HomeMy WebLinkAbout94-3517 CivilLAWCO, INC., : IN THE COURT OF COMMON PLEAS OF
Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA
:
v. : CIVIL ACTION - LAW
:
TIMOTHY GREENFIELD, and :
SCOTT PERRY, :
individually and :
t/d/b/a HYDROTECH :
MECHANICAL SERVICES, :
Defendant : NO. 94-3517 EQUITY TERM
IN RE: PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
BEFORE OLER, J.
DECREE
AND NOW, this ~day of November, 1995, after careful
consideration of Plaintiff's Motion for Preliminary Injunction,
following a hearing and for the reasons stated in the accompanying
Opinion, the motion is GRANTED, and until June 29, 1998, unless
otherwise affected by further Decree,
1. Defendant Greenfield shall not be
associated with Hydrotech Mechanical Services;
or, in the alternative,
2. Defendants shall not, within a radius
of 250 miles of Plaintiff's office at 1156
York Road, Mechanicsburg, Cumberland County,
Pennsylvania, perform the services of a water
utility service company as discussed in the
said Opinion.
THIS PRELIMINARY INJUNCTION is conditioned upon Plaintiff's
filing of a bond or cash in accordance with Pennsylvania Rule of
Civil Procedure 1531(b) in the amount of $75,000.00.
BY THE COURT,
Wesley Ole~,~Jr., J.
Diane G. Radcliff, Esq.
3448 Trindle Road
Camp Hill, PA 17011
Attorney for Plaintiff
Mary A. Etter Dissinger, Esq.
28 North Thirty-Second Street
Camp Hill, PA 17011
Attorney for Defendants
: rc
LAWCO, INC., : IN THE COURT OF COMMON PLEAS OF
Plaintiff : CUMBERLAND COUNTY, PENNSYLVANIA
:
v. : CIVIL ACTION - LAW
:
TIMOTHY GREENFIELD, and :
SCOTT PERRY, :
individually and :
t/d/b/a HYDROTECH :
MECHANICAL SERVICES, :
Defendant : NO. 94-3517 EQUITY TERM
IN RE: PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION
BEFORE OLER, J.
OPINION and DECREE
Oler, J.
Before the court in this equity case is a motion for a
preliminary injunction filed by Lawco, Inc. (Plaintiff), against
Timothy Greenfield and Scott Perry, individually and doing business
as ~ydrotech Mechanical Services (Defendants). The basis for the
motion is a covenant not to compete and a covenant of non-
disclosure executed by Defendant Greenfield.
A hearing on Plaintiff's motion was held on February 24,
September 29 and October 6, 1995. Based upon the evidence
presented at the hearing, it appears likely that the facts recited
hereafter will be again shown by Plaintiff at trial. For this
reason, a preliminary injunction will be issued.
STATEMENT OF FACTS
Plaintiff is a Pennsylvania corporation with its principal
place of business at 1156 York Road, Mechanicsburg, Cumberland
County, Pennsylvania.~ Defendants are adult residents of
~ Plaintiff's complaint, paragraph 1; Defendants' answers,
paragraph 1.
NO. 94-5517 EQUITY TERM
Dillsburg, York County, Pennsylvania.2
Plaintiff is a small, solely-owned corporation engaging in the
rather specialized business of "water utility service."3
Plaintiff's customers are water utilities, both investor-owned and
municipally-owned, as well as a few factories.4
The primary service performed by Plaintiff was described by
its owner and president - "chief cook and bottle washer''s -- Norman
Law, in the following terms:
[P]rimarily we are called calibrators,
meaning that we can certify, both in the field
and in the test lab, the accuracy of their
billing instruments or measuring instruments,
whether these instruments are production meter
or what we would call, maybe, a source meter
coming out of the Susquehanna or the Yellow
Bre[e]ches or the billing meter that would
sell water to, say, the Hershey Medical Center
or an industry.6
In addition to testing water measurement devices for accuracy,
the company services and repairs such instruments, salvages and
rebuilds them, and rents, sells and installs them. It also sells
2 Plaintiff's complaint, paragraphs 2-3; Defendants' answers,
paragraphs 2, 3.
