Pittsburgh Logistics v. Ceravaolo, M. ( 2017 )

J-A18041-17
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
PITTSBURGH LOGISTICS SYSTEMS, : IN THE SUPERIOR COURT OF
INC., : PENNSYLVANIA
:
Appellant :
:
:
v. :
:
: No. 135 WDA 2017
MICHAEL CERAVOLO, AN ADULT :
INDIVIDUAL, MARY COLEMAN, AN :
ADULT INDIVIDUAL, NATALIE :
HENNINGS, AN ADULT INDIVIDUAL, :
AND RACQUEL PAKUTZ, AN :
INDIVIDUAL :
Appeal from the Order Entered December 22, 2016
In the Court of Common Pleas of Beaver County
Civil Division at No(s): No. 11542-2016
BEFORE: BOWES, LAZARUS and OTT, JJ.
MEMORANDUM BY OTT, J.: FILED NOVEMBER 14, 2017
Pittsburgh Logistics Systems, Inc., (PLS) appeals from the order
entered on December 22, 2016, in the Court of Common Pleas of Beaver
County, denying PLS’s petition for preliminary injunction, that sought to
uphold non-competition agreements in the employment contracts of
defendants Michael Ceravolo, Natalie Hennings, and Racquelle Pakutz.1 In
this timely appeal, PLS claims the trial court erred in, 1) finding the non-
competition agreements were overbroad, and 2) in failing to “blue line” the
____________________________________________
1
Pittsburgh Logistics is not appealing from the order as applied to defendant
Mary Coleman.
J-A18041-17
agreements to make them enforceable. After a thorough review of the
submissions by the parties, relevant law, and the certified record, we affirm.
Our standard of review for an order granting or denying a preliminary
injunction is as follows:
We have emphasized that our review of a trial court's order
granting or denying preliminary injunctive relief is “highly
deferential”. Summit Towne Centre, Inc. v. Shoe Show of
Rocky Mount Inc., 573 Pa. 637, 828 A.2d 995, 1000 (2003).
This “highly deferential” standard of review states that in
reviewing the grant or denial of a preliminary injunction, an
appellate court is directed to “examine the record to determine if
there were any apparently reasonable grounds for the action of
the court below.” Id. We will find that a trial court had
“apparently reasonable grounds” for its denial of injunctive relief
where the trial court has properly found “that any one of the
following ‘essential prerequisites’ for a preliminary injunction is
not satisfied.” Id. at 1002.
There are six “essential prerequisites” that a party must
establish prior to obtaining preliminary injunctive relief. The
party must show: 1) “that the injunction is necessary to prevent
immediate and irreparable harm that cannot be adequately
compensated by damages”; 2) “that greater injury would result
from refusing an injunction than from granting it, and,
concomitantly, that issuance of an injunction will not
substantially harm other interested parties in the proceedings”;
3) “that a preliminary injunction will properly restore the parties
to their status as it existed immediately prior to the alleged
wrongful conduct”; 4) “that the activity it seeks to restrain is
actionable, that its right to relief is clear, and that the wrong is
manifest, or, in other words, must show that it is likely to prevail
on the merits”; 5) “that the injunction it seeks is reasonably
suited to abate the offending activity”; and, 6) “that a
preliminary injunction will not adversely affect the public
interest.” Id. at 1002. The burden is on the party who requested
preliminary injunctive relief[.]
Warehime v. Warehime, 860 A.2d 41, 46-47 (Pa. Super. 2004) (footnotes
omitted).
-2-
J-A18041-17
Ceravolo, Hennings and Pakutz all worked for PLS, a logistics firm
working with the trucking industry. Because of the proprietary information
used by PLS to provide service for its clients, PLS requires its employees to
sign employment agreements that include a non-competition clause.
Hennings and Pakutz both signed a similar agreement. Ceravolo, on the
other hand, had worked for PLS for a longer time and had signed an earlier,
less restrictive version. While PLS had Ceravolo also sign the later version,
the trial court disallowed that agreement as being unsupported by
consideration.
In relevant part, the agreement signed by Hennings and Pakutz states:
7. Non-Solicitation. I agree not to directly or indirectly solicit, for
the purpose of offering or attempting to offer any service,
product or other application which is the same or similar to the
services, products or other applications offered by the Company
or in the process of being developed by the Company within the
last year prior to termination of my employment with the
Company, any of the Company’s customers for a period of two
(2) years after termination of my employment with the
Company. I further agree, for a period of two (2) years after the
termination of my employment with the Company, that I will not
directly or indirectly hire or directly or indirectly solicit or
attempt to solicit any employee of, or consultant to, the
Company at anytime within the six month period immediately
preceding the termination of my employment, to leave the
employ of, or no longer render service to or for the benefit of,
the Company.
