Meehan v. Gould

• Decision Date: 31 July 2019
• Docket Number: No. 218-2017-CV-01322,218-2017-CV-01322
• Parties: John Meehan v. Jay Gould and Flatbread, Inc.
• Court: New Hampshire Superior Court

John Meehan v. Jay Gould and Flatbread, Inc.

No. 218-2017-CV-01322

State of New Hampshire MERRIMACK, SS SUPERIOR COURT

July 31, 2019

ORDER

The Plaintiff, John Meehan, brought this action against the Defendants, Jay Gould and Flatbread, Inc. seeking permanent injunctive relief as well as monetary damages. As explained in the course of this opinion, Meehan is a minority shareholder in a corporation known as Flatbread, Inc., and a minority shareholder in a number of individual restaurants. Meehan alleges that he has been denied employment, access to books and records and otherwise injured by the actions of the majority shareholder, Gould. He seeks injunctive relief against Gould, the majority shareholder, and Flatbread Inc., and also seeks money damages.

Count I of the complaint alleges Breach of Fiduciary Duty by Gould; Count II alleges Breach of Contract against Gould; Count III alleges Breach of the Implied Covenant of Good Faith and Fair Dealing against Gould; Count IV alleges Intentional Interference with Contractual Relations against Gould; and Count V alleges Violation of the New Hampshire Wage Act, RSA 275:44 against Gould. Defendants have filed a Motion for Summary Judgment on Count I "as to any claim of breach of fiduciary duties... related to Meehan's employment" and on Counts II, III, IV and V of Meehan's Complaint. Meehan objects to the Motion with respect to Counts I, II, III and IV but not with respect to Count V. For the reasons stated in this Order, Gould's Motion for Summary Judgment is GRANTED with respect to Count V and otherwise DENIED.

I

To prevail on a motion for summary judgment, the moving party must "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." RSA 491:8-a, III. In order to defeat summary judgment, the non-moving party "must put forth contradictory evidence under oath, sufficient ... to indicate that a genuine issue of fact exists so that the party should have an opportunity to prove the fact at trial. . . ." Phillips v. Verax, 138 N.H. 240, 243 (1994) (citations and quotations omitted). A fact is material if it affects the outcome of the litigation under the applicable substantive law. Palmer v. Nan King Rest., Inc., 147 N.H. 681, 683 (2002). In considering a party's motion for summary judgment, the evidence must be considered in the light most favorable to the non-moving party, together with all reasonable inferences therefrom. Sintros v. Hamon, 148 N.H. 478, 480 (2002).

Many of the facts are not in dispute, and are taken from the pleadings and the summary papers. Meehan and Gould are business partners who jointly own a chain of pizza restaurants, all referred to as Flatbread Co. restaurants. There are restaurant locations in New Hampshire, Maine, Massachusetts, Rhode Island, Hawaii, and British Columbia. Since the opening of the first restaurant, Meehan and Gould have incorporated another corporate entity, Flatbread, Inc., which serves as a management company for each of the individual Flatbread Co. restaurants. Meehan and Gould own 30% and 70% of Flatbread, Inc. respectively. They own seven of the nine Flatbread Co. restaurants with the same 30%/70% ownership structure. Together, they own 50% ofthe two restaurants in Hawaii and British Columbia, meaning that Meehan owns 15% of those two restaurants and Gould owns 35%.

The first Flatbread Co. restaurant opened in Amesbury, Massachusetts in 1998. (Defs.' Statement of Material Facts in Supp. of Defs.' Motion for Partial Summ. J. ¶ 2) [hereafter "Defs.' Statement"]. At the time that the parties opened the first location, both Meehan and Gould were fully employed elsewhere. Gould contributed 100% of the startup capital for the restaurant. (Defs.' Statement ¶ 2.) Meehan asserts that once the restaurant opened, Gould worked in his family business, Gould Insurance, assisting with the Flatbread Co. restaurant as time allowed, while Meehan worked at the restaurant full-time. (Meehan Aff. in Supp. of his Opp'n to Mot. for Partial Summ. J. ¶ 6.) [hereinafter "Meehan Aff."] However, Gould agreed that Meehan "would have a 30% interest in the Flatbread Co. restaurant as a benefit associated with his sweat equity." (Defs.' Statement ¶ 2.) A number of restaurants have opened over the years since the first restaurant opened, and all of the restaurants are separate corporations. (Defs.' Statement ¶ 3.)