3 N.T. 4 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
4 N.T. 4 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
s N.T. 4 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
6 N.T. 8 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
2
NO. 94-5517 EQUITY TERM
parts for them.7
Plaintiff has about seven competitors in the area of its
operations,8 which extends across Pennsylvania and into Maryland,
Virginia and West Virginia.9 The frequency with which customers
require the services provided by Plaintiff varies from several
times a year to once in ten years.~° Business in the "water utility
service" industry is generated largely through customer referrals.~
Plaintiff corporation has three full-time and two part-time
employees.~2 The year of 1994 was described as a financial
"nightmare" by its president.~3
In 1987, one of Plaintiff's two "field technicians" (the other
being company president Law) resigned.~4 Field technicians perform
7 N.T. 9-15 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
8 N.T. 129-30 (testimony of Norman Law), Hearing on
Plaintiff's motion for preliminary injunction, February 24, 1995.
9 N.T. 51-52 (testimony of Norman Law), Hearing on
Plaintiff's motion for preliminary injunction, February 24, 1995.
~8 N.T. 50 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
~ N.T. 56 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
~2 N.T. 85 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
~3 N.T. 81 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
~4 N.T. 24, 31 (testimony of Norman Law), Hearing on
Plaintiff's motion for preliminary injunction, February 24, 1995.
3
NO. 94-5517 EQUITY TERM
the services of the company in the field - testing and servicing
meters, and so forth.~5 Their competency in the area may take as
long as a year to fully develop.~6 In Plaintiff's organization, a
field technician was also expected at times to solicit business and
entertain customers.~7
Defendant Timothy Greenfield was employed by Plaintiff to
replace the field technician who resigned.~8 His background was
that of a high school graduate, with post-secondary school courses
in water systems, sewage treatment and management. He was
assistant director of public works for the Borough of Dillsburg in
York County, Pennsylvania.~9 He also held Pennsylvania operators'
licenses for water and sewer plants.2°
Defendant Greenfield and Plaintiff's president Law met on
January 13, 1988, to discuss the possibility of the former's
~5 N.T. 16-17, 28-29 (testimony of Norman Law), Hearing on
Plaintiff's motion for preliminary injunction, February 24, 1995.
~6 N.T. 29 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
~7 N.T. 20-21, 56-57 (testimony of Norman Law), Hearing on
Plaintiff's motion for preliminary injunction, February 24, 1995.
~8 N.T. 42 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
~9 N. T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995.
Not all testimony in the present case has been transcribed.
20 N. T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995.
4
NO. 94-5517 EQUITY TERM
employment.2~ According to Mr. Law, Defendant Greenfield was
"absolutely" informed at this time that a covenant not to compete
would be involved with his employment.22 Defendant Greenfield's
recollection is to the contrary.23
On Friday, February 19, 1988, Defendant Greenfield was
provided with an employment agreement executed by company president
Law and dated the 19th.24 He took it home to review; he commenced
work for Plaintiff on Monday, February 22, 1988; and he returned
the agreement signed on Monday, February 29, 1988.25
The employment agreement contained, and Defendant Greenfield
was aware of the import of,26 the following provisions:
B. NON-COMPETITION:
1. EMPLOYEE agrees that during his
employment and for a period of five (5) years
immediately following the termination of said
employment, for any reason whatsoever, he
shall not, either as a principal, disclosed or
2~ N.T. 32-33 (testimony of Norman Law), Hearing on
Plaintiff's motion for preliminary injunction, February 24, 1995.
22 N.T. 34 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
23 N. T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995.
24 N.T. 38 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
25 N.T. 38-39 (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, February 25, 1995.
26 N.T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995.
5
NO. 94-5517 EQUITY TERM
undisclosed, on behalf of, or in conjunction
with any other person, firm, partnership,
company or corporation, either as an agent,
employee, partner, officer, director,
consultant or in .any other capacity, without
limitation by prior specification, directly or
indirectly, within a territory defined by a
radius of 250 miles from the EMPLOYER'S
principal place of business, located at 1156
York Road, Mechanicsburg, Pennsylvania, do any
of the following:
a. He shall not engage in
the business of
installation, repair,
calibration, sales and/or
rentals of water meters
of any kind.
b. He shall not solicit
orders or contracts for
the installation, repair,
calibration, sales and/or
rentals of water meters
of the same or similar
nature provided by the
EMPLOYER.
c. He shall not solicit,
divert, take away or
induce any of the
customers of the
EMPLOYER.
2. EMPLOYEE acknowledges that the
remedies at law for any breach by him of any
of the provisions of Paragraph B 1 of this
Agreement will be inadequate relief against
him and in the event of any such breach,
EMPLOYEE further acknowledges and warrants
that he will be fully able to earn an adequate
livelihood for himself and his dependents if
the terms of this Agreement should be
specifically enforced against him.
