Atronix, Inc. v. Morris

171 N.H. 429

197 A.3d 79

ATRONIX, INC.

v.Kenneth MORRIS & a.

No. 2017-0318

Supreme Court of New Hampshire.

Argued: April 12, 2018

Opinion Issued: October 23, 2018

Hinckley, Allen & Snyder, LLP, of Manchester (Christopher H.M. Carter and Kimberly M.R. Sullivan on the brief, and Mr. Carter orally), for the plaintiff.

Devine, Millimet & Branch, P.A., of Manchester (Jonathan M. Shirley on the joint brief and orally), for defendant Scott Electronics, Inc.

Daniel R. Tenczar, of Tyngsborough, Massachusetts, on the joint brief, and Law Office of Brian W. Leahey, P.C., of Tyngsborough, Massachusetts (Brian W. Leahey on the joint brief and orally), for defendant Kenneth Morris.

HICKS, J.

The plaintiff, Atronix, Inc., which brought this action for, among other things, breach of contract against defendant Kenneth Morris and tortious interference with contractual relations against defendant Scott Electronics, Inc. (Scott), appeals a decision of the Superior Court (Wageling, J.) dismissing its action for lack of standing. We reverse and remand.

The following facts were recited in the trial court's orders. Morris started working at Atronix Sales, Inc. (Old Atronix) in 1982. He was promoted several times over the course of his employment, eventually becoming program manager in the sales department. That position entailed responsibility for the largest and most important of Old Atronix's accounts. Accordingly, in 1997, Morris was required to sign a non-compete and non-solicitation agreement (the non-compete agreement), and a non-disclosure agreement (collectively, the Agreements).

In 2011, Old Atronix merged with Atronix, Inc. (the Company). In 2014, the Company entered into an Asset purchase agreement (the APA) with Consolidated Cable Assembly Holdings, Inc. (CCAH). Pursuant to the APA, the Company sold its assets, including the tradename "Atronix, Inc.," to a subsidiary of CCAH. The subsidiary, doing business under the name Atronix, Inc., is the plaintiff here.

In 2016, Morris left his job with the plaintiff and was hired as a general manager by Scott, a competitor of the plaintiff. Thereafter, the plaintiff filed the instant suit, alleging breach of contract, tortious interference with contract, and violation of the New Hampshire Consumer Protection Act, see RSA ch. 358-A (2009 & Supp. 2017), and seeking a declaratory judgment and injunctive relief. The defendants moved to dismiss, asserting that the plaintiff lacked standing to enforce the Agreements. The trial court granted the motion, and denied the plaintiff's subsequent motion for reconsideration.

On appeal, the plaintiff argues that: (1) the trial court's decision conflicts with the APA's plain terms; (2) the trial court's decision "also conflicts with the well-established rule that when a business is sold as a going concern under an asset purchase, restrictive covenants are assigned to the buyer along with goodwill and other assets necessary to the continued operation of that business"; (3) the trial court "conflated the issue of whether the non-compete agreement was assigned under the APA, with the wholly separate issue of whether Morris consented to the assignment"; and (4) consent by Morris was not required in any event.

Because the underlying facts relevant to this appeal are undisputed, we review the trial court's ruling that the plaintiff lacks standing to enforce the non-compete agreement de novo. See In the Matter of P.B. & T.W., 167 N.H. 627, 629, 117 A.3d 711 (2015). The trial court's decision on that issue was based, in its words, on "[w]hether the terms of the APA transferred the right to enforce the Agreements." We note that the trial court's order, by using the term "Agreements" — which it defined to refer collectively to the non-compete agreement and non-disclosure agreement — broadly rules that neither agreement was transferred under the APA. The plaintiff, however, challenges only the court's ruling with respect to the non-compete agreement. Accordingly, we decide only the narrow issue of whether the non-compete agreement was transferred to the plaintiff under the APA.

Determining what the APA conveyed requires us to interpret that agreement. We note that although the APA provides that it is to be governed by Delaware law, Delaware's law regarding contract interpretation does not differ materially from our own. Compare Signal Aviation Servs. v. City of Lebanon, 169 N.H. 162, 166, 144 A.3d 869 (2016), with Exelon Generation Acquis. v. Deere & Co., 176 A.3d 1262, 1266-67 (Del. 2017), and GMG Capital Inv. v. Athenian Venture, 36 A.3d 776, 779, 783-84 (Del. 2012).

