Hared: Date October 1, 2019.
action commenced in the Superior Court Department on November
case was heard by Mitchell H. Kaplan, J. The Supreme Judicial
Court on its own initiative transferred the case from the
Benjamin M. McGovern (Robert M. Shaw also present) for the
T. O'Connell (Brian K. Lee also present) for the
Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher,
& Kafker, JJ.
issue in the instant case is an "anti-raiding"
restrictive covenant entered into between an automotive
dealership group and a former executive and minority owner.
The provision at issue prohibited defendant Matthew McGovern
from soliciting or hiring employees from his former company
for a defined period of time. The restriction was designed to
prevent McGovern from "raiding" the company by
targeting and soliciting key employees to work for him. In
spite of this provision, McGovern went on to hire numerous
employees from his former company in breach of the
restrictive covenant. This suit quickly followed.
in the Superior Court concluded that the restrictive covenant
at issue was enforceable. He determined that, in the case at
bar, the anti-raiding purpose of the provision constituted a
legitimate business interest. The judge further concluded
that McGovern had committed a breach of the covenant by
hiring at least three employees from his former company.
Further, the judge found that McGovern had misrepresented the
nature of a transaction to the court in order to obfuscate
his violation of the restrictive covenant. The judge declined
to enjoin the three employees McGovern had hired from
continuing to work for him. Instead, the judge issued
injunctive relief extending the length of the restrictive
covenant for one additional year beyond the end date provided
for in the contract. On appeal, the parties contest whether
such a provision is necessary to protect a legitimate
business interest. They also disagree as to whether the judge
may use the court's equitable powers to extend the length
of the restrictive covenant beyond the terms of the contract.
conclude that, in the factual circumstances of this case, the
restrictive covenant was necessary to protect a legitimate
business interest. In reaching that conclusion, we observe
that the restrictive covenant at issue is more properly
considered as arising from the sale of a business rather than
from an employment agreement, and thus is to be more
clear from the record below, and at this point appears
undisputed, that the defendant committed a breach of the
anti-raiding provision. However, the equitable remedy
fashioned by the trial judge, which expanded the restrictive
covenant beyond its plain terms, constituted an abuse of
discretion where, as here, the plaintiffs had not yet
attempted to calculate monetary damages. As a matter of
public policy, we strongly disfavor restrictive covenants,
and the use of an equitable remedy to extend such a
restriction beyond the plain terms of the contract, even in
the context of a sale of a business, was not warranted
without a finding that damages would be inadequate.
summarize the facts as found by the trial judge,  supplemented by
uncontested facts from the record. See Connor v.
Benedict, 481 Mass. 567, 568 (2019).
November 2007, David Rosenberg founded Prime Motor Group
(Prime) with McGovern and David Abrams. The
company was a closely held corporation created to manage a
number of retail automobile dealerships in New England.
Abrams was a friend of Rosenberg, and his company, Abrams
Capital, became the majority shareholder in Prime. Rosenberg,
Rosenberg's father, and McGovern became minority
shareholders. McGovern was initially employed as Prime's
chief financial officer. He later became the vice-president
of operations. Rosenberg worked as the company's chief
executive officer and president.
2015, disagreements arose among Rosenberg, Abrams, and
McGovern in relation to a decision to sell the
company. In February 2016, these
disagreements led Abrams and Rosenberg to terminate
McGovern's employment. At the time of
his termination, McGovern was not subject to a noncompete
agreement. McGovern also did not have a right to redeem his
minority interest in Prime upon termination. As this was a
closely held corporation, however, he was owed fiduciary
duties. See Wilkes v. Springside Nursing Home, Inc.,
370 Mass. 842, 850 (1976).
of McGovern's interest in Prime.
time of McGovern's termination, Rosenberg offered to
purchase McGovern's minority interest. Because Prime was
a closely held corporation, McGovern's minority interest
was illiquid. Thus, Rosenberg only offered to purchase
McGovern's interest subject to a thirty percent discount
on its fair market value. Rosenberg also wanted McGovern to
agree to a five-year nonsolicitation provision. McGovern
rejected the offer.
and Rosenberg subsequently took steps to pressure McGovern to
sell his interest in Prime prior to an expected liquidity
event. First, they amended Prime's operating agreement to
remove a provision that allowed for the distribution of
profits sufficient to cover the owners' tax liabilities.
Such provisions are commonplace, and without it, McGovern
faced a tax liability of between $500, 000 and $600, 000 for
the 2015 tax year. Additionally, Abrams and Rosenberg denied
McGovern access to Prime's financial information, leaving
McGovern unable to calculate his expected tax obligation for
the 2016 tax year. Abrams and Rosenberg also demanded that
McGovern and his wife return the company vehicles they had
been using and threatened to report McGovern to the
authorities as being in possession of stolen automobiles. As
the trial judge remarked, these tactics amounted to Rosenberg
and Abrams applying "as much pressure as they could
manage to put on [McGovern] to take the best deal they could
get" in purchasing McGovern's minority stake before
the company's anticipated liquidity event.
same time that Abrams and Rosenberg were pressuring McGovern
to sell his interest in Prime, McGovern was in the process of
starting his own competing automotive group, McGovern Motors.
McGovern was thus short on cash both to cover his tax
liability and to fund his new business. Due to this financial
pressure, McGovern entered into negotiations with Abrams and
Rosenberg to sell his interest in Prime. McGovern was
represented by counsel in these negotiations, as was Prime.