3. If the provisions of Paragraph B 1
of this Agreement should be held to be
invalid, illegal, or unenforceable by a court
6
NO. 94-5517 EQUITY TERM
of competent jurisdiction because of the time
limitation and geographical area therein
provided, such provisions shall nevertheless
be effective and enforceable for such a period
of time and in such a geographical area as may
be held to be reasonable by such court. Any
provision of this Agreement that is invalid,
illegal or unenforceable in any such
jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such
invalidity, illegality or unenforceability
without invalidating or rendering
unenforceable the remaining provisions of this
Agreement, and any such invalidity, illegality
or unenforceability shall not, of itself,
affect the validity, legality or
enforceability of such provision in any other
jurisdiction.
4. The parties agree that the provisions
of this Agreement pertaining to the employment
of EMPLOYEE by EMPLOYER as set forth in
Paragraph A herein is given in exchange for
and act as consideration for this Covenant not
to compete, provided, however, that this
covenant not to compete shall be deemed
separate and apart from the terms of the
employment relationship and any other
agreement set forth herein.
C. NON-DISCLOSURE:
1. EMPLOYEE agrees not to solicit,
divert or take away customers of EMPLOYER in
any state, not included in the aforesaid
territory heretofore mentioned, whether such
customers become known to him during the
course of his employment with EMPLOYER, nor
shall he divulge to anyone the names of
EMPLOYER'S customers or the details of its
transactions with them.
2. EMPLOYEE shall not, directly, or
indirectly, disclose or use at any time,
either during or subsequent to the said
employment, any secret or confidential
information, knowledge or data of the
EMPLOYER, whether or not obtained, acquired or
NO. 94-5517 EQUITY TERM
developed by the EMPLOYEE, unless he shall
first secure the written consent of the
EMPLOYER. Upon the termination of his
employment, EMPLOYEE shall turn over to the
EMPLOYER all notes, memoranda, notebooks,
drawings or other documents made by, complied
[sic] by, or delivered to him concerning any
customers, distributors, distribution systems,
products, apparatus, or methods used,
developed, or investigated by the EMPLOYER
during the period of his employment; it being
expressly agreed that the same and all
information contained therein are, at all
times, the property of the EMPLOYER.27
In the ensuing four to six months, Plaintiff's president
personally trained Defendant Greenfield in the field.TM Thereafter,
Mr. Greenfield generally performed his duties alone.29 During the
course of his employment, he had access to all of Plaintiff's
customer files, which contained valuable background information on
customers' equipment, suppliers and personnel,3° and to Plaintiff's
pricing policies.3~ Defendant Greenfield also became acquainted
27 Plaintiff's Exhibit 5, Hearing on Plaintiff's motion for
preliminary injunction, February 24, 1995.
28 N.T. 45 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995; N.T.
(testimony of Timothy Greenfield), Hearing on Plaintiff's motion
for preliminary injunction, September 29, 1995.
29 N.T. 45 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
30 N.T. 53-55 (testimony of Norman Law), Hearing on
Plaintiff's motion fOr preliminary injunction, February 24, 1995.
3~ N.T. 81 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
8
NO. 94-5517 EQUITY TERM
with the managers of the utilities serviced by Plaintiff,32 and
entertained their employees.33 He obtained a certification for
"back flow" testing while working for Plaintiff.34
Around February of 1993, Mr. Greenfield expressed an interest
in buying the testing portion of Plaintiff's business and going out
on his own.35 In anticipation of such a venture, he had, a month
or so earlier, formed a business relationship with Defendant Scott
Perry, who was not himself experienced in the water utility service
field, and they had registered Hydrotech Mechanical Services as a
fictitious name.36
However, negotiations with Plaintiff did not produce an
agreement.37 On June 29, 1993, Defendant Greenfield resigned,
advising Plaintiff's president that he would be going into the
32 N.T. 94 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
33 N.T. 96-97 (testimony of Norman Law), Hearing on
Plaintiff's motion for preliminary injunction, February 24, 1995.
34 N.T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995.
3s N.T. 58 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
36 N. T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995;
N.T. (testimony of Scott Perry), Hearing on Plaintiff's motion
for preliminary injunction, October 6, 1995.
