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HomeMy WebLinkAbout01-2643 CivilPENNSEL COMMUNICATION SERVICES, INC., Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA Vo CIVIL ACTION - LAW ELIZABETH DICOSIMO: and TIMOTHY J. REYNOLDS, Defendants NO. 01-2643 CIVIL TERM IN RE: PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION BEFORE OLER, J. OPINION and PRELIMINARY INJUNCTION OLER, J., July 9, 2001. This equity case arises out of alleged breaches by two employees of a covenant not to compete incident to their employment. For disposition at this time is a motion for a preliminary injunction filed by the employer, seeking preliminary enforcement of the covenant. A hearing on the motion was held on Friday, May 11, 2001, and Wednesday, June 27, 2001. For the reasons stated in this opinion, the motion for a preliminary injunction will be granted. STATEMENT OF FACTS The facts in this case are, to a large extent, not in dispute. Plaintiff is PennSel Communication Services, Inc., a company having an office in Lemoyne, Cumberland County, Pennsylvania, and engaging in the business of providing wireless paging services and equipment throughout a major part of Pennsylvania, and various portions of Maryland, New York, and Virginia.~ Plaintiff has 58 transmitter locations in Pennsylvania, 3 in Virginia, 12 in Maryland, and 4 in New ~ N.T. 31-32, Hearing, May 11, 2001, (hereinafter N.T. (May 11, 2001)__); Pl.'s Ex. 4. York.2 Plaintiff is a business corporation, operated by its sole shareholder and president, Robert J. Fetterman.3 The company, which employs 44 people, has net earnings of $50,000.00 per year.4 The industry is a highly competitive one, with company failures being not uncommon occurrences. Defendant Elizabeth DiCosimo accepted employment with Plaintiff as a sales manager on December 9, 2000,6 and Defendant Timothy J. Reynolds accepted employment with Plaintiff as a sales representative on December 11, 2000.7 Both Defendants are skilled marketers of wireless paging services and equipment.8 Incident to their employment, each executed a covenant not to compete which provided, in pertinent part, as follows: The Employee . . . agrees that Employee will not, at any time during Employee's employment with the Employer and for a two-year period following any termination of such employment, directly or indirectly, individually or in conjunction with any other person or entity, own, manage, operate, control, be employed by or otherwise engage or participate in a communications business including the service, sale or rental of pagers and cellular phones within a seventy (70) mile radius of Harrisburg, PA or within a seventy (70) mile radius of any of Employer's licensed paging transmitters. In the event the term of the Employee's employment covers a period of less than 24 months, then the Employee's covenant not to compete as set forth in the preceding sentence shall be binding upon the Employee for one (1) year following their termination of such employment. The Employee hereby represents to the Employer that Employee's education, training and experience are such that Employee's agreement not to engage, for a temporary period of : Pl.'s Ex. 5. 3 N.T. 63, 67, Hearing, June 27, 2001 (hereinafter N.T. (June 27, 2001) __ 4N.T. (June 27, 2001) 102. 5 N.T. (June 27, 2001) 20, 25, 74, 107. 6N.T. (May 11, 2001) 12, 16. 7N.T. (May 11, 2001) 50-51. 8N.T. (May 11, 2001) 31, 49. 2 time, in a business activity similar to that conducted by Employer will not jeopardize or significantly interfere with Employee's ability to secure other gainful employment either within or without the geographical area to which the above restrictions lie. Employee further covenants that Employee will not, during the term of this Agreement, or any renewal or for a period of two (2) years, immediately following termination of Employee's employment with PennSel Communication Services, Inc., irrespective of the reason for termination or which party initiates termination, either directly or indirectly, engage in competition with a customer of the Employer. Employee acknowledges that this Agreement has been freely and willingly made. Employee recognizes that the restrictive covenants contained in this document are essential to protect the business interests and goals of Employer and that the violation of the restrictions will cause irreparable harm to Employer. Employee thus agrees that, in the event of an actual or threatened breach by the Employee of the provisions of this Agreement, the Employer shall be entitled to an injunction restraining the Employee from engaging or continuing to engage in any conduct prescribed herein.9 After about four months' employment, on April 19, 2001, Defendants left Plaintiff's employment in favor of similar employment with a competitor of Plaintiff, which had an office about four miles away~° in Harrisburg, Dauphin County, Pennsylvania. ~ Motivations for the voluntary resignations consisted of an expectation of higher earnings in the competitor's employment,~2 an anticipation of better benefits,~3 and, in the case of Defendant Reynolds, a hope for 9 PI.'s Ex. 2; PI.'s Ex. 7. l0 N.T. (June 27, 2001)34. il N.T. (May 11, 2001) 5, 16, 31-33. l: N.T. (May 11, 2001) 20-21. l~ N.T. (June 27, 2001) 20-21, 50. 