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HomeMy WebLinkAbout02-1830 CIVILJOYNER SPORTSMEDiCiNE INSTITUTE, INC., Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA Vo JOSE DOMINGUEZ, P.T., Defendant CIVIL ACTION - EQUITY NO. 02-1830 CIVIL TERM IN RE: PLAINTIFF'S PETITION FOR PRELIMINARY INJUNCTION BEFORE OLER~ J. OPINION and ORDER OF COURT OLER, J., August 2, 2002. This equity case arises out of an alleged breach by Defendant, Jose Dominguez, P.T., of a covenant not to compete, a covenant not to solicit employees and other business contacts of the employer, and a covenant not to use confidential or proprietary business information of the employer, all of which were included as provisions in an employment agreement between Defendant and Plaintiff Joyner Sportsmedicine INstitute, INc. For disposition at this time is a petition for a preliminary injunction, in which Plaintiff seeks to enjoin the operation of a physical therapy clinic that was opened by Defendant soon after he had resigned from his prior employment in the same profession. A hearing on the petition for a preliminary injunction was held on June 24, 2002, and June 26, 2002. Briefs have now been received from the parties. For the reasons stated in the accompanying opinion, Plaintiff' s petition will be denied. STATEMENT OF FACTS The evidence presented at the hearing on Plaintiff's petition demonstrated the probability that the following facts will be established at trial: Plaintiff Joyner Sportsmedicine institute, inc. (hereinafter "Joyner"), is a Pennsylvania corporation with its principal place of business in Cumberland County, Pennsylvania. Joyner previously had both owned and operated a rehabilitation and physical therapy outpatient clinic located at 3438 Trindle Road, Camp Hill, Hampden Township, Cumberland County, Pennsylvania.~ On March 9, 1998, Joyner was acquired through a stock purchase by NovaCare Outpatient Rehabilitation East, Inc. (hereinafter "NovaCare"), and subsequently was acquired through another stock purchase by Select Medical Corporation (hereinafter "Select").2 Throughout these changes in ownership, the Joyner name has continued to attach to the clinic; however, the acquisitions resulted in different benefits packages, compensation formulas, and employers as reflected on stationery, paychecks, and W-2 forms.3 Defendant Jose Dominguez, P.T., resides at 510 Joel Drive, Mechanicsburg, Cumberland County, Pennsylvania. Defendant had been employed by Joyner, NovaCare or Select from approximately July 8, 1996, until March 8, 2002, most recently as manager of said clinic.4 As manager, Defendant had access to the list of doctors on which the clinic depended for patient referrals and to the management techniques employed by the clinic. Defendant was originally employed pursuant to an employment agreement, executed on July 8, 1996, that contained several restrictive covenants, including non- competition, non-solicitation, and non-disclosure clauses: 9. NON-DISCLOSURE: (a) The Employee recognizes and acknowledges that he/she will have access to or other wise learn about certain confidential information, records and other proprietary commercial information of the Employer. The Employee agrees that he/she will not, during or after the term of his/her employment, disclose any ~ P1.'s Compl., filed Apr. 12, 2002, para. 3; Def.'s Answer & New Matter, May 3, 2002, para. 3. By agreement of the parties, the pleadings in this case were made part of the record. 2 P1.'s Compl., filed Apr. 12, 2002, para. 20; Def.'s Answer & New Matter, May 3, 2002, para. 20. 3 See, e.g., P1.'s Compl., filed Apr. 12, 2002, para. 3; Def.'s Answer & New Matter, May 3, 2002, para. 3. 4 See P1.'s Ex. 1, Hr'g, June 24, 2002, June 26, 2002 (hereinafter P1.'s / Def.'s Ex. ~; see also P1.'s Compl., filed Apr. 12, 2002, para. 15; Def.'s Answer & New Matter, May 3, 2002, para. 15. 2 such confidential information to any party without express written authorization of the Employer .... (c) The provisions of this Paragraph 9 shall survive the termination of this Agreement. 11. NONCOMPETITION PROHIBITION: For the duration of Employee's employment, and for a period of Two (2) years following the termination of Employee's employment, Employee shall not, directly or indirectly, as an employee, agent, independent contractor, consultant, owner, stockholder, parmer, officer, director or otherwise, enter into or in any manner take part in any business or perform any services in direct competition with the business of the Employer, within a ten (10) mile radius of the [clinic]. 