37 N.T. 60 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
9
NO. 94-5517 EQUITY TERM
landscaping business.38 Prior to his resignation, Plaintiff's
president had reminded Mr. Greenfield of his contractual
obligations and of Plaintiff's intent to enforce its proscriptive
rights if necessary.39 Defendant Perry was also aware of these
contractual obligations.4°
Defendant Greenfield did not enter the landscaping business.
Instead, he and Defendant Perry commenced a water utility service
operation under the name Hydrotech Mechanical Services at 10
Chestnut Grove Road, Dillsburg, York County, Pennsylvania.4~
The company's brochure includes the following information:
Hydrotech Mechanical Services is a full
service company offering expert consultation,
as well as a variety of meter testing,
modernization, replacement and repair
services. Our technicians can repair any
problem you have ....
Hydrotech Mechanical Services is a PUC
~8 N.T. 61 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
~9 N.T. 60 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
40 N.T. (testimony of Scott Perry), Hearing on Plaintiff's
motion for preliminary injunction, October 6, 1995.
4~ N,T. (testimony of Scott Perry), Hearing on Plaintiff's
motion for preliminary injunction, October 6, 1995; Plaintiff's
Exhibit 8 (brochure), Hearing on Plaintiff's motion for preliminary
injunction, September 29, 1995. Mr. Perry testified that Hydrotech
Mechanical Services became operational in the summer of 1993. N.T.
(testimony of Scott Perry), Hearing on Plaintiff's motion for
preliminary injunction, October 6, 1995.
10
NO. 94-5517 EQUITY TERM
approved water meter testing agency and will
test any style or size of meter from any
manufacturer at any time.
Meter testing will be done in-line with no
interruptions or need for additional manpower
and will be performed at the customers
convenience.
Hydrotech Mechanical Services comes to work
with over 18 years of field experience in the
water industry. This includes in excess of
15,000 water meters tested in the field as
well as lab testing. It also includes
thousands of installations or replacements,
work within the municipal environment,
membership on our local sewer and water
authority board, valid Pennsylvania
certifications in water and sewage treatment,
a decade of design experience, and NEWWA
certification in back flow prevention.
Hydrotech Mechanical Services is experienced
in serving all users of the water industry in
Pennsylvania and all neighboring states.42
The brochure lists as the company's field technician Defendant
Greenfield. Defendant Perry is listed as its general manager. No
other individuals' names appear.43
A comparison of the very detailed test report forms used by
Plaintiff and Hydrotech shows that for~all practical purposes they
are identical.44 The form had been designed by Plaintiff's
42 Plaintiff's Exhibit 8 (brochure), Hearing on Plaintiff's
motion for preliminary injunction, September 29, 1995.
43 Plaintiff's Exhibit 8 (brochure), Hearing on Plaintiff's
motion for preliminary injunction, September 29, 1995.
44 Plaintiff's Exhibits 13 (Hydrotech form), 15 (Lawco form),
Hearing on Plaintiff's motion for preliminary injunction, September
11
NO. 94-5517 EQUITY TERM
president, and the conclusion is inescapable that Defendants have
adopted it for their own purposes.45
As a gesture toward the aforesaid contractual restrictions,
Defendants during their first year of operation did not
affirmatively solicit known customers of Plaintiff within a 100-
mile radius, although such business was not refused when initiated
by the customer.46 Defendants have since abandoned this limitation
in the operation of their business.~7
Defendants succeeded in engaging a significant number of
Plaintiff's customers,~8 and their solicitation of Plaintiff's
customers has been pervasive.~9 In 1994, the major part of
Defendants' business was with customers of Plaintiff.so
Presently, the water utility service industry is glutted in
29, 1995.
4~ N.T. 71 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
46 N. T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995.
¢7 N. T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995.
~8 N.T. 65-73 (testimony of Norman Law), Hearing on
Plaintiff's motion for preliminary injunction, February 24, 1995.
49 N.T. 73 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
s0 N. T. (testimony of Timothy Greenfield), Hearing on
Plaintiff's motion for preliminary injunction, September 29, 1995.
