Summary
The Nevada Supreme Court held that the sale of 100 percent of an LLC’s membership interests does not create a new entity and therefore does not invalidate or require employee consent to assignment of a restrictive covenant in an employment agreement. The court nevertheless affirmed denial of a preliminary injunction because the employer failed to demonstrate irreparable harm for which compensatory damages would be inadequate. The court also noted that the evidence of solicitation and disclosure of confidential information was disputed and that claimed customer losses were quantifiable.
Topics
Practice areas
Questions Presented
- Whether the sale of 100 percent of an LLC's membership interests creates a new entity or constitutes an assignment requiring the employee's consent before the employer may enforce a restrictive covenant in an employment agreement.
- Whether the district court abused its discretion by denying a preliminary injunction where the employer failed to demonstrate irreparable harm for which compensatory damages would be inadequate.
Holdings
- A sale of 100 percent of an LLC's membership interests is analogous to a sale of 100 percent of a corporation's stock, not an asset sale, because the LLC remains the same entity. Accordingly, the employer may enforce a restrictive covenant in an employment agreement without an assignment clause or the employee's consent to assignment.
- The district court did not abuse its discretion in denying a preliminary injunction because ECM failed to show irreparable harm for which compensatory damages were an inadequate remedy.
Key quotations
“We conclude that it does not because such a sale does not create a new entity.” (2015 NV 38, at 1)
“Thus, as no new entity is introduced and the LLC continues in existence after the acquisition of a 100-percent membership interest, the reasoning from Corporate Express would similarly be applied in Nevada to the sale of LLC membership interests.” (2015 NV 38, at 6-7)
“Irreparable harm is an injury "for which compensatory damage is an inadequate remedy."” (2015 NV 38, at 8)
Factual background
Excellence Community Management, LLC managed condominium and homeowners' associations in Las Vegas. Krista Gilmore worked for ECM from 2005 to 2012 and signed an employment agreement containing confidentiality, nonsolicitation, and noncompetition restrictions. After 100 percent of ECM's membership interests were transferred to First Service Residential Management Nevada, Gilmore resigned and planned to work for Mesa Management; ECM alleged that Gilmore and Mesa solicited ECM clients and disclosed confidential information. The record contained conflicting evidence regarding solicitation and showed that any customer losses were quantifiable.
Procedural history
Excellence Community Management filed an action for damages and injunctive relief against Krista Gilmore and Mesa Management, LLC, alleging violations of employment-agreement confidentiality, nonsolicitation, and noncompetition provisions. The district court denied a preliminary injunction, reasoning both that the agreement was not assignable after the LLC ownership transfer and that ECM had not shown irreparable harm for which compensatory damages were inadequate. The Nevada Supreme Court held that the assignment rationale was erroneous but affirmed because the lack of irreparable harm independently supported denial of the injunction.