Northwest Federal Credit Union v. SBC Finance, LLC et al

Filing 26

MEMORANDUM OPINION. Signed by District Judge James C. Cacheris on 10/27/2016. (mpha)

IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF VIRGINIA
Alexandria Division

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

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M E M O R A N D U M

1:16cv1299(JCC/JFA)

O P I N I O N

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.

1

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.
Supp. at 1.

Compl. ¶ 10; see also Pl. Mem. in

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.
Affidavit of Gregory Gibson [Dkt. 23-3], ¶ 4.

Exhibit C,
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
2

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

3

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.
Decl. [Dkt. 23-4], ¶ 12.

Exh. D, Balestrino

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.
Opp. at 3.

Def. Mem. in

Plaintiff asserts in its reply that it is “carefully
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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
5

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.
in Opp. at 4.

Def. Mem.

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.
in Opp. at 4.

Def. Mem.

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
6

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.
5.

Id. ¶

Defendant Gibson is alleged to be working full-time at a

credit union in Georgia.
to reside in Georgia.

Id. ¶ 3.

Defendant Banks is alleged

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 now before the Court, and the matter

is ripe for disposition.
II.

Standard of Review

The party seeking a preliminary injunction must
demonstrate that: (1) it is likely to suffer irreparable harm;
(2) it is likely to succeed on the merits; (3) the balance of
hardships tips in its favor; and (4) the injunction is in the
public interest.

The Real Truth About Obama, Inc. v. FEC, 575
7

F.3d 342, 346-47 (4th Cir. 2009).

All four factors must be

satisfied for the plaintiff to receive injunctive relief.
League of Women Voters of N.C. v. North Carolina, 769 F.3d 224,
250 (4th Cir. 2014).
III.
A.

Analysis

Irreparable Harm
The plaintiff must first “make a clear showing that it

is likely to be irreparably harmed absent preliminary relief.”
Real Truth About Obama, 575 F.3d at 347.

Irreparable harm must

be “neither remote nor speculative, but actual and imminent.”
Direx Israel, Ltd. v. Breakthrough Med. Corp., 952 F.2d 802, 812
(4th Cir. 1991) (quotation and citation omitted).

Moreover,

“[w]here the harm suffered by the moving party may be
compensated by an award of money damages at judgment, courts
generally have refused to find that harm irreparable.”

Hughes

Network Sys., Inc. v. InterDigital Comm. Corp., 17 F.3d 691, 694
(4th Cir. 1994).
In this case, Plaintiff contends that, due to
Defendants’ actions, NWFCU is actively losing customers to SBC
Finance.

Pl. Mem. in Supp. at 5.

To date, Plaintiff has

identified five major loans that originated with NWFCU’s PPE
Division that SBC Finance has been involved in refinancing since
Balestrino and Bengert were terminated, resulting in the loss of
$4,930,745.55.

Id. at 6-7.

Plaintiff argues that SBC Finance’s
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activities will result in the permanent loss of customers.
at 6.

Id.

At the same time, Plaintiff states that damages “will be

quantifiable in the form of lost profits due to interest income
on loans refinanced by SBC Finance, lost profits due to fee
income not attributed to NWFCU, and lending opportunities lost
to SBC Finance in the SBA and USDA lending market.”
Supp. at 9.

Pl. Mem. in

In other words, there is nothing in the record to

suggest that damages would be difficult to ascertain.

Thus,

Plaintiff has failed to establish that it is likely to suffer
irreparable harm.
B.

Likelihood of Success on the Merits
A plaintiff must also make a “clear showing” that it

is likely to succeed on the merits of at least one of its claims
at trial.

Real Truth About Obama, 575 F.3d at 345.

Because the

Court concludes that Plaintiff has not made such a showing with
regards to its tortious interference claim, the Court does not
address its conspiracy claims, as both claims are based upon the
same underlying contract. 1
In order to state a claim for tortious interference
with contract under Virginia law, the plaintiff must establish:
(1) the existence of a valid contract; (2) knowledge of it on

1

In conducting its analysis to rule on the Motion for Preliminary Injunction,
the Court clarifies that its findings on the interpretation and
enforceability of the Employment Agreements are not binding on the
Arbitration proceedings already underway.

