Latuszewski v. Valic Fin Advisors ( 2005 )

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
6-9-2005
Latuszewski v. Valic Fin Advisors
Precedential or Non-Precedential: Non-Precedential
Docket No. 04-1324
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NOT PRECEDENTIAL
IN THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NOS. 04-1324, 04-1435, 04-2776
GARY LATUSZEWSKI; JAMES ROGAN; REED BIGHAM
Appellants in No. 04-1324 and No. 04-2776
v.
VALIC FINANCIAL ADVISORS, INC.
GARY LATUSZEWSKI; JAMES ROGAN; REED BIGHAM
v.
VALIC FINANCIAL ADVISORS, INC.;
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY,
Appellants in No. 04-1435
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civil Action No. 03-cv-00540)
District Judge: Hon. Gary L. Lancaster
Argued April 22, 2005
BEFORE: ROTH, FUENTES and STAPLETON,
Circuit Judges
(Filed: June 9, 2005 )
Michael J. Betts (Argued)
Paul J. Atencio
363 Freeport Road
Pittsburgh, PA 15238
Attorneys for Appellants in Nos. 04-1324 and 04-2776
Mary J. Hackett
Joseph F. Rodkey, Jr.
Christopher J. Soller
Reed Smith
435 Sixth Avenue
Pittsburgh, PA 15219
and
Sean Connelly (Argued)
Larry S. Pozner
Anthony L. Giacomini
Hoffman, Reilly, Pozner & Williamson
511 16th Street - Suite 700
Denver, CO 80202
Attorneys for Appellants in No. 04-1435
OPINION OF THE COURT
STAPLETON, Circuit Judge:
Because we write only for the parties who are familiar with the facts, we do not
restate them below. This appeal arises from alleged breaches in employment contracts
between Appellees/Cross-Appellants The Variable Annuity Life Insurance Company and
VALIC Financial Advisors, Inc., (collectively “VALIC” or “Appellees”) and three of its
previous employees, Appellants/Cross-Appellees, Gary Latuszewski, James Rogan and
Reed Bigham (collectively “Appellants”). After resigning their positions with VALIC in
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early 2003, Appellants filed suit in Pennsylvania state court. VALIC subsequently
removed to federal court and filed a motion for a preliminary injunction to enforce non-
compete and trade secrets provisions in the contracts. The District Court granted
VALIC’s motion as to the trade secrets provision but denied it as to the non-compete
clause. Appellants timely appealed and VALIC cross-appealed. Appellants subsequently
filed a motion to compel arbitration and stay further proceedings. The District Court,
noting the existence of the cross appeals before us, entered an order on May 24, 2004,
denying the “motion to compel arbitration without prejudice and for a stay of all further
proceedings pending the disposition of the cross appeals in the Court of Appeals.” App.
at 46. Appellants timely appealed this order. Jurisdiction was proper in District Court
pursuant to 28 U.S.C. § 1332. Jurisdiction, to the extent we have it, is proper in this
Court pursuant to 28 U.S.C. § 1292(a)(1). For the reasons that follow, we will dismiss
the appeal from the District Court’s order of May 24, 2004, for want of jurisdiction and
the cross appeal as moot. With respect to the remaining appeal, we will reverse in part
and affirm in part.
I.
In reviewing a District Court’s decision to grant a preliminary injunction, we
review the District Court’s findings of fact for clear error, its conclusions of law de novo,
and its ultimate decision to grant the injunction for abuse of discretion. Warner-Lambert
Co. v. Breathasure, Inc., 204 F.3d 87, 89 n. 1 (3d Cir. 2000). To successfully seek a
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preliminary injunction, a party must show: “(1) a likelihood of success on the merits; (2)
that it will suffer irreparable harm if the injunction is denied; (3) that granting preliminary
relief will not result in even greater harm to the nonmoving party; and (4) that the public
interest favors such relief.” KOS Pharm., Inc. v. Andrx Corp., 369 F.3d 700, 708 (3d Cir.
2004).
We conclude that the District Court’s decision to grant a preliminary injunction to
protect Appellees’ trade secrets, to the extent it foreclosed Appellants from using trade
secret information to solicit business and service clients, is based on a correct
understanding of the applicable law and is supported by the record. In particular, we
conclude that (a) the District Court properly held that the information described in the
preliminary injunction constituted protectable trade secrets1 ; and (b) the record supports
the Court’s conclusion that Appellees’ “potential losses will be difficult to quantify in
light of the potential loss of goodwill and disruption of customer relations that
[Appellants’] conduct threatens.” App. at 41.
