dispute arises out of a former employee's alleged breaches of non-competition, non-solicitation and confidentiality covenants in an Employment Agreement, a Unit Grant Agreement and a Limited Liability Company Agreement. Each of the agreements impose varying degrees of restrictions upon Defendants' post-employment activities. Plaintiffs, the former employers, allege that Defendants, a former employee and his spouse, breached the agreements when the husband left Plaintiffs' urgent medical care business in Tennessee to start, with his wife, a competing urgent medical care business in Alabama.1 Plaintiffs have brought a Motion for Preliminary Injunction (the "Motion") in which they seek to shutter Defendants' competing business pending a trial on the merits.2

To obtain the relief they seek, Plaintiffs must demonstrate that, at a minimum, they will likely succeed at trial. They have not carried this burden. Under Delaware law, which is the parties' contractual choice of law, the restrictive covenants are too broad as they would essentially prevent Defendants from operating their urgent care clinic anywhere in the United States. Under Alabama law, arguably applicable as the law of the state with the most substantial relationship to this dispute, the restrictive covenants are unenforceable as a matter of Alabama's legislativelyexpressed public policy. Either way, since the covenants are likely unenforceable, Plaintiffs cannot demonstrate a likelihood of success on the merits. The Motion, therefore, in large part, must be denied.3

Plaintiffs also seek an anti-suit injunction that would specifically enforce the parties' contractual choice of a Delaware forum and prevent Defendants from prosecuting their first-filed related action in the Circuit Court of Lauderdale County, Alabama (the "Alabama court"). For reasons unclear, Plaintiffs chose not to seek this relief before engaging with Defendants in Alabama. Instead, they elected to litigate a motion for summary judgment in Alabama, which has now been decided by the Alabama court. The anti-suit injunction Plaintiffs would have me enter would bar Defendants (the Alabama plaintiffs) from appealing those aspects of the summary judgment decision that Defendants lost. It would also bar Defendants from further prosecuting at least some of their claims that survived summary judgment.

Plaintiffs' call to equity comes too late. This Court will not involve itself, even indirectly, in the Alabama action after Plaintiffs have availed themselves of that state's jurisdiction and have drawn her courts into this dispute.

I. BACKGROUND

For purposes of the Motion, I draw the facts from the pleadings, the affidavits and the exhibits (including depositions) submitted to the Court in connection with the Motion.4

A. The Parties

Plaintiffs, FP UC Holdings, LLC ("Holdings"), FPMCM, LLC ("FPMCM") and Fast Pace Medical Clinic, PLLC ("Clinic" and, collectively with Holdings and FPMCM, "Fast Pace" or the "Company"), are affiliated entities that run more than 100 urgent care clinics across the southeast United States. Defendants, James W. Hamilton, Jr. and Lynn Ashley Hamilton, are a married couple residing in Florence, Alabama. Lynn Hamilton is relevant to these proceedings largely because she became a party to the Grant and LLC Agreements (which are defined below) when she executed spousal consents.

Mr. Hamilton is a Certified Nurse Practitioner who, until 2019, was a Fast Pace employee working in a clinic in southern Tennessee. The parties dispute the nature of Mr. Hamilton's role at Fast Pace. As Director of Education and Development, Fast Pace alleges Mr. Hamilton was a high-ranking employee tasked with setting strategy and training employees across multiple locations.Mr. Hamilton counters that Fast Pace overstates his responsibilities; he insists that he was, at best, mid-level management. An organizational chart from November 2017 shows Mr. Hamilton reporting to Fast Pace's Chief Clinical Officer who, in turn, reports to the CMO who, in turn, reports to the CEO.5 The chart shows only one employee reporting directly to Mr. Hamilton.6

B. The Relevant Contracts

Mr. Hamilton entered into an Employment Contract with Clinic dated April 20, 2012 (the "Employment Agreement").7 In that agreement, Mr. Hamilton agreed to refrain from "engag[ing] in the management or operation of an urgent care/walk-in clinic business for a period of two years within 60 miles of any significant place of business of the [Clinic]."8 Unlike the other agreements relevant to this dispute, the Employment Agreement made no mention of choice of forum or choice of law. Accordingly, the Hamiltons asked the Alabama court to decide whether the Employment Agreement's restrictive covenants were enforceable. In awell-reasoned decision, the Alabama court determined that they were not.9 Because claims and defenses under the Employment Agreement have already been adjudicated, the Motion focuses on the Grant Agreement and LLC Agreement.