It is axiomatic that we give an agreement the meaning intended by the parties when they wrote it. When interpreting a written agreement, we give the language used by the parties its reasonable meaning, considering the circumstances and context in which the agreement was negotiated, when reading the document as a whole. Absent ambiguity, the parties' intent will be determined from the plain meaning of the language used. Only when the parties reasonably disagree as to its meaning will the agreement's language be deemed ambiguous. If the agreement's language is ambiguous, it must be determined what the parties, under an objective standard, mutually understood the ambiguous language to mean.

Signal Aviation Servs., 169 N.H. at 166, 144 A.3d 869 (quotation omitted); see also Exelon Generation Acquis., 176 A.3d at 1266-67 ; GMG Capital Inv., 36 A.3d at 779, 783-84.

The plaintiff first argues that the trial court's conclusion that the plaintiff did not acquire Morris's non-compete agreement conflicts with the APA's express terms. In relevant part, Section 2.02 of the APA broadly provides:

(a) Upon the terms and subject to the conditions of this Agreement, at the Closing, the Company shall sell, assign, transfer, convey and deliver, or cause to be sold, assigned, transferred, conveyed and delivered, to [the plaintiff], and [the plaintiff] shall purchase from the Company, all the assets, properties, goodwill and business of every kind and description and wherever located, whether tangible or intangible, real, personal or mixed, directly or indirectly owned by the Company or to which it is directly or indirectly entitled and, in any case belonging to or used or intended to be used in the Business, other than the Excluded Assets ..., including the following:

(i) the Business as a going concern;

...

(viii) all goodwill of the Company;

...

(xii) all rights of the Company under all Material Contracts listed in Section 3.16 of the Disclosure Schedule, all other contracts, licenses, sublicenses, agreements, leases, commitments, and sales and purchase orders, and under all bids and offers related to the Business;

...

(xiv) all the Company's right, title and interest at the Closing in, to and under all other assets, rights and claims of every kind and nature.

The trial court concluded that the plaintiff lacked standing to enforce the Agreements because "[t]he purchasing of [the Company's] assets, absent an explicit transfer of Morris' Agreements, does not make Plaintiff a contracting party with Morris." The plaintiff counters that Morris's non-compete agreement was included within the phrase "all other contracts ... [and] agreements" as used in section 2.02(a)(xii). See Beta LaserMike, Inc. v. Swinchatt, No. 18059, 2000 WL 262628, at *1, *3-4 (Ohio Ct. App. Mar. 10, 2000) (rejecting argument that employee confidentiality contracts were not assigned by an asset purchase agreement that failed to list them because, in part, "[t]he Asset Purchase Agreement clearly states ... that all of the contracts [seller] used in its business were being transferred to [buyer]").

As the plaintiff argues, "Morris' non-compete agreement with [the Company] is clearly a ‘contract’ or ‘agreement’ belonging to [the Company]." As such, the plaintiff asserts, it was conveyed to the plaintiff "by the clear terms of the APA." The defendants disagree with that conclusion, arguing that it "ignores basic rules of contract interpretation and relies on stray references and general clauses as proof of an assignment."

The defendants first assert that the APA contains no reference to employee contracts in general, and no specific reference to Morris's non-compete agreement. Rather, they note, the APA contemplated that the plaintiff would offer employment to the Company's employees on the same terms and conditions as in effect at the time of closing. In addition, Article V of the APA contains a non-compete provision, but it does not name Morris.

Based on the foregoing, the defendants analogize this case to Hedgeye Risk Management, LLC v. Heldman, 196 F.Supp.3d 40 (D.D.C. 2016), in which a company (Hedgeye) that had purchased the assets of another firm (PRG) sought to enforce against one of PRG's former employees (Heldman) certain restrictive covenants contained in Heldman's employment contract with PRG. Hedgeye, 196 F.Supp.3d at 42. Hedgeye asserted that it had acquired Heldman's contract when it purchased PRG's assets. Id. The court disagreed, noting that Heldman's contract was neither included among the scheduled assets nor otherwise referenced in the APA. Id. at 44, 49. Moreover, the court reasoned, "[t]he fact that the APA explicitly provides that Hedgeye could offer employment to PRG employees, and that those employees might then either accept or reject such an ‘offer,’ is squarely at odds with Hedgeye's contention that PRG's existing employment contracts conveyed to Hedgeye as ‘assets’ of PRG." Id. at 50. Finally, the court noted that the APA "expressly addresse[d] ‘non-competition,’ " but rather than mentioning Heldman, was "limited to PRG and its founder." Id.

The defendants contend that, as in Hedgeye, "the language and organization of the APA rebuts any claim that it conveyed the Morris non-compete agreement to Plaintiff as an ‘asset’ of [the Company]." Finding Hedgeye distinguishable, we disagree.

In Hedgeye, the restrictive covenants were included in...