Lake House Academy for Girls LLC v. Jennings (Lawyers Weekly No. 11-15-1049, 21 pp.) (James L. Gale, J.) N.C. Bus. Ct.
Holding: The plaintiff-limited liability company has shown that it is likely to succeed on its claim of breach of fiduciary duty because, while she was a manager of the plaintiff-LLC, defendant arranged to found a school to compete with plaintiff. If defendant is allowed to open the competing school, plaintiff’s damages will be difficult to calculate.
Upon the posting of a $100,000 bond, plaintiff is entitled to a preliminary injunction prohibiting defendant from opening her new school.
Defendant convinced Roy Cook to put up the funds to found a residential therapeutic program for girls between the ages of 10 and 14. Part of defendant’s pitch was the fact that there was then only one such school in the country, and it was in Oregon.
Defendant and Cook formed the plaintiff-LLC. Cook owned 75 percent of the LLC and defendant owned 25 percent. Both were member-managers.
Unhappy with her level of control, defendant undertook to found a competing school to serve the same population.
While she was still a member-manager of plaintiff, defendant (1) emailed to her husband documents used by plaintiff in its operation of the school; (2) informed two school employees of her plan to leave the school and to solicit key school employees to terminate their employment contracts with plaintiff; (3) contacted plaintiff’s clinical director and solicited her to leave her employment with plaintiff in favor of defendant’s new school, Glen Willow Academy; (4) contacted a real estate agent and prompted him to conduct a property search and facilitate a lease agreement for a property to house Glen Willow Academy; (5) caused the real estate agent to submit a letter of intent on behalf of defendant and her husband for the Glen Willow Property; (6) circulated confidential parent contact information to students’ parents and others directing them to a website containing disparaging comments about the veracity and competence of plaintiff’s staff; (7) executed a consulting contract with the real estate agent pursuant to which the real estate agency would assist defendant and her husband with “the operation and all facets of opening an all-girls boarding school”; (8) executed a lease for the Glen Willow Property; (9) solicited a school employee to resign as academic director of plaintiff and executed an employment contract with him on behalf of Glen Willow Academy; and (10) caused school documents to be improperly deleted from the laptop computer issued to her as executive director of plaintiff.
All of the foregoing acts are consistent with the alleged scheme to open a competing entity that defendant laid out to school employees when she undisputedly was both executive director and a member-manager of plaintiff. Accordingly, plaintiff has established that it is likely to prevail on the merits of its breach of fiduciary duty claim against defendant.
Clearly plaintiff has been harmed. Defendant actively solicited plaintiff’s employees to terminate their employment and work for Glen Willow Academy, and she caused the release of confidential and proprietary parent contact information leading to parental unrest. When defendant was asked how the target population of Glen Willow differed from that of plaintiff, she responded that the target population for the two schools is exactly the same.
If Glen Willow Academy were to open its doors and compete with plaintiff under these circumstances, such actions would unquestionably cause irreparable injury to plaintiff. The opening of Glen Willow Academy, standing alone, would increase the competitive market for residential therapeutic boarding schools serving the target population by 50 percent and would likely halt or adversely affect the pending sale of plaintiff to Innerchange Group.
The court cannot quantify the economic loss attendant to the pattern of conduct revealed by the record.
Moreover, the confidentiality agreement that defendant signed acknowledges the uncertainty of monetary losses flowing from the misappropriation of proprietary and confidential information, and it gives plaintiff the right to injunctive relief. Similar language has been recognized as evidence of the inadequacy of monetary damages, and such an inference is supported by the evidence in this case.
Plaintiff has carried its burden of proof and established a likelihood of success on the merits of its claim for breach of fiduciary duty and a likelihood of irreparable harm if an injunction does not issue.
Glen Willow Academy has no student population, no operations, and no paid employees. Its only outstanding monetary obligation is its lease.
Defendant has a constitutional right to earn a livelihood and to provide for her family, and she may do so, so long as she does so without infringing on the obligations she owes to plaintiff.
A preliminary injunction to maintain the status quo pending the final adjudication of this matter is likely to cause defendant and Glen Willow Academy materially less damage or injury in comparison to the risk of irreparable injury faced by plaintiff if Glen Willow Academy is permitted to open as scheduled.
Finally, in its discretion, the court concludes that to protect the interests of those affected by this injunction, security in the amount of $100,000 is reasonable and appropriate as a condition of granting a preliminary injunction in this matter.