PFB Members' Service Corp. v. Eckenroad, T. ( 2020 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
PFB MEMBERS’ SERVICE CORPORATION IN THE SUPERIOR COURT
OF PENNSYLVANIA
Appellee
v.
TODD A. ECKENROAD
Appellant No. 801 MDA 2019
Appeal from the Order Entered April 23, 2019
In the Court of Common Pleas of Cumberland County
Civil Division at No: 2019-02114
BEFORE: STABILE, J., MCLAUGHLIN, J., AND MUSMANNO, J.
MEMORANDUM BY STABILE, J. FILED APRIL 23, 2020
Appellant, Todd A. Eckenroad, an accountant, appeals from an order
granting Appellee, PFB Members’ Service Corporation, a preliminary injunction
enforcing a noncompete covenant1 in Appellant’s employment agreement.
The injunction decreed that for two years following Appellant’s resignation
from Appellee, he could not provide accounting services to clients of Appellee
whom he served during his final two years of employment, whether or not
they continue to remain Appellee’s clients. The injunction was not limited to
any geographic area. We hold that the court abused its discretion by imposing
these terms in its order, and we vacate the preliminary injunction and remand
this case for further proceedings.
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1 Pennsylvania courts use the terms “noncompete covenant” and “restrictive
covenant” interchangeably. We will use “noncompete covenant” in this
opinion.
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On November 30, 2018, Appellant resigned from his position as an
accountant for Appellee. On March 4, 2019, Appellee filed a civil action
alleging that Appellant breached the noncompete covenant in his employment
agreement. Two days later, Appellee filed a petition seeking a preliminary
injunction against Appellant. On April 2, 2019, the trial court convened an
evidentiary hearing on Appellee’s petition for injunctive relief.
On April 23, 2019, the trial court issued an opinion and order granting
Appellee a preliminary injunction. The court found the following facts:
[Appellee] is a business organization with its principal office in
Camp Hill, Cumberland County, Pennsylvania, that provides
business services, primarily to Pennsylvania farmers, including
accounting, payroll, and tax services.[2] [Appellant] is an adult
individual residing in New Enterprise, Bedford County,
Pennsylvania. From August 1, 2003, until November 30, 2018,
when he left his employment with the title of senior account
supervisor, [Appellant] was an at-will employee of [Appellee], and
in the two years preceding his departure his assigned geographic
territory was Bedford and Fulton Counties, Pennsylvania.
As an account supervisor, [Appellant]’s duties consisted of
providing business and accounting services, including payroll and
tax preparation services, to [Appellee]’s clients. Prior to his
departure, he had been servicing 104 such clients, which was in
excess of the average clientele of 75 serviced by the remaining 34
account supervisors. Toward the end of 2018, [Appellee]
announced an increase in fees for its services, as well as a
reduction in compensation to its account supervisors, effective
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2 Appellee is not simply an accounting firm or tax preparer. It is a general
farm membership organization that provides an array of services to its
members. For an annual membership fee, members can access discounts on
rental cars, hotels, supplies, as well as access to Appellee’s warehouse facility,
which sells agricultural products. For an additional fee, members can
purchase accounting services (including tax preparation) and business
analysis. N.T., 4/2/19, at 33-34.
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January 1, 2019. The increase in fees precipitated a termination
of their relationship with [Appellee] by a number of clients. By a
letter dated November 16, 2018, [Appellant] advised [Appellee]
of his intention to leave his employment, indicating:
Because of the recent changes the company has
decided to make, I can no longer continue my
employment . . . . My last day will be November 30,
2018. There is just no way my family and I can make
it with the future loss of income that will be a result of
the changes that have been made with the fee
schedule and employee compensation package. I
have already had clients leave and others that are
planning to leave next year due to the fee increase. .
..
Please know that I was not considering this until I was
put in a position of needing to make this very difficult
decision for the welfare of my family. I want to part
on good terms.
In leaving his position with [Appellee], [Appellant] did not advise
any of [Appellee]’s clients in advance of his decision to do so.
