Contract Law

Laura D. Devine
Civil Litigation Attorney
Boyle Shaughnessy Law
Manchester, NH

No. 2018-0060
May 3, 2019

Reversed and remanded.

  • Whether New Hampshire law recognizes a cause of action for breach of contract based upon a covenant not to sue, where the contract does not expressly provide the non-breaching party is entitled to consequential damages for breach of contract

The trial court dismissed the plaintiff’s amended complaint on the basis that the covenant not to sue did not give rise to a cause of action for breach of contract. The amended complaint contained three counts, breach of contract, tortious interference with contractual relations, and civil conspiracy. The trial court dismissed the remaining two counts on the basis that they were not reasonably susceptible to construction that would permit recovery because they rested on a theory that there was a contractual relationship with the plaintiff that imposed ongoing duties. This appeal followed.

The Court explained the relevant facts as follows: The three sibling defendants each received a portion of their father’s one third ownership interest in three companies, known as the Pro-Cut entities, to be held in trust by the fourth defendant. In 2012, the sibling defendants negotiated with an owner of the Pro-Cut entities to sell their interests to him. In November 2013, trustee of the trust, on behalf of the sibling defendants, executed 15 Securities Redemption Agreements (SRA), with the Pro-Cut buyer as part of the sale. The terms of the SRAs were explicitly binding on the heirs, personal representatives, successors and assigns of the parties. Each of the 15 SRAs also contained a separate document, entitled “Release,” which was also executed by the trustee of the trust. The Release contained language which stated that the seller “forever releases, discharges, quit claims and covenants not to sue and otherwise agrees not to enforce any claim, cause of action, right, title or interest … against the Company … including but not limited to any claim based on any future transaction that the Company or any unit holder may enter into in relation to the equity of the Company.” Each sibling defendant received $750,000 as a result of the aforementioned transactions.

Following the sales which were executed through the above-discussed SRAs, one Pro-Cut entity acquired another Pro-Cut entity and changed its name. Then, three unrelated companies, known as Snap-On, purchased the Pro-Cut entities for $41.3M. Pro-Cut International was then renamed Pro Done, Inc. Here, Pro-Done, Inc. alleges it is a successor or assignee of the Pro-Cut entities which were successors to the SRAs.

After Snap-On purchased the Pro-Cut entities, the defendants subsequently filed a lawsuit, against Snap-On in the U.S. Dist. D. N.H. The sibling defendants served subpoenas onto Pro Done, and Snap-On asserted rights to indemnification against Pro Done.

The plaintiff, Pro Done, then filed suit against the defendants and claimed, (1) breach of contract; and in the alternative (2) tortious interference with contractual relations; and (3) civil conspiracy. The Court noted that the standard of review is whether the allegations are reasonably susceptible of a construction that would permit recovery.

The Court held that New Hampshire law recognizes a cause of action for breach of contract based upon a covenant not to sue, where the contract does not expressly provide the non-breaching party is entitled to consequential damages for breach of contract. The Court observed that a lawyer, in drafting a covenant not to sue, may include damages including attorneys’ fees as a consequence of a breach. Therefore, the Court reversed and remanded the matter to the trial court and noted that based it has consistently recognized the distinction between an express covenant and not to sue and a release

 

Michael Lewis, Rath, Young & Pignatelli, Concord, with Kenneth Bartholomew and R. Terry Parker (on the brief), for the Pro Done, Inc. Timothy McLaughlin, Shaheen & Gordon, Concord, William Christie and Alexander Campbell (on the brief),for Teresa Basham & a. Biron Bedard, Ransmeier & Spellman, Concord, for Trustee of the Paul R. Hopper 1997 Trust (joined in brief for Basham & a).