Harbour Capital v. Allied Capital

2011 DNH 019

• Court: District Court, D. New Hampshire
• Decided: February 3, 2011
• Docket: CV-08-506-PB
• Status: Published

Opinion

Harbour Capital v. Allied Capital CV-08-506-PB 02/03/11 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Harbour Capital Corporation

v. Case N o . 08-cv-506-PB Opinion N o . 2011 DNH 019 Allied Capital Corporation, et al.

MEMORANDUM AND ORDER

Harbour Capital Corporation (“Harbour”) has filed a

complaint against Allied Capital Corporation (“Allied”) and

Financial Pacific Company (“Financial Pacific”) alleging

tortious interference with contractual relations and unfair

trade practices under New Hampshire Revised Statutes Annotated

(“RSA”) § 358-A:2. Financial Pacific moves to dismiss the

complaint pursuant to Federal Rule of Civil Procedure 12(b)(6)

and Allied seeks judgment on the pleadings pursuant to Federal

Rule of Civil Procedure 12(c). Harbour objects. For the

reasons set forth below, both motions are granted in part and

denied in part. I . BACKGROUND

Harbour, a New Hampshire corporation, is in the business of

equipment leasing and financing throughout the United States.

Allied Capital, headquartered in Washington D.C., is a provider

of debt and equity financing to private and middle market

companies.1 Financial Pacific Company, a commercial finance

company, is a subsidiary of Allied. Financial Pacific Leasing,

LLC (“FinPac”), a direct provider of commercial equipment

leases, is itself a wholly owned subsidiary of Financial

Pacific. Allied also owns a controlling interest in DCC

Holdings, whose wholly owned subsidiary, Direct Capital

Corporation (“Direct Capital”), competes with Harbour in the

business of equipment leasing and financing.

On August 2 , 2001, Harbour and FinPac entered into a Broker

Agreement. Under the agreement, Harbour referred lease

transactions to FinPac in exchange for a commission. The

agreement was terminable at-will by either party upon thirty

1 On April 1 , 2010, Allied merged with Ares Capital Corporation. Because the merger post-dated all relevant dates in this litigation, I will continue to refer to the defendant as “Allied.”

3 (30) days’ notice. Over the next seven (7) years the agreement

was mutually profitable for both parties.2

In April 2007, Harbour commenced litigation against Direct

Capital and others in Rockingham Superior Court. A little over

a year later, on July 2 4 , 2008, Chris Broom, a director of

Direct Capital, exchanged emails with John Fruehwirth, an Allied

and Financial Pacific director, regarding Harbour Capital’s

ongoing business relationship with FinPac.3 Three months later,

on October 1 6 , 2008, the FinPac board, comprised of directors

associated with Allied and Direct, unanimously agreed to

recommend that FinPac terminate its Broker Agreement with

Harbour.4 After informing Chip Kelley, the President of Harbour

Capital, that it was terminating the brokerage relationship,

Terey Jennings, the Senior Vice President FinPac, sent a follow-

up letter in which Jennings noted that “[w]e [FinPac] are being

instructed by our parent company, Allied Capital, to discontinue

our relationship with Harbour Capital Corporation. This is due

2 Harbour was the number eight broker nationwide for FinPac. 3 The exact details of the conversation are not clear. 4 Allied had previously asked FinPac to terminate its relationship with Harbour, but FinPac had not done s o . 4 to ongoing legal issues Harbour Capital is having with another

one of the companies owned by Allied Capital.”

Feeling that it had been unfairly punished by Allied for

its litigation against Direct, Harbour brought suit against

Allied in this court on December 8 , 2008, claiming that Allied

had tortuously interfered with its contractual relations with

FinPac and engaged in unfair trade practices by instructing

FinPac to terminate its relationship with Harbour. Financial

Pacific was later added as a defendant after Allied notified

Harbour that it considered Financial Pacific a necessary party.

II. STANDARD OF REVIEW

To survive a motion to dismiss under Rule 12(b)(6), the

plaintiff must make factual allegations sufficient to “state a

claim to relief that is plausible on its face.” Bell Atl. Corp.

v . Twombly, 550 U.S. 544, 570 (2007). A claim is facially

plausible when it pleads “factual content that allows the court

to draw the reasonable inference that the defendant is liable

for the misconduct alleged. The plausibility standard is not

akin to a ‘probability requirement,’ but it asks for more than a

sheer possibility that a defendant has acted unlawfully.”

