Head Kandy LLC v. McNeill

• Docket Number: 23-CV-60345-RUIZ/STRAUSS
• Decision Date: 12 September 2023
• Parties: HEAD KANDY, LLC, Plaintiff, v. KAYLA MARIE MCNEILL, Defendant.
• Court: U.S. District Court — Southern District of Florida

1

HEAD KANDY, LLC, Plaintiff, v. KAYLA MARIE MCNEILL, Defendant.

No. 23-CV-60345-RUIZ/STRAUSS

United States District Court, S.D. Florida

September 12, 2023

REPORT AND RECOMMENDATION

JARED M. STRAUSS UNITED STATES MAGISTRATE JUDGE

THIS CAUSE comes before me upon Head Kandy, LLC's (“Plaintiff's”) Expedited Motion for and Preliminary Injunction and Incorporated Memorandum of Law (“the Motion”). [DE 47]. The District Court has referred the Motion to me for issuance of a Report and Recommendation. [DE 48]. I have reviewed the Motion Defendant's response in opposition to the Motion (“the Response”) [DE 66], and Plaintiff's reply in support of the Motion (“the Reply”) [DE 72] and the record in this case. In addition, I held an evidentiary hearing (“Evidentiary Hearing”) on the Motion. [DE 107]. At the Evidentiary Hearing, I took testimony and reviewed evidence pertaining to this matter. Furthermore, I have reviewed the parties' post-hearing briefing [DE 113; DE 116; DE 117; DE 119] and heard oral legal argument on the Motion. [DE 130, 132]. Being otherwise duly advised, I respectfully RECOMMEND that the Motion [DE 47] be GRANTED for the reasons stated herein.

PROCEDURAL BACKGROUND

This suit arises from Defendant's contentious separation from Plaintiff, a beauty and hair care company for whom she worked and in which she had an ownership interest. On February 22 2023, Plaintiff filed a seven-count initial complaint against Defendant. [DE 1]. On April 21, 2023, Plaintiff filed a nine-count Amended Complaint. [DE 25]. Plaintiff's Amended Complaint alleges the following counts:

Count I - Breach of Contract

Count II - Common Law Fraud

Count III - Conversion

Count IV - Civil Theft

Count V - Unjust Enrichment

Count VI - Breach of Fiduciary Duty

Count VII - Intentional Interference with Business Relationship

Count VIII - Common Law Defamation

Count IV - Declaratory Relief

Id. at ¶¶ 54-145.^[1]

Plaintiff filed the Motion on June 6, 2023. [DE 47]. Only the breach of contract claim is evaluated in the Motion. Id. at 12-16. After I was referred the Motion, I held an evidentiary hearing on the Motion on August 1, 2023.^[2] [DE 107]. I held separate legal argument on the Motion on August 25, 2023. [DE 130, 132].

FINDINGS OF FACT

A. Background regarding the parties

Defendant is a social media influencer residing in Colorado who uses various social media platforms, including Facebook Instagram, and Tik Tok to connect to her followers. [DE 93 at ¶ 2]. As a hair stylist, Defendant would connect with followers about hair products, hair care, and a variety of other topics. [Tr. at 34-35].^[3] Defendant was the sole member of Lashed Out, LLC, a for-profit Colorado Limited Liability Company that previously operated its business as “Head Kandy.” [DE 93 at ¶¶ 5-6]. Plaintiff is a Delaware limited liability company that formed on April 13, 2018; Jerome Falic has been Plaintiff's managing member since its formation. Id. at ¶¶ 3-4. Plaintiff distributes and sells hair care products such as shampoos, conditioners, hair dryers, curling irons, and straighteners. Id. at ¶ 15. On May 3, 2018, Plaintiff and Lashed Out, LLC entered into the Asset Purchase Agreement (“the APA”). Id. at ¶ 7. Pursuant to the APA, Plaintiff paid Lashed Out, LLC $2,880,000 to acquire certain assets, including the tradename “Head Kandy” and Lashed Out, LLC's website and social media pages. Id. at ¶ 8; [DE 76-1 at 1]. Under the APA, Defendant also acquired a twenty percent ownership interest in Plaintiff. [DE 76-1 at 4; DE 93 at ¶ 9]. Lashed Out, LLC also agreed to deliver, or cause to be delivered, executed copies of the Executive Employment Agreement (between Defendant and Plaintiff) at Closing. [DE 93 at ¶ 11]. On May 3, 2018, Defendant entered into the Executive Employment Agreement with Plaintiff. Id. at ¶ 9.