12. NON-SOLICITATION OF EMPLOYEES: Employee agrees not to solicit or entice or endeavor to solicit or entice away from the Employer any person who was a director, officer, employee or consultant of the Employer, either on his/her own account or for any person, firm[,] corporation or other organization, whether or not such person would commit any breach of his/her contract of employment by reason of leaving the service of the Employer.5 On May 27, 1998, soon after the acquisition of Joyner by NovaCare, Defendant was sent a letter by NovaCare in which the latter proposed a new employment agreement between NovaCare and Defendant.6 Following the recitation of the terms of this offer, which incorporated the restrictive covenants contained in the previous employment agreement between Joyner and Defendant, the letter stated as follows: Please sign this letter below as acknowledgment of these conditions of your employment [and] return it to NovaCare in the envelope that has been provided to you, no later than Monday, June 1, 1998. Shouldyou opt not to sign and return this Agreement by June 1, 1998, your contract will be void and you will become an employee at will on June 1, 1998.7 5 See Pl.'s Ex. 1, paras. 9, 11-12. 6 See Def.'s Ex. 1. 7 Id. (emphasis added). 3 Defendant did not return the agreement to NovaCare by June 1, 1998 (or any other date), and did not thereafter sign a new employment agreement with Joyner, NovaCare or Select. On March 8, 2002, Defendant resigned from employment at the clinic, which was then owned by Select.8 Soon thereafter, Defendant began operating Cumberland Orthopedic & Spine Physical Therapy, Inc.,9 which has a registered office at 4640 Trindle Road, Camp Hill, Hampden Township, Cumberland County, Pennsylvania. l0 The office is located approximately one mile from the other clinic and is engaged in substantially the same business as the other clinic. To manage this clinic, Defendant has relied on a business and management plan developed by Defendant based on similar plans used throughout the physical-therapy industry and, in part, on his own experience at the prior clinic. However, Defendant does not possess and has not used any information or materials from the prior clinic. To develop a base of doctors who will refer patients to the clinic,~ Defendant has engaged in marketing efforts designed to attract area physicians, of whom several had previously referred patients to the prior clinic. In determining the doctors toward whom he would direct his solicitation efforts, Defendant has relied primarily on listings in the phonebook and has not used the list of doctors who do or did refer patients to the other clinic. On April 12, 2002, Plaintiff filed a complaint and a petition for a preliminary injunction, in which Plaintiff seeks to enjoin the operation of Defendant's competing 8 Pl.'s Compl., filed Apr. 12, 2002, para. 7; Def.'s Answer & New Matter, May 3, 2002, para. 3, 7. 9 The date of incorporation of this entity was January 15, 2002. Pl.'s Compl., filed Apr. 12, 2002, para. 37; Def.'s Answer & New Matter, May 3, 2002, para. 37. l0 Pl.'s Compl., filed Apr. 12, 2002, para. 37; Def.'s Answer & New Matter, May 3, 2002, para. 37. ~ According to Defendant, physical therapy clinics in Pennsylvania rely on doctors for referrals because "physical therapists in Pennsylvania cannot treat patients without a referral." 4 physical therapy clinic. One potentially dispositive issue raised by the petition, and by Defendant's answer, is whether the non-competition provision in Defendant's employment agreement survived the stock-purchase acquisition of Joyner by NovaCare. This issue appears, at least based upon the present preliminary record, to be essentially indistinguishable from one previously "litigated and finally adjudicated" in doyner Sports Medicine Institute, Inc. v. Stejbach, 45 Pa. D. & C.4th 242, 248-50 (Dauphin 1999), aff'd mem., 769 A.2d 1215 (Pa. Super. Ct. 2000).