3 better job security.TM With respect to the latter consideration, however, it may be noted that the competitor itself was financially distressed and was (and remains) under the control of a trustee in bankruptcy. ~5 Information as to Defendants' present incomes as employees of Plaintiff's competitor has been placed on the record by stipulation of counsel.~6 These figures will not be repeated here; however, they have been considered by the court on the issues of potential harm to Defendants from the issuance of a preliminary injunction and the amount of any bond or deposit which should be associated with such an injunction. Finally, evidence at the hearing on Plaintiff's motion for a preliminary injunction tended to support the proposition that the restrictive covenant sub judice was appropriate to Plaintiff's reasonable business needs. Factors militating in favor of this position included the marginal nature of Plaintiff's business in terms of profitability,~7 the competitiveness and uniqueness of the industry,la and the advantage to a competitor of knowledge of Plaintiff's operation in areas such as costs incurred for provision of services. 19 DISCUSSION Statement of lam Several principles of law are of importance in the present context. First, with respect to preliminary injunctions, the standard has been stated as follows: Three criteria have been established for the granting of a preliminary injunction .... They are: (1) the preliminary injunction must be necessary to prevent immediate and irreparable harm which could not be compensated for by ~4 N.T. (June 27, 2001) 33. ~5 N.T. (June 27, 2001) 34-35. 16 N.T. (June 27, 2001) 157-58. ~7 N.T. (June 27, 2001) 66-67, 88-90, 101-02. ~8 N.T. (June 27, 2001) 20, 25. 19 N.T. (June 27, 2001) 17-19. 4 damages; (2) greater injury would result from the denial of the preliminary injunction than from the granting of it; and (3) it would operate to restore the parties to the status quo as it existed prior to the alleged wrongful conduct. In addition to meeting all three criteria, the court must be convinced that [plaintiff's] right to a preliminary injunction is clear . . . and general equity jurisdiction must be warranted. Comm. of Seventy v. Albert, 33 Pa. Commw. 44, 49, 381 A.2d 188, 190 (1977). The "purpose [of a preliminary injunction] is to preserve the status quo... by restoring the last peaceable, noncontested status which preceded the controversy." Soja v. Factoryville Sportsmen's Club, 361 Pa. Super. 473, 477, 522 A.2d 1129, 1131 (1987). Second, where a preliminary injunction is issued, it must, as a general rule, be subject to the plaintiff's filing of a bond in an amount fixed and with security approved by the court, naming the Commonwealth as obligee, conditioned that if the injunction is dissolved because improperly granted ..., the plaintiff shall pay to any person injured all damages sustained by reason of granting the injunction and all legally taxable costs and fees, or [subject to the plaintiff's deposit]... with the prothonotary [of] legal tender of the United States in an amount fixed by the court to be held by the prothonotary upon the same condition as provided for the injunction bond. Pa. R.C.P. 153 l(b). Third, with respect to covenants not to compete, it has been noted by Judge Hess of this Court that [c]ourts of equity will enforce.., covenants [not to compete]: · . . when they are (1) incident to an employment relationship between the employer and employee; (2) reasonably necessary for the protection of the employer; and (3) reasonably limited in duration and geographic extent. Sidco Paper Co. v. Aaron, 465 Pa. 586, 591, 351 A.2d 250, 257 (1976). When restrictive covenants meet this three-prong test, they are prima facie enforceable. Bettinger v. Carl Berke Associates, Inc., et al. 455 Pa. 100, 103, 314 A.2d 296, 298 (1974). 5 Wood Co. v. Hickey, 40 Cumberland L.J. 511, 514 (1990) (preliminary injunction issued). Where unreasonableness of a covenant not to compete is an issue, the burden is upon the party asserting such unreasonableness to demonstrate it. John G. Bryant Co. v. Sling Testing and Repair, Inc., 471 Pa. 1, 12, 369 A.2d 1164, 1169 (1977) (issuance of preliminary injunction affirmed). Furthermore, an assessment of irreparable harm in the context of breach of a covenant not to compete is to be made with an understanding that "[i]t is not the initial breach of [the] covenant which necessarily establishes the existence of irreparable harm but rather the threat of the unbridled continuation of the violation and the resultant incalculable damage to the former employer's business .... "Id. at 7, 369 A.2d at 1167. "General covenants are reasonably limited if they are '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.'" dacobson dc Co., Inc. v. Int'l Env 't Corp., 427 Pa. 439, 452, 235 A.2d 612, 620 (1967) quoting Restatement Contracts §516(f) (1932)). "What limits as to activity, geographical area, and time are appropriate in a particular case depends upon all the circumstances." Restatement (Second) of Contracts §188, cmt. d (1981). The reasonableness of the temporal and geographic aspects of a restrictive covenant must be determined in light of the nature of the employer's interest sought to be protected. N. Am. Publ. Co. v. Bishop, 15 Phila. 