Court Opinion

ID: 1014753
Source: CourtListenerOpinion
Date Created: 2013-07-04 21:22:10.513254+00
Date Added: 2024-06-11T15:27:49.304832
License: Public Domain

UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                             No. 03-2504

DEUTSCHE POST GLOBAL MAIL, LTD.,

                                               Plaintiff - Appellant,

           versus

GERARD CONRAD, a/k/a Jerry; GUY H. GEMMILL,

                                              Defendants - Appellees,

           and

POSTAL LOGISTICS    INTERNATIONAL,   a   Maryland
corporation,

                                                            Defendant.

Appeal from the United States District Court for the District of
Maryland, at Baltimore. J. Frederick Motz, District Judge. (CA-
03-863-JFM)

Argued:   October 1, 2004                 Decided:   November 19, 2004

Before LUTTIG and MICHAEL, Circuit Judges, and Jackson L. KISER,
Senior United States District Judge for the Western District of
Virginia, sitting by designation.

Affirmed by unpublished per curiam opinion.

ARGUED: Andrew Abbott Nicely, MAYER, BROWN, ROWE & MAW, Washington,
D.C., for Appellant. Harriet Ellen Cooperman, SAUL EWING, L.L.P.,
Baltimore, Maryland, for Appellees. ON BRIEF: Gary A. Winters,
MAYER, BROWN, ROWE & MAW, Washington, D.C., for Appellant. Nicole
Pastore-Klein, SAUL EWING, L.L.P., Baltimore, Maryland, for
Appellees.

Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).

                                2
PER CURIAM:

              Deutsche Post Global Mail, Ltd. (DPGM) sued its former

employees,     Gerard   Conrad    and    Guy      Gemmill,    for   breaching    a

restrictive covenant that prohibited them from competing with DPGM.

The district court concluded that the restrictive covenant was

unenforceable under Maryland law and awarded summary judgment to

Conrad and Gemmill.           We affirm, albeit on somewhat different

reasoning.

                                        I.

              Conrad and Gemmill were hired as sales managers by

International Postal Consultants (IPC) in June 1997 and January

1999, respectively.         IPC, like DPGM, was an international mail

company.       Conrad   and   Gemmill,       in   their    capacities    as   sales

managers, solicited new customers for IPC and thereafter dealt with

them on behalf of the company.           Conrad and Gemmill worked out of

IPC’s    Maryland    headquarters      and    solicited     customers    from   the

Maryland, Virginia, and D.C. area. When Conrad and Gemmill started

work    for   IPC,   they   executed    employment        agreements    containing

identical restrictive covenants.             Section 5(a)(ii) of the contract

contains the following restrictive covenant that is at issue in

this case:

            (a) Sales Representative covenants and agrees that
       during the term of his/her employment with the Company,
       and in the event of and for a period of two (2) years
       following the termination of his employment with the

                                         3
       Company for any reason, he/she shall not, without the
       prior written consent of the Company, directly or
       indirectly: . . .

            (ii) Engage in any activity which may affect
       adversely the interests of the Company or any Related
       Corporation and the businesses conducted by either of
       them, including, without limitation, directly or
       indirectly soliciting or diverting customers and/or
       employees of the Company or any related Corporation or
       attempting to so solicit or divert such customers and/or
       employees . . . .

J.A. 608-09, 621-22.

             In July 2000 DPGM purchased all of the stock of IPC, and

for    six   months    thereafter        IPC       and   DPGM     continued     to   operate

independently.        When the six-month period ended, IPC was merged

into DPGM, with DPGM assuming control of IPC’s operations and

hiring all of IPC’s employees, including Conrad and Gemmill.                             By

operation of Maryland’s corporation law, DPGM succeeded to all of

IPC’s rights and obligations under the agreements with Conrad and

Gemmill.      Conrad and Gemmill continued in their roles as sales

managers for DPGM, and DPGM did not enter into new employment

agreements with the two men.

             In February 2002 Conrad and Gemmill decided to form their

own international mail business and chose the name Postal Logistics

International (PLI).          Within hours after quitting DPGM, Conrad and

Gemmill solicited their first DPGM customer; and within days they

were   providing      services      to   former          DPGM    customers.      From   its

inception through April 7, 2003, PLI earned $1,316,560 in revenues,

$1,165,295     of     which   was    derived         from       former   DPGM   customers.

                                               4
Thirty-eight    of   PLI’s        fifty-six    customers   are   former    DPGM

customers, and Conrad and Gemmill diverted at least twenty-eight of

their own former DPGM customers from DPGM to PLI.                    Conrad and

Gemmill do not dispute that they breached the restrictive covenant.

          On March 25, 2003, DPGM sued Conrad and Gemmill in the

United States District Court for the District of Maryland.                 DPGM

sought damages and injunctive relief based on Conrad and Gemmill’s

breach of the restrictive covenant.             After discovery Conrad and

Gemmill moved for summary judgment, and DPGM filed a cross-motion

for partial summary judgment on the issue of liability.                     The

district court held that the restrictive covenant is unenforceable

under Maryland law because (1) it is broader in scope than is

reasonably necessary to protect DPGM’s business interests, and (2)

it would impose undue hardship on Conrad and Gemmill.                 The court

awarded summary judgment to Conrad and Gemmill and denied DPGM’s

cross-motion.   DPGM now appeals.

