Thompson v. Advanced Armament Corp.

14-1764-cv(L)
Thompson v. Advanced Armament Corp.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 11th day of June, two thousand fifteen.
PRESENT: JOSÉ A. CABRANES,
REENA RAGGI,
DENNY CHIN,
Circuit Judges.
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LYNSEY THOMPSON,
Plaintiff-Appellee-Cross-Appellant,
RANDOM VENTURES, INC., KEVIN BRITTINGHAM,
Plaintiffs-Counter-Defendants-Appellees-
Cross-Appellants,
No. 14-1764-cv(L)
v. No. 14-1983-cv(XAP)
No. 14-1990-cv(XAP)
ADVANCED ARMAMENT CORP., LLC,
REMINGTON ARMS COMPANY, LLC,
Defendants-Counter-Claimants-Appellants-
Cross-Appellees.
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APPEARING FOR APPELLEES: ROBERT JASON D’CRUZ, Morris, Manning
& Martin, LLP, Atlanta, Georgia (Robert A.
O’Hare, Jr., Andrew Charles Levitt, O’Hare
Parnagian LLP, New York, New York, on the
brief), for Lynsey Thompson.
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BRIAN D. BOONE, Alston & Bird LLP,
Charlotte, North Carolina (William Roy
Mitchelson, Jr., Alston & Bird LLP, Atlanta,
Georgia, Andrew Charles Levitt, O’Hare
Parnagian LLP, New York, New York, on the
brief), for Random Ventures, Inc., Kevin
Brittingham.
APPEARING FOR APPELLANTS: JOHN DONLEY ADAMS, McGuireWoods
LLP, Richmond, Virginia (Matthew Allen
Fitzgerald, Dana Rust, McGuireWoods LLP,
Richmond, Virginia, Linda T. Coberly,
Winston & Strawn LLP, Chicago, Illinois, on
the brief).
Appeal from a judgment of the United States District Court for the Southern District
of New York (Katherine B. Forrest, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment entered on May 12, 2014, is AFFIRMED in part and
MODIFIED in part.
The parties in this action, Lynsey Thompson, Kevin Brittingham, Random
Ventures, Inc., Advanced Armament Corp., LLC, and Remington Arms Company, LLC
(the latter two, collectively, “AAC”), appeal or cross-appeal from a judgment entered after
a bench trial. In such circumstances, we review the district court’s findings of fact for
clear error and its conclusions of law de novo. See Citigroup Global Mkts. Inc. v. Abbar,
761 F.3d 268, 273 (2d Cir. 2014). We assume the parties’ familiarity with the facts and
record of prior proceedings, which we reference only as necessary to explain our decision
to affirm in part and modify in part.
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On appeal, AAC primarily challenges the district court’s determination that it
breached the operative contracts by terminating both Brittingham and Thompson,
purportedly “for cause.” We affirm that ruling, albeit for reasons somewhat different
from those stated by the district court. We also affirm the holding that Brittingham’s and
Thompson’s salary damages are capped at one year’s salary and the rulings (a) awarding
Brittingham attorneys’ fees and (b) denying Thompson attorneys’ fees. We modify,
however, the judgment to void all restrictive covenants.
1. Termination of Brittingham
The district court determined that Brittingham’s termination for firearms
compliance violations was a breach of contract because none of the alleged violations were
unusual or outside the normal course of AAC’s business practices and, therefore, were not
“material.” See Random Ventures, Inc. v. Advanced Armament Corp., No. 12 Civ. 6792
(KBF), 2014 WL 113745, at *44 (S.D.N.Y. Jan. 13, 2014) (holding that “to constitute a
material violation, the conduct would need to have reached beyond AAC’s customary (and
accepted) business practices”). That interpretation of material, an issue of law we review
de novo, is erroneous. See Capital Ventures Int’l v. Republic of Argentina, 552 F.3d 289,
293 (2d Cir. 2009) (holding contract interpretation reviewed de novo).
“Material,” especially when used with regard to violations of the law or
noncompliance with a rule, means non-technical. See State Farm Mut. Auto. Ins. Co. v.