5 Ashcroft v . Iqbal, 129 S . C t . 1937, 1949 (2009) (citations

omitted). In deciding such a motion, I must accept all well-

pleaded factual allegations in the complaint as true, drawing

all reasonable inferences in the plaintiff’s favor. Alt.

Energy, Inc. v . S t . Paul Fire & Marine Ins. Co., 267 F.3d 3 0 , 33

(1st Cir. 2001). An inference that a plaintiff asks the court

to draw from pleaded facts will not fall short under the

plausibility test merely because “other [ ] undisclosed facts may

explain the sequence better.” Sepulveda-Villarini v . Dep’t of

Educ. of P.R., Nos. 08-2283, 09-1801, 2010 WL 5093220, at *4

(1st Cir. Dec. 1 0 , 2010).

“The standard for evaluating a Rule 12(c) motion for

judgment on the pleadings is essentially the same as that for

deciding a Rule 12(b)(6) motion.” Pasdon v . City of Peabody,

417 F.3d 225, 226 (1st Cir. 2005). The court again views the

facts contained in the pleadings in the light most favorable to

the nonmovant and draws all reasonable inferences in his favor.

Zipperer v . Raytheon Co., 493 F.3d 5 0 , 53 (1st Cir. 2007), cert.

denied, 128 S . C t . 1248 (2008). Judgment on the pleadings is

proper “only if the uncontested and properly considered facts

conclusively establish the movant's entitlement to a favorable

6 judgment.” Id. (quoting Aponte-Torres v . Univ. of P.R., 445

F.3d 5 0 , 54 (1st Cir. 2006)).

III. ANALYSIS

A. Intentional Interference With Contractual Relations

Counts I and III of Harbour’s Amended Complaint allege that

Allied and Financial Pacific tortuously interfered with

Harbour’s contractual relations with FinPac. To prove an

intentional interference claim, Harbour must establish that: (1)

it had an economic relationship with FinPac; (2) Allied and

Financial Pacific knew of the contractual relationship; (3)

Allied and Financial Pacific intentionally and improperly

interfered with this relationship; and (4) Harbour was damaged

as a result of the interference. See Singer Asset Fin. C o . v .

Wyner, 937 A.2d 303, 312 (N.H. 2007).

Defendants argue that Harbour’s intentional interference

claims fail because the pleadings do not support Harbour’s

contention that defendants acted “improperly” when they directed

Harbour to terminate its contract with FinPac. I reject this

argument because it is based on an insufficiently deferential

reading of Harbour’s complaint.

7 Defendants correctly note that a parent corporation

ordinarily will not be deemed to have improperly interfered with

an at-will contract between a subsidiary and a third party if

the parent causes the contract to be terminated to protect the

parent’s interests from being harmed by the contract. See

Restatement (Second) of Torts § 769 (1979). 5 The complaint in

this case alleges, however, that the defendants improperly

interfered with the contract and pleads facts that plausibly

support the conclusion that defendants acted solely to punish

Harbour rather than to protect their own interests.6 A parent

corporation is not free to terminate a subsidiary’s contracts

solely to punish a business competitor. See Restatement

(Second) of Torts § 769 cmt. e (1979)(noting that conduct

directed for the “gratification of [one’s] ill will” is

improper). Because Harbour’s complaint can plausibly be

construed to support its contention that defendants acted with

an improper motivation when they directed FinPac to terminate

5 By its terms, Section 769 applies only to prospective contractual relations. The Restatement, however, treats an at- will contract as a prospective contractual relation. See Restatement (Second) of Torts § 766 cmt. g (1979).

6 The complaint alleges that the contract between Harbour and FinPac was mutually profitable and that the contract was terminated because of Harbor’s lawsuit against Direct Capital.

8 the contract, defendants are not entitled either to dismissal

for failure to state a claim or judgment on the pleadings with

respect to their intentional interference claims. See

Sepulveda-Villarini, 2010 WL 5093220, at * 3 .

