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EBP Lifestyle Brands Holdings, Inc. v. Boulbain

Court of Chancery of Delaware

August 4, 2017


          Submitted: June 2, 2017

          John W. Shaw, Esquire, Karen E. Keller, Esquire and David M. Fry, Esquire of Shaw Keller LLP, Wilmington, Delaware, and Michael J. Abrams, Esquire and Landon W. Magnusson, Esquire of Lathrop & Gage LLP, Kansas City, Missouri, Attorneys for Plaintiff.

          John A. Sensing, Esquire and Jesse L. Noa, Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware, Attorneys for Defendant.


          SLIGHTS, Vice Chancellor

          Plaintiff, EBP Lifestyle Brands Holdings, Inc. ("EBP"), seeks to enforce non-compete and non-solicitation clauses in a stockholders' agreement (the "Stockholders' Agreement") it entered into with Defendant, Yann Boulbain, when Boulbain exercised options to acquire EBP stock. Boulbain acquired his stock options while working for a subsidiary of EBP. When Boulbain was terminated from that position, EBP agreed that he could exercise his options post-termination. Upon Boulbain's exercise of his options, EBP required that he execute the Stockholders' Agreement, which includes covenants not to compete with or solicit employees from EBP.

         The Stockholders' Agreement contains a Delaware choice of law clause, presumably because California, where EBP is based, will not enforce employee non-compete provisions for public policy reasons. When two of EBP's competitors, also based in California, hired Boulbain to be their CEO, and Boulbain then allegedly solicited EBP employees to join him at the companies, EBP alleged that Boulbain was in breach of the non-compete and non-solicitation clauses in the Stockholders' Agreement. EBP then initiated this action against Boulbain for specific performance and injunctive relief.

         Boulbain has moved to dismiss the claims pursuant to Court of Chancery Rule 12(b)(2) for lack of personal jurisdiction and Court of Chancery Rule 12(b)(6) for failure to state a claim upon which relief can be granted. For the reasons that follow, I have determined that this Court lacks personal jurisdiction over Boulbain. Accordingly, EBP's Verified Complaint for Injunctive Relief (the "Complaint") must be dismissed.

         I. BACKGROUND

         In considering the Defendant's motion to dismiss, I have drawn the facts from well-pled allegations in the Complaint, documents integral to the Complaint and matters of which I may take judicial notice.[1] At this stage in the proceedings, I presume that that all well-pled factual allegations in the Complaint are true.[2]

         A. Parties and Relevant Non-Parties

         Plaintiff, EBP, is a closely-held Delaware corporation with its principal place of business in California. EBP is the ultimate parent and owner of The ERGO Baby Carrier, Inc. ("ERGO"), a Hawaii corporation. ERGO designs, develops and sells ergonomic baby-carriers and other infant products.

         Defendant, Yann Boulbain, is currently the CEO of Petunia Pickle Bottom, Corp. ("Petunia") and Moby Wrap, Inc. ("Moby"). Both companies are owned by Barbaras Development, Inc. and operate in the infant products market. Boulbain was previously employed at ERGO as the Senior Vice President of Global Sales. He holds stock in EBP that he acquired through the exercise of options granted in reward for his service to ERGO. Boulbain is a resident of California and is employed in California. He has never been to Delaware and does not own property in Delaware.

         B. Boulbain Exercises his Stock Options

         Boulbain began working at ERGO in 2011 as the Senior Vice President of Global Sales. During his employment, he was offered and executed stock option agreements in April 2011 and May 2012 to induce him to remain at the company and to incentivize his work performance. As a condition to the exercise of either set of stock options, Boulbain was required to execute the company's Stockholders' Agreement.

         In late 2016, ERGO terminated Boulbain's employment. On December 19, 2016, EBP and Boulbain amended Boulbain's stock option agreements to permit him to exercise the options after his termination. Boulbain exercised his options on December 20, 2016. In accordance with the stock option agreements, Boulbain executed the Stockholders' Agreement on December 21, 2016.

         The Stockholders' Agreement contains a covenant not to compete, covenants not to solicit EBP employees or customers and a Delaware choice of law clause. It does not, however, contain a Delaware forum selection clause or a Delaware consent to jurisdiction clause. The non-compete clause prevents stockholders from

directly or indirectly . . . manag[ing], operat[ing], join[ing], control[ling], participat[ing] in, consult[ing] with, render[ing] services for, be[ing] connected as a stockholder, member, manager, director, officer, employee or partner, or in any other manner engag[ing] in any business, firm, entity, organization or enterprise which (i) competes with [EBP] or its subsidiaries in any business engaged in by [EBP] and/or its subsidiaries anywhere in the world or (ii) is otherwise engaged in the design, manufacture, sale, distribution or marketing of juvenile or infant products of any kind.[3]

         The employee non-solicitation clause prevents stockholders from

directly or indirectly (i) solicit[ing] or induc[ing], or attempt[ing] to solicit or induce or assist any Person in soliciting or inducing any employee or sales representative of [EBP] or any subsidiary to leave the employ or engagement of [EBP] or such subsidiary, or in any way interfere with the relationship between [EBP] or any subsidiary and any such employee or sales representative thereof.[4]

         The Stockholders' Agreement bars stockholders from engaging in any of the prohibited activities absent permission from the EBP Board. Stockholders are bound by the Stockholders' Agreement for two years after the final disposition of their shares. And such disposition is subject to "the prior written consent of the Majority Stockholder, which consent may be withheld in the Majority Stockholder's absolute discretion."[5]

          As announced on March 30, 2017, Boulbain became the CEO of Moby and Petunia, both of which compete with EBP in the infant products market. He performs this function out of the companies' offices in California.

         C. Procedural Posture

         On April 7, 2017, EBP filed its Complaint alleging breach of the Stockholders' Agreement and seeking specific performance of the contract. Specifically, EBP alleges that Boulbain has violated the non-compete clause through his employment at Moby and Petunia and that he has breached the non-solicitation clause by soliciting ERGO employees to join him at his new employment. In the alternative to its prayer for specific performance, EBP seeks equitable rescission of Boulbain's shares. Boulbain moved to dismiss the Complaint on April 18, 2017.

         II. ANALYSIS

         I begin by addressing whether this Court may exercise personal jurisdiction over Boulbain. Because I find that personal jurisdiction is lacking, I need not reach Boulbain's argument that the Complaint fails to state a claim upon which relief may be granted.

         A. Motion to Dismiss for Lack of Personal Jurisdiction Standard

         When a defendant moves to dismiss a complaint for lack of personal jurisdiction under Court of Chancery Rule 12(b)(2), "the plaintiff bears the burden of showing a basis for the court's exercise of jurisdiction over the nonresident defendant."[6] To meet this burden, "the plaintiff must make a prima facie showing of personal jurisdiction."[7] In practical terms, the plaintiff must demonstrate that jurisdiction is permitted under the state's long-arm statute and that the exercise of jurisdiction is consistent with due process.[8] If the court makes the determination regarding personal jurisdiction without an evidentiary hearing, it will consider the pleadings, affidavits and evidence of record and will draw all reasonable inferences therefrom in favor of the plaintiff.[9]

         B. Delaware's Long-Arm Statute does not Establish Personal Jurisdiction Over Boulbain

         EBP argues that jurisdiction is permissible pursuant to the Delaware long-arm statute at 10 Del. C. ยง ...

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