~2 Stejbach involved claims brought by Joyner, also Plaintiff in the present case, to enforce the terms of restrictive covenants against two ex-employees, both of whom obtained new employment in a competing company after they had resigned their respective positions in 1999. See Stejbach, 45 Pa. D. & C.4th at 245-46. In that case, the defendants argued that their employment with Joyner had ended on March 9, 1998, the date that NovaCare had acquired Joyner through a stock purchase. Id. at 247-48. According to the defendants, because their employment with Joyner had ended on March 9, 1998, and they had not consented to an assignment of their employment agreements to NovaCare, the restrictive covenants had not attached to the new relationships. Id. As would be expected, Joyner "strenuously argue[d]" against this position and contended that the employment relationships, and the restrictive covenants contained in the employment agreements, survived the change in ownership. Id. at 249. In Stejbach, following a hearing, the Court of Common Pleas of Dauphin County, in an opinion by Judge -- now President Judge -- Kleinfelter, agreed with the defendants and found that, "as of the acquisition date" of Joyner by NovaCare, the defendants "were no longer employees of Joyner and that they were effectively terminated." Id. at 250. In making this finding, the court noted that the acquisition resulted in different benefits packages, compensation formulas, and employers as reflected on W-2 forms. Id. at 245- 46. ~2 See also Def.'s Answer & New Matter, May 3, 2002, Ex. 3 (opinion of Court of Common Pleas of Dauphin County in doyner Sports Medicine Institute, Inc. v. Stejbach). 5 As such, the court found that the post-employment periods dictated by the restrictive covenants commenced on March 9, 1998, the date of the acquisition (rather than on the dates of the defendants' subsequent resignations in 1999), and that the expiration dates of the said periods were to be calculated accordingly. Id at 249-50. Based on this finding, the court concluded that the post-employment period of the covenant not to compete applicable to one of the defendants, whose employment agreement included a one-year restrictive covenant, had expired as of the decree~3 and that the period applicable to the second defendant, whose agreement included a two-year restrictive covenant, would expire on March 9, 2000. Id at 250. Stated simply, the result in Stejbach was predicated upon a finding that the Joyner non-compete provisions did not survive the 1998 acquisition by NovaCare in the sense of being incorporated into the new acquisition. employer-employee relationships generated by the DISCUSSION Statement of Law Preliminary Injunction. In order to establish a right to injunctive relief, the moving party must satisfy five "essential prerequisites." John G. Bryant Co. v. Sling Testing & Repair, Inc., 471 Pa. 1, 7, 369 A.2d 1164, 1167 (1977). (1) The injunction must be "necessary to prevent immediate and irreparable harm which could not be compensated by damages." (2) The injunction must be required to avoid a comparably greater injury than that which would result by a refusal to grant it. (3) The injunction must have the effect of restoring the parties to the status quo "as it existed immediately prior to the alleged wrongful conduct." (4) The requested injunction must be "reasonably suited" to the abatement of the objectionable activity. (5) The moving party's right to relief must be "clear" and wrong must be "manifest." Id (quoting Albee Homes, Inc. v. Caddie Homes, Inc., 417 Pa. 177, 181, 207 A.2d 768, 770 (1965)). ~3 The decree in Stejbach was entered on November 30, 1999, several months after March 9, 1999, when the period dictated by the non-compete provision had expired. See Stejbach, 45 Pa. D. & C.4th at 251. 6 Although parties seeking a preliminary injunction are not required to produce absolute proof of their claims in order to demonstrate a right to injunctive relief, parties must, at a minimum, offer sufficient evidence to show "a strong likelihood of success on the merits." Temple Univ. v. Allegheny Health Educ. & Research Found., 456 Pa. Super. 314, 327, 690 A.2d 712, 718 (1997). This evidence must "clear[ly]" show that the party has been subjected to an actionable wrong. See Bryant, 471 Pa. at 9-10, 369 A.2d at 1168. Accordingly, "speculative considerations may not form the basis for issuance of a preliminary injunction." Yarmoski v. Lloyd, 110 Pa. Commw. 97, 102, 531 A.2d 1169, 1172 (1987). Restrictive Covenants. Like all contractual provisions, restrictive covenants contained in an employment contract may be amended or terminated by agreement of the parties. See All-Pak, Inc. v. Johnston, 694 A.2d 347, 351 (Pa. Super. Ct. 1997); Hahnemann Med. Coll. & Hasp. v. Hubbard, 267 Pa. Super. 