12
NO. 94-5517 EQUITY TERM
terms of competition.5~ In 1992, Plaintiff's income from field
testing labor sales was $79,215.00.52 In 1993, Plaintiff's income
from these sales was $48,247.81.53 In 1994, Plaintiff's income from
such sales was $37,225.05.54 Further deterioration in Plaintiff's
income in this area is anticipated for the future.55
Although not all of the decline in Plaintiff's business is
attributable to Defendants' competition, the effect of their
operation cannot be regarded as de minimis.56
DISCUSSION
The prerequisites for a preliminary injunction have been set
forth by the Pennsylvania Commonwealth Court 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 damages; (2) greater injury
would result from the denial of the
5~ N.T. 55 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
52 N.T. 78 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
53 N.T. 79 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
54 N.T. 79 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
55 N.T. 81 (testimony of Norman Law), Hearing on Plaintiff's
motion for preliminary injunction, February 24, 1995.
56 Plaintiff's Exhibit 16, Hearing on Plaintiff's motion for
preliminary injunction, February 24, 1995.
13
NO. 94-5517 EQUITY TERM
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.
Committee of Seventy v. Albert, 33 Pa. Commw. 44, 49, 381A.2d 188,
190 (1977); see John G. Bryant Co., Inc. v. Sling Testing and
Repair, Inc., 471 Pa. 1, 369 A.2d 1164 (1977) (affirming issuance
of preliminary injunction).
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).
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 [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. 1531(b).
With respect to covenants not to compete, it has been noted by
Judge Hess of this court that "[c]ourts of equity will enforce
14
NO. 94-5517 EQUITY TERM
restrictive covenants ... 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, [252] (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)." The Woodco Co.,
Inc. v. Hickey, 40 Cumberland L.J. 511, 514 (1990) (preliminary
injunction issued).
The incidence of a restrictive covenant to one's employment is
not dependent upon a technical analysis of the precise timing of
the employment agreement's execution. See, e.g., Beneficial
Finance Co. of Lebanon v. Becker, 422 Pa. 531, 222 A.2d 873 (1966);
cf. George W. Kistler, Inc. v. O'Brien, 464 Pa. 475, 347 A.2d 311
(1975).
"An employer's right to protect, by a covenant not to compete,
interest in customer goodwill acquired through the efforts of an
employee is well-established in Pennsylvania." $idco Paper Co. v.
Aaron, 465 Pa. 586, 591, 351 A.2d 250, 252-53 (1976). This aspect
of a company's legally protectible interest has been discussed in
the following terms:
"In almost all commercial enterprises ...
contact with customers or clientele is a
particularly sensitive aspect of the
business .... The employer's sole or major
15
NO. 94-5517 EQUITY TERM
contact with buyers [may be] through these
agents and the success or failure of the firm
[may depend] in part on their
effectiveness .... The possibility is present
that the customer will regard, or come to
regard, the attributes of the employee as more
important in his business dealings than any
special qualities of the product or service of
the employer, especially if the product is not
greatly differentiated from others which are
available. Thus, some customers may be
persuaded, or even be very willing, to abandon
the employer should the employee move to a
competing organization or leave to set up a
business of his own ....
"[It is argued that w]hen [the employee]
leaves the company he should no more be
permitted to try to divert to his own benefit
the product of his employment than to abscond
with the company's cashbox."
Sidco Paper Co. v. Aaron, 465 Pa. 586, 593-94, 351 A.2d 250, 253-54
(1976), quoting Blake, Employee Agreements Not To Compete, 73 Harv.
L. Rev. 625, 653-54 (1960); see Jacobson & Co., Inc. v. Int'l
Environment Corp., 427 Pa. 439, 235 A.2d 612 (1967).
An assessment of irreparable harm in the context 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." John G.
Bryant Co., Inc. v. Sling Testing and Repair, Inc., 471 Pa. 1, 7,
369 A.2d 1164, 1167 (1977) (affirming issuance of preliminary
injunction).
16
NO. 94-5517 EQUITY TERM
"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." Jacobson & Co., Inc. v. Int'l Environment Corp.,
427 Pa. 439, 452, 235 A.2d 612, 620 (1967).
"What limits as to activity, geographical area, and time are
appropriate in a particular case depends upon all the
circumstances." Restatement (Second) of Contracts S188, comment d
(1979). "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." Boldt
Machinery & Tools, Inc. v. Wallace, 469 Pa. 504, 513, 366 A.2d 902,
907 (1976) (per Pomeroy, J., with two judges joining).
With regard to the temporal aspect of a covenant not to
compete incident to an employment relationship, "restraints of [a
5-year] duration have been upheld in a wide variety of situations
by courts in other jurisdictions." Id. at 515, 366 A.2d 908. In
this regard, "[f]requency of [customer] contact may ... control or
affect the permissible period of the restraint .... [I]f the
contact is less frequent, a longer period of restraint may be
reasonable." Blake, Employee Agreements Not To Compete, 73 Harv.