448, 455 (1987) (citing Boldt Mach. dc Tools, Inc. v. Wallace, 469 Pa. 504, 366 A.2d 902 (1976)). With regard to the temporal aspect of a covenant not to compete incident to an employment relationship, "restraints of [a five-year] duration have been upheld in a wide variety of situations by courts in other jurisdictions." Boldt Math. dc Tools, Inc., 469 Pa. at 515, 366 A.2d at 908. With regard to the geographic aspect of a covenant not to compete, "[t]he principle of customer-contact protection finds its expression in the general rule 6 that the territorial restraint in a covenant not to compete will, generally speaking, be considered reasonable if the area covered by the restraint is limited to the territory in which the employee was able, during the term of his employment, to establish contact with his employer's customers." C.T. Drechsler, Annotation, Enforceability of restrictive covenant, ancillary to employment contact, as afJkcted by territorial extent of restriction, 43 A.L.R.2d 94, 162 (1955). In appropriate circumstances, a covenant encompassing the area of an entire country may be upheld. See, e.g., Plunkett Chem. Co. v. Reeve, 373 Pa. 513, 95 A.2d 925 (1953) (Country of United States). Fourth, with respect to contract law, "[t]he cardinal rule of construction is to ascertain the intent of the parties at the time of making the contract and to give effect to such intent." 8 P.L.E. §144, at 172 (1972). Application of law to facts. In this case, it appears clear that the covenant not to compete entered into by the parties was intended to encompass the activities which Defendants have engaged in at their new employer. The covenant was incident to an employment relationship with the Plaintiff. And it is, in the context sought to be enforced, reasonably necessary for protection of the employer. It further appears that the harm occasioned to Plaintiff by this breach and the threat of a continuation of the covenant's violation is immediate and irreparable as those terms are understood in this area of the law. A refusal to issue a preliminary injunction in the case of a relatively short-term covenant (one year under the present circumstances), particularly where the employees' skills are reasonably marketable (albeit in another geographical area), would appear to carry more risk of harm than issuance of the injunction. Finally, issuance of a preliminary injunction in the present circumstances would operate to restore the parties to an uncontested status. For the foregoing reasons, the following preliminary injunction will be issued: 7 PRELIMINARY INJUNCTION AND NOW, this 9th day of July, 2001, upon consideration of Plaintiff's motion for a preliminary injunction, following a hearing held on May 11, 2001, and June 27, 2001, and for the reasons stated in the accompanying opinion, it is ordered, adjudged and decreed as follows: 1. Defendants are enjoined from continuing their present employment in violation of the covenant not to compete sub judice, for a period of one year from April 19, 2001. 2. This preliminary injunction shall become effective upon the posting of a bond or cash in the amount of $25,000.00, in accordance with Pennsylvania Rule of Civil Procedure 153 l(b). 3. In the event the requisite bond or cash is not posted or deposited within 20 days of the date of this order, the order shall be deemed automatically dissolved. BY THE COURT, s/J. Wesley Oler, Jr. J. Wesley Oler, Jr., J. Michael P. Gregorowicz, Esq. 401 Market Street Bloomsburg, PA 17815 Attorney for Plaintiff Ron Turo, Esq. 28 S. Pitt Street Carlisle, PA 17013 Attorney for Defendants 9 PENNSEL COMMUNICATION SERVICES, INC., Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA Vo ELIZABETH DICOSIMO: and TIMOTHY J. REYNOLDS, Defendants CIVIL ACTION - LAW NO. 01-2643 CIVIL TERM IN RE: PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION BEFORE OLER, J. PRELIMINARY INJUNCTION AND NOW, this 9th day of July, 2001, upon consideration of Plaintiff's motion for a preliminary injunction, following a hearing held on May 11, 2001, and June 27, 2001, and for the reasons stated in the accompanying opinion, it is ordered, adjudged and decreed as follows: 1. Defendants are enjoined from continuing their present employment in violation of the covenant not to compete sub judice, for a period of one year from April 19, 2001. 2. This preliminary injunction shall become effective upon the posting of a bond or cash in the amount of $25,000.00, in accordance with Pennsylvania Rule of Civil Procedure 153 l(b). 3. In the event the requisite bond or cash is not posted or deposited within 20 days of the date of this order, the order shall be deemed automatically dissolved. BY THE COURT, J. Wesley Oler, Jr., J. 11 Michael P. Gregorowicz, Esq. 401 Market Street Bloomsburg, PA 17815 Attorney for Plaintiff Ron Turo, Esq. 28 S. Pitt Street Carlisle, PA 17013 Attorney for Defendants