8. Non-Competition. During the term of my employment with
the Company and for a period of one (1) year thereafter, I shall
not become an officer or director of, or consultant to or be
employed by, or otherwise render services to or on behalf of, a
-3-
J-A18041-17
Competing Business. …[2] I acknowledge and agree that the
Company is engaged in business throughout the world and that
the marketplace for the Company’s products and services is
worldwide, and thus, the geographic area, length and scope of
this noncompetition provision are reasonable and necessary to
protect the legitimate business interests of the Company. In the
event that a court of competent jurisdiction shall determine that
one or more of the provisions of Paragraphs 7 or 8 are so broad
as to be unenforceable, then such provision shall be deemed to
be reduced in scope or length, as the case may be, to the extent
required to make such Paragraphs enforceable. If I violate the
provisions of Paragraph 7 or 8 of this Agreement, I acknowledge
that the periods described therein shall be extended by the
number of days which equals the aggregate of all days during
which any such violations occurred. I acknowledge that this
provision does not prevent me from earning a livelihood after the
termination of my employment.
Hearing Exhibits C and D.
The original Agreement signed by Ceravolo is similar to the above
agreement in all relevant aspects except for the length of the non-
solicitation provisions of paragraph 7. Ceravolo is subject to a one-year
non-solicitation restriction rather than a two-year restriction. See Hearing
Exhibit E.
Defendants Ceravolo, Hennings, and Pakutz all left PLS’s employ and
went to work for BeeMac Trucking (BeeMac), a “competing business.”3
____________________________________________
2
This omitted section defines “Competing Business.” This definition is not
relevant to the arguments of the parties nor to our disposition of this matter.
As this definition is somewhat lengthy, we have omitted it for ease of
reading.
3
Ceravolo asserts he works for, and possesses an ownership share of, a
sales and marketing company called “Hybrid.” See Appellees’ Brief at 12.
Although in the brief Ceravolo denies Hybrid is a broker or coordinator for
(Footnote Continued Next Page)
-4-
J-A18041-17
In seeking the preliminary injunction, PLS sought to enforce
paragraphs 7 and 8 as written, thereby preventing the three former
employees from working for BeeMac. The current state of the law regarding
the enforceability of restrictive covenants in employment contracts is as
follows:
While generally disfavored, Pennsylvania law, however, has
recognized the validity and enforceability of covenants not to
compete in an employment agreement, assuming adherence to
certain requirements. See Pulse Technologies, Inc. v.
Notaro, 620 Pa. 322, 67 A.3d 778 (2013); Morgan’s [Home
Equip. Corp. v. Martucci, 390 Pa. 618], 136 A.2d [838] at
844; see generally Kurt H. Decker, Refining Pennsylvania’s
Standard for Invalidating a Non-Competition Restrictive
Covenant When an Employee’s Termination is Unrelated to the
Employer’s Proctectible Business Interest, 104 Dick. L.Rev. 619
(2000). Our Court noted in Morgan's the evolution of the
treatment of restrictive covenants. Such covenants were first
found to be absolutely void as against public policy due to a high
societal demand for, but low supply of, skilled workers. Later,
due to the reality of the new era brought on by the industrial
revolution, a more balanced approach was taken by the courts
which accepted partial restraints on trade, provided they were
ancillary to the employment relationship and reasonably limited:
Such general covenants not to compete present centuries
old legal problems. The earliest cases were decided
against the economic background of a chronic shortage of
skilled workers in England, the result of the virulent
epidemics of the Black Death during the fourteenth
century. It was not surprising, then, that all covenants to
_______________________
(Footnote Continued)
BeeMac or any other trucking company, neither Ceravolo nor the trial court
ruled that non-competition clause was unenforceable because Hybrid was
not a “competing business.” For purposes of this decision, we will accept
that Ceravolo works either directly for BeeMac or for Hybrid as an agent of
BeeMac, because the trial court made no specific finding regarding Hybrid.
-5-
J-A18041-17
refrain from practicing a trade were held to be void as
against public policy. This policy carried over into the
early seventeenth century when the grants of exclusive
trading privileges by the Sovereign caused widespread
public indignation which broadened into a dislike for all
restraints upon the free exercise of trade. However, by
the eighteenth century England found itself in the midst
of a new commonercial [sic] era, and adjusting to
changed economic conditions, the courts upheld at
common law contracts in partial restraint of trade
provided they were ancillary to a principal transaction,
and were reasonably limited both in geographical extent
and duration of time.