B. RSA § 358-A:2

In Counts II and IV of its Amended Complaint, Harbour

alleges that Allied and Financial Pacific violated New

Hampshire’s Consumer Protection Act (“CPA”), RSA § 358-A:2, by

“instructing FinPac to discontinue its relationship with Harbour

Capital due to the ongoing legal issues Harbour Capital is

having with Direct Capital.” Am. Compl. ¶¶ 4 7 , 5 8 . As with its

tort claims, Harbour’s CPA claims are based on allegations that

Allied and Financial Pacific instructed FinPac to terminate its

relationship with Harbour in retaliation for the Habour/Direct

Capital litigation. Allied and Financial Pacific both argue

that the alleged action fails to qualify as an “unfair or

deceptive act or practice” under the statute.

RSA § 358-A:2 makes it “unlawful for any person to use any

unfair method of competition or any unfair or deceptive act or

practice in the conduct of any trade or commerce within this

state.” N.H. Rev. Stat. Ann. § 358-A:2 (2004). The statute

9 then delineates a non-exhaustive list of specified acts deemed

to be unfair or deceptive. See id. For conduct not captured by

the enumerated categories, the New Hampshire Supreme Court has

indicated that it must either “be of the same type as that

proscribed in the enumerated categories,” State v . Sideris, 951

A.2d 164, 168 (N.H. 2008), or “attain a level of rascality that

would raise an eyebrow of someone inured to the rough and tumble

of the world of commerce,” State v . Moran, 861 A.2d 763, 765

(N.H. 2004). In addition, the New Hampshire Supreme Court also

looks “to the federal courts’ interpretation of the Federal

Trade Commission Act (FTCA) for guidance.” Moran, 861 A.2d at

766. “Although RSA 358-A:2 is broadly worded, not all conduct in

the course of trade or commerce falls within its protection.”

Barrows v . Boles, 687 A.2d 979, 986 (N.H. 1996).

As previously noted, at the heart of Harbour’s Amended

Complaint is the allegation that Allied and Financial Pacific

acted with an improper motive, namely retaliation for the

Harbour/Direct Capital litigation, when they instructed FinPac

to terminate its at-will relationship with Harbour. Based on

this illicit motive, Harbour contends that the otherwise lawful

10 termination of an at-will agreement should be considered an

unfair or deceptive trade practice.

The termination of an at-will agreement, even with the

motive alleged, does not, without more, amount to an unfair

trade practice under RSA § 358:A-2. It is clearly evident, and

Harbour does not argue otherwise, that the alleged conduct does

not meet any of RSA § 358:A-2’s enumerated categories. See N.H.

Rev. Stat. Ann. § 358:A-2. Nor is it analogous to any of those

categories.7 See Sideris, 951 A.2d at 168. Recognizing this

challenge, Harbour ostensibly focuses its argument on the more

enigmatic FTCA standard. Even here, however, Harbour fails to

offer any authority or explain how the alleged conduct qualifies

as an unfair or deceptive act.

In order to determine whether actions are unfair or

deceptive under the FTCA one must ask:

(1) Whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the

7 Neither does Harbour adequately argue that the alleged actions would qualify under the rascality test. Instead, after restating the facts alleged in its Amended Complaint, Harbour merely asserts in a conclusory fashion that “[t]hese allegations easily satisfy the rascality test under New Hampshire law.” This is not sufficient. See Bell Atlantic v . Twombly, 550 U.S. 544, 561 (2007).

11 common law, or otherwise-whether, in other words, it is within at least the penumbra of some common-law, statutory or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; [and]8 (3) whether it causes substantial injury to consumers (or competitors or other businessmen).

Moran, 861 A.2d at 766.