However, as of the hearing herein[,] 48 of the 104 clients he had
been servicing had either cancelled or not renewed their
relationship with [Appellee].3
Shortly after leaving [Appellee]’s employment, [Appellant]
opened “Eckenroad Accounting Services,” which he operates out
of his home in Bedford County, Pennsylvania, and which is
“dedicated to providing accounting services to small businesses
and individuals in the area.” Services offered include personal tax
preparation, partnership tax preparation, corporate tax
preparation, tax planning visits, payroll quarterlies preparation,
W-2 & 1099 preparation, and a free initial consultation.
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3 This appears to be a minor misstatement. Based on our review of the
preliminary injunction hearing transcript, we think the trial court meant to say
that the number of Appellee’s clients in Bedford and Fulton Counties dropped
from 104 to 48 after Appellant’s resignation. Thus, 56 of Appellee’s clients
cancelled or declined to renew their memberships, not 48.
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In assembling a clientele for his new business, which appears to
be largely oriented toward preparation of tax returns and does not
provide business consulting services, [Appellant] did not solicit or
accept any clients of [Appellee] who remained with [Appellee].
However, he did accept about 20 former clients who had chosen
to terminate their relationship with [Appellee].
The [July 22,] 2003 employment agreement executed by the
parties contemplated [Appellant]’s provision of “farm
management counseling and tax reporting services to clients of
[Appellee] in accordance with the procedures established from
time to time by [Appellee] and under the supervision and direction
of [Appellee].” It indicated that [Appellant] would “be
compensated in accordance with an Incentive Wage Program as
established and amended from time to time by [Appellee] which
[was to] be based upon, but not limited to, factors such as length
of service, net gross revenue produced from accounts served, and
other performance based upon standards to be determined by
[Appellee].”
The noncompete provision contained in [paragraph 6 of] the
employment agreement provided, in pertinent part, as follows:
B. Employee hereby provisions and agrees with
Employer that, during the “Noncompete Period” and
within the “Noncompete Area,” Employee shall not
directly or indirectly, either as an employee,
employer, consultant, agent, principal, partner,
stockholder, corporate officer, director, or in any other
individual or representative capacity, engage in or
participate in any business which provides any goods
or services competitive in any way with the goods and
services provided by Employee for Employer under
this Agreement nor shall Employee, directly or
indirectly, solicit the business of any
customers/clients of the Employer or perform
for such customers or clients, nor solicit the
performance, neither in person nor through any other
entity with which he/she is associated, any of the
services of the nature of those performed by
Employee for Employer.
C. The “Noncompete Period” shall commence on the
date hereof and terminate two (2) years after
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expiration or termination of Employee’s employment
with Employer under this Agreement. The
“Noncompete Area” shall be the geographic
territory or territories assigned to Employee in
the last two (2) years of his/her employment
with Employer and shall be limited only to PFB
members in said territory or territories . . .
Trial Court Opinion, 4/23/19, at 1-3 (emphasis added).
The trial court did not mention another provision in the noncompete
covenant. Paragraph 6(E) states:
E. All parties hereto acknowledge the necessity of
protection against the competition of the Employee
and that the nature and scope of such protection has
been carefully considered by the parties. Any
geographic area covered is expressly acknowledged
and agreed to be fair, reasonable and necessary. In
the event any covenant in this paragraph . . . is held
to be illegal, invalid or unenforceable because of the .
. . geographic area covered thereby, or otherwise, the
parties agree that the tribunal making such
determination shall have the power to reduce . . . the
area and/or other provisions of any such covenant to
the maximum permissible and to include as much of
its nature and scope as to render it enforceable, and
in its reduced form said covenant shall be valid, legal
and enforceable.
Employment Agreement, ¶ 6(E).