Mallela, 4 N.Y.3d 313, 321–22, 794 N.Y.S.2d 700, 703 (2005) (contrasting “material
failure[s] to abide by state and local law” with “[t]echnical violations”); Madison Ave.
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Leasehold, LLC v. Madison Bentley Assocs., 30 A.D.3d 1, 8, 811 N.Y.S.2d 47, 53 (1st
Dep’t) (contrasting “material default” with “technical violation”), aff’d, 8 N.Y.3d 59, 828
N.Y.S.2d 254 (2006); Hungerford & Terry, Inc. v. Suffolk Cnty. Water Auth., 12 A.D.3d
675, 676, 785 N.Y.S.2d 506, 508 (2d Dep’t 2004) (contrasting “material” noncompliance
with “technical noncompliance”). Thus, while an inadvertent failure to satisfy
record-keeping requirements might not be material, willful failures, denominated as
federal felonies, cannot be deemed immaterial. Here, AAC asserted that Brittingham
committed and allowed to be committed numerous federal felonies—including willful
record keeping violations and improper transfers of machine guns. Even if there was a
culture of non-compliance at AAC, such conduct necessarily would constitute a “material
failure . . . to comply with applicable laws or governmental regulations with respect to the
Company’s [AAC’s] operations” under Brittingham’s employment agreement. J.A. 795.
Nevertheless, we need not remand to the district court for it to determine in the first
instance if any such felonies occurred or Brittingham’s responsibility for them, because the
district court’s factual findings support affirmance of the contract ruling on an alternative
ground: breach of the implied covenant of good faith and fair dealing (the “implied
covenant”). See National R.R. Passenger Corp. v. McDonald, 779 F.3d 97, 100 (2d Cir.
2015) (“We may affirm on any ground with support in the record.”). Although, as AAC
correctly points out, breach of the implied covenant is not a separate claim from breach of
contract, it is an alternative means by which a contract may be breached. See Harris v.
Provident Life & Acc. Ins. Co., 310 F.3d 73, 80 (2d Cir. 2002) (noting that, under New
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York law, breach of implied covenant “is merely a breach of the underlying contract”
(internal quotation marks omitted)).
Under New York law, a defendant violates the implied covenant when it
purposefully sabotages a plaintiff’s ability to benefit under the contract. See Kader v.
Paper Software, Inc., 111 F.3d 337, 341–42 (2d Cir. 1997); accord Behren v. Warren
Gorham & Lamont, Inc., 24 A.D.3d 132, 133, 808 N.Y.S.2d 157, 158 (1st Dep’t 2005).
Acts done out of “negligen[ce]” or “inept[itude]” are insufficient, Security Plans, Inc. v.
CUNA Mut. Ins. Soc’y, 769 F.3d 807, 817 (2d Cir. 2014), as are intentional acts done
without the purpose of cheating the plaintiff, see Kader v. Paper Software, Inc., 111 F.3d at
342. Thus, a defendant would violate the implied covenant if it compelled a plaintiff’s
violation of a for-cause-termination provision in order to justify termination. Absent such
purposeful sabotage, however, a termination for cause cannot breach the implied covenant,
even if motivated by reasons unrelated to cause. See Thomas E. Hoar, Inc. v. Sara Lee
Corp., 164 F.3d 619, 1998 WL 667836, at *1 (2d Cir. 1998) (summary order); Major
Oldsmobile, Inc. v. Gen. Motors Corp., 101 F.3d 684, 1996 WL 280452, at *3 (2d Cir.
1996) (unpublished opinion).
Here, the district court expressly found that “defendants purposefully and
intentionally created a situation in which Brittingham was destined to fail.” Random
Ventures, Inc. v. Advanced Armament Corp., 2014 WL 113745, at *48; see also id. (“By
creating conditions to try and force Brittingham to breach his [employment agreement],
defendants engaged in bad faith conduct.”). That factual finding, which is not clearly
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erroneous, supports a conclusion that AAC breached its contracts with Brittingham
through violation of the implied covenant. Accordingly, we affirm the district court’s
contract holding in favor of Brittingham.