Morgan’s, 136 A.2d at 844; see also Hess [Gebhard & Co.
Inc., 570 Pa. 148] 808 A.2d [912] at 917-18.
Consistent with this legal background, currently in Pennsylvania,
restrictive covenants are enforceable only if they are: (1)
ancillary to an employment relationship between an employee
and an employer; (2) supported by adequate consideration; (3)
the restrictions are reasonably limited in duration and
geographic extent; and (4) the restrictions are designed to
protect the legitimate interests of the employer. Hess, 808 A.2d
at 917; Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 351
A.2d 207, 210 (1976); Morgan’s, 136 A.2d at 844-46.
Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266, 1274 (Pa.
2015).
Following a three day hearing4 on the merits of the preliminary
injunction, the trial court found that the non-competition clause, which
forbade Ceravolo, Hennings, and Pakutz from working for a competing
business world-wide, was geographically overbroad and accordingly
unenforceable. Further, the trial court reasoned PLS knew the covenant was
____________________________________________
4
12/8-9/16 and 12/13/2016.
-6-
J-A18041-17
overbroad when it required the employees to sign it, this fact demonstrated
PLS had unclean hands and therefore the trial court refused to provide PLS
the equitable relief of modifying the contract.
Specifically, the trial court stated:
The agreement provides that “the Company is engaged in
business throughout the world and that the marketplace for the
Company's products and services is worldwide, and thus, the
geographical area, length and scope of this noncompetition
provision are reasonable and necessary to protect the legitimate
business interests of the Company.” (Exhibit F). It further
provides that if the court finds this provision to be too broad,
that it shall be deemed to be reduced in scope or length to the
extent required to make the paragraph enforceable. PLS argues
this extensive coverage of the non-compete clause is necessary
because the nature of its business is worldwide. PLS has cited no
authority supporting the enforcement of a world-wide non-
competition agreement. We have found no Pennsylvania case
that upheld a worldwide non-competition clause. In fact, we
found the opposite.
The enforceability of a world-wide non-compete clause was
recently addressed in Adhesives Research Inc. v. Newsom,
2015 WL 1638557 (M.D. Pa. 2015). The court observed that "the
geographic scope of a non-compete agreement is reasonably
limited if it encompasses only such territory ‘as may be
reasonably necessary for the protection of the employer without
imposing undue hardship on the employee.”’ Id. at *6, (quoting
Jacobson & Co. v. International Environ. Corp., 235 A.2d
612, 620 (Pa. 1967). This test is satisfied if the geographic
restriction, even if broad in extent, is “roughly consonant with
the scope of the employee's duties.” Victaulic Co. v. Tieman,
499 F. 3d 227, 237 (3rd. Cir. 2007). For example, in the context
sales representatives, the Supreme Court of Pennsylvania has
held that in order for a non-compete agreement to be
reasonably limited, the geographic restriction can extend no
farther than the employee's sales territory and customer base.
Boldt Mach. & Tools. Inc. v. Wallace, 366 A.2d 902, 909 (Pa
1976).
-7-
J-A18041-17
In Adhesives, the court noted that despite the defendant's
sale's territory consisting of the western half of the United
States, the geographic restriction contained in the non-compete
agreement extends to anywhere in the world where the plaintiff’s
products are sold. Because the breadth of the restriction was
much larger than the defendant's sales territory, the restriction
was not “roughly consonant” with the defendant’s duties. Id. at
*6. Therefore, the court found that the geographic scope was
not limited to an area reasonably necessary to protect the
plaintiff’s interests. Id. See also Boldt, 366 A.2d at 909.
Moreover, by prohibiting the defendant from engaging in her
profession anywhere in the world where plaintiff’s products are
sold, the restriction imposed a severe hardship on defendant. ld.
Accordingly, the Adhesives court found that the geographic
extent of the agreement was unreasonably broad. ld.
The court’s finding of an overly broad geographic scope did not
end its inquiry. Under Pennsylvania law, courts may exercise
their equitable power to narrow an overly broad restriction.
Sidco Paper Co. v. Aaron, 351 A.2d 250, 254 (Pa. 1976). In
fact, the Adhesives court found that if it exercised that power
and tailored the geographic scope to a reasonable territory, the
plaintiff might have prevailed on the merits. Id. at *7. However,
the court believed that the case fell within the one exception
when the use of equitable powers to modify a restrictive
covenant is not permitted.
“When a covenant not to compete contains an unlimited
geographic scope, although the nature of the business was such
that a relevant geographical area could have been specified, the
agreement is void, and courts may not use their equitable power
to alter the agreement.” Reading Aviation Serv., lnc. v.