Appellee’s Human Resource Director, Kerri Zeigler, testified that
Appellant serviced clients in Blair County as well as Bedford and Fulton
Counties, and subsequent to Appellant’s resignation, Appellee’s clientele in
Bedford, Fulton and Blair Counties fell from 104 to 48. Notes of Testimony,
Hearing (“N.T.”), 4/2/19, at 21. Zeigler asserted that a fifty percent reduction
in clients was unusual, and anything more than a ten percent reduction in
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clients following an employee’s departure “would stand out.” Id. at 28. The
loss of clients, said Zeigler, cost Appellee $87,985.00 in fees and $21,446.82
in refunds. Id. at 23-24. In January 2019, Zeigler learned that Appellant
went into business for himself and had his own website. Id. at 28. Appellant
did not dispute that he had his own website when counsel for Appellee referred
to it during his testimony. Id. at 57.
Appellant testified that his assigned territory for Appellee included
Bedford and Fulton Counties, but not Blair County. Id. at 73. The trial court
accepted Appellant’s testimony on this point as true. Trial Court Opinion,
4/23/19, at 1. Appellant admitting preparing tax returns for seventeen of
Appellee’s former clients after he left Appellee. N.T., 4/2/19, at 58-71.
The noncompete covenant, Appellant argued, prohibits him only from
soliciting or servicing persons who continue to remain Appellee’s clients, but
it did not bar him from servicing persons who are no longer clients of Appellee
and who approached him after he left Appellee. Appellant’s Brief in Opposition
to Appellee’s Petition for Preliminary Injunction, 4/17/19, at 8-9. Appellant
testified that (1) none of the twenty or so clients in question are currently
clients of Appellee; (2) he never approached them about becoming his clients;
(3) before leaving Appellee, he never told any of his clients that he was
leaving; (4) after leaving, he did not solicit business from any client of
Appellee; (5) the first question he asks anyone who approaches him is
whether he is a current client of Appellee; and (6) if the person answers
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affirmatively, he responds that he cannot serve him for two years. N.T.,
4/2/19, at 73-75.
On April 23, 2019, the court held that the noncompete covenant was
enforceable in part, stating:
[A] number of factors militate against a full application of the
restrictive covenant as drafted against [Appellant] at this
preliminary stage of the case when [Appellee]’s evidence is tested
by the prerequisites for a preliminary injunction, including the
likelihood of ultimate success. First, [Appellant]’s termination of
employment was arguably involuntary and without fault on his
part, in the sense that it resulted from policy changes made by
[Appellee] which rendered his continued employment
economically unfeasible.
Second, while [Appellant]’s accounting business is in part
competitive, with [Appellee]’s operation, it appears to be more of
a typical small tax preparation service than a multi-service
business consultant for agricultural enterprises. Third, the effect
of a two year proscription on [Appellant]’s participation in his
home county “in any business which provides any . . . services
competitive in any way with the . . . services provided” under the
agreement, however minuscule the degree of competition, would
dramatically affect [Appellant]’s ability to practice his profession
without a proportional benefit to [Appellee].
On the other hand, it does appear to the court that [Appellee] is
likely to prevail on the issue of whether [Appellant]’s covenant of
accounting services to clients of [Appellee] he served in the last
two years of his employment is enjoinable pursuant to a
reasonable application of the covenant not to compete. In this
regard, the loss of these clients is not insignificant to [Appellee],
and it is not unreasonable to attribute it in part to the availability
of [Appellant]’s accounting practice in the prohibited geographic
area.
Trial Court Opinion, 4/23/19, at 6. The court entered a preliminary injunction
prohibiting Appellant “from providing accounting services to clients he served
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on behalf of [Appellee] during the last two years of his employment with
[Appellee], for the period prescribed in the parties’ employment agreement
dated July 22, 2003.” Id. at 6-7.
Appellant timely appealed to this Court pursuant to Pa.R.A.P. 311(a)(4),
which permits automatic appeals from orders granting injunctions except in
circumstances not relevant here. Both Appellant and the trial court complied
with Pa.R.A.P. 1925. The trial court wrote in its Rule 1925 opinion:
To the extent that [Appellant] . . . maintains that the court
expanded the restrictive covenant at issue beyond its terms by
disregarding the non-compete area and including clients who were
not currently clients of [Appellee], the court would suggest that
the preliminary injunction issued was far narrower than the
covenant authorized. The evidence at the hearing tended to show
that [Appellant] was operating an accounting business in Bedford
County, Pennsylvania, which was in the non-compete area and
was providing goods and services “competitive in any way with
the goods and services provided” by him under the employment
agreement. The first portion of the covenant not to compete
contained an absolute prohibition on such a business, but the
preliminary injunction issued limited its effect to service by the
business of [Appellant]’s former clients within the prescribed
period.