2. Termination of Thompson
The district court held that Thompson was improperly terminated in part because
she “was never provided written notice” of AAC’s demand for her recording “and an
opportunity to cure as contractually required.” Random Ventures, Inc. v. Advanced
Armament Corp., 2014 WL 113745, at *46. This holding was error because the contract
contained no such requirement. Nevertheless, we affirm this contract ruling on the
alternative holding that AAC’s sole Board member did not make the requisite “reasonable
determination” for Thompson’s termination, see id. at *35 n.71, a factual finding that is not
clearly erroneous.1
3. Salary Damages Limitation
Under New York law, “an employee who maintains an action for discharge under a
contract of employment which contains a right of termination is generally limited to the
salary to which he or she would have been entitled if notice of termination had been duly
given.” 52 N.Y. Jur. 2d Employment Relations § 332; see Steinmetz v.
Samuel-Rozenbaum USA, Inc., 105 A.D.3d 678, 679, 965 N.Y.S.2d 405, 406–07 (1st
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AAC does not argue that no reasonable determination was required to terminate
Thompson but, rather, argues that the reasonable-determination requirement was satisfied.
AAC’s Br. 50–51. As such, we do not consider or address whether the language here at
issue in fact required a reasonable determination by the Board before Thompson’s
termination.
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Dep’t 2013). Brittingham and Thompson do not dispute that the without-cause provision
of their contracts provides for one-year’s notice. Instead, they assert that application of
that provision here fails adequately to punish AAC. The argument misunderstands the
purpose of contract law, which is not to punish but to put parties in the position they would
have been in absent breach. See 24 Williston on Contracts § 64:1 (4th ed. 2014); see
generally Rocanova v. Equitable Life Assurance Soc’y of U.S., 83 N.Y.2d 603, 613, 612
N.Y.S.2d 339, 342 (1994) (holding punitive damages not available for ordinary breach of
contract). Accordingly, we affirm the district court’s ruling limiting Brittingham’s and
Thompson’s salary damages to one year.
4. Thompson’s Attorneys’ Fees
Because Thompson seeks attorneys’ fees as a sanction, we review the district
court’s denial of fees only for abuse of discretion. See Wilson v. Citigroup, N.A., 702
F.3d 720, 723 (2d Cir. 2012). Because we conclude that the district court acted well
within its discretion, we affirm its denial decision.
5. Brittingham’s Attorneys’ Fees
AAC argues that the indemnification provisions at issue are not sufficiently clear to
justify fee-shifting. Like the district court, we disagree. The provisions explicitly
differentiate between “Third Person Claims” and “Claims.” Such language unmistakably
indicates that the indemnification agreement was intended to cover expenses for suits
between the parties, including expenses for attorneys’ fees. See Mid-Hudson Catskill
Rural Migrant Ministry, Inc. v. Fine Host Corp., 418 F.3d 168, 178–79 (2d Cir. 2005).
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6. Restrictive Covenants
The challenged judgment contains a declaration of invalidity as to some, but not all,
non-competition restrictive covenants in the Asset Purchase Agreement and in both
plaintiffs’ Employment Agreements. Brittingham argues that, because defendants were
found to have acted in bad faith, New York law requires that all such restrictive covenants
must be invalidated. Since the last of the surviving restrictive covenants expired by their
terms in October 2014, the issue is moot on a forward-looking basis. Nevertheless,
Brittingham maintains that defendants could sue on past violations. See Brittingham’s Br.
46. On appeal, AAC entirely concedes this argument, indicating that, in its view, “the
enforceability of the covenants against raiding, solicitation, and disparagement rise and fall
with the merits of [the] appeal.” AAC’s Reply Br. 36 n.5. Thus, to the extent it is even
necessary to do so, we extend the district court’s declaration of invalidity to include the
now-expired covenants against raiding, solicitation, and disparagement.
7. Conclusion
We have considered the parties’ remaining arguments and conclude that they are
without merit. We therefore MODIFY the judgment to extend the declaration of
invalidity to include the now-expired covenants against raiding, solicitation, and
disparagement, and we AFFIRM in all other respects.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, Clerk of Court
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