9

the part of the interferor; (3) intentional interference; and
(4) damage to the party whose relationship has been disrupted.
Dunlap v. Cottman Transmission Sys., LLC, 287 Va. 207, 214-15
(2014).
1.

Existence of a Valid Contract

The first element of tortious interference involves
the existence of a valid contract.

In the Commonwealth of

Virginia, “[a] non-competition agreement between an employer and
an employee will be enforced if the contract is narrowly drawn
to protect the employer's legitimate business interest, is not
unduly burdensome on the employee's ability to earn a living,
and is not against public policy.”

Omniplex World Servs. Corp.

v. U.S. Investigations Servs., Inc., 270 Va. 246, 249 (2005)
(citing Modern Env'ts, Inc. v. Stinnett, 263 Va. 491, 493
(2002); Simmons v. Miller, 261 Va. 561, 580–81 (2001)).
employer bears the burden of proof.
493.

The

Modern Env'ts, 263 Va. at

Virginia law focuses the analysis of this interrelated

inquiry on the “function, geographic scope, and duration” of the
restriction.

Home Paramount Pest Control Companies, Inc. v.

Shaffer, 282 Va. 412, 415-16 (2011).

These elements are

“considered together,” rather than “as three separate and
distinct issues.”

Id.

Plaintiff argues that the restrictive covenants in the
Asset Purchase Agreement and the Employment Agreements are valid
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and enforceable.

However, Plaintiff provides little evidence or

reasoning to support this conclusion.

Plaintiff does make clear

that the provisions are limited to five years; restrict
Balestrino and Bengert from competing with NWFCU where NWFCU
conducts business or has proposed, in writing, to conduct
business at the time of closing; and include commercial lending
in the definition of a “Competing Business” in the Asset
Purchase Agreement only.

Pl. Mem. in Supp. at 8.

Plaintiff

alleges that these provisions are narrowly drawn to protect its
legitimate business interests.

Id.

NWFCU cites in support of

its argument the fact that Balestrino and Bengert agreed that
the non-competition provisions were fair and enforceable at the
time each signed, as well as that the intent of the provisions
was to prevent them from setting up a competing business after
selling PPE to NWFCU for millions of dollars.

Id. at 8-9.

The Court finds Plaintiff’s arguments unconvincing.
The restrictive covenants at issue here both involve a duration
of five years.

The Supreme Court of Virginia has previously

found restrictive covenants of three years to be unreasonable,
depending on the facts of a particular case.

See Simmons v.

Miller, 261 Va. 561, 581 (2001) (striking down a three-year
restriction because it was broader than the company’s specific
business activity and had no geographical limitation); but see
Blue Ridge Anesthesia v. Gidick, 239 Va. 369, 374 (1990)
11

(upholding a three-year restriction because it was limited to
the former employees’ respective territories and the anesthesia
and critical care business).

The function of the restrictions

at issue here is also overly broad.

By its terms, the non-

competition provisions prevent Balestrino and Bengert from
working “in any . . . individual or representative capacity . .
. in any manner or fashion in any credit union, bank, lender, or
mortgage broker that competes in any manner whatsoever with
NWFCU.”

Employment Agreements [Dkt. 8-1 at 83], § 6(a).

This

restriction suggests that Balestrino and Bengert could not work
for a competitor in any role, even one that does not directly
use their expertise in SBA and USDA loans and/or knowledge of
NWFCU.

See Home Paramount, 282 Va. at 416-19.

Plaintiff fails

to offer any argument or evidence of a legitimate business
interest that would be served by prohibiting Balestrino and
Bengert from being employed in any capacity by a competing
financial institution, aside from a single assertion that the
provisions were negotiated to prevent Balestrino and Bengert
from setting up a competing business.

While that may be true,

the language of the non-competition provisions accomplishes far
more.

Finally, the covenants in this case fail to define

clearly the restricted geographic area.

The Court is left to

presume where NWFCU’s conducts its business, or has proposed to

12

do so at the time of closing the PPE sale.