Abrams, and Rosenberg eventually reached an agreement to
repurchase McGovern's interest in the company in October
2016 (2016 repurchase agreement). Pursuant to the agreement,
Prime's other owners would buy out McGovern's
minority share based on a June 2016 valuation. According to
Rosenberg's testimony at trial, Rosenberg and Abrams
agreed not to discount the value of McGovern's ownership
interest, despite the fact that Prime was a closely held
corporation. McGovern was instead given the full value of his
minority interest, as calculated by the June 2016 valuation.
In exchange for receiving the full value of his interest,
McGovern agreed to an eighteen-month restrictive covenant.
Specifically, McGovern agreed not to directly or indirectly
"hire or solicit any employee or consultant of [Prime]
or encourage any such employee or consultant to leave such
employment or hire any such employee or consultant who has
left such employment, except pursuant to a general
solicitation which is not directed specifically to any such
employees." This restrictive covenant was set to
expire in April 2018.
Post-2016 repurchase agreement hiring activities and signing
of 2017 agreement.
leaving Prime, McGovern worked to develop McGovern Motors,
which came to comprise six dealerships. Despite agreeing to
the restrictive covenant contained within the 2016 repurchase
agreement, McGovern went on to hire at least fifteen former
Prime employees to work at McGovern Motors. Upon learning
that McGovern had hired former Prime employees, Rosenberg
threatened to sue. McGovern denied engaging in any specific
solicitation of Prime employees, insisting that his hiring
practices fell within the general solicitation exception to
the 2016 restrictive covenant. The parties eventually agreed
to enter into a new agreement in February 2017 (2017
agreement), which, according to its terms, was entered into
"[i]n order to avoid the cost of litigation relating to
to the 2017 agreement, Rosenberg and Abrams agreed not to
pursue legal action against McGovern for violating the 2016
repurchase agreement's restrictive covenant, provided
that he abide by the terms of the 2017 agreement. In
exchange, McGovern agreed to enter into a more robust
restrictive covenant that would be extended in duration for
four additional months, ending in August 2018.
to the 2017 agreement's restrictive covenant, McGovern
agreed, inter alia, not to "directly or indirectly . . .
solicit for hire or hire" Prime employees, "or
encourage [Prime employees] to leave the employment" of
Prime through August 8, 2018. Notably, it did not
include an exception for general solicitation, as the 2016
repurchase agreement had. With regard to available remedies,
the 2017 agreement provided that
"in the event McGovern or McGovern Motors breaches [the
2017 agreement], Prime shall be entitled to all damages and
remedies available under applicable law, and further,
McGovern and McGovern Motors consent to the entry of
preliminary or permanent injunctive relief as a remedy for a
violation of this Agreement, without the need to prove
irreparable harm or to post a bond."
2017 agreement also stated that, subject to the amendment to
the 2016 repurchase agreement's restrictive covenant,
"all other provisions of the [2016 repurchase agreement]
shall remain in full force and effect." Despite the
terms of the 2017 agreement, McGovern again went on to
solicit and hire additional Prime employees.
Breaches of 2017 agreement.
signing the 2017 agreement, McGovern hired Courtney Price and
Greg Howie, both former Prime employees. Prime soon learned
that McGovern had hired Price, and demanded that McGovern
fire her. McGovern complied, terminating Price's
employment in or around August 2017. In the fall of 2017,
Prime learned that Howie, who had previously been terminated
from Prime, had also been hired by McGovern. Prime
immediately filed suit and sought a preliminary injunction to
enjoin McGovern from continuing to employ Howie and to extend
the 2017 restrictive covenant for an additional eighteen
months. A judge in the Superior Court concluded that because
Prime had fired Howie, it did not have a legitimate business
interest in preventing Howie from working for McGovern, and
declined to grant injunctive relief. The judge stated that
although Prime had a legitimate interest in not having
"a longtime senior executive who's just left solicit
[Prime's] very employees," that interest did not
apply to a former employee that Prime itself had chosen to
fire. The judge did, however, conclude that the restrictive
covenant would become enforceable when "used to prohibit
raiding of current employees or employees who become
non-current because they're resigning to go work for . .
. McGovern, and an injunction would enter to prevent
that." Despite this, Prime later learned that McGovern
had hired three other Prime employees who are the subject of
the instant litigation: Timothy Fallows, James Tully, and
was hired by Prime in February 2013. He worked as a sales
manager at Prime dealerships on Cape Cod and in Hanover. As
part of his employment with Prime, Fallows signed a
confidentiality and nonsolicitation agreement. In the spring
of 2017, Fallows left the company. The judge found that the
circumstances surrounding his departure from Prime
"[were not] entirely clear." Immediately following
his departure from Prime, Fallows went to work at a Chevrolet
dealership. After six weeks, he quit his job there and began
working at a Volkswagen dealership. Fallows subsequently lost
his job at the Volkswagen dealership and was hired by
McGovern in November 2017.
was hired by Prime in April 2013. He initially worked as a
sales consultant, but was later promoted to commercial
vehicle manager. Tully was apparently not considered a valued
employee by the company. Prime was uninterested in a line of
business that Tully sought to pursue, and when Tully resigned
in April 2017, Rosenberg viewed the resignation positively.
In an e-mail message to another Prime employee, Rosenberg
stated that Tully's resignation was "a good
thing," as Tully was "[w]ay overpaid, and thinks he
deserves more." Subsequent to his resignation from
Prime, Tully was hired by McGovern to deal with physical
plant issues at McGovern Motors. At no point during his prior
employment with Prime had Tully been given responsibilities
relating to Prime's facilities maintenance.