Pa.R.A.P. 1925 Opinion, 5/23/19, at 2.
Appellant raises three issues in this appeal:
1. The noncompete [covenant] in this case is limited to certain
counties and only applies to active members of PFB in those
counties. Should this Court dissolve a preliminary injunction that
enjoins [Appellant] from earning a living by serving former clients
regardless of his geographic location, the former clients’
geographic location, and the former clients’ membership status
with Appellee?
2. The noncompete [covenant] in this case is limited to only “PFB
members.” There is no evidence that [Appellant] has ever served
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a client that was a PFB member at the time. Should this Court
reverse the trial court and dissolve the preliminary injunction?
3. Under Pennsylvania law, noncompete contracts are construed
strictly and against the employer. To the extent the phrase “PFB
members” in the noncompete [covenant] is ambiguous as to
whether it includes only current members or also former
members, should that ambiguity be resolved in [Appellant]’s
favor?
Appellant’s Brief at 5. We agree with Appellant that the trial court abused its
discretion by omitting any geographical restriction from the injunction and by
prohibiting Appellant from representing Appellee’s former clients.
The purpose of a preliminary injunction is to preserve the status quo
that existed before the acts complained of and thereby prevent irreparable
injury. Santoro v. Morse, 781 A.2d 1220, 1229 (Pa. Super. 2001). The
moving party must satisfy six requisites in order to obtain a preliminary
injunction: (1) an injunction is necessary to prevent immediate and
irreparable harm that cannot be adequately compensated by damages;
(2) greater injury would result from refusing an injunction than from granting
it, and, concomitantly, issuance of an injunction will not substantially harm
other interested parties in the proceedings; (3) a preliminary injunction will
properly restore the parties to their status as it existed immediately prior to
the alleged wrongful conduct; (4) the moving party is likely to prevail on the
merits; (5) the injunction is reasonably suited to abate the offending activity;
and (6) an injunction will not harm the public interest. Summit Towne
Centre, Inc. v. Shoe Show of Rocky Mount, Inc., 828 A.2d 995, 1001 (Pa.
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2003). We review orders granting preliminary injunctions for abuse of
discretion. Id. at 1000. “We do not inquire into the merits of the controversy,
but only examine the record to determine if there were any apparently
reasonable grounds for the action of the court below.” Id. “Only if it is plain
that no grounds exist to support the decree or that the rule of law relied upon
was palpably erroneous or misapplied will we interfere with the decision of the
[trial court].” Id. This standard of review is “highly deferential.” Duquesne
Light Company v. Longue Vue Club, 63 A.3d 270, 275 (Pa. Super. 2013).
Contract interpretation is a question of law, so our review of the trial
court’s construction of contract language is de novo and our scope of review
is plenary. Maisano v. Avery, 204 A.3d 515, 520 (Pa. Super. 2019). The
fundamental rule in construing a contract is to ascertain and give effect to the
intent of the contracting parties. Id.
When interpreting agreements containing clear and unambiguous
terms, we need only examine the writing itself to give effect to
the parties’ intent. The language of a contract is unambiguous if
we can determine its meaning without any guide other than a
knowledge of the simple facts on which, from the nature of the
language in general, its meaning depends. When terms in a
contract are not defined, we must construe the words in
accordance with their natural, plain, and ordinary meaning. As
the parties have the right to make their own contract, we will not
modify the plain meaning of the words under the guise of
interpretation or give the language a construction in conflict with
the accepted meaning of the language used.
Profit Wize Marketing v. Wiest, 812 A.2d 1270, 1274-75 (Pa. Super.
2002). Moreover, “clauses in a contract should not be read as independent
agreements thrown together without consideration of their combined effects.
