Kevin W. Ferguson v. Jeffrey E. Jones (2013)

MEMORANDUM OF DECISION

The plaintiff, Kevin W. Ferguson (Ferguson), seeks a temporary injunction based on the first count of his verified complaint.   The complaint names as defendants Jeffrey E. Jones (Jones) and Isabelle Jones and sets forth claims of, inter alia, breach of contract, a dissolution of the company pursuant to General Statutes § 34–207, breach of fiduciary duty and conversion as to Jones.   The germane allegations of the complaint follow:  Ferguson formed a limited liability company with the defendant Jones, in July 2006.   The company, known as Ferguson & Jones, LLC, was formed to engage in the delivery of home heating oil.   Under an operating agreement dated July 26, 2006, Ferguson and Jones each had a fifty (50.00%) percent membership interest in Ferguson & Jones, LLC. In June 2012, the parties, through counsel, began discussions to wind up the operation and management of the company.   On or about October 12, 2012, all operations of the company ceased in furtherance of a voluntary effort to wind up the company.   Notwithstanding the voluntary effort to wind-up the company, Jones has advised plaintiff of his intention to immediately and unilaterally recommence company operations without the involvement or consent of the plaintiff.   Ferguson claims that reopening Ferguson & Jones, LLC without his consent or involvement violates the operating agreement and will result in liability and damage to him.   He claims he has no adequate remedy at law and will suffer irreparable harm if the business operations commence again.

On March 13, 2013, Ferguson, Jones, and his wife, Isabelle Jones, appeared before the court and presented evidence and argument at a hearing on the plaintiff's application for temporary injunction and order to show cause dated January 3, 2013.   Ferguson seeks a temporary injunction ordering Jones to cease immediately any and all operation of the business known as Ferguson & Jones, LLC.

Temporary injunctive relief may be awarded, pursuant to General Statutes § 52–471, “to preserve the status quo until the rights of the parties can be finally determined after a hearing on the merits.”  (Internal quotation marks omitted.)  Clinton v. Middlesex Mutual Assurance Co., 37 Conn.App. 269, 270, 655 A.2d 814 (1995).   The status quo has been defined as “the last, actual, peaceable, non-contested condition which preceded the pending controversy.”   Stamford v. Kovac, 228 Conn. 95, 102, 632 A.2d 897 (1993).   There is a four-part test for the issuance of a temporary injunction:  “(1) the plaintiff ha[s] no adequate legal remedy;  (2) the plaintiff would suffer irreparable injury absent [the injunction];  (3) the plaintiff [is] likely to prevail ․;  and (4) the balance of the equities favor[s] the issuance of the injunction].”   Waterbury Teachers Ass'n. v. Freedom of Information Commission, 230 Conn. 441, 446, 645 A.2d 978 (1994).

The evidence shows and the court finds:  In July 2006, Ferguson and Jones formed a limited liability company known as Ferguson & Jones, LLC. The company engaged in the delivery of home heating oil.   Under an operating agreement dated July 26, 2006, Ferguson & Jones each had a fifty (50.00%) percent membership interest in Ferguson & Jones, LLC. In 2012, because of differences over the management of the company, Ferguson & Jones discussed selling the business and buying each other out.   They agreed to an outright buyout of $150,000, each member of the company having a $75,000 interest.   A sales agreement was drawn up pursuant to which Jones had until May 18, 2012 to buy the company.   Jones was unable to procure a loan.   According to the agreement, Ferguson could buy out Jones under the same terms.   Jones told Ferguson to see if he could get a loan.   Ferguson procured a loan for $75,000 and told Jones he did so.   Jones then spoke with his wife, Isabelle Jones, and rejected the proposal.   Jones and Ferguson then agreed to split the assets and dissolve the business with the assistance of their respective counsel and evaluators.

