2005 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 6-9-2005 

# L atu s zewsk i v . V alic Fin Ad vi sors P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 04-1324

F o llow thi s and a dd it ion al work s at : http://d i git alc ommon s .l a w . vi ll anova . e du/thir dc ir c uit_2005

Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. It h as be e n a c c ept e d for inclusion in 2005 D e c i sion s b y an authori z e d a dmini s tr at or of V i ll anova U nive r sity S choo l of L a

w Di git al Reposit ory

. F or mor e inform at ion, p le as e c ont a ct Be n j amin . C arl s on@l a

w . vi ll anova . e du . Re c omme nde d C it at ion
" L atus z ewski v

. V al ic F in Advi s or s " (2005). 2005 D e cisio n s . P ape r 1040. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2005/1040NOT P RE CE DE NT I AL
I N TH E UN I TED STATES CO UR T OF A PP EALS

F O R T H E T H IR D C IR C U IT N O S. 04- 1324, 04- 1435, 04- 2776 GAR Y L AT US Z E WS KI ; J AM E S RO GAN; RE E D B I GHAM A ppel l ant s i n N o. 04- 1324 and N o. 04- 2776
v. VALI C F I NAN CI AL ADVI S ORS , I NC. GAR Y L AT US Z E WS KI ; J AM E S RO GAN; RE E D B I GHAM
v. V A L IC F IN A N C IA L A D V IS O R S , IN C .; T HE VAR I AB L E ANNUI T Y L I F E I NS UR ANC E CO M P ANY,

A ppel l ant s i n N o. 04- 1435

O n A p p ea l Fro m the U n it ed S tat es D istri ct C o u rt Forthe W es t ern D i s tr i ctof Penns y l vani a ( D . C . C i vi l A ct i on N o. 03- cv- 00540) D i s tr i ctJ udge: H on. G aryL . L anca s t er A r gued A pr i l 22, 2005 BE F OR E : RO T H, F UE NT E S a n d S T AP L E T ON,

C i r cui tJ udges ( Fi l ed: J une 9, 2005 )2

M i chae l J . B ett s ( A r gued) P a u l J. A ten c io 363 Fr eeportR oad Pi t t s bur gh, PA 15238 A t t orney s forA ppel l ant s i n N os . 04- 1324 and 04- 2776 M a ryJ. H a c k e tt Jo sep h F . R o d k ey , Jr. C hr i s t opherJ . Sol l er R e e d S m ith 435 Si xth A venue Pi t t s bur gh, PA 15219 and Sean C onnel l y( A r gued) L arryS. Pozner A nthonyL . G i acomi ni H offman, R ei l l y , Pozner& W i l l i amson 511 16t h St r eet- Sui t e 700 D enver , C O 80202 A t t orney s forA ppel l ant s i n N o. 04- 1435

OPI NI ON O F THE COURT

ST A PL E T O N , C i r cui tJ udge: B e c a u se w e w rite o n lyf o r th e p a rties w h o a re f a m ili a r w ith th e f

a c ts, w e d o n o t
r e s t a t e th e m b e l o w. T h is a p p e a l ar ise s f ro m a lleg e d b re a c h e s in e m p lo ym e n t co n tra c ts betw een A ppel l ees / C r os s - A ppel l ant s T he V ar i abl e A nnui tyL i fe I ns ur ance C om panyand V A L IC F in a n c ial A d v iso rs, In c ., (c o llec tiv e ly“ V A L IC ” o r “ A p p e llee s” ) a n d th re e o f its pr evi ous empl oy ees , A ppel l ant s / C r os s - A ppel l ees , G aryL atus zew s ki , J ames Rogan and R e e d B ig h a m (c o llec tiv e ly“ A p p e llan ts” ). A f ter re sig n in g th e ir p o sitio n s w ith V A L IC in3