                                       II.

                                        A.

          We    review       a     district     court’s    summary     judgment

determination de novo.           Thompson v. Potomac Elec. Power Co., 312

F.3d 645, 649 (4th Cir. 2002).              Summary judgment is appropriate

only when there is no dispute as to a material fact and the moving

party is entitled to judgment as a matter of law.            Fed. R. Civ. P.

                                        5
56(c).    We turn to whether Conrad and Gemmill are entitled to

summary judgment on the ground that the restrictive covenant is

unenforceable.

                                     B.

            Under   Maryland   law   a    restrictive   covenant    “will    be

sustained if the restraint is confined within limits which are no

wider as to area and duration than are reasonably necessary for the

protection of the business of the employer and do not impose undue

hardship on the employee or disregard the interests of the public.”

Silver v. Goldberger, 188 A.2d 155, 158 (Md. 1963) (citations

omitted).    A review of Maryland case law reveals four requirements

that must be met for a restrictive covenant to be enforceable:              (1)

the employer must have a legally protected interest, (2) the

restrictive covenant must be no wider in scope and duration than is

reasonably necessary to protect the employer’s interest, (3) the

covenant cannot impose an undue hardship on the employee, and (4)

the covenant cannot violate public policy. Id. at 158-59; Holloway

v. Faw, Casson & Co., 572 A.2d 510, 515-16 (Md. 1990).             While DPGM

can establish the first requirement, it cannot establish the

second.     We thus do not assess whether the restrictive covenant

would meet the final two requirements.

            For a restrictive covenant to be enforceable, an employer

must have a legally protected interest.         See Ruhl v. F.A. Bartlett

                                     6
Tree Expert Co., 225 A.2d 288, 291-92 (Md. 1967); Silver, 188 A.2d

at    158-59.    Employers    have    a       legally   protected    interest    in

preventing departing employees from taking with them the customer

goodwill they helped to create for the employer.                 Silver, 188 A.2d

at 158.    Restrictive covenants almost always serve a legitimate

employer   interest    when   they    restrict      former     salespersons      who

serviced, solicited, and were in constant contact with customers.

Id.     Conrad   and   Gemmill   do   not       dispute   that    they    serviced,

solicited, and were in constant contact with customers of DPGM

while employed there.     Accordingly, we conclude DPGM has a legally

protected interest in preventing Conrad and Gemmill from trading on

the goodwill they helped to generate while employed at DPGM.

            We next consider whether the scope and duration of the

restrictive covenant is no broader than is reasonably necessary to

protect DPGM’s legally protected interest.                     In assessing the

reasonableness of scope and duration, “a determination must be made

based on the scope of each particular covenant itself; and, if that

is not too broad on its face, the facts and circumstances of each

case must be examined.”       Becker v. Baily, 299 A.2d 835, 838 (Md.

1973) (citation omitted).        The restrictive covenant here is much

broader than is reasonably necessary to protect DPGM’s interest in

the goodwill generated by Conrad and Gemmill.                    The restrictive

covenant   prohibits    Conrad   and      Gemmill       from   engaging    “in   any

activity which may affect adversely the interests of the Company or

                                          7
any Related Corporation and the businesses conducted by either of

them.”    J.A. 609, 622 (emphases added).                  The breadth of this

covenant is sweeping.        In no way is it specifically targeted at

preventing Conrad and Gemmill from trading on the goodwill they

created while serving DPGM customers.                 Rather, the restrictive

covenant seems designed to prevent any kind of competition by

Conrad and Gemmill, which is not a legally protected interest under

Maryland law.   See Silver, 188 A.2d at 158 (“[R]estraint is not

justified if the harm caused by service to another consists merely

in the fact that the former employee becomes a more efficient

competitor   just    as    the    former       employer   did   through   having    a

competent and efficient employee.”) (citation omitted).                       And yet

stating that this covenant is aimed at stifling competition does

not sufficiently describe its breadth.               The covenant does not stop

at preventing Conrad and Gemmill from competing against DPGM, but

rather   prohibits    them       from   doing      anything     that   “may    affect

adversely” the business interests of DPGM or its related companies.

This language, taken literally, would restrict Conrad and Gemmill

even from using a competitor’s mail service for any purpose,

business or personal.

           DPGM cites to no Maryland case, and we have found none,

in which a restrictive covenant similar in scope has been been

deemed reasonable.        Indeed, cases such as Holloway, 572 A.2d 510,

suggest that the covenant here is too broad.                       In Holloway a

                                           8
restrictive covenant that prohibited an accountant from practicing

general accountancy within forty miles of his former firm was held

to be overbroad.      Id. at 512, 518-19.             The covenant was too broad

because it exposed the accountant to damages “even if [he] never

render[ed] any service for [a firm] client.”                 Id. at 518.       In the

present case the restrictive covenant would allow DPGM to recover

damages against Conrad and Gemmill if they became competitors, yet

never solicited or serviced any DPGM client.                 Because the covenant

is   much   broader   than    is       reasonably     necessary     to   protect     the

goodwill that Conrad and Gemmill generated for DPGM, we hold that

the covenant is unenforceable as written.