B. Executive Employment Agreement

Under the Executive Employment Agreement, Defendant agreed to serve as Plaintiff's Creative Director and would be responsible for developing and marketing Plaintiff's products on social media. [DE 73-3 at 2; Tr. 35, 155]. For performing her duties, Defendant was to receive a base salary of $200,000 per year and an Annual Bonus at the end of each fiscal year from Plaintiff. Id. at 3. The Executive Employment Agreement lays out the method for calculating Defendant's Annual Bonus payment. Id.

The Executive Employment Agreement also contains certain restrictive covenants. Id. at 6-7; [DE 93 at ¶ 13]. As relevant here, those restrictive covenants included non-compete, nonsolicitation (of customers), and non-disparagement provisions. [DE 73-3 at 6-7]. Those restrictive covenants read as follows:

Non-Compete Provisions. From and after the Effective Date and continuing for a period of thirty-six (36) months after the Executive's employment terminates for any reason, the Executive will not, within the Restricted Territory (as defined below), directly or indirectly, engage in a Restricted Business (as defined below) or provide Restricted Services (as defined below) to any Person engaged in a Restricted Business; provided that nothing contained herein will be construed to prevent the Executive from investing in the stock of any competing Person listed on a national securities exchange or traded in the over-the-counter market so long as the Executive is not involved in the business of such Person and the Executive does not own more than two percent (2%) of the equity of such Person.

“Restricted Business” means the manufacture, sale and distribution of hair-related products. “Restricted Business” shall not include Executive's business as identified in Addendum A.

“Restricted Services” means the provision of management, business planning, sales, marketing, financial planning, or other services similar to the services the Executive provided to the Company during her employment with the Company.

“Restricted Territory” means worldwide.

No Solicitation of Customers. Without limiting the generality of the provisions of Section 5(a), the Executive hereby agrees that during the thirty-six (36)-month period after the termination of the Executive's employment with the Company, the Executive will not, and will cause each of her affiliates not to, directly or indirectly, (i) solicit business related to the Restricted Business from any Person which is or was a client, customer, supplier, licensee, licensor or other business relation of the Company during the thirty-six (36)-month period preceding the date of the Executive's termination of employment, or from any successor in interest to any such Person, or (ii) solicit or encourage any client, customer, supplier, licensee or licensor of the Company to terminate or reduce such Person's relationship with the Company (including any Person engaged in discussions with the Company related to such Person becoming a client, customer, supplier, licensee or licensor of the Company).

Non-Disparagement. The Executive agrees and covenants that the Executive will not, at any time, make, publish or communicate to any Person or in any public forum any defamatory or disparaging remarks, comments or statements concerning the Company or its affiliates, or their businesses, or any of their employees, officers, and existing and prospective clients, suppliers, investors, and other associated third parties. This Section 5(d) does not, in any way, restrict or impede the Executive from exercising protected rights to the extent that such rights cannot be waived by agreement, including, without limitation, the Executive's rights under the National Labor Relations Act, or rights to communicate with any other administrative or regulatory agency to report suspected unlawful conduct, or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation, or order. The Executive shall promptly provide written notice of any such order to an authorized officer of the Company.

Id.

Regarding the territorial, time, and scope limitations in the restrictive covenants, Defendant “recognize[d]” that they were “reasonable and are properly required for the protection of the Company's legitimate interest in client relationships, goodwill and trade secrets of the Company's business, and that such limitations would not impose any undue burden upon” her. Id. at 8. And, in the event that a court deemed any provision relating to the time period, scope, or geographic area of the restrictive covenants to be unreasonable, Defendant agreed that the provision “shall automatically be considered to have been amended and revised” to a permissible restriction. Id. Importantly, Defendant also agreed that she would “not challenge the enforceability of” the restrictive covenants and that she would not “raise any equitable defense” to the enforcement of the covenants. Id. at 9. The parties also agreed that “the respective rights and obligations of the parties shall survive the termination of the Executive's employment with the Company and this Agreement.” Id. at 14.

C. Defendant's Employment with Plaintiff

As Plaintiff's Creative Director, Defendant utilized social media to market Plaintiff's hair care products. [DE 93 at ¶ 16; Tr. 35]. She marketed products via online posts and live videos on various social media platforms. [Tr. at 34-35]. Defendant primarily utilized Plaintiff's social media pages to market Plaintiff's products, but sometimes she also would post and promote Plaintiff's products on her personal page.^[4] Id. at 35. Plaintiff employed other affiliates and influencers to market its products, but none were as effective as Defendant. Id. at 217. Defendant “was synonymous with the...