e a rly2 0 0 3 , A p p e llan ts f iled su it i n P e n n sy lv a n ia s tate c o u rt. V A L IC su b se q u e n tly
r emoved t o fede r al courtand fi l ed a mot i on fora pr el i m i naryi nj unct i on t o enfor ce noncompet e and tr ade s ecr et s pr ovi s i ons i n the contr act s . T he D i s tr i ctC our tgr ant ed V A L IC ’s m o tio n a s to th e tra d e se c re ts p ro v isio n b u t d e n ied it as to th e n o n -c o m p e te c lau se . A p p e llan ts tim e lya p p e a led a n d V A L IC c ro ss -a p p e a led . A p p e llan ts s u b se q u e n tly f iled a m o tio n to c o m p e l arb itratio n a n d sta yf u rth e r p ro c e e d in g s. T h e D istric t C o u rt, not i ng the exi s t ence of the cr os s appea l s befor e us , ent er ed an or deron M ay24, 2004, deny i ng the “mot i on t o compel arbi tr at i on w i thoutpr ej udi ce a nd fora s t ayof al l fur ther pr ocee di ngs pendi ng the di s pos i t i on of the cr os s appea l s i n the C our tof A ppeal s . ” A pp. at 46 . A p p ell an ts t im elyap p ea led th is ord er. Jurisdicti o n w as p rop er in D istri ct C o u rt p u rsu a n t to 2 8 U .S .C . § 1 3 3 2 . Ju risd ictio n , to th e e x ten t w e h a v e it, is p ro p e r in th is C ou rtpu rs uan tt o 2 8 U . S . C . § 1 29 2(a) (1) . F or the reasons t hat fol l ow , w e w i l l dis m i ss the appe al fr om the D i s tr i ctC our t ’ s or derof M ay24, 2004, forw antof j ur i s di ct i on and the c ross ap p ea l as m o o t. W ith resp ec t t o the re m ainin g ap p ea l, w e w il l r ev erse in p art
a n d a f f ir m in p a rt . I. I n r e v i e wi n g a Di s tr i c tCo u r t ’ s d e c i s i o n t o g r a n ta p r e l i mi n a ryi n j u n c t i o n , we r e v i e w th e Di s tr i c tCo u r t ’ s f i n d i n g s o f

f a c tf o rc l e a re rr o r , i t s c o n c l u s i o n s o f l a w de novo , a n d its u ltim a te d e c is io n to g ra n t th e in ju n c tio n f

o r a b u s e o f

d is c re tio n . W

arner-La m bert C o. v. B r eathas ur e, I

nc. , 204 F. 3d 87, 89 n. 1 ( 3d C i r . 2000) . T o s ucce s s ful l ys eek aT o p revai l on a cl ai m for m i sapprop ri at i on of tr ade secret s, the m ov i ng partym ust 1 sh o w : (1 ) th e e x iste n c e o f a tra d e se c re t; (2 ) w h ich w a s c o m m u n ica ted in c o n f id e n c e to the empl oy ee; ( 3) and us ed bythe empl oy ee ( orform erempl oy ee) i n br eac h of that confi dence ; ( 4) t o the detr i m entof the pl ai nt i ff. Moor e v. Kul i cke & Sof f a I ndus
. , I nc ., 3 1 8 F .3 d 5 6 1 , 5 6 6 (3 d C ir. 2 0 0 3 ). T h e D istric t C o u rt th o ro u g h lye v a lu a ted a n d p ro p e rly determ i ned that V A L IC sat i sfi ed these el em ents . 4 pr el i m i naryi nj unct i on, a partym us ts how : “( 1) a l i kel i hood of s ucce s s on the mer i t s ; ( 2) that itw il l suf

fe r i rrep ara b le ha rm if th e inju n cti o n is de n ied; (3) tha t gran ti n g p reli m inary
re lief w ill n o t re su lt i n e v e n g re a ter h a rm to th e n o n m o v in g p a rty ; an d (4 ) th a t th e p u b lic i nt er es tfavor s s uch r el i ef. ” K O S P har m . , I nc. v. A ndr

x C or p. , 3 6 9 F . 3 d 7 0 0 , 7 0 8 (3d C ir . 2 0 0 4 ). W e c o n c lu d e th a t th e D istric t C o u rt’s d e c isio n to g ra n t a p re lim in a ryin ju n c tio n to pr ot ectA ppel l ees ’ tr ade s ecr et s , t o the ext enti tfor ecl os ed A ppel l ant s fr om us i ng tr ade
s ecr eti nform at i on t o s ol i ci tbus i nes s and s ervi ce c l i ent s , i s bas ed on a c orr ect
u n d e r s t a n d i n g o f

th e a p p l i c a b l e l a w a n d i s s u p p o r t e d b yth e r e c o r d . I n p a r t i c u l a r , we concl ude that( a) the D i s tr i ctC our tpr oper l yhel d thatthe i nform at i on des cr i bed i n the p re lim in a ryin