436, 440, 406 A.2d 1120, 1122 (1979). It has been stated that, when a corporation changes ownership through either an asset purchase or a stock purchase, "restrictive covenants contained in employment contracts [are] unassignable [to the new owners] absent the consent of the employee." Id.; accordStejbach, 45 Pa. D. & C.4th at 248-50. Collateral Estoppel. Under the doctrine of collateral estoppel, parties are prevented from raising issues of law or fact that have been "once litigated and finally adjudicated in a court of competent jurisdiction," even when the current proceeding involves a different cause of action than the prior litigation. Hopewell Estates, Inc. v. Kent, 435 Pa. Super. 471, 478, 646 A.2d 1192, 1195 (1994); accord Balent v. City of Wilkes-Barre, 542 Pa. 555, 564, 669 A.2d 309, 313-14 (1995). Collateral estoppel applies if (1) the issue decided in the prior case is identical to one presented in the later case; (2) there was a final judgment on the merits; (3) the party against whom the plea is asserted was a party or in privity with a party in the prior case; (4) the party or person privy to the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the prior proceeding[;] and (5) the determination in the prior proceeding was essential to the judgment. 7 City of Pittsburgh v. ZoningBd. of Adjustment, 522 Pa. 44, 55, 559 A.2d 896, 901 (1989). Collateral estoppel operates to bar re-litigation of identical issues even when the prior proceeding involved a court of a different jurisdiction, provided that both tribunals have "equivalent subject matter jurisdiction." In re Davis, 165 Pa. Commw. 20, 25, 644 A.2d 220, 222 (1994). Trade Secret,'. Express covenants not to use confidential information are enforceable to the extent that they seek to prohibit disclosure of "legally protectable trade secret[s]." See Felmlee v. Lockett, 466 Pa. 1, 8, 351 A.2d 273, 276 (1976); see also Macbeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 85-86, 86 A. 688, 691 (1913). To qualify as a "trade secret," information must be both "a particular secret of the employer, not a general secret of the trade," and "of peculiar importance to the conduct of the employer's business." Bell Fuel Corp. v. Cattolico, 375 Pa. Super. 238, 258, 544 A.2d 450, 460 (1988) (citing Macbeth-Evans, 239 Pa. 76, 86 A. 688). Although protectable trade secrets may include customer lists that are based upon unique data compiled by a company, trade secrets do not include "mere names and addresses easily ascertainable by observation or reference to directories." Carl A. Colteryahn Dairy, Inc. v. Schneider Dairy, 415 Pa. 276, 283, 203 A.2d 469, 473 (1964), quoted with approval in Renee Beauty Salons, Inc. v. Blose-Venable, 438 Pa. Super. 601, 609, 652 A.2d 1345, 1349 (1995). Application of Law to Facts Restrictive Covenant,'. ~4 On the basis of the evidence presented at the hearing on Plaintiff's petition,~5 the court is of the opinion that Plaintiff has failed to offer sufficient evidence to demonstrate "clear[ly]" that Defendant's employment agreement, and the restrictive covenants contained therein, remained enforceable after June 1, 1998, when ~4 Defendant does not challenge the reasonableness of the non-competition covenant in terms of temporal, geographic or performative scope. ~5 It should be noted that the discussion that follows is predicated on the evidence presented at the preliminary injunction stage of this case and that, accordingly, this opinion does not constitute a final adjudication of the merits of Plaintiff' s claims. the new employment agreement proposed by NovaCare was not accepted by Defendant. Like other contracts, employment contracts may be amended or terminated by agreement of the parties. See, e.g., All-Pclk, Inc., 694 A.2d at 351. The evidence presented at the hearing on Plaintiff's petition tended to show that, in May 1998, following its acquisition of Joyner, NovaCare sent to Defendant a letter in which NovaCare offered a new employment agreement between NovaCare and Defendant. The letter concluded: "Should you opt not to sign and return this Agreement by June 1, 1998, your contract will be void and you will become an employee at-will on June 1, 1998.''~6 Defendant did not return this agreement, and, as such, serious factual questions exist as to whether the original employment agreement between Joyner and Defendant remained effective after June 1, 1998.