L. Rev. 625, 659 n.1 (1960).
With regard to the geographic aspect of a covenant not to
compete, "[t]he principle of customer-contact protection finds its
17
NO. 94-5517 EQUITY TERM
expression in the general rule 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."
Annot., 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 Chemical Co. v. Reeve, 373 Pa. 513, 95
A.2d 925, 43 A.L.R.2d 91 (1953) (United States).
Where reasonableness 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., Inc. v. Sling Testing and
Repair, Inc., 471 Pa. 1, 369 A.2d 1164 (1977) (affirming issuance
of preliminary injunction).
Finally, if a covenant not to compete is reasonable, it is not
a defense that the former employee did not actively pursue
solicitation of the employer's prior customers. Sobers v. Shannon
Optical Co., Inc., 326 Pa. Super. 170, 473 A.2d 1035 (1984).
In the present case, the covenant not to compete executed by
Defendant was incident to an employment relationship between
Plaintiff as employer and Defendant as employee. It was reasonably
necessary for the protection of the Plaintiff, given the
competitive nature of this rather unusual industry and the
significant position occupied by Mr. Greenfield. And in view of
18
NO. 94-5517 EQUITY TERM
the infrequency of contact between water utility service companies
and some of their customers, and the extent of the area serviced by
a field technician in Plaintiff's employ, the court is not in a
position to find the covenant not to complete unreasonable as to
duration or territorial restraint.
The activity of Defendant Greenfield in association with
Defendant Perry over the past two years has been clearly violative
of the terms of the employment agreement in question. The "threat
of the unbridled continuation of the violation and the resultant
incalculable damage to [Plaintiff's] business" represents
irreparable harm to Plaintiff which can not be compensated by money
damages.
To refuse a preliminary injunction after almost half of the
restrictive period has passed with no prospect of compliance would,
in the court's view, produce a greater injury to Plaintiff's
imperiled field testing operation than would result from requiring
Defendant Greenfield to refrain from this limited type of activity
during the balance of the term. Finally, the issuance of a
preliminary injunction would restore the parties to the status quo
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NO. 94-5517 EQUITY TERM
as it existed prior to the wrongful conduct,s?
For these reasons, the following Decree will be entered:
DECREE
AND NOW, this 13th day of November, 1995, after careful
consideration of Plaintiff's Motion for Preliminary Injunction,
following a hearing and for the reasons stated in the accompanying
Opinion, the motion is GRANTED, and until June 29, 1998, unless
otherwise affected by further Decree,
1. Defendant Greenfield shall not be
associated with Hydrotech Mechanical Services;
or, in the alternative,
2. Defendants shall not, within a radius
of 250 miles of Plaintiff's office at 1156
York Road, Mechanicsburg, Cumberland County,
Pennsylvania, perform the services of a water
utility service company as discussed in the
said Opinion.
THIS PRELIMINARY INJUNCTION is conditioned upon Plaintiff's
filing of a bond or cash in accordance with Pennsylvania Rule of
s? Plaintiff's right to equitable relief with respect to the
covenant of non-disclosure executed by Defendant Greenfield is more
problematic than is its right with respect to the covenant not to
compete. See generally Bell Fuel Corp. v. Cattolico, 375 Pa.
Super. 238, 544 A.2d 450 (1988) (summary of law in area of
protectible business information). Some of Plaintiff's customers,
for instance, are municipally-owned utilities, information as to
which would not normally "be a particular secret of [an] employer
[such as] Plaintiff .... " Id. at 258, 544 A.2d at 461. The
evidence at the hearing on Plaintiff's motion for a preliminary
injunction did not convince the court to extend the preliminary
injunction beyond the terms of the covenant not to compete at this
time.
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NO. 94-5517 EQUITY TERM
Civil Procedure 1531(b) in the amount of $75,000.00.
BY THE COURT,
s/ J. Wesley Oler, Jr.
J. Wesley Oler, Jr., J.
Diane G. Radcliff, Esq.
3448 Trindle Road
Camp Hill, PA 17011
Attorney for Plaintiff
Mary A. Etter Dissinger, Esq.
28 North Thirty-Second Street
Camp Hill, PA 17011
Attorney for Defendants
: rc
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