Bertolet, 311 A.2d 628 (Pa. 1973) (finding that the non-
competition agreement, which bound the employee not to
compete with the employer in the general aviation business
without any limitation as to time or area, was void on its face as
being in unreasonable restraint of trade, and was therefore
unenforceable, either in whole or in part). The Supreme Court of
Pennsylvania has instructed that such overbreadth “militates
against enforcement because it indicates an intent to oppress
the employee and/or to foster a monopoly, either of which is an
illegitimate purpose. An employer who extracts a covenant in
furtherance of such purpose comes to the court ... with unclean
-8-
J-A18041-17
hands and is ... not entitled to equitable enforcement. ...”
Adhesives, at* 6. (citing Sidco, 351, A.2d at 257).
At the time the parties entered into the contract, Adhesives
Research Inc. knew that the defendant's sales territory would
consist of the western half of the United States. Despite this
knowledge, the restrictions in the non-compete agreement were
unlimited in geographic scope-they extend to the entire world.
Therefore, the court concluded that the non-compete
agreement provision was void under Pennsylvania law and not
subject to equitable tailoring. Accord Fres-Co Sys. USA Inc. v.
Bodell, 2005 WL 3071755 at *8 (E.D. Pa. 2005). Because the
geographic extent was unreasonably broad and not susceptible
to equitable modification, the Adhesives court found that the
plaintiff was not likely to prevail under Pennsylvania law and
denied the request for injunctive relief.
Courts in other jurisdictions have likewise refused to modify
world-wide noncompetition agreements, finding such
agreements void on their face. See Hay Group Inc. v. Bassick,
2005 WL 2420415 (N.D. Ill. 2005); Pure Power Boot Camp,
Inc. v. Warrior Fitness Boot Camp, LLC, 813 F. Supp. 2d 489(S.D.N.Y. 2011). Our research revealed that only courts in
Michigan and Louisiana were willing to enforce world-wide non-
compete clauses. Superior Consulting Co, Inc, v. Walling,
831 F. Supp. 830 (E.D. Mich 1994); Kadant Josnson, Inc. v.
D'Amico, 2012 WL 1605458 (E.D. La. 2012).
Defendant Ceravolo argues that PLS’s non-compete clause is
“overreaching” with respect to the restrictive covenants and this
invalidates his employment agreement. He maintains that the
agreement's restrictive covenants are so broad and restrictive
that they reflect “an intent to oppress the employee [or] to
foster a monopoly, either of which is an illegitimate purpose.”
Sidco Paper Co. v. Aaron, 351 A.2d 250, 254 (Pa. 1976). We
agree.
The testimony indicated that the scope of PLS’s work in the
Energy Sector, where Mr. Ceravolo worked, was mostly national,
or, at best, included Canada and Mexico. Trucking routes
between Chicago and Philadelphia were discussed, as were
routes in Texas. There was also testimony that PLS has an office
in Jacksonville, Florida. Exhibits T and U indicate shipments to
throughout the United States, with one shipment in Ontario,
-9-
J-A18041-17
Canada. A map produced by PLS for its Energy Services, Exhibit
B, showed PLS had a shipment network that stretched
throughout the United States, Canada and Mexico. No testimony
indicated that Mr. Ceravolo did freight brokering or
transportation logistics on an international level (aside from his
attendance at a convention in Calgary, Canada), such that a
non-competition clause of world-wide magnitude would be
necessary to protect the interests of PLS.
We agree with the analysis in Adhesives, and similarly find that
this case falls within the one exception when the use of equitable
powers to modify a restrictive covenant is not permitted. We
decline to modify the non-competition clause to a different
geographic area. We believe PLS is not likely to succeed on the
merits of the case with respect to the non-competition
agreement, and for this reason, we will vacate the injunction
prohibiting Mr. Ceravolo from working for BeeMac Trucking or
Hybrid Global Logistics.
Trial Court Opinion, 12/22/2106, at 4-9 (emphasis in original).
Although this quote from the trial court opinion is specifically directed
to Ceravolo’s contract, the trial court applied the same logic to both
Hennings and Pakutz. The trial court found no evidence that either
Hennings’ or Pakutz’s employment with PLS encompassed worldwide
responsibilities. Therefore, just as with Ceravolo, the worldwide ban on
similar employment was unenforceable and demonstrated an improper intent
to oppress the employee.