ju n c tio n c o n stitu ted p ro tec tab le tra d e se c re ts ; an d (b ) th e re c o rd su p p o rts 1 th e C o u rt’s c o n c lu sio n th a t A p p e llee s’ “ p o ten tial lo ss e s w ill b e d if f icu lt t o q u a n tifyin l i ghtof the pot ent i al l os s of goodw i l l and di s rupt i on of cus t om err el at i ons that [A ppel l ant s ’ ] conductthr eat ens . ” A pp. at41. W e a lso c o n clud e, ho w ev er, th at th e re co rd d o es n o t sup p o rtthe p reli m inary in ju n c tio n to th e e x ten t th a t eith e r p a ra g ra p h (1 ) o r (2 ) c a n b e re a d to f o re c lo se A p p e llan ts5

fr om s ervi ci ng form ercl i ent s of V A L I C w ho have be come A ppel l ant s ’ cl i ent s w i thout bei ng s ol i ci t ed bythem usi ng i nform at i on curr ent l ys uppl i ed bythos e cl i ent s . W her e a form er cl i ent of A pp el l ees w i tho ut s oli ci t at i on has asked A pp el l ants t o servi ce i t s needs, thatcl i entcan be expec t ed t o be w i l l i ng t o pr ovi de A ppel l ant s w i th the i nform at i on they need t o pr ovi de thats ervi ce. A ccor di ngl y , the mi ni m al r i s k thatV A L I C ’ s tr ade s ecr et i nform at i on w i l l be ut i l i zed i n t hi s cont extw i l l notj us t i fythe bur den i m pos ed on A ppel l ant s and the cl i ent s ’ r i ghtof choi ce. W e w ill v a c a te th e e x istin g p re lim in a ryin ju n c tio n a n d , the D istric t C o u rt, i f it deems i tappr opr i at e, m ayent era modi fi ed one c ons i s t entw i th thi s opi ni on. II. T u rn in g to th e q u e stio n o f w h e th e r th e D istric t C o u rt p ro p e rlyd e c lin e d to pr el i m i nar i l yenj oi n A ppel l ant s fr om vi ol at i ng the non- compet e cl aus e, w e fi nd A ppel l ees ’ cr os s appea l t o be moot . T he D i s tr i ctC our ti s no l ongeri n a pos i t i on t o gr ant
m eani ngful i nj unct i ve r el i ef ba s ed on the non- compet e cl aus e. T he non- compet e cl aus e bar s A ppel l ant s fr om compet i ng w i th V A L I C forone y ear a f te r t h e e n d o f

th e ire m p lo ym e n t. See, e. g. , J A 9 6 6 (C o n tr a c t P ro v is io n 4 .h .2 ). A p p e llan ts re sig n e d f

ro m V A L IC in e a rly2 0 0 3 . T w o y e a rs h a v e n o w p a ss e d sin c e th e ir
re sig n a tio n s. T h u s, e v e n if w e c o n c lu d e d th a t th e D istric t C o u rt e rre d in d e c lin in g to enj oi n A ppel l ant s fr om vi ol at i ng the non- compet e cl aus e, thatC our tcoul d notgr antt he
r el i ef s oughtbeca us e A ppel l ant s ar e no l ongerpr ecl uded fr om compet i ng.W e h av e jurisdicti o n at th is po int t o rev iew o n lythe d en ial o f p reli m inary 2 i n j u n c t i v e r e l i e f

