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Boart Longyear Ltd. v. Alliance Industries

June 20, 2012

BOART LONGYEAR LTD., BOART LONGYEAR GLOBAL HOLDCO, INC., LONGYEAR HOLDINGS, INC., RESOURCES SERVICES HOLDCO, INC., AND PROSONIC CORPORATION, PLAINTIFFS,
v.
ALLIANCE INDUSTRIES, INC., TERRA SONIC INTERNATIONAL, LLC, HI-VAC CORPORATION, PROMANCO, INC., MOLE MASTER SERVICES CORP., AND RUDOLPH JOHN LEHMAN, DEFENDANTS.



The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.

OPINION AND ORDER

I. INTRODUCTION

Boart Longyear Ltd., Boart Longyear Global Holdco, Inc., Longyear Holdings, Inc., Resources Services Holdco, Inc., and Prosonic Corporation (collectively, "Boart Longyear") bring this action against fellow signatories (Alliance Industries, Inc. and Rudlph John Lehman) to a Stock Purchase Agreement ("SPA"), as well as some of the signatories' affiliates (Terra Sonic International, LLC, Hi-Vac Corporation, Promanco, Inc., and Mole Master Services Corp.) (collectively, "the Affiliates"). The defendants now move to dismiss the plaintiffs' claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and indemnification. For the reasons stated below, the defendants' motion is granted in part and denied in part.

II. BACKGROUND*fn1

Boart Longyear is a leading provider of mineral exploitation services and drilling to the global market.*fn2 In 2006, both Boart Longyear and Prosonic were leaders in sonic drilling services.*fn3 Sonic drills create high frequency vibrations and are highly desirable for use in mineral exploitation and mine development.*fn4 In order to become the world's leading provider of sonic drilling services, Boart Longyear sought to acquire the capital stock of Prosonic, which had developed a sonic drill that addressed certain durability and technical issues.*fn5

A. The SPA

Boart Longyear, Lehman, and Alliance Industries, Inc. ("Alliance") entered into the SPA, under which Longyear Holdings, Inc. purchased all issued and outstanding capital stock of Prosonic for approximately seventy-two million dollars.*fn6 Lehman was the sole shareholder of Alliance, which owned all of the issued and outstanding capital shares of Prosonic.*fn7 In acquiring all of the capital stock of Prosonic, Boart Longyear acquired all of the corporation's intellectual property, including its proprietary sonic drill head, a drill rig, and tooling technology.*fn8

The SPA provides that the agreement is to be construed in accordance with New York law.*fn9 The parties agreed that any breach of the SPA would result in "irreparable damage" and that the injured party would be entitled to injunctive relief.*fn10 The SPA also includes an indemnification clause, which provides for the indemnification of an injured party for any breach.*fn11 Boart Longyear further alleges that it has sustained injuries in the form of damaged customer relationships, business expectations, reputation, and goodwill, as well as lost profits and market share and the replacement cost of employees impermissibly solicited by Lehman or the Affiliates.*fn12

1. The Non-Compete Clause

The SPA contains a Non-Compete clause that excluded defendants from engaging in any business that competed with any portion of the worldwide sonic drill business for a five-year Non-Compete Period:*fn13

During the period from the Closing Date through the five-year anniversary of the Closing Date (the "Non-Compete Period"), neither Seller nor its sole stockholder, Lehman, nor any of their respective Affiliates, will engage, directly or indirectly, whether through the ownership of equity securities, the provision of services . . . in any business that competes with any portion [of] the Business anywhere in the world . . . .*fn14

The Non-Compete Period expired on December 6, 2011.*fn15 The "Business" is defined as "providing Sonic drilling services for environmental site characterization and remediation, mineral, sand and gravel exploration, geoconstruction applications, and water exploration and water supply services."*fn16

2. The Non-Solicitation Clause

The SPA also contains a Non-Solicitation clause that prohibited defendants from hiring any Boart Longyear employees during the Non-Compete Period:*fn17

Each of Seller, its sole stockholder, Lehman . . . and Buyer agrees that, during the Non-Compete Period . . . none of the Seller Party, Buyer, nor any of their respective Affiliates will, to the extent applicable, directly or indirectly, hire any director, officer, or employee of the other party or any entity that is a direct or indirect subsidiary of the other party as of the Agreement date.*fn18

A. Alleged Breaches

1. Development of a Lehman Rig

Following the execution of the SPA, Boart Longyear sought to keep secret the sonic drilling technology it had acquired through the SPA and subsequently developed.*fn19 It did not sell sonic drills, but only used the drills in the service of its customers.*fn20 Following the execution of the SPA, Boart Longyear added improvements to the sonic drill: a rod hoop designed to prevent unused drill rods from tipping over, a larger ...


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