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Terms in one section of the contract, therefore, should never be interpreted
in a manner which nullifies other terms in the same agreement.” Dominic’s,
Inc. v. Tony’s Famous Tomato Pie Bar & Restaurant, Inc., 219 A.3d 259,
269 (Pa. Super. 2019).
Contract principles apply to employment agreements, Profit Wize, 812
A.2d at 1274-75, and, more particularly, to noncompete covenants within
employment agreements. Missett v. Hub Inter. Pennsylvania, LLC, 6 A.3d
530, 541 (Pa. Super. 2010). In construing a noncompete covenant, “[c]ourts
do not assume that a contract’s language was chosen carelessly, nor do they
assume that the parties were ignorant of the meaning of the language they
employed. When a writing is clear and unequivocal, its meaning must be
determined by its contents alone.” Synthes USA Sales, LLC v. Harrison,
83 A.3d 242, 250 (Pa. Super. 2013). “[I]t is not the function of this Court to
re-write it, or to give it a construction in conflict with . . . the accepted and
plain meaning of the language used.” Id. at 250-51.
Noncompete covenants in employment agreements allow employers to
prevent employees and agents from learning their business practices and then
moving into competition with them. Hess v. Gebhard & Co., 808 A.2d 912,
918 (Pa. 2002). This enables employers to protect their legitimate business
interests, client base, good will and investments in employees. WellSpan
Health v. Bayliss, 869 A.2d 990, 996 (Pa. Super. 2005). If an employee’s
conduct falls within the four corners of a noncompete covenant, several other
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conditions must be satisfied for that covenant to be enforceable. Specifically,
the covenant must be (1) ancillary to the employment relationship,
(2) reasonably necessary for the protection of the employer, and (3)
reasonable in duration and geographic reach. Missett, 6 A.3d at 538. The
covenant is reasonably limited if it is “within such territory and during such
time as may be reasonably necessary for the protection of the employer . . .
without imposing undue hardship on the employee.” Morgan’s Home
Equipment Corp. v. Martucci, 136 A.2d 838, 844 (Pa. 1957). Post-
employment restrictive covenants
are subject to a more stringent test of reasonableness . . . . This
heightened scrutiny stems from a historical reluctance on the part
of our courts to enforce any contracts in restraint of free trade,
particularly where they restrain an individual from earning a living
at his trade. This close scrutiny also stems from our recognition
of the inherently unequal bargaining positions of employer and
employee when entering into such agreements. The
determination of whether a post-employment restrictive covenant
is reasonable, and therefore enforceable, is a factual one which
requires the court to consider all the facts and circumstances. A
restrictive covenant found to be reasonable in one case may be
unreasonable in others.
Insulation Corp. of America v. Brobston, 667 A.2d 729, 733–34 (Pa.
Super. 1995).
The first issue raised by Appellant is whether the trial court abused its
discretion by refusing to include any geographic limitation in the injunction.
We hold that it did, because the plain language of the noncompete covenant
did not authorize an injunction without any geographic limitation against
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Appellant. Such an injunction not only was far broader than was necessary to
protect Appellee’s interests, but it also was overly harmful to Appellant.
The plain language of the noncompete covenant compels this outcome.
Paragraph 6B of the noncompete provision prohibits Appellant from competing
with Appellee during the “Noncompete Period” and within the “Noncompete
Area”. The “Noncompete Area” is defined as the geographic area assigned to
Appellant in the last two (2) years of employment, id., a limitation that the
parties “expressly acknowledged and agreed to be fair, reasonable and
necessary”, Employment Agreement, ¶ 6(E). The court credited Appellant’s
testimony that his assigned territory during his final two years of employment
was Bedford and Fulton Counties. Under the plain language of paragraphs
6(B), (C) and (E), the court should have limited any injunction to these
counties. Synthes USA Sales, LLC, 83 A.3d at 250. The covenant did not
authorize the court to impose an injunction without any geographic limitation.