In 2016, Fast Pace's ownership structure changed when a private equity firm acquired the Company. At that time, certain Fast Pace employees, including Mr. Hamilton, were offered Holdings membership units in exchange for an agreement to be bound by broader restrictive covenants. The value of Mr. Hamilton's membership units (and, thus, the consideration he received in exchange for his ratcheted-up obligations) is unclear. In answers to interrogatories, Fast Pace declined to place a value on Mr. Hamilton's membership units.10

When he received his Holdings membership units, Mr. Hamilton signed two Class P-1 Unit Grant Agreements, both dated December 5, 2016 (collectively, the "Grant Agreement").11 The Grant Agreement included an annex that bound Mr. andMrs. Hamilton to both the Grant Agreement and Holdings' Second Amended and Restated Limited Liability Company Agreement (the "LLC Agreement").12

1. The Grant Agreement

The Grant Agreement contains three restrictive covenants relevant to the Motion. First, unlike the non-compete in the Employment Agreement, which prohibits Mr. Hamilton from engaging in the management or operation of an urgent care clinic within 60 miles of a Fast Pace clinic, the Grant Agreement prohibits Mr. Hamilton from being employed by a business that "engages" in the same business as Fast Pace "anywhere in the United States" where Fast Pace operates or "proposes" to operate:

During the period commencing on [December 5, 2016] and ending on the second [] anniversary of the date that the Grantee ceases to be a Service Provider (the "Restricted Period"), [the Hamiltons] shall not . . . directly or indirectly, own any interest in, manage, control, participate in (whether as an owner, operator, manager, consultant, officer, director, employee, investor, agent, representative or otherwise), consult with, render services for or otherwise engage in any business or entity which directly or indirectly engages in any business that [Fast Pace] conducts or proposes to conduct during the Restricted Period anywhere in the United States where [Fast Pace] operates or proposes to operate.13

The Grant Agreement does not define Fast Pace's "business," either in Section 7 or elsewhere.

Second and third, the Grant Agreement prohibits post-employment solicitation of Fast Pace employees and disclosure of Fast Pace confidential information:

During the Restricted Period, the Grantee shall not, and shall not . . . directly or indirectly, (a) induce or attempt to induce any employee or independent contractor of [Fast Pace] to leave the employ or engagement of [Fast Pace] or in any way interfere with the relationship between [Fast Pace] and any if [its] respective employees or independent contractors, (b) hire or otherwise retain any Person who was an employee or independent contractor of [Fast Pace] during the Restricted Period or within the one year prior to [December 5, 2016].14

*****

[The Hamiltons] agree[] that, from and after [December 5, 2016], the [Hamiltons] shall . . . treat and hold as confidential and not use all information concerning the business and affairs of [Fast Pace] (the "Confidential Information"), except to the extent that such disclosure or use is for the benefit of [Fast Pace]. . . .15
2. The LLC Agreement

As noted, when Mr. Hamilton received his Holdings membership units, he and his wife agreed to be bound by the LLC Agreement.16 That agreement, at Section 15, restricts members from pursuing certain business opportunities outside of Fast Pace:

Each Member . . . shall bring all investment or business opportunities to [Holdings] of which it, he or she becomes aware and which it, he or she believes would qualify as an investment or business opportunity in the Business [(defined as "the business of providing urgent care and primary care services through the development, ownership and operation of clinics and any other business currently conducted (or actively pursued) by [Fast Pace])] (each an "Opportunity").17
C. Mr. Hamilton Leaves Fast Pace and Opens Thrive

On July 9, 2019, Mr. Hamilton notified Fast Pace that he intended to terminate his employment with the Company. Shortly after his departure, Mr. Hamilton signed a commercial lease for office...

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