Our review of the certified record convinces us that the reasoning and
application of case law is supported by the factual record. Our task in
reviewing this matter, as explained above, is to determine if the trial court’s
ruling is supported by “apparently reasonable grounds.” It is. Accordingly,
- 10 -
J-A18041-17
we affirm the trial court’s order regarding non-competition clauses in the
contracts of Ceravolo, Hennings and Pakutz.5
PLS’s second claim is that the trial court erred in failing to amend the
non-competition clause to an enforceable geographic area as contemplated
by the employment agreements. See Paragraph 8, Exhibits C, D, and E.
Essentially, PLS argues the trial court should have simply shrunk the
geographic limitation found in the employment agreement to fit the instant
circumstance.
[T]he scope of the Appellees’ non-competition covenants are
self-narrowing. To the extent that the court finds that the scope
is too broad, the contractual language itself requires it to be
deemed narrowed to the extent necessary for it to be enforced.
PLS Brief at 34-35.
PLS has argued that no matter the worldwide geographic scope found
in the employment contract, because PLS operates in a worldwide fashion,
the actual scope will self-limit to whatever size is legally needed to prevent
the employee from gaining employment. PLS asserts that this self-limiting
feature is easily enforced in the instant matter as BeeMac operates within
miles of PLS.
____________________________________________
5
The trial court’s order also upheld the restrictive covenant regarding non-
solicitation. That aspect of the order has not been appealed. Ceravolo’s
contract contained a one-year non-solicitation restriction; Hennings’ and
Pakutz’s contracts contained two-year non-solicitation restrictions.
Therefore, those restrictions against contacting PLS clients remain in place
and are enforcable.
- 11 -
J-A18041-17
Nevertheless, the trial court determined that such amendment was
improper and unavailable to PLS given the nature of the geographic
limitation. The trial court reasoned, as quoted above, pursuant to
Adhesives Research Inc. v. Newson, 2015 WL 1638557 (M.D. Pa.
2015),6 Reading Aviation Serv., Inc. v. Bertolet, 311 A.2d 628 (Pa.
1973), and Sidco Paper Co. v. Aaron, 351 A.2d 250 (Pa. 1976), that the
worldwide scope of the covenant, where the relevant geographic could have
been originally specified, was gratuitously overbroad and as such militated
against enforcement because that indicates an intent to oppress the
employee or to foster a monopoly. See Trial Court Opinion at 9. Either of
these intents are improper and so the employer who imposed such a
restriction has unclean hands and is not entitled to the equitable amendment
of the agreement.
We agree with this assessment. Not only was the original worldwide
scope of the covenant facially overbroad, but if we accept PLS’s
interpretation, the self-limiting clause essentially renders the limitation
unchallengeable. As related above, Paragraph 8 of the Contract contains
mandatory language that if a court determines any provision to be
____________________________________________
6
The trial court recognized the Federal Rules of Appellate Procedure allow
for the unrestricted use of unpublished decisions, and therefore accepted
Adhesives Research as persuasive authority. Given that Adhesives
Research relies heavily on Sidco and Reading Aviation, two Pennsylvania
Supreme Court cases the trial court also cited, we also recognize Adhesives
Research as merely persuasive.
- 12 -
J-A18041-17
overbroad then the employee agrees that said term “shall be deemed to be
reduced in the scope or length, as the case may be, to the extent required to
make such Paragraphs enforceable.”7 However, the power to amend a
contract in such a manner is equitable, and we know of no authority that
mandates a court modify the contract. We find that the mandatory language
merely directs the employee to accept the trial court’s authority to make
such determinations as are necessary and proper regarding the
enforceability of such provisions.
In addition to Paragraph 8, we also note that all of the employment
agreements contain a “unique nature of agreement” clause that states, in
relevant part, “Should any court find any part of this Agreement to be
invalid, unenforceable, or overly broad to any extent, the Company and I
intend that such court enforce this Agreement in such less broad or other
manner as the court finds appropriate.” See Paragraph 12, Exhibits C, D
and E. We believe this clause recognizes the equitable powers of the court
to amend the terms of a contract as appropriate which would include the
option not to enforce, as provided by law. This interpretation of Paragraph
12 supports our interpretation of Paragraph 8 – the power to amend the
Contract is equitable and the employee agrees that a court has the power to
amend the Contract as it deems proper. Here, as demonstrated above, the
____________________________________________
7
Exhibits C, D, and E, Paragraphs 8.
- 13 -
J-A18041-17
trial court found the offending clause to be indicative of an improper motive
to oppress its employees. The trial court determined the proper manner of
enforcing such an oppressive contractual term was to render it void.
In light of the foregoing, we find the trial court has provided
apparently reasonable grounds determining that Ceravolo, Hennings and
Pakutz will prevail on the merits. Therefore, we affirm the order of
December 22, 2016.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/14/2017
- 14 -