Solito v. Direct Capital Corp.

• Decision Date: 11 April 2018
• Docket Number: No. 219-2017-CV-00411,219-2017-CV-00411
• Parties: Richard Solito, Jesse Kells and Matthew Will v. Direct Capital Corporation And C.I.T. Bank, Cross-claim Plaintiff v. Richard Solito, Jesse Kells and Matthew Will And Direct Capital Corporation and C.I.T. Bank, v. Ascentium Corporation
• Court: New Hampshire Superior Court

Richard Solito, Jesse Kells and Matthew Will v. Direct Capital CorporationAndC.I.T. Bank, Cross-claim Plaintiff v. Richard Solito, Jesse Kells and Matthew WillAndDirect Capital Corporation and C.I.T. Bank, v. Ascentium Corporation

No. 219-2017-CV-00411

State of New Hampshire MERRIMACK, SS SUPERIOR COURT

April 11, 2018

ORDER

Richard Solito ("Solito"), Jesse Kells ("Kells") and Matthew Will ("Will"), (collectively the "Former Employee Plaintiffs"), all former employees of Direct Capital Corporation ("DCC"), have brought an action against DCC for the purposes of, inter alia, challenging restrictive covenants which DCC asserts are applicable to them. DCC is a subsidiary of Capital Direct Group, Inc., which is a subsidiary of CIT Bank, NA ("CIT"), which is a subsidiary of C.I.T. Group, Inc. DCC has filed Counterclaims seeking a declaratory judgment and alleging breach of contract against the Former Employee Plaintiffs and theft of trade secrets against Solito. CIT has filed Cross-claims alleging that the Former Employee Plaintiffs violated their duty of loyalty to DCC and CIT while working for DCC. DCC and CIT have filed a Complaint against Ascentium Capital, LLC ("Ascentium") alleging intentional and improper inference with contracts, misappropriation of trade secrets, and civil conspiracy.

DCC has moved to dismiss Count I of the Former Employee Plaintiffs' Complaint, which alleges violations of RSA 358-A, the New Hampshire Consumer Protection Act ("CPA"). The Motion is GRANTED. The Former Employee Plaintiffs have moved to dismiss the allegations made against them in the Cross-claim by CIT asserting a breach of the duty of loyalty. The Motion is GRANTED with Leave to Amend. The Cross-claim against Solito for violation of the common law duty of loyalty is DISMISSED to the extent it is alleging that Solito misappropriated confidential information as such a claim is preempted by the NHUTSA. Finally, Solito moves to dismiss Counterclaims II and III against him by DCC and Ascentium Capital, LLC ("Ascentium") moves to dismiss Count I of the Complaint against it by DCC and CIT. Solito and Ascentium's motion is based upon the alleged invalidity of a restrictive covenant signed by Solito in 2013. For the reasons stated in this Order, the Motion is DENIED.

I. The RSA 358-A Claim Brought by the Former Employee Plaintiffs

In ruling on a Motion to Dismiss, the Court must treat all well-pleaded facts in a Complaint as true, and construe all reasonable inferences therefrom in favor of the plaintiff. Mt. Springs Water Co. v. Mt. Lakes Vill. Dist., 126 N.H. 199, 200 (1985). When considering the Motion, the Court must determine whether the facts as pleaded aresufficient under the law to set forth a cause of action. Brzica v. Trustees of Dartmouth College, 147 N.H. 443, 450 (2002). However, the Court cannot accept bare conclusions of law. Beane v. Dana S. Beane & Co., 160 N.H. 708, 711 (2010). The Court therefore considers the allegations in the Complaint, Counterclaims and Cross-claims as true for the purposes of determining these Motions.

Solito, Kells and Will are all former employees of DCC and now work for DCC's competitor, Ascentium. (Compl. ¶ 7.) In 2007, DCC had all employees sign an agreement containing noncompetition, nondisclosure and nonsolicitation covenants (the "2007 Agreement"). (Id. ¶ 9.) Kells and Will are parties to the 2007 Agreement. (Id.) In 2013, the 2007 Agreement was determined to be unenforceable by the New Hampshire Superior Court. (Id. ¶ 10.) Later that same year DCC presented its employees with a new nondisclosure and nonsolicitation agreement (the "2013 Agreement") and asked employees to sign it. (Compl. ¶ 11.) Solito signed the 2013 Agreement. (Compl. ¶ 12.) Kells and Will declined to sign the 2013 Agreement. (Id.) In June 2017, Will executed a Restricted Stock Unit Award Agreement which contained an exhibit with restrictive covenants which was presented to him by DCC. (Id.) Will alleges that he was "duped" into signing the Agreement. (Id.)

Following their departures from DCC, Solito, Kells and Will each received letters reminding them of their obligations under their various agreements. (Compl. ¶¶ 11-13.) The Former Employee Plaintiffs allege that DCC has attempted to enforce its various agreements with former employees, including the Former Employee Plaintiffs, through litigation, and that this conduct constitutes unfair methods of competition and unfair and deceptive acts and practices affecting trade and commerce in the State under RSA 358-A,the Consumer Protection Act ("CPA"). DCC has moved to dismiss the Former Employee Plaintiffs' claim.