In June 2012, the parties, through counsel, began discussions to wind up the operation and management of the company.   The parties agreed that on or about October 6, 2012, Ferguson & Jones, LLC would cease to operate.   Jones drafted a statement which was sent to the company's customers, about 2300 of them, that Ferguson & Jones, LLC “will no longer be delivering home heating oil on an automatic or will call basis, as the principals are winding down the business.”   The statement showed two separate companies would take over the business—one owned by Ferguson and called Ferguson Oil, LLC, and the other owned by Isabelle Jones and called Jones Oil, LLC. The statement contained information that service and delivery for Jones Oil would be by Jeff and Roy. It also stated “two new companies, great opportunity to do business with the provider of your choice.”

As of October 12, 2012, the company ceased operations, but there was no agreement on the division of assets.   Among the assets were two delivery trucks.   Ferguson and Jones agreed each would keep one truck to be garaged by each and that the trucks would not be used.   The whereabouts of the truck housed by Ferguson is unknown.   Ferguson claims that while he was vacationing, it was wrongfully removed from the garage in which he housed it.   In January 2013, Jones advised Ferguson of his intention to recommence operations of Ferguson & Jones, LLC without Ferguson's participation or consent.   On or about January 1, 2013, Jones distributed under the name Ferguson & Jones, LLC a notice entitled “Under New Management” to “our valued customers and potential new customers.”   It stated, “as a contributing member of this company I have decided to continue to Sell and Deliver Premium Heating Oil. Ferguson & Jones, LLC will utilize Preferred Vendors for the Oil & Service to serve your need with the highest quality Product, Honesty and Respect.”   The notice also states, “At Ferguson & Jones, LLC we have been under some challenging reorganizations as one of the members of this company and an ex-key employee have went separate ways opening two new Oil Companies.   At Ferguson & Jones, LLC we work for those that request our services and choose to work with our company, so I wish both new companies good luck and we look forward to the competition.”   The notice was signed by Ferguson & Jones, LLC and by Jeffrey E. Jones, Member/Owner.

Jones claims that under the operating agreement, as sole member, he is entitled to recommence the company.   Jones also points to a 2010 purchase and sales agreement as support for his right to continue operation of Ferguson and Jones, LLC in the event of the death, retirement, or withdrawal of a member.   Jones claims Ferguson voluntarily withdrew from the limited liability company.   Ferguson and Jones both agreed to wind down the business, to cease operation of Ferguson & Jones, LLC and to split the assets.   Ferguson did not voluntarily withdraw from the company either under the terms of the operating agreement or the purchase and sale agreement.   Those agreements remain in effect and Ferguson remains a 50% member.   Jones also points to a members' consent dated July 25, 2006 and signed by each member when they formed the company.   The consent authorizes each member individually to sign any and all documents on behalf of the Company “necessary to carry out the business of the Company, on behalf of the Company.”   Jones claims the members' consent validates his right to re-commence the company and its operation without Ferguson's consent or involvement.   The court finds the member's consent was not intended to and does not authorize Jones to conduct Ferguson & Jones, LLC as the sole member or for his sole benefit.

Likelihood of Success On the Merits

Without further evidence, it is reasonably probable that Ferguson remains a 50% member of Ferguson & Jones, LLC, with all rights and responsibilities, including potential liabilities.   Reincarnating the “old” company has allowed Jones to expropriate its name, telephone number, customer list and goodwill for his own use without having to pay consideration for those assets of the company.   Based on the evidence and the reasonable inferences drawn, the court finds Ferguson has sustained his burden to show a reasonable likelihood of success on the merits for an injunction and dissolution of the company based on the allegations of the complaint, in particular, breach of the operating agreement and breach of fiduciary duty.   See Yavarone v. Jim Moroni's Oil Service, LLC, Superior Court, judicial district of Middlesex, Docket No. CV 030102318 (February 18, 2005, Aurigemma, J.) (based on General Statutes § 34–141(e), member of limited liability company has fiduciary duty).

Irreparable Harm and Inadequate Remedy at Law

Jones and Ferguson did not consummate a buy-out and have not dissolved the company.   They did, however, reach an agreement that Ferguson & Jones, LLC would cease to operate as of October 12, 2012, that its assets would be split and that the parties would operate two separate companies, Jones Oil, LLC and Ferguson Oil, LLC, as competitors.   At the time, the goodwill of Ferguson & Jones, LLC was not split, transferred or paid for;  it remains an asset of Ferguson & Jones, LLC. “Good will in the sense here used means an established business at a given place with the patronage that attaches to the name and the location.   It is the probability that old customers will resort to the old place.”  Mattis v. Lally, 138 Conn. 51, 54, 82 A.2d 155 (1951).   In January 2013, Jones began operating Ferguson & Jones, LLC as his own company, using its name and good will for his sole financial advantage, contrary to his agreement with Ferguson.

