Pro Done, Inc. v. Teresa Basham & a.
210 A.3d 192
N.H.2019Background
- Sibling beneficiaries (Basham, T. Hooper, Terrence Hooper) assigned trust-held ownership interests in Pro-Cut entities via Securities Redemption Agreements in 2013; each executed a contemporaneous document titled “Release” that both released claims and “covenant[ed] not to sue” the companies and their successors/assigns.
- In 2014 the Pro-Cut entities were sold to unrelated purchasers (Snap-on) and one entity was renamed Pro Done, Inc., which claims to be a successor/assignee of the Pro-Cut entities.
- After the sale, the siblings, with assistance of trustee Ransmeier, sued other Pro-Cut principals in federal court; Pro Done (not a party there) received subpoenas and Snap-on asserted indemnification rights against Pro Done.
- Pro Done sued the siblings and trustees in state court for breach of contract (seeking consequential damages including attorneys’ fees for defending the federal suit), and alternatively tortious interference and civil conspiracy.
- Defendants moved to dismiss, arguing that a covenant not to sue functions only as an immediate release (not a promise subject to breach liability) unless the contract expressly authorizes consequential damages; the trial court agreed and dismissed all claims.
- The New Hampshire Supreme Court reversed, holding an express covenant not to sue is a contractual promise that can be breached and may support a claim for consequential damages (including fees incurred defending a suit brought in violation of the covenant), and remanded the case for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an express covenant not to sue can give rise to a breach of contract claim | The Releases expressly “covenant not to sue” and “agree not to enforce any claim,” so those promises are contract terms whose breach supports damages | A covenant not to sue operates in practice as a release; absent language expressly authorizing consequential damages, it cannot be the basis for breach | Held: An express covenant not to sue is a promise that may be breached; breach may give rise to consequential damages even if contract does not expressly provide for them |
| Whether covenants not to sue should be construed as releases as a matter of law | Covenant language and context show parties intended ongoing promise distinct from a release | Precedent and Corbin treat covenants not to sue like releases to avoid circuity of action; some courts require express damages language | Held: New Hampshire distinguishes covenants not to sue from releases; courts must give contract language its plain meaning and not rewrite a covenant into a release |
| Whether consequential damages (e.g., attorneys’ fees defending a suit brought in violation of the covenant) are recoverable absent an express contractual provision | Consequential damages flow naturally from a breach and are recoverable to put non-breaching party in position had contract been performed | Some jurisdictions (Artvale, Bunnett line) deny such recovery absent express contractual/statutory authorization or bad-faith showing | Held: Consequential damages for breach of an express covenant not to sue are recoverable under New Hampshire contract law; they are not barred by the American Rule when they are ordinary contract damages |
| Whether related tort claims (tortious interference, civil conspiracy) that depend on the covenant can survive dismissal | Those claims rest on the alleged breach of the Releases and should be litigable if breach claim stands | If Releases are treated only as releases, there is no ongoing contractual duty to interfere with, so the tort claims fail | Held: Trial court erred to dismiss these claims because its release-based rationale was incorrect; tort claims survive the threshold pleading review tied to a viable breach theory |
Key Cases Cited
- Kaye v. Wilson-Gaskins, 135 A.3d 892 (Md. Ct. Spec. App. 2016) (considered by court but distinguished; addressed whether releases disclaim future liability absent clear language for consequential damages)
- Stateline Steel Erectors v. Shields, 150 N.H. 332 (N.H. 2003) (distinguishes covenant not to sue from release; covenant leaves the underlying obligation intact)
- Durell v. Wendell & al., 8 N.H. 369 (N.H. 1836) (early New Hampshire authority on releases and covenants; allowed pleading covenant as a defense to avoid circuity of action)
- Lassonde v. Stanton, 157 N.H. 582 (N.H. 2008) (defines breach of contract as failure to perform a contractual promise)
- Audette v. Cummings, 165 N.H. 763 (N.H. 2013) (explains proof required for contract damages and purpose of contract damages to restore non-breaching party)
- Artvale Inc. v. Rugby Fabrics Corp., 363 F.2d 1002 (2d Cir. 1966) (Second Circuit case denying recovery of litigation costs for breach of covenant not to sue absent express provision or bad faith; rejected as inconsistent with NH law)
- Bunnett v. Smallwood, 793 P.2d 157 (Colo. 1990) (Colorado Supreme Court limiting recovery of attorneys’ fees as consequential damages for breach of agreement not to sue; court declined to follow this approach)