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Northwest Federal Credit Union v. SBC Finance, LLC

United States District Court, E.D. Virginia, Alexandria Division

October 27, 2016

NORTHWEST FEDERAL CREDIT UNION, Plaintiff,
v.
SBC FINANCE, LLC, et al. Defendants.

          MEMORANDUM OPINION

          James C. Cacheris, UNITED STATES DISTRICT COURT JUDGE

         This matter is before the Court on Plaintiff Northwest Federal Credit Union's (“NWFCU”) motion for a preliminary injunction regarding aid provided to Christopher Balestrino (“Balestrino”) and Jason Bengert (“Bengert”) by Defendants SBC Finance, LLC (“SBC Finance”), Gregory Gibson (“Greg Gibson” or “Gibson”), Christopher Banks (“Chris Banks” or “Banks”), and Janus 28, Inc. d/b/a Janus 28, LCC (“Janus”) as Balestrino and Bengert allegedly violated restrictive covenants in their Asset Purchase and Employment Agreements. Plaintiff alleges that Defendants have engaged in tortious interference with contract and conspiracy under Virginia law. For the foregoing reasons, the Court will deny Plaintiff's motion for injunctive relief.

         I. Background

         This case involves the domestic market for Small Business Administration (“SBA”) and United States Department of Agriculture (“UDSA”) government-guaranteed loans. To expand into this market, NWFCU purchased Park Place Equity, LLC (“PPE”) in April 2014 for $8, 000, 000. Compl. ¶ 10; see also Pl. Mem. in Supp. at 1. Defendant Gibson was NWFCU's Chief Financial Officer at the time and “its lead draftsman and negotiator” for the agreements related to the PPE acquisition. Exhibit C, Affidavit of Gregory Gibson [Dkt. 23-3], ¶ 4. Defendant Banks represented PPE, acting as a broker for PPE and its managing members, PPE executives Chris Balestrino (“Balestrino”) and Jason Bengert (“Bengert”). Exhibit B, Declaration of Chris Banks (“Exh. B, Banks Decl.”) [Dkt. 23-2], ¶ 4. Due to Balestrino and Bengert's expertise in SBA and USDA loans, NWFCU retained them to lead the newly acquired division. Id.

         Both the Asset Purchase Agreement and Employment Agreements for Balestrino and Bengert contained restrictive covenants affecting their ability to: (1) compete with NWFCU for a period of five years, regardless of whether they were still employed by NWFCU; (2) solicit customers or clients of NWFCU for a period of five years, regardless of whether they were still employed by NWFCU; and (3) hire former employees of NWFCU for a six-month period following their last date of employment at NWFCU. Asset Purchase Agreement [Dkt. 1-1] at § 5.16; Employment Agreements [Dkt. 1-1] at § 6. The Employment Agreements also entitled Balestrino and Bengert to certain payments in the event that their employment was terminated with or without cause. Employment Agreements [Dkt. 1-1] at § 5(b). Additionally, the Agreements included an arbitration clause that states:

Except as necessary for NWFCU and its subsidiaries, affiliates, successors or assigns or Executive to specifically enforce or enjoin a breach of this Agreement (to the extent such remedies are otherwise available), the parties agree that any and all disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Executive's services on behalf of NWFCU or any subsidiary, the termination of such services, or any dispute by and between the parties and their subsidiaries, affiliates, successors or assigns shall be submitted to binding arbitration.

Id. at § 9(k).

         Defendants Gibson and Banks allege that in early 2016, NWFCU denied incentive compensation to Balestrino and Bengert that they were entitled to under their Employment Agreements. Exhibit D, Declaration of Chris Balestrino (“Exh. D, Balestrino Decl.”) [Dkt. 23-4], ¶ 6. Thereafter, they gave notice to NWFCU that they had “Good Reason” to terminate their Employment Agreements. Id. ¶ 8. Several days later, on May 9, 2016, NWFCU terminated Balestrino and Bengert. Pl. Mem. in Supp. at 3.

         Following their termination, Balestrino and Bengert filed an arbitration demand against NWFCU (the “Arbitration”) seeking damages of more than $3 million. Exh. D, Balestrino Decl. [Dkt. 23-4], ¶ 12. NWFCU, represented by the same counsel, has answered that demand. Def. Mem. in Opp. at 3. In connection with these events, Defendants Gibson and Banks have signed sworn affidavits stating that NWFCU's failure to pay incentive compensation to Balestrino and Bengert violated their Employment Agreements. Exhibit F, Affidavit of Chris Banks sworn April 28, 2016 [Dkt. 23-6]; Exh. C, Gibson Affidavit. These affidavits, “representing both sides of the transaction through which NWFCU acquired PPE[, ] . . . are of central importance to the pending Arbitration.” Def. Mem. in Opp. at 3; see also Exh. B, Banks Decl., ¶ 11.