Harbour has failed to offer any proof that the alleged

conduct “offends public policy as it has been established by

8 Harbour contends that they need only meet one of these factors to be successful. It is not entirely clear whether the three FTCA factors should be considered in the conjunctive or the disjunctive. See FAMM Steel, Inc. v . Sovereign Bank, 571 F.3d 9 3 , 107 (1st Cir. 2009) (using conjunctive); Mass. Eye and Ear Infirmary v . QLT Phototherapeutics, Inc., 412 F.3d 215, 243 (1st Cir. 2005) (using conjunctive); but see Chroniak v . Golden Inv. Corp., 983 F.2d 1140, 1146 (1st Cir. 1993) (using disjunctive). Based on the language surrounding the applicable test, the better reading is to read the factors in the conjunctive. See Statement of Basis and Purpose of Trade Regulation Rule 408, Unfair or Deceptive Advertising in Labeling of Cigarettes in Relation to the Health Hazards of Smoking, 29 Fed. Reg. 8324, 8355 (July 2 , 1964) (“[i]f all three factors are present, the challenged conduct will surely violate Section 5 even if there is no specific precedent for proscribing i t . The wide variety of decisions interpreting the elusive concept of unfairness at least make[] clear that a method of selling is exploitive or inequitable if it is exploitive or inequitable and if, in addition to being morally objectionable, it is seriously detrimental to consumers or others.”)(emphasis added). Additionally, requiring only one of the factors be met would lead to an overly broad reading, as any practice causing substantial injury would be covered, whether it is deceptive/unfair or not. As a result, I apply these factors in the conjunctive.

12 statutes, the common law, or otherwise.” See id. Put simply,

the contract between Harbour and FinPac was terminable at-will.

Therefore, the agreement was terminable for almost any reason or

no reason at all. See Porter v . City of Manchester, 849 A.2d

103, 113-14 (N.H. 2004)(explaining New Hampshire law regarding

analogous at-will employment contracts). Additionally, Financial

Pacific and Allied generally have the right to pick and choose

those with whom they will do business. Serpa Corp. v . McWane,

Inc., 199 F.3d 6, 16 (1st Cir. 1999)(“a refusal to deal, without

a showing of monopolistic purpose or concerted effort to hinder

free trade, is not an unfair trade practice under G.L.C. 93A

[the Massachusetts Consumer Protection A c t ] , and is therefore

not actionable”)(quoting PMP Assocs., Inc. v . Globe Newspaper

Co., 321 N.E.2d 915, 919 (Mass. 1975); Chase v . Dorais, 448 A.2d

390, 391 (N.H. 1982)(noting that the New Hampshire Supreme Court

turns to the “well developed body of law” construing the

analogous Massachusetts Consumer Protection A c t ) . At best,

Harbour has alleged an ill-willed termination of an at-will

agreement, an action which does not generate an unfair trade

practices claim without additional facts implicating public

policy concerns that are absent from Harbour’s complaint. See

13 Porter, 849 A.2d at 114; Hobin v . Coldwell Banker Affiliates,

Inc., 744 A.2d 1134, 1141 (N.H. 2000)(affirming dismissal of RSA

§ 358-A claim where the defendant exercised option permitted

under agreement); Barrows, 687 A.2d at 986 (“[t]he defendants’

conduct simply falls within the rough edges of commercial

lending”).

While Harbour cites a panoply of authorities, it fails to

adequately allege that Allied and Financial Pacific’s conduct

amounted to an unfair trade practice under RSA § 358-A:2, as

opposed to simple “selfish bargaining and business dealings”

that would not “raise an eyebrow of someone inured to the rough

and tumble world of commerce.” Barrows, 687 A.2d at 986-87. As

a result, Harbour’s RSA § 352-A:2 claims are dismissed.

IV. CONCLUSION

For the foregoing reasons, I grant Allied’s motion for

judgment on the pleadings (Doc. N o . 65) and Financial Pacific’s

motion to dismiss (Doc. N o . 30) as to Counts II and IV

respectively and deny their motions as to Counts I , III and V 9 .

9 Count V is a claim for “Enhanced Compensatory Damages.” “Such damages are termed ‘liberal compensatory damages,’ and are available only in exceptional cases.” Aubert v . Aubert, 529 A.2d 909, 914 (N.H. 1987). One such exception is when there is

14 SO ORDERED.

/s/Paul Barbadoro Paul Barbadoro United States District Judge

February 3 , 2011

cc: William E . Christie, Esq. Steven M. Gordon, Esq. Michael Himes, Esq. James F. Ogorchock, Esq. John-Mark Turner, Esq.

“ill will, hatred, hostility, or evil motive on the part of the defendant.” Id. Defendants’ challenge to this count has not been adequately briefed and I decline to take it up at the present time.