The position of Ferguson in this case is not unlike a plaintiff who seeks to enforce a covenant not to compete.   In such cases, the loss of the benefits of compliance with the agreement is recognized as an irreparable injury.   See id., 56.   Jones argues that if the injunction is granted it will be he who will be damaged.   The court reasonably infers from this that Jones is successfully competing with Ferguson Oil, LLC for patronage and customers by appropriating the name and goodwill of Ferguson & Jones, LLC without having to account for its profits or to share them with a 50% member.   The obverse is that if an injunction is not issued, Ferguson faces loss of the benefit of goodwill.   This, in itself, is an indication of harm.  “In [New England Eyecare of Waterbury v. New England Eyecare, Superior Court, judicial district of Waterbury, Docket No. 099465 (January 18, 1991, Blue, J.) (3 Conn. L. Rptr. 724) ], the court which ․ set a very high threshold for proving irreparable harm, agreed that loss of goodwill would constitute such harm.”   POP Radio, LP v. News America Marketing In–Store, Inc., Superior Court, complex litigation docket at Stamford–Norwalk, Docket No. X08 CV 05 4002814 (September 15, 2005, Adams, J.) (40 Conn. L. Rptr. 332).   The parties operate and compete in the same service area with the same products and that reopening Ferguson & Jones, LLC could involve loss of Ferguson's existing customers and business.   The court determines that he should not be forced to bring multiple damage actions in a case of ongoing wrong.   Thus, injunctive relief is appropriate;  See Matyskiela v. Cassella, Superior Court, judicial district of Hartford, Docket No. CV 93 0528780 (September 29, 1994, Corradino, J.).

Balancing of Equities

The court determines that the balancing of equities favors the issuance of a temporary injunction.   In considering the equities, the court must weigh whether the harm likely to occur to the defendant if a temporary injunction is granted is greater or less than the harm likely to occur to the plaintiff if the injunction is denied.   Here, if the parties are returned to the status quo ante, that is, to the time when they were operating their respective newly formed home heating oil delivery companies, and when Ferguson & Jones, LLC had stopped deliveries, Jones and Isabelle Jones can continue to operate Jones Oil, LLC in competition with Ferguson and Ferguson Oil, LLC, as they had previously agreed.   On the other hand, to allow Ferguson & Jones, LLC to operate would mean that the newly formed Ferguson Oil, LLC would face not one but two competitors:  Ferguson and Jones, LLC, and Jones Oil, LLC. This would exacerbate Jones' already unfair advantage because of his usurpation of the company's goodwill and other assets, especially in light of the defendants' refusal to accept Ferguson's buyout offer and in that it was Jones who drafted the notices to customers that Ferguson & Jones LLC was ceasing operations and two new companies had been formed.

Conclusion

The court finds that it is probable that Ferguson will prevail on the merits of his claim for a permanent injunction and dissolution of Ferguson & Jones, LLC. The court further finds that he will suffer irreparable harm to his interests if relief is not granted.   His remedy at law is not adequate because of the difficulty in establishing the diminishment of his business by Jones' unfair advantage in restarting Ferguson & Jones, LLC without the participation and consent of Ferguson and without having paid for its good will.   The court finds the balance of hardships inclines in favor of the movant.

The application for temporary injunctive relief is granted.

The defendant, Jeffrey J. Jones, is ordered to cease immediately operation of Ferguson & Jones, LLC and use of the company name.   No bond is required.

No temporary injunction order is issued as to Isabelle Jones.   The evidence does not indicate that Isabelle Jones is operating Ferguson & Jones, LLC or using its name at this time.

SO ORDERED

BY THE COURT

Tanzor, J.T.R.

Tanzer, Lois, J.T.R.