We also conclude, however, that the record does not support the preliminary
injunction to the extent that either paragraph (1) or (2) can be read to foreclose Appellants
1
To prevail on a claim for misappropriation of trade secrets, the moving party must
show: (1) the existence of a trade secret; (2) which was communicated in confidence to
the employee; (3) and used by the employee (or former employee) in breach of that
confidence; (4) to the detriment of the plaintiff. Moore v. Kulicke & Soffa Indus., Inc.,
318 F.3d 561, 566 (3d Cir. 2003). The District Court thoroughly evaluated and properly
determined that VALIC satisfied these elements.
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from servicing former clients of VALIC who have become Appellants’ clients without
being solicited by them using information currently supplied by those clients. Where a
former client of Appellees without solicitation has asked Appellants to service its needs,
that client can be expected to be willing to provide Appellants with the information they
need to provide that service. Accordingly, the minimal risk that VALIC’s trade secret
information will be utilized in this context will not justify the burden imposed on
Appellants and the clients’ right of choice.
We will vacate the existing preliminary injunction and, the District Court, if it
deems it appropriate, may enter a modified one consistent with this opinion.
II.
Turning to the question of whether the District Court properly declined to
preliminarily enjoin Appellants from violating the non-compete clause, we find
Appellees’ cross appeal to be moot. The District Court is no longer in a position to grant
meaningful injunctive relief based on the non-compete clause.
The non-compete clause bars Appellants from competing with VALIC for one year
after the end of their employment. See, e.g., JA966 (Contract Provision 4.h.2).
Appellants resigned from VALIC in early 2003. Two years have now passed since their
resignations. Thus, even if we concluded that the District Court erred in declining to
enjoin Appellants from violating the non-compete clause, that Court could not grant the
relief sought because Appellants are no longer precluded from competing.
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It is true, as Appellees stress, that the non-compete clause, Paragraph 4.h, contains
the following provision: “If an injunction is issued to prevent violation of paragraph 4h,
the injunction shall run one year from the date it is entered.” This does not, however,
authorize the entry of a one-year injunction at any point in time. An injunction is not “an
injunction . . . issued to prevent a violation of paragraph 4h” unless the conduct it
precludes comes within the scope of that paragraph – in the current context, unless the
precluded competitive activity occurs within a year of the end of Appellants’
employment. This provision was obviously intended, in the event litigation was required,
to give VALIC a full year of protection so long as it secured an injunction within a year
after the end of employment. It does not give VALIC a full year of protection if it did not
secure an injunction for several years after the cessation of employment.2
III.
The District Court’s order of May 24, 2004, is an interlocutory order.
Accordingly, we have no final order jurisdiction under 28 U.S.C. § 1291. Although 9
2
We have jurisdiction at this point to review only the denial of preliminary
injunctive relief, and, as we have pointed out, the cross appeal is now moot. Accordingly,
we hazard no prediction on how the Supreme Court of Pennsylvania would rule on the
enforceability of a non-compete covenant in the situation here presented, i.e., where (a)
the parties’ initial contract for at will employment includes a reasonable covenant not to
compete and (b) the parties thereafter agree to continue the at will employment on
somewhat different terms no less favorable to the employee, including the same or a less
restrictive covenant.
6
U.S.C. 16(a) provides that an appeal can be taken from an interlocutory order “refusing a
stay of any action” pending arbitration or “denying a petition . . . to order arbitration to
proceed,” we find § 16(a) inapplicable to the May 24th order.
As we read the May 24th order, it does not address the merits of the arbitration
issues and, accordingly, does not “deny” a stay or order directing arbitration within the
meaning of § 16(a); rather, it defers decision on those matters until the case becomes
active again in the District Court. Accordingly, we will leave the arbitration issues for
resolution in the first instance by the District Court.3
3
Before addressing the merits of the waiver issue raised by the Appellees, the
District Court will want to consider whether that issue is for the Court or the arbitrator.
See Palcko v. Airbourne Express, Inc., 372 F.3d 588, 596-97 (3d Cir. 2004); Marie v.
Allied Home Mortgage Corp., 402 F.3d 1, 12-15 (1st Cir. 2005); Nat’l Am. Ins. Co. v.
Transamerica Occidental Life Ins. Co., 328 F.3d 462 (8th Cir. 2003).
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IV.
We will dismiss the appeal of the District Court’s May 24, 2004, order for want of
jurisdiction and the cross appeal from the District Court’s denial of a preliminary
injunction enforcing the non-compete clause will be dismissed as moot. We will vacate
the preliminary injunction entered by the District Court and remand for further
proceedings consistent with this opinion. Each party will bear its own costs.
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