Id. In addition, the geographic scope of the injunction was improper because
it was far broader than necessary to protect Appellee’s interests, Missett, 6
A.3d at 538, and posed an undue hardship on Appellant’s ability to earn a
living. Morgan’s Home Equipment Corp., 136 A.2d at 844. Stated in terms
of the six-part Summit Towne Centre test, Appellee is not likely to prevail
on the merits of this issue (prong 4), an injunction without any geographic
limitation is not reasonably tailored to abate any offending activity (prong 5),
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and such an injunction will substantially harm Appellant’s interests (prong 2).
Id., 828 A.2d at 1001.
Next, Appellant argues that the trial court abused its discretion by
prohibiting him from servicing individuals and entities who no longer are
clients of Appellee. We agree, based on our review of paragraphs 6(B) and
(C) of the noncompete covenant and the evidence of record.
Paragraph 6(B) provides that for two years following the end of
employment, Appellant cannot solicit the business or perform services for
Appellee’s “customers/clients” within the “Noncompete Area” that are “of the
nature” of the services he performed for Appellee. Paragraph 6(C) provides
that the Noncompete Area shall be limited to “PFB members.” Construing
these provisions in combination, as the law requires us to do, Dominic’s,
Inc., 219 A.3d at 269, we think it clear that “customers/clients” is
synonymous with “PFB members.” Moreover, the plain meaning of the terms
“clients,” “customers” and “members” is current, existing clients, customers
and members. Without the modifier “former”, these terms do not encompass
past clients, customers or members. Had the parties intended to extend these
terms to former clients, customers, or members, they would have expressly
included “former” in the text. Stated more simply, one cannot be a
customer/client of Appellee if they no longer are PFB members. Thus,
Appellant is free to provide services to former customers, clients or members
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of Appellee, i.e., customers, clients or members who left Appellee while
Appellant was still employed by Appellee.4
Appellant’s unrebutted testimony shows that he complied with the
noncompete covenant by not soliciting or performing services for Appellee’s
current clients or customers that are PFB members within his formerly
assigned territory after leaving Appellee. After leaving Appellee, Appellant did
not solicit business from Appellee’s clients or customers, and he only accepted
business from Appellee’s former clients or customers who decided, on their
own, to approach him following his departure from Appellee. Before accepting
their business, he made sure they were not current clients or customers of
Appellee.
Therefore, the injunction against representing former clients and
customers violates both prong 4 of the Summit Towne Centre test, since
Appellee is not likely to prevail on this issue in later proceedings, and prong
5, since it is not reasonably tailored to abate any offending activity.
The trial court attempted to justify issuance of its preliminary injunction
against servicing former clients of Appellee without any geographic limitation
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4 Although we cannot locate any Pennsylvania decision on point, multiple other
jurisdictions have held that noncompete covenants that purport to apply to all
past clients are unreasonable because they are “so broad[] as to prohibit
seemingly harmless conduct.” Seach v. Richards, Dieterle & Co., 439
N.E.2d 208, 214 (Ind. App. 1982); Leon M. Reimer & Co., P.C. v. Cipolla,
929 F. Supp. 154, 159 (S.D.N.Y. 1996) (collecting cases).
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by “suggest[ing] that the preliminary injunction issued was far narrower than
the covenant authorized.” Pa.R.A.P. 1925 Opinion, 5/23/19, at 2. We
disagree, because the covenant did not authorize the terms of the injunction.
The law requires that when the meaning of a noncompete covenant is clear,
the court must assume that the parties mean what they say and enforce the
covenant in accordance with its plain meaning. Synthes USA Sales, LLC, 83
A.3d at 250-51. In this case, the plain meaning of the noncompete covenant
limited its reach for two (2) years after Appellant left Appellee’s employment
to current clients of Appellee within Fulton and Bedford Counties. The court
abused its discretion by disregarding the plain meaning of the noncompete
covenant and enjoining Appellant from servicing Appellee’s former clients
without geographic limitation.
Accordingly, we reverse the order below and remand for further
proceedings.5
Order reversed. Case remanded for further proceedings in accordance
with this memorandum. Jurisdiction relinquished.
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5 In his third argument, Appellant requests that we construe any ambiguity in
the noncompete covenant in his favor. We need not address this argument
because we have determined that the pertinent provisions of the noncompete
covenant are clear and unambiguous.
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Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 04/23/2020
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