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System One Holdings, L.L.C. v. Hill

August 26, 2008

SYSTEM ONE HOLDINGS, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY, PLAINTIFF,
v.
RALPH HILL, JR., AN INDIVIDUAL, AND DIAMOND TECHNICAL SERVICES, INC., A PENNSYLVANIA CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Terrence F. McVerry United States District Court Judge

MEMORANDUM OPINION AND ORDER OF COURT

Presently before the Court for disposition are the following:

* MOTION FOR PARTIAL SUMMARY JUDGMENT, with brief in support, filed by Defendant Ralph H. Hill, Jr. ("Hill") (Document Nos. 74 and 75), the MEMORANDUM OF LAW IN OPPOSITION filed by Plaintiff System One Holdings, L.L.C. (Document No. 92), and the REPLY filed by Hill (Document No. 99);

* MOTION FOR PARTIAL SUMMARY JUDGMENT, with brief in support, filed by Diamond Technical Services, Inc. ("DTS") (Document Nos. 78 and 79) and the MEMORANDUM OF LAW IN OPPOSITION filed by Plaintiff System One Holdings, L.L.C. (Document No. 94); and

* MOTION FOR PARTIAL SUMMARY JUDGMENT, with brief in support, filed by Plaintiff System One Holdings, L.L.C. (Document Nos. 81 and 82), the BRIEF IN OPPOSITION filed by DTS (Document No. 87), the BRIEF IN OPPOSITION filed by Hill (Document No. 89), and the REPLY TO HILL'S BRIEF IN OPPOSITION filed by Plaintiff (Document No. 101).

The issues have been fully briefed and the matter is ripe for disposition. After a careful consideration of the motions, the filings in support and opposition thereto, the memoranda of the parties, the relevant case law, and the record as a whole, the Court finds that the 1999 and 2000 SPEC Option Agreements are not enforceable by Plaintiff to bind Hill or to create a basis for its claims against DTS. Accordingly, the Motions for Partial Judgment by Hill and DTS will be granted and the Motion for Partial Summary Judgment filed by Plaintiff will be denied.

Background

All parties, counsel, and the Court are familiar with the background facts of this case and, therefore, the Court will recite only those facts pertinent to the resolution of the pending motions. On July 3, 2007, Plaintiff filed an Amended Complaint in which it asserted a new cause of action, breach of contract, based on allegations that Hill breached a covenant not to compete reflected in a 1999 stock option agreement between Hill and SPEC Group Holdings, Inc. (hereinafter "SPEC- PA") and a 2000 stock option agreement between Hill and SPEC Group Holdings, Inc. (hereinafter "SPEC-DE").

Hill began his employment in 1989 with SPEC-PA. Through a series of complex mergers, acquisitions, and divestitures, Hill eventually became employed by Hudson Global Resources Holdings, Inc. ("Hudson"). Defendants Hill and DTS both contend that Hudson is a very different entity, in name and in substance, from SPEC-PA and SPEC-DE and, accordingly, the restrictive covenants contained in the 1999 and 2000 Stock Option Agreements are not valid as they are not assignable. Plaintiff contends that Hudson "is the very same corporate entity as SPEC Group Holdings, Inc., both as a matter of fact and as a matter of law" and, accordingly, no assignment of the restrictive covenants was necessary.

Hill's Employment History

SPEC Consultants, Incorporated was incorporated in the Commonwealth of Pennsylvania as a domestic, for-profit corporation on or about November 8, 1979. On or about August 27, 1997, SPEC Consultants, Incorporated officially changed its corporate name from "SPEC Consultants, Incorporated" to "SPEC Group Holdings, Inc." (hereinafter referred to as "SPEC-PA").*fn1 In 1999, SPEC-PA had its principal place of business in Harmarville, Pennsylvania. Its management team consisted of J.P. Sakey, Chief Executive Officer; Joe Stevens, Chief Financial Officer; Rick McMahill, and Brian Schulinger. SPEC-PA annually generated approximately 100 million dollars in revenue.

In December of 1999, a series of transactions occurred by which SPEC-PA was redomesticated from Pennsylvania to Delaware and by which all of the stock of SPEC-PA was purchased by a newly-domesticated Delaware corporation, which was itself incorporated under the same name SPEC Group Holdings, Inc. (hereinafter referred to as "SPEC-DE"). SPEC-DE was incorporated as a domestic, for-profit corporation under the laws of the State of Delaware on or about December 7, 1999. On or about December 10, 1999, SPEC-DE formed "SPEC Temco, Inc." as a wholly-owned subsidiary and incorporated SPEC Temco, Inc. in Pennsylvania. As of December 2000, the SPEC-DE board of directors included J. P. Sakey and Patrick Hough, and management consisted of J. P. Sakey, Chief Executive Officer; Jill Stevens, Chief Financial Officer, Rick McMahill, and Brian Schuliger.

On or about December 15, 1999, SPEC-PA, SPEC-DE, and SPEC Temco, Inc. entered into a Plan of Merger. At this time, Hill became an employee of SPEC-DE. Pursuant to this Plan of Merger, SPEC Temco, Inc. was merged with and into SPEC-PA, with SPEC-PA being the surviving corporation. The Plan of Merger further provided for a stock-for-stock exchange whereby SPEC-DE acquired all of the stock of SPEC-PA and SPEC-PA acquired all of the stock of SPEC Temco, Inc. SPEC-DE's corporate headquarters were in Harmarville, PA, and it had offices in Madison, Lansdale, and Cheswick, PA; Orlando, FL; and Lynchburg, VA.

On December 28, 1999, SPEC-DE filed an Amended and Restated Certificate of Incorporation with the Delaware Secretary of State, which reflected the conversion of the stock of SPEC-PA to SPEC-DE. As a result of the stock ...


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