, a n d , a s w e h a v e p o i n t e d o u t , th e c r o s s a p p e a l i s n o w m o o t . A c c o r d i n g l y, w e haz ar d no pr edi ct i on on how the Supr eme C our tof Penns y l vani a w oul d rul e on the enfor cea bi l i tyof a non- compet e cove nanti n the s i tuat i on her e pr es ent ed, i . e. , w her e ( a) th e p a rties ’ in iti a l co n tra c t f o r a t w ill e m p lo ym e n t in c lu d e s a re a so n a b le c o v e n a n t n o t to compet e and ( b) the part i es ther eaf t eragr ee t o cont i nue the atw i l l empl oym enton som ew hat di fferentt erm s no les s favo rabl e t o the em ploy ee, i ncludi ng the sam e or a l ess re stric tiv e c o v e n a n t. 6 I ti s true, as A ppel l ees s tr es s , thatthe non- compet e cl aus e, Par agr aph 4. h, cont ai ns the fol l ow i ng pr ovi s i on: “I f an i nj unct i on i s i s s ued t o pr eventvi ol at i on of par agr aph 4h, the in jun cti o n sh all run o n e y ea r fro m the d ate itis en tered . ” T h is do es n o t, h o w ev er, author i ze the entr yof a one
- y eari nj unct i on atanypoi nti n t i m e. A n i nj unct i on i s not“an in ju n c tio n . . . issu e d to p re v e n t a v io latio n o f p a ra g ra p h 4 h ” u n les s th e c o n d u c t it pr ecl udes comes w i thi n t he s cope of thatpar agr aph – i n the curr entcont ext , unl es s the precl ud ed co m peti t i ve acti vityoccu rs w i thin a y ear of t he en d o f A pp el l ants ’ empl oym ent . T hi s pr ovi s i on w as obvi ous l yi nt ended, i n the eve ntl i t i gat i on w as r equi r ed, t o gi ve V A L I C a ful l y earof pr ot ect i on s o l ong as i ts ecur ed an i nj unct i on w i thi n a y ear aft erthe end of

empl oym ent . I tdoes notgi ve V A L I C a ful l y earof pr ot ect i on i f i tdi d not
se c u re a n in

ju n c tio n f

o r se v e ra l y e a rs a f

ter th e c e ss a tio n o f

e m p lo ym e n t. 2

III . T h e D is tr ic t C o u rt ’s o rd e r o f M a y2 4 , 2 0 0 4 , is a n in te rl o c u to ry o rd e r. A ccor di ngl y , w e have no fi nal or derj ur i s di ct i on under28 U . S. C . § 1291. A l though 9B efor e addr es s i ng the mer i t s of the w ai veri s s ue r ai s ed bythe A ppel l ees , the 3 D is tr ic t C o u rt w ill w a n t to c o n s id e r w h e th e r t h a t is s u e is f o r t h e C o u rt o r t h e a rb itr a to r. See Pal cko v
. A i r bour ne Expre s s , I nc. , 3 7 2 F .3 d 5 8 8 , 5 9 6 -9 7 (3 d C ir. 2 0 0 4 ); M ar i e v. A l l i ed H om e Mor t

gage C or p. , 4 0 2 F .3 d 1 , 1 2 -1 5 (1 st C ir. 2 0 0 5 ); N at ’ lA m . I

ns . C o. v. Trans am er i ca O cci dentalLi f e I ns . C o. , 3 2 8 F . 3 d 4 6 2 (8th C ir . 2 0 0 3 ).

7 U . S. C . 16( a) pr ovi des thatan appe al can be t aken f r om an i nt er l ocut oryor der“r efus i ng a sta yo f a n ya c tio n ” p e n d in g a rb itratio n o r “ d e n y in g a p e tit io n . . . to o rd e r a rb itratio n to p roc ee d , ” w e f

ind § 1 6 (a) inap p li ca b le t o the M ay2 4 th o rde r. A s w e r ead the M ay24th or der , i tdoes notaddr es s the mer i t s of the arbi tr at i on i s s ues and, acc or di ngl y , does not“deny ” a s t ayoror derdi r ect i ng arbi tr at i on w i thi n the
m eani ng of § 16( a) ; r ather , i tdefe r s deci s i on on thos e mat t er s unt i l the ca s e bec om es act i ve aga i n i n t he D i s tr i ctC our t . A ccor di ngl y , w e w i l l l eave the arbi tr at i on i s s ues for
re so lu tio n in th e f

irst in sta n c e b yth e D istric t C o u rt. 38 I V. W e w i l l di s m i s s the appe al of the D i s tr i ctC our t ’ s M ay24, 2004, or derforw antof juri sd ict ion an d the c ross ap p ea l from the D istri ct C o u rt ’s de n ial o f a p reli m inary in ju n c tio n e n f

o rc in g th e n o n -c o m p e te c lau se w ill b e d ism iss e d a s m o o t. W e w ill v a c a te the pr el i m i naryi nj unct i on ent er ed bythe D i s tr i ctC our tand r emand forfur ther proceed i ng s consi st ent w i th thi s opini on . E ach p artyw i l l bear i t s ow n co st s.