~7 Accordingly, Plaintiff has failed to establish a "clear" right to relief on the basis of the restrictive covenants contained in the employment agreement, and injunctive relief would be inappropriate at this stage. Collatercll Estoppel. In addition, upon consideration of the opinion in Stejbach, it would seem that the doctrine of collateral estoppel may well bar Plaintiff from raising in this case the issue of whether the restrictive covenant in Defendant's employment agreement remained enforceable in 2002, when Defendant resigned his employment. The first prerequisite for application of this doctrine is identity of issues. As in Stejbclch, Plaintiff in this case has raised claims predicated upon the enforceability of a non- competition covenant contained in an employment agreement executed prior to the stock- purchase acquisition of Joyner by NovaCare. Specifically, as in Stejbclch, a potentially 16 Def.'s Ex. 1. ~7 At the hearing on this matter, Plaintiff presented a letter dated June 8, 1998, which stated that Defendant was still bound by the original employment agreement subject to certain changes. However, Defendant testified that he does not remember receiving it and a witness for Plaintiff could not be certain that it was ever mailed to Defendant. Regardless of whether Defendant received this letter, it did not re-enter him into a legally binding contract because there was no acceptance of the terms by Defendant, and, thus, no mutual assent. Hahnemann Med Coll., 267 Pa. Super. at 440, 406 A.2d at 1122 (stating fundamental concept of contract law that there must be mutual assent in order for a contract to be formed). 9 dispositive issue in this case is whether the employees of Joyner were terminated on the date of acquisition and the post-employment period dictated by the restrictive covenant commenced on March 9, 1998. Accordingly, the issues in Stejbach and the present case would appear to be identical for purposes of collateral estoppel. Further, at this stage of the case, it appears that the remaining requirements for application of the collateral estoppel doctrine also may well be met. The decision in Stejbach constituted a final adjudication of the merits of the case, and resolved all outstanding issues between the parties. See Stejbach, 45 Pa. D. & C.4th at 249-50. The party against whom the doctrine of collateral estoppel is being asserted in this case -- Joyner -- was also the plaintiff in Stejbach and, in that case, Joyner had a "full and fair opportunity to litigate" the issue of whether the stock-purchase acquisition occasioned a termination of the employment agreements. See Stejbach, 45 Pa. D. & C.4th at 249 (stating that Joyner "strenuously argue[d]" this issue). Finally, because the Stejbach court~8 explicitly based its ruling on the fact that the employment relationship ended on the date of acquisition, see id at 250, "the determination in the prior proceeding was essential to the judgment." City of Pittsburgh, 522 Pa. at 55, 559 A.2d at 901. On the basis of the evidence presented at the hearing of the petition, a strong argument can be made that all requirements for application of collateral estoppel have been met and that Plaintiff will be barred from re-litigating the issue of whether the non-competition provisions of the employment agreement between Plaintiff and Defendant survived the stock-purchase acquisition of Joyner by NovaCare in the sense of being incorporated into the new employer-employee relationship. If the doctrine of collateral estoppel is held to be applicable in this case, it would support findings that Defendant's employment agreement was terminated on March 9, 1998, and the non-competition covenant, which was two years in duration, was ~8 Both the Court of Common Pleas of Dauphin County and this court have general subject matter jurisdiction, and, as such, both courts have "equivalent subject matter jurisdiction" for purposes of collateral estoppel. See Davis, 165 Pa. Commw. at 25, 644 A.2d at 222. 