The parties agree that Meehan generally performed the day-to-day management of the original Flatbread Co. restaurant at the time the restaurant opened and acted as its de facto President. (Defs.' Statement ¶ 10.) Meehan asserts that once the restaurant opened, Gould continued to work full time at his family business, Gould Insurance, assisting with Flatbread Co. restaurant as time allowed while Meehan worked at the restaurant full-time, without pay, for approximately one year. (Meehan Aff. ¶ 6.) Meehan asserts that both parties worked part-time for the next 2 years and as they opened up the third restaurant, his hours began to approach full time. (Meehan Aff. ¶ 7.) Meehan claims he told Gould that he would be unable to continue to work withoutincome. (Meehan Aff. ¶ 8.) Meehan further states in his affidavit that Gould agreed that Meehan would be paid but insisted that Gould be paid equally. (Meehan Aff. ¶ 9.) Meehan avers in his affidavit that "given the disparity of efforts between us, it was evident that the salary represented not compensation for services rendered but, rather, a mechanism for distribution of profits." (Meehan Aff. ¶ 9.) Gould specifically disputes this claim, asserting that the salaries which were paid to Gould and Meehan were compensation for their work with the company and not a return on equity. (Gould Aff. ¶¶ 5, 11.); (Defs.' Statement ¶ 10.)

The parties do not dispute that in August 2016 a new president was hired, and Meehan was removed from his position as president of Flatbread, Inc. (Gould Aff. ¶ 22.); (Defs.' Statement ¶ 25.) However, the parties dispute the reason for the change. Defendants assert that an analysis was done in 2014 by a firm called New England Restaurant Advisors. The analysis determined that Flatbread, Inc. suffered from a lack of accountability controls and recommended improvements in a number of areas including financial reporting, human resources, real estate, and construction. (Gould Aff. ¶¶ 13-18); (Defs.' Statement ¶¶ 13-25.) Defendants assert that it was necessary to obtain an experienced restaurant manager to run the day-to-day operations of the business, and Meehan could no longer perform that function. Id. Meehan disputes this claim, and asserts that company profits continued to grow at the time New England Restaurant Advisors did its analysis of the business. (Meehan Aff. ¶¶ 25-31.)

II

Meehan's Complaint has 5 Counts. Count I alleges a Breach of Fiduciary Duty. Meehan alleges that Gould's Breach of Fiduciary Duty to him includes the following allegedly wrongful acts:

a. Withholding regular distributions of profits to Meehan and making distributions based on Gould's personal financial interest rather than the best interests of Meehan and business;

b. Threatening to retain profits for purposes of developing new restaurants rather than, consistent with past practice, funding development through bank financing and distributing the profit;

c. Unilaterally, and without any business justification, waiving a franchise fee and royalty payments and thereby denying Meehan of a share of the profits from these payments; and

d. Threatening to not allow increases of lease rents to fair market value so as to keep the real estate from generating their profits and income to Meehan.

(Complaint ¶ 72 (a)-(d).)

Meehan alleges that Gould has engaged in these acts "in a manner to deprive Meehan of salary, benefits and profit distributions and to force Meehan to sell his 30% ownership interest at significantly less than fair market value." (Complaint ¶ 73.)

The other counts are all derivative of the Breach of Fiduciary Duty claim. Count II of the case is captioned Breach of Contract. Meehan alleges:

76. Meehan and Gould have a binding and enforceable agreement that each would draw an identical salary from Flatbread, Inc.

77. Meehan and Gould agreed that in exchange for his investment and efforts on behalf of the business, Meehan would be continually employed by Flatbread, Inc. and earn his livelihood from the business as an important benefit of his minority shareholder status.

78. In breach of the agreement, Gould unilaterally and without any legitimate business reason terminated Meehan's position and effectively eliminated his salary, while maintaining his own salary at $250,000 annually.

(Complaint ¶¶ 76-78.)

Counts III and IV are based upon the existence of a contract between Meehan and Gould. Count III of the Complaint alleges a Breach of the Implied Covenant of Good Faith and Fair Dealing, which is a part of any contract and simply recites that "underNew Hampshire law and by virtue of his status as a majority shareholder in a closely held corporation, Gould owed Meehan an implied covenant that he would act in good faith and fairly in the performance of their agreement." (Complaint ¶ 81.) Count IV also assumes the existence of a contract. It further alleges that Gould maliciously, in bad faith, and through improper motive, terminated Meehan's employment relationship with Flatbread, Inc. (Complaint ¶ V.) Count V alleges violation of RSA 275:44 (V) in that Gould intentionally withheld wages. Meehan does not object to summary judgment for the Defendants on Count V.

The parties approach the analysis of Meehan's claims in different ways. Defendants assert that all of the Meehan's claims are "predicated, in whole or in part, on Meehan's . . . employment at Flatbread [Co.], specifically, his allegation that he entered into an oral agreement with Gould that he would be 'continually employed' by Flatbread [Co.] at a salary that matched Gould's." (...