As a result, the

geographic limitation is overly broad.
Taken together, Plaintiff has failed to carry its
burden of showing that the restrictive covenant is reasonable
and no greater than necessary to protect a legitimate business
interest.

The Court finds that Plaintiff is unlikely to succeed

in establishing the existence of a valid contract.
2.

Knowledge on the Part of Interferor(s)

The second element of tortious interference involves
knowledge on the part of the interferor(s).

Both parties agree

that Defendants Gibson and Banks had knowledge of the
restrictive covenants in Balestrino and Bengert’s Employment
Agreements.

Thus, the Court finds that Plaintiff is likely to

be able to establish that these two interferors had knowledge of
the underlying agreement.

However, Plaintiff has failed to

establish that Janus and SBC Finance had such knowledge.

Other

than bare allegations that both Defendants Gibson and Banks were
principals of Janus, which remains in dispute, Plaintiff offers
no evidence of Janus’s involvement in the sale of PPE to NWFCU.
Similarly, Plaintiff has failed to provide sufficient evidence
that Defendant SBC Finance was formed, or is currently operated
by, Gibson, Banks, Balestrino, or Bengert.

At most, Plaintiff

provides evidence of some affiliation between Kelley and
Bengert.

But it is not clear that this affiliation would be
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enough to impute Bengert’s knowledge of the Employment
Agreements to SBC Finance.

Plaintiff has failed to meet its

burden of proving knowledge on the part of Defendants Janus and
SBC Finance and, thus, is unlikely to succeed on the merits.
3.

Intentional Interference

The third element of tortious interference involves
intentional interference with the underlying agreement.
Plaintiff argues that Defendants Gibson and Banks intentionally
interfered with the restrictive covenants in Balestrino and
Bengert’s Employment Agreements.

Pl. Mem. in Supp. at 9.

The

Complaint alleges that both Defendants helped to form SBC
Finance, two days after Balestrino and Bengert’s employment with
NWFCU ended.

Compl. ¶¶ 29-30.

Defendants also allegedly

created a business plan for SBC Finance.
7.

Pl. Mem. in Supp. at

Based upon emails inadvertently sent to Balestrino and

Bengert at their former NWFCU email addresses, Plaintiff
believes they are operating SBC Finance together.

Id.

Furthermore, Plaintiff asserts that SBC Finance is in direct
competition with NWFCU.

Compl. ¶ 36.

Any support provided to

SBC Finance would therefore intentionally interfere with the
restrictive covenants Balestrino and Bengert signed.

Id. ¶ 48.

Defendants argue that Plaintiff’s arguments are based
on a series of false assumptions.

They contend that Balestrino

and Bengert are not owners or employees of SBC Finance and have
14

never been compensated by SBC Finance.
[Dkt. 23-7], ¶¶ 4, 9.

Exh. G, Kelley Decl.

Moreover, the actual Defendants here

(Gibson, Banks, and Janus) are also not active participants,
consultants, or owners of SBC Finance.

Id. ¶¶ 4, 6, 8.

likewise has no connection to Defendant Janus.

Gibson

Exhibit J,

Affidavit of Jon D. Heard (“Exh. J, Heard Affidavit”) [Dkt. 2310].

Defendants argue that the absence of any connection

between SBC Finance and Gibson, Banks, and Janus means “that
NWFCU will not be able to show interference by the Defendants
with the restrictive covenants.”

Def. Mem. in Opp. at 9-10.

In the instant case, key facts remain in dispute.
Accordingly, the Court finds that there is not sufficient
evidence to suggest that Plaintiff would prevail on the third
element of its claim, intentional interference.
4.

Damages

The last factor involves damages.

Plaintiff estimates

that it has already lost nearly $5 million in profits due to SBC
Finance’s activities.

Pl. Mem. in Supp. at 5-6.

Additional

damages have not yet been determined, as Plaintiff has not been
able to discover the extent of SBC Finance’s competitive
activities.

Id. at 9.

However, damages will be quantifiable in

the form of lost profits.

Id.

Thus, the fourth element of

tortious interference with a contract is satisfied.