10 enforceable from March 9, 1998, until March 9, 2000.19 If so, as of 2002, the effect of the restrictive covenant would have expired. For this additional reason, Plaintiff has failed to establish a "clear" right to relief on the basis of the non-compete covenant. Trade Secretx. The court is also of the opinion that Plaintiff has failed to offer sufficient evidence at this stage to demonstrate a "clear" right to injunctive relief on the basis of the covenant not to use confidential or proprietary business information of the employer. Employers have a right to enforce such restrictive covenants only with respect to "legally protectable trade secret[s]," which are limited to "the particular secrets of the complaining employer, not general secrets of the trade in which [the employer] is engaged." Macbeth-Evans, 239 Pa. 76, 85, 86 A. 688, 691. In the present case, Plaintiff seeks to prohibit Defendant from using, in connection with Defendant's new business, a list of doctors and a set of management techniques, both of which allegedly were obtained through Defendant's previous employment with Plaintiff. The evidence presented at the hearing on the petition tended to show that the list of doctors was comprised of names that could be found easily by reference to a phonebook or professional directory2° and that, therefore, the list would probably not qualify as a protectable trade secret. See Davy, 415 Pa. at 283, 203 A.2d at 473 ("Equity will not protect mere names and addresses easily accessible by observation or reference to directories."). Accordingly, Plaintiff has failed to demonstrate a likelihood of success on the merits of this claim. Similarly, the court is of the view that the management techniques allegedly used by Defendant have not been shown at this stage to constitute trade secrets because the techniques were used by several participants in the physical-therapy industry, and not by Joyner, NovaCare or Select exclusively. The evidence presented at the hearing tended to show that Defendant developed these techniques in conjunction with individuals outside of Plaintiff's employ and that other participants in the industry knew about and used the 19 It was undisputed that the restrictive covenants included no assignability provisions 20 In his testimony at the hearing on Plaintiff's petition, Defendant stated that he had obtained the names and addresses of solicited physicians from the phonebook. 11 same techniques. Because this information was not held exclusively by Plaintiff, it is unlikely to qualify as a "trade secret," and Plaintiff has failed to establish a "clear" right to relief sufficient to warrant the grant of a preliminary injunction)~ For the foregoing reasons, the following order will be entered: ORDER OF COURT AND NOW this 2nd day of August, 2002, after careful consideration of Plaintiff' s petition for a preliminary injunction, following a hearing, and for the reasons given in the accompanying opinion, the petition is denied. BY THE COURT, /s/J. Wesley Oler, Jr. J. Wesley Oler, Jr., J. Bridget E. Montgomery, Esq. 213 Market Street 8th Floor Harrisburg, PA 17101 Attorney for Plaintiff 2~ The court also is of the view that the evidence that Defendant solicited a single employee of Plaintiff and contacted one referring doctor was insufficient to warrant the Plaintiff's requested relief, see Bryant, 471 Pa. at 7, 369 A.2d at 1167 (stating that prerequisites for preliminary injunction include findings that "immediate and irreparable harm" would result from a failure to grant the injunction and that comparably greater injury would result from a refusal to grant the injunction), particularly because factual questions exist as to whether the non-solicitation clause in the employment agreement remained enforceable after Defendant's resignation. Compare Pl.'s Ex. 1, para. 9 (stating that "[t]he provisions of this Paragraph 9 shall survive the termination of this Agreement"), and id para. 11 (same), with id para. 12 (failing to state that the provisions shall survive termination of employment relationship). 12 Kathryn L. Simpson, Esq. 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110-0950 Attorney for Defendant 13 JOYNER SPORTSMEDICINE INSTITUTE, INC., Plaintiff IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA Vo CIVIL ACTION - EQUITY JOSE DOMINGUEZ, P.T., Defendant NO. 02-1830 CIVIL TERM IN RE: PLAINTIFF'S PETITION FOR PRELIMINARY INJUNCTION BEFORE OLER~ J. ORDER OF COURT AND NOW this 2nd day of August, 2002, after careful consideration of Plaintiff' s petition for a preliminary injunction, following a hearing, and for the reasons given in the accompanying opinion, the petition is denied. BY THE COURT, J. Wesley Oler, Jr., J. Bridget E. Montgomery, Esq. 213 Market Street 8th Floor Harrisburg, PA 17101 Attorney for Plaintiff Kathryn L. Simpson, Esq. 3401 North Front Street P.O. Box 5950 Harrisburg, PA 17110-0950 Attorney for Defendant