AMERICAN SOUTHERN HOMES HOLDINGS LLC v. ERICKSON
4:21-cv-00095
| M.D. Ga. | Jan 25, 2022Background:
- In Nov. 2019 ASHH and its subsidiary ASH-GH bought Grayhawk Homes’ operating assets via an Asset Purchase Agreement (the Contract).
- The Contract expressly makes ASHH a party only to Section 2.5 (equity consideration); ASH-GH is the defined Buyer and Section 6.5 contains noncompete covenants applicable to sellers/defendants and ASH-GH.
- Defendants received ASHH equity as part of the deal and became ASHH members; Erickson later announced plans to compete and ASHH amended its LLC agreement to add member restrictions.
- Defendants counterclaimed against ASHH and ASH-GH for breach of Sections 6.5 and 2.5 and for breach of the implied covenant of good faith and fair dealing.
- Plaintiffs moved to dismiss the second (breach of contract) and third (implied covenant) counterclaims; the Court evaluated whether the counterclaims plausibly alleged breaches under Rule 12(b)(6).
- The Court concluded the counterclaims failed as pleaded and granted the motion, dismissing the second and third counterclaims.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ASHH breached Section 6.5 (noncompete) | ASHH not party to §6.5 per the Contract language | ASHH accepted equity consideration and thus was bound to the Contract/noncompete | ASHH not bound to §6.5; cannot have breached it; counterclaim dismissed |
| Whether ASH-GH breached Section 6.5 | ASH-GH did not amend LLC; not alleged to have engaged in prohibited competition | ASH-GH’s conduct (or imputed ASHH conduct) devalued equity / violated noncompete | Defendants failed to plead any plausible act by ASH-GH violating §6.5; claim dismissed |
| Whether Plaintiffs breached Section 2.5 (equity consideration) | Plaintiffs received/issued equity as required; no breach | Defs. say value of illiquid equity was reduced/consideration devalued post-closing | No factual allegation that Defs. were not conveyed the promised equity at agreed value/time; claim dismissed |
| Whether there is a viable implied covenant claim | No independent breach if no breach of express terms; ASHH had no duty under §6.5 | Defs. assert bad faith in amending LLC and devaluing consideration | Implied-covenant claim fails because underlying contract breaches not plausibly alleged; claim dismissed |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading must state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard and non-speculative pleading)
- New Hampshire v. Maine, 532 U.S. 742 (judicial estoppel doctrine and purpose)
- Silva v. Pro Transp., Inc., 898 F.3d 1335 (11th Cir.) (judicial estoppel elements in Eleventh Circuit)
- Slater v. U.S. Steel Corp., 871 F.3d 1174 (11th Cir. en banc) (judicial estoppel standard)
- Watts v. Fla. Int'l Univ., 495 F.3d 1289 (11th Cir.) (Rule 12(b)(6) dismissal limits)
- Alan's of Atlanta, Inc. v. Minolta Corp., 903 F.2d 1414 (11th Cir.) (implied covenant modifies explicit contract terms)
- Auto-Owners Ins. Co. v. Hale Haven Props., LLC, 815 S.E.2d 574 (Ga. Ct. App.) (court must enforce unambiguous contract language)
- Morrell v. Wellstar Health Sys., Inc., 633 S.E.2d 68 (Ga. Ct. App.) (no independent cause of action for implied covenant)