Headfirst Baseball LLC v. Elwood
239 F. Supp. 3d 7
| D.D.C. | 2017Background
- Headfirst Professional (Elwood and Sullivan each 50% owners) formed in 2010; Sullivan also co-owns Headfirst Baseball and Headfirst Camps. Dispute arose after Sullivan discovered large unauthorized withdrawals/loans made by Elwood from Headfirst Baseball and Headfirst Camps in 2012.
- Sullivan terminated Elwood’s management roles on December 28, 2012; Elwood engaged in post-termination acts (briefly disabling registration system, freezing a bank account via Bank of America communications, and cutting off a Google AdWords account) in spring–summer 2013.
- A jury in the liability phase found (1) a 50/50 Headfirst partnership existed between Elwood and Sullivan; (2) Sullivan and Headfirst Professional breached the operating agreement by excluding Elwood from management; (3) Elwood converted funds from Headfirst Baseball and Headfirst Camps (breach of implied covenant); and (4) Sullivan and Headfirst Professional violated the D.C. LLC Act by excluding Elwood from management.
- After the liability verdict, competing motions addressed (a) whether Headfirst Professional could obtain equitable relief (injunction/expulsion) based on Elwood’s conduct, and (b) whether Elwood could recover damages on his partnership and statutory LLC claims given prior rulings limiting his pleaded theories and excluded evidence.
- The court found insufficient evidence of actual harm from the Active.com interruption, the bank freeze, and the Google AdWords loss to support injunctive relief on breach of fiduciary duty or contract claims. But the court concluded Elwood’s pre- and post-termination misconduct constituted a material breach of the operating agreement and warranted judicial expulsion under D.C. Code § 29-806.02(5)(B), retroactive to May 3, 2013 (the date Headfirst Professional filed in Superior Court).
- The court granted the plaintiffs’ Rule 50 motion on damages as to (1) Elwood’s partnership/accounting claims (because evidence of the partnership’s goodwill/misappropriation was precluded by the court’s earlier denial of Elwood’s motion to amend) and (2) Elwood’s LLC Act damages claim (because evidence of alleged diversion of Headfirst Professional profits was likewise excluded as untimely amendment). The court otherwise granted and denied parts of the Rule 52 motions consistent with those holdings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Headfirst Professional proved injury/irreparable harm to obtain injunctive relief for breach of fiduciary duty or contract | Sullivan: Elwood’s post-termination sabotage (Active.com, bank freeze, AdWords) and earlier conversions justify equitable relief | Elwood: No evidence these acts caused actual harm or irreparable injury | Denied — insufficient evidence of harm for injunctive relief on breach claims |
| Whether Elwood should be judicially expelled from Headfirst Professional under D.C. Code § 29-806.02(5) | Sullivan: Elwood’s conversion of funds and post-termination misconduct are willful/persistent material breaches warranting expulsion | Elwood: Court cannot retroactively expel; procedural/ equitable limits; Beacon Theatres jury-right concerns | Granted under §29-806.02(5)(B); expulsion ordered retroactive to May 3, 2013; court rejects Beacon Theatres objection |
| Whether Elwood’s partnership and accounting claims should proceed to damages (existence/value of partnership assets/goodwill) | Elwood: partnership goodwill is an intangible asset he may value; plaintiffs say partnership coexisted with LLCs but has no assets | Plaintiffs: Evidence of goodwill/misappropriation barred by denial of Elwood’s motion to amend; partnership has no distributable assets | Denied — judgment for plaintiffs on partnership/accounting damages because goodwill evidence is precluded |
| Whether Elwood may recover damages under the D.C. LLC Act for wrongful exclusion from management | Elwood: jury verdict entitles him to be compensated for value of ownership interest; damages include alleged diversion of profits to other LLCs | Plaintiffs: Diversion evidence barred by earlier denial to amend counterclaims; contract defenses apply | Denied — judgment for plaintiffs on LLC Act damages because diversion evidence is excluded; claims distinct but evidence precluded |
Key Cases Cited
- Hayman v. Nat’l Acad. of Scis., 23 F.3d 535 (D.C. Cir. 1994) (Rule 50: court may not weigh credibility when deciding JMOL)
- McGill v. Munoz, 203 F.3d 843 (D.C. Cir. 2000) (JMOL standard: view evidence in light most favorable to non-movant)
- Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7 (2008) (preliminary injunction standards — likelihood of success and irreparable harm)
- Beacon Theatres, Inc. v. Westover, 359 U.S. 500 (1959) (right to jury trial on common factual issues between legal and equitable claims)
- 3511 13th St. Tenants’ Ass’n v. 3511 13th St., N.W. Residences, LLC, 922 A.2d 439 (D.C. 2007) (material breach is fact-intensive; test for materiality)
- Randolph v. ING Life Ins. & Annuity Co., 973 A.2d 702 (D.C. 2009) (breach of fiduciary duty requires injury to beneficiary or profit to fiduciary)