The New Hampshire Supreme Court has held that while the CPA statute broadly defines trade and commerce as "the advertising, offering for sale, sale, or distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value wherever situate, and shall include any trade or commerce directly or indirectly affecting the people of this state," RSA 358-A:1, II, "the scope of the CPA is narrower than its broad language may suggest, and that it does not encompass isolated sales or contracts that are not undertaken in the ordinary course of a trade or business," Ellis v. Candia Trailers and Snow Equip., Inc., 164 N.H. 457, 465 (2012). In Hughes v. DiSalvo, 143 N.H. 576, 578 (1999), the Court stated that "[t]o determine whether the [CPA] applies to a particular transaction, we analyze the activity involved, the nature of the transaction, and the parties to determine whether a transaction is a personal or business transaction," and that "remedies under the [CPA] are not available where the transaction is strictly private in nature, and is in no way undertaken in the ordinary course of a trade or business." (emphasis added).

Noting that New Hampshire courts have often relied upon interpretation of the Massachusetts Consumer Protection Act in interpreting RSA 358-A, the United States District Court for the District of New Hampshire held in 1994 that the New Hampshire CPA does not provide a remedy for disputes arising out of an employment relationship between an employer and employee. Donovan v. Digital Equip. Corp., 883 F. Supp. 775, 786-87 (D.N.H. 1994); see Manning v. Zuckerman, 444 N.E.2d 1262, 1266 (Mass. 1983) ("Contract disputes between an employer and an employee, by contrast, are principally'private in nature' and do not occur in the ordinary 'conduct of any trade or commerce' as contemplated by the statute."). The court further noted that the New Hampshire CPA tracks the language of the Massachusetts Consumer Protection Act, Mass. Gen. L. ch. 93A. Id. at 786.

Since 1994 when Donovan was decided, Massachusetts courts have continued to take the view that the Massachusetts CPA is not applicable to employment disputes. Psy-Ed Corp. v. Klein, 947 N.E.2d 520, 539 (2011); Informix, Inc. v. Rennell, 668 N.E.2d 1351, 1353 (Mass. App. Ct. 1996). Federal courts applying Massachusetts law have reached the same conclusion. See Debnam v. FedEx Home Delivery, 766 F.3d 93, 95 (1st Cir. 2014); Charest v. President & Fellows of Harvard Coll., Civil No. 13-11556-DPW, 2016 WL 614368, at *21 (D. Mass. Feb. 16, 2016); Bevington v. Comverse Tech., Inc., 796 F. Supp. 2d 257, 264-65 (D. Mass. 2011); Bolen v. Paragon Plastics, Inc., 754 F. Supp. 221, 227-28 (D. Mass. 1990). The New Hampshire Supreme Court has continued to look to Massachusetts precedent to determine the scope of the New Hampshire CPA. See, e.g., Hughes, 143 N.H. at 578.¹ Following Massachusetts precedent, this Court has specifically held that employment relationships are outside the scope of the New Hampshire CPA because they are personal transactions. Coutu v. State, No. 2015-cv-488, 2016 N.H. Super. LEXIS 12, at *15 (Merrimack Cnty. Super. Ct. Sept. 23, 2016).

The Former Employee Plaintiffs attempt to distinguish their case from the many cases involving employee CPA claims by asserting that DCC's "conduct is much broader in scope and affects the 'open marketplace.'" (Pls.' Obj. to DCC's Mot. to Dismiss CountI, ¶ 17.) They argue that DCC's conduct, in "threatening the Individual Plaintiffs and numerous other departing and former DCC employees with onerous and illegitimate litigation based on covenants that have been judicially declared invalid or are void under New Hampshire statutory law, in order to chill and prevent them from engaging in lawful competition," is violative of the CPA. (Id. ¶ 20.) The Former Employee Plaintiffs argue that Ascentium never had any private or employment relationship with DCC, that DCC and Ascentium are distinct business entities and any dispute between Ascentium and DCC falls squarely within the realm of "trade or commerce" as defined by the CPA. (Id. ¶ 21.)

The Former Employee Plaintiffs rely upon a broad statement in Gallagher v. Funeral Source One Supply and Equip. Co., Civil No. 14-cv-115-PB, 2015 WL 773737, at *3 (D.N.H. Feb. 24, 2015) ("I can find no basis in the CPA's plain text to conclude that CPA liability does not extend to abusive litigation practices") to support their argument. The Gallagher Court did not engage in an extensive analysis of what conduct would violate the New Hampshire CPA. Rather, it noted the CPA provides "that in any action or prosecution [under the CPA], the courts may be guided by the interpretation and construction given Section 5(a)(1) of the Federal Trade Commission Act . . . by the Federal Trade Commission and the federal courts." Id. at *4 (quoting RSA 358-A:13). The court then noted that the Federal Trade Commission has brought enforcement actions based on abusive litigation practices. Id. (citing Spiegel, Inc. v. FTC, 540 F.2d 287, 292-93 (7th Cir. 1976); FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244 (1972).)

In Spiegel, the Seventh Circuit held that a practice of suing out-of-state customers with whom Spiegel had dealt by catalog sales for relatively small amounts of...