15

In summary, the Court concludes that Plaintiff’s claim
of tortious interference with contract is unlikely to succeed on
the merits due to an absence of proper argument and evidence to
establish the validity and enforceability of the restrictive
covenants, knowledge on the part of Defendants Janus and SBC
Finance, and intentional interference.
C.

Balance of the Equities
To grant a preliminary injunction, Plaintiff must

establish that the equities tip in its favor.
About Obama, 575 F.3d at 346.

The Real Truth

Plaintiff seeks a preliminary

injunction to maintain the status quo and restrain Defendants,
and specifically SBC Finance, from helping Balestrino and
Bengert to violate the restrictive covenants in their Employment
Agreements.

Plaintiff argues that continued interference with

Balestrino and Bengert’s covenants has a clear risk of harming
Plaintiff with “no harm” to Defendants.
Defendants argue that granting a preliminary
injunction will inflict greater harm than denying it.

A blanket

prohibition on communication between SBC Finance and any
borrower who has or had begun applying for an SBA or USDA loan
as of May 9, 2016 would prevent independent contractors
currently working with SBC Finance from continuing to do so.
Def. Mem. in Opp. at 11.

Such a result would be unjust because

these contractors are not subject to the restrictive covenants
16

with NWFCU that Balestrino and Bengert signed.

Id.

Moreover,

NWFCU seeks to prevent Defendants Banks and Gibson from
communicating with Balestrino and Bengert regarding NWFCU.

This

relief “would prohibit them from communicating about, and
preparing for, the pending Arbitration.”

Id.

Plaintiff

responded to Defendants’ concerns by more narrowly defining the
injunctive relief it seeks.
After weighing the equities, the Court finds that the
potential harm to Defendants outweighs the potential harm to
Plaintiff.

Consequently, the equities tip in favor of denying

the Plaintiffs’ request for injunctive relief.
D.

Public Interest
Finally, the public interest does not favor issuing

the injunction sought.

Plaintiff alleges that Defendants have

conspired to establish a new, competing business that Balestrino
and Bengert operate, with former NWFCU employees, to target
NWFCU’s borrowers.

Pl. Mem. in Supp. at 9.

Such activity is

alleged to threaten NWFCU’s business interests, and to be in
direct violation of restrictive covenants Balestrino and Bengert
signed.

Id.

Plaintiff argues that “the public has an interest

in enforcing restrictive covenants that protect business
interests.”

Bowe Bell & Howell Co. v. Harris, 145 F. App’x 401,

404 (4th Cir. 2005).

17

Defendants put forth a competing public interest.
They argue that “[t]here is a strong federal policy favoring
arbitration.”

UBS Fin. Servs. Inc. v. Carilion Clinic, 880 F.

Supp. 2d 724, 734 (E.D. Va. 2012).

Issuing a preliminary

injunction in this case would forbid communication between the
parties regarding the pending Arbitration.

Moreover, Defendants

point out that this Court has already found that NWFCU agreed to
arbitration, see Exh. A, Related Case Order, and “public policy
favors giving effect to the parties’ intent by allowing
arbitration to proceed.”
734.

UBS Fin. Serv., 880 F. Supp. 2d at

Defendants also argue that continuing this litigation

would waste judicial resources and could lead to inconsistent
results with Arbitration.

The Court agrees.

Accordingly, the

Court finds that the public interest factor weighs against
granting a preliminary injunction.
*

*

*

In conclusion, Plaintiff has failed to demonstrate
that it is entitled to an order preliminarily enjoining
Defendants from further communication, directly or indirectly
with Balestrino and Bengert or their agents, about SBA or USDA
loans or NWFCU.

Plaintiff also has not demonstrated it is

entitled to an order enjoining Defendants from communicating,
directly or indirectly, with any borrower who discussed applying

18

for an SBA or USDA loan with NWFCU as of May 9, 2016.

The Court

denies Plaintiff’s motion for a preliminary injunction.
IV.

Conclusion

For the foregoing reasons, the Court will deny
Plaintiff’s motion for preliminary injunction.

An appropriate

Order shall issue.

October 27, 2016
Alexandria, Virginia

/s/
James C. Cacheris
UNITED STATES DISTRICT COURT JUDGE

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