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Baker v. Montrone

United States District Court, D. New Hampshire

January 10, 2020

Scott Baker
v.
Paul Montrone, et al.

          MEMORANDUM AND ORDER

          Paul J. Barbadoro, United States District Judge.

         Scott Baker has sued Paul Montrone, Paul Meister, Perspecta Holdings LLC, and several related entities. His principal claims are based on the Americans with Disabilities Act of 1990 (“ADA”), 42 U.S.C. § 12101 et seq., and the New Hampshire Law Against Discrimination, N.H. Rev. Stat. Ann. § 354-A (“Section 354-A”). This Memorandum and Order addresses defendants' motion to compel arbitration of Baker's companion claims for fraudulent inducement, breach of fiduciary duty, unjust enrichment, and breach of contract.

         I. STANDARD OF REVIEW

         The First Circuit Court of Appeals has yet to identify the proper standard of review for a motion to compel arbitration. Landry v. Time Warner Cable, Inc., No. 16-cv-507-SM, 2018 WL 4697578, at *1 (D.N.H. Sept. 27, 2018) (citing Pla-Fit Franchise, LLC v. Patricko, Inc., No. 13-cv-489-PB, 2014 WL 2106555, at *3 (D.N.H. May 20, 2014)). In my view, “[i]f the answer is apparent on the face of the complaint, the Rule 12(b)(6) standard will suffice. If the court must consult evidence to resolve the issue, the summary judgment standard must be employed.” Pla-Fit Franchise, 2014 WL 2106555, at *3 (citing Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 773-74 (3d Cir. 2013)). Defendants' motion turns primarily on evidence that a court ordinarily may consider in resolving a Rule 12(b)(6) motion: namely, allegations made in the complaint and statements made in other documents referenced therein, such as incorporation documents and contracts.[1] See Wilson v. HSBC Mortg. Servs., Inc., 744 F.3d 1, 7 (1st Cir. 2014). Accordingly, I employ the Rule 12(b)(6) standard.

         To survive a Rule 12(b)(6) motion, a plaintiff must allege sufficient facts to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Because, however, defendants' arbitration demand must be treated as an affirmative defense, see Sevinor v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 807 F.2d 16, 19 (1st Cir. 1986), they are entitled to prevail only if the facts establishing their right to arbitration are clear on the face of the complaint and any other documents that a court may consider when ruling on a Rule 12(b)(6) motion. See Zenon v. Guzman, 924 F.3d 611, 616 (1st Cir. 2019) (applying Rule 12(b)(6) standard to an affirmative defense). In resolving the motion, I assume the truth of Baker's well pleaded factual assertions and view the facts in the light most favorable to him. See Germanowski v. Harris, 854 F.3d 68, 71 (1st Cir. 2017).

         II. BACKGROUND

         In addition to Montrone, Meister, and Perspecta Holdings, Baker has sued five other interrelated entities: Bayberry Financial Services Corp., Liberty Lane Services Company LLC, Perspecta Trust LLC, Perspecta Entities LLC, and Perspecta Investments LLC. Am. Compl., Doc. No. 30 at 1. I begin by describing the relationships among the institutional defendants and then turn to the agreements that serve as the basis for defendants' demand for arbitration.

         A. Corporate Structure

         Meister and Montrone directly or indirectly control all of the institutional defendants. Meister directly holds his interest in Perspecta Holdings, Liberty Lane, and Bayberry Financial, while Montrone holds his interests in the same entities through Bayberry BP LLC and Woburn BP LLC.[2] Doc. No. 30 at 4; Perspecta Holdings LLC Equity Award and Admission Agreement, Doc. No. 35-3 at 14. Perspecta Holdings, in turn, holds controlling interests in Perspecta Trust, Perspecta Entities, and Perspecta Investments. Perspecta Entities LLC Agreement, Doc. No. 35-8 at 56; Perspecta Investments LLC Agreement, Doc. No. 35-12 at 56. Baker's employment discrimination claims arise from his joint employment as “Principal” and later as President of Perspecta Trust, Liberty Lane, and Bayberry Financial (collectively “Perspecta”). Doc. No. 30 at 4. His common law claims arise from a 2012 Equity Award and Admission Agreement (“2012 Equity Agreement”) between Baker and Perspecta Holdings, Doc. No. 35-3, and 2016 Profit Interest and Equity Award Agreements between Baker and Perspecta Entities and Baker and Perspecta Investments (collectively “2016 Equity Agreements”), Doc. No. 35-7, Doc. No. 35-11. The relationships among the parties, as Baker describes them, are depicted in the diagram attached to this Memorandum and Order as Exhibit A.