         As a result of Balestrino and Bengert's termination, NWFCU shifted all SBA and USDA lending back to its operations in Northern Virginia. Pl. Mem. in Supp. at 3. The parties dispute whether NWFCU remains in the SBA and USDA loan business today. According to Defendants, NWFCU terminated all remaining employees and contractors in the PPE division and is, therefore, no longer actively participating in the market. Def. Mem. in Opp. at 3. Plaintiff asserts in its reply that it is “carefully rebuilding its SBA and USDA lending program.” Pl. Rep. in Supp. at 5.

         On May 11, 2016, Defendant SBC Finance was formed. Pl. Mem. in Supp. at 3. Plaintiff alleges that Balestrino and Bengert are owners, consultants, employees, or otherwise affiliated with SBC Finance. Id. However, Defendants maintain that SBC Finance's sole managing member is Fredrick Matson Kelley (“Kelley”). Exhibit G, Declaration of Fredrick Mason Kelley (“Exh. G, Kelley Decl.”), ¶ 10. Plaintiff alleges that Kelley is a “straw owner” for Balestrino and Bengert, citing emails that were inadvertently sent to its system involving notifications from SBC Finance's registered agent, communication between Bengert and Kelley regarding a laptop purchase for Bengert, and financial payments in the amount of $30, 000 from Balestrino and Bengert to SBC Finance as proof of at least an affiliation between the three Defendants. Pl. Rep. in Supp. at 1-2.

         Plaintiff also alleges that Defendants Banks and Gibson worked with Balestrino and Bengert to market SBC Finance for sale to a financial institution. Pl. Mem. in Supp. at 4. While Defendant Banks acknowledges that he created a draft marketing presentation for Balestrino and Bengert to market their SBA and USDA loan expertise, he claims that the draft presentation's inclusion of SBC Finance and Defendant Gibson were both mistakes. Exh. B, Banks Decl., ¶¶ 6-8. The draft presentation also included Defendant Janus's name; Banks claims he was considering working with that entity. Id. ¶ 8. Defendants contend that Gibson, Banks, and Janus are not owners, consultants, or active participants in SBC Finance. Def. Mem. in Opp. at 4. Plaintiff contests the characterization of the relationship between the four Defendants and continues to assert that the business plan was “obviously specific” to SBC Finance. Pl. Rep. in Supp. at 3.

         Finally, Plaintiff alleges that SBC Finance has hired former NWFCU employees, targeted NWFCU SBA and USDA loans for refinancing, and followed up on lending opportunities that were initially developed while Balestrino and Bengert were employed at NWFCU. Pl. Mem. in Supp. at 4. Defendants admit that, having been terminated without cause, several former members of the PPE division at NWFCU now work for SBC Finance. Def. Mem. in Opp. at 4. However, they also clarify that none of these former PPE division employees are restricted from competing with NWFCU, as Balestrino and Bengert are. Id. at 3.

         On July 10, 2016, NWFCU commenced a related case against JBCB Investments, LLC (“JBCB”), an entity owned by Balestrino and Bengert, alleging that JBCB had converted and been unjustly enriched as the result of a payment from NWFCU. See Exhibit H, Related Case Docket Report [Dkt. 23-8]; Exhibit I, Related Case Complaint [Dkt. 23-9]. Following JBCB's motion, on October 3, 2016, Judge O'Grady stayed the case pending arbitration. See Exhibit A, Related Case Order [Dkt. 23-1]. Less than two weeks later, NWFCU commenced this action.

         Plaintiff NWFCU is a credit union formed under the National Credit Union Act and headquartered in Herndon, Virginia. Compl. ¶ 1. Defendant SBC Finance is a Nevada limited liability corporation with its principal place of business in Arizona. Id. ¶ 2. Defendant Janus is a corporation formed and registered to do business in South Carolina. Id. ¶ 5. Defendant Gibson is alleged to be working full-time at a credit union in Georgia. Id. ¶ 3. Defendant Banks is alleged to reside in Georgia. Id. ¶ 4.

         On October 13, 2016, Plaintiff filed the present lawsuit seeking injunctive relief and damages pursuant to Virginia law, including tortious interference with contract and conspiracy. This motion is ...


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