         B. Initial Hiring and Employment

         Baker was hired to work at Perspecta in 2009. Doc. No. 30 at 3-4. Throughout his employment, Baker reported to Montrone and Meister - Perspecta's co-founders and managers. Doc. No. 30 at 5. In addition to a base salary and a bonus, Baker's offer of employment included a promise that “on [his] start date, [he would] initially be awarded stock options representing 3% of the equity in Perspecta over and above a base starting value of $15, 000, 000 . . . [and that a]dditional grants would be considered in the future on a periodic basis as recommended by the Compensation Committee.” Doc. No. 30 at 3. Notwithstanding this promise, Baker did not receive an equity interest in Perspecta or any related business until 2012. Doc. No. 30 at 4.

         C. 2012 Equity Award

         Baker entered into the 2012 Equity Agreement with Perspecta Holdings on July 2, 2012. Doc. No. 35-3 at 2. The Company's Limited Liability Company Agreement recognizes two classes of membership interests that are referred to as “Class A Units” and “Class B Units.” Doc. No. 35-4 at 19. Class A Units represent capital interests and Class B Units represent profit interests. Doc. No. 35-4 at 19. The 2012 Equity Agreement granted Baker sufficient Class B Units to give him a right to 20% of Perspecta Holdings' profits when the units became fully vested. Doc. No. 35-3 at 14. One thousand of Baker's Class B units vested immediately upon execution of the Agreement, with the remainder vesting at a rate of 500 units annually until his interest fully vested on January 1, 2015. Doc. No. 35-3 at 3.

         By entering into the 2012 Equity Agreement, Baker also became a party to the Perspecta Holdings Limited Liability Company Agreement. Doc. No. 35-3 at 2. That agreement includes the following arbitration clause (“2012 Arbitration Clause”):

In the event of any controversy between the parties as to the enforcement or interpretation of the terms and provisions of this Agreement, including the right to recover payments due hereunder, such controversy shall be determined by binding arbitration. . . .

Doc. No. 35-4 at 36. The LLC Agreement also defines “Agreement” as:

This Limited Liability Company Agreement including all Admission Agreements and amendments adopted in accordance with the Agreement and the [Delaware Limited Liability Company] Act.

Doc. No. 35-4 at 4. Accordingly, disputes between the parties concerning the enforcement or interpretation of the 2012 Equity Agreement are subject to the 2012 Arbitration Clause because the Equity Agreement is an “Admission Agreement.” Doc. No. 35-3 at 2.

         The 2012 Equity Agreement permitted Perspecta Holdings to repurchase units awarded to Baker at a defined “Repurchase Value” if Baker's employment were terminated. Doc. No. 35-3 at 3-4. Baker, in turn, was entitled under a “Put Right” provision to require Perspecta Holdings to repurchase his units at a specified percentage of the Repurchase Value, which varied depending upon when the repurchase occurred. Doc. No. 35-3 at 7.

         D. Restructuring of Baker's Interest

         In late 2015, Montrone informed Baker that the 2012 Equity Agreement would be terminated and replaced with a new and “much better” agreement. Doc. No. 30 at 8. In fact, however, Meister and Montrone intended that the new agreement would “purposely decrease the value of Baker's stake in Perspecta in anticipation of a planned, but undisclosed termination.” Doc. No. 30 at 15.

         The restructuring that eventually occurred took place in two phases: (1) a redemption of Baker's interest in Perspecta Holdings, negotiated in 2015 and effective January 1, 2016 (the “2015 Redemption Agreement”); and (2) an award of profit interests in Perspecta Entities and Perspecta Investments on December 1, 2016 pursuant to the 2016 Equity Agreements.

         1. Redemption Agreement

         Perspecta Holdings and Baker agreed in the Redemption Agreement that the company would redeem Baker's interest in Perspecta Holdings for $886, 000. Defs.' Mem. of Law in Support of Mot. to Compel Arbitration, Doc. No. 35-1 at 2. Neither party alleges that the redemption was triggered by either of the events prescribed by the 2012 Equity Agreement (namely, Baker's termination or a “Put Right” redemption initiated by Baker). Rather, the redemption was the product of an independent agreement between Montrone and Meister (as managers of Perspecta Holdings) and Baker. Doc. No. 35-1 at 2.

         Baker alleges that the redemption price received for his interest in Perspecta Holdings was “unreasonably low.” Doc. No. 30 at 16. He states that he knew at the time that the price was low, but that he relied upon Montrone's representations that he would not be harmed by the low redemption price because his new equity award would be “much better.” Doc. No. 30 at 16. Specifically, Baker was told that the award would give him “true equity” and be more similar to the equity plans used by another related entity, Ballentine Partners. Doc. No. 30 at 15. Baker understood this to mean that his Class B profit interests would be replaced with Class A capital interests. Doc. No. 30 at 15. Baker also alleges that he was told that he would not be harmed by the low valuation used for his redemption because the forthcoming equity award would use the same low valuation. Doc. No. 30 at 26. Baker claims that he relied on ...


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