                                           C.

             DPGM does not seriously dispute that the restrictive

covenant,     as   written,       is    unnecessarily       broad    and    therefore

unenforceable under Maryland law.                Instead, DPGM argues that an

excised     version   of    the   covenant       is   enforceable.         Again,    the

covenant provides that a former employee cannot for two years

“[e]ngage in any activity which may affect adversely the interests

of the Company or any Related Corporation and the businesses

conducted     by   either    of    them,       including,    without     limitation,

directly or indirectly soliciting or diverting customers and/or

employees of the Company or any related Corporation or attempting

to so solicit or divert such customers and/or employees.”                           J.A.

                                           9
609, 622.     DPGM argues that section 5(a)(ii) can be saved by “blue

penciling” out the sweeping promise not to engage in adverse

activity.      Thus, the covenant, with certain words excised, would

read that for two years a former DPGM employee cannot “[e]ngage in

soliciting or diverting customers of the Company or attempting to

so solicit or divert such customers.”               The district court agreed

with DPGM that blue penciling was permissible, but concluded that

the excised version would still be unenforceable. We conclude that

excision is inappropriate in this case.

              If a restrictive covenant is unnecessarily broad, a court

may blue pencil or excise language to reduce the covenant’s reach

to reasonable limits.         See Tawney v. Mut. System of Maryland,               47

A.2d 372, 379 (Md. 1946).           However, under the blue pencil rule, a

court   may      not   rearrange    or    supplement       the   language    of   the

restrictive covenant.         Fowler v. Printers II, Inc., 598 A.2d 794,

802 (Md. Ct. Spec. App. 1991).                 A court can only blue pencil a

restrictive       covenant    if    the    offending       provision    is   neatly

severable.        According    to   the   Maryland     Court     of   Appeals,    the

principle underlying the blue pencil rule is articulated in the

First Restatement of Contracts, which provides: “When a promise in

reasonable restraint of trade in a bargain has added to it a

promise     in    unreasonable      restraint,       the     former    promise     is

enforceable unless the entire agreement is part of a plan to obtain

a monopoly; but if full performance of a promise indivisible in

                                          10
terms would involve unreasonable restraint, the promise is illegal

and is not enforceable even for so much of the performance as would

be a reasonable restraint.”        Holloway, 572 A.2d at 518 (quoting

Restatement (First) of Contracts § 518).         We must decide, then,

whether section 5(a)(ii) of the employment contract constitutes one

promise indivisible in terms (a promise not to engage in adverse

activity) or two separate promises (a promise not to engage in

adverse activity and a promise not to divert DPGM customers).               We

conclude that the section constitutes a single indivisible promise

not to engage in adverse activity.

           An examination of section 5(a)(ii) reveals that the

promise not to divert DPGM clients is not a separate and distinct

promise; it merely clarifies one of the many obligations imposed by

the overarching promise of section 5(a)(ii).          First, we note the

overlapping nature of what is promised. The general promise not to

engage in any adverse activity automatically encompasses a promise

not to divert former customers.          Second, the structure of the

restrictive   covenant    itself   indicates   that    it    is   really   one

promise.    The word “including” is used to tie the prohibition

against diverting DPGM customers to the broader promise.                   This

suggests   that   the   anti-diversion   language     is    not   a   separate

promise; instead, it is simply an example of adverse activity.

Finally, we have not found any Maryland case in which a court has

done what DPGM suggests here, that is, cross out the dominant

                                    11
language or words from a single-sentence restrictive covenant,

leaving      only    a    narrower    example      of   the    original,      broader

restriction.        Rather, Maryland courts have excised restrictions

that render a covenant overbroad only in circumstances in which the

restrictions        are   contained    in    a    separate    clause     or   separate

sentence. See, e.g., Holloway, 572 A.2d at 518-19; Tawney, 47 A.2d

at 379.      The blue penciling that DPGM urges here would constitute

an impermissible rewriting of the restrictive covenant.                       Because

section 5(a)(ii) constitutes a single indivisible promise, it is

not severable.

                                            D.

             DPGM makes two final arguments as to why the restrictive

covenant should be enforced.           Both are without merit.

                                            1.

             DPGM argues that Maryland courts have adopted the so-

called flexible approach to enforcing restrictive covenants.                      The

flexible approach allows a court to rewrite a restrictive covenant

to   align    the    reasonable      expectations       of   the   parties.       This

approach,     DPGM       argues,   allows    us    to   tailor     the   restrictive

covenant’s scope by rewriting its terms so that it only prohibits

Conrad and Gemmill from soliciting and diverting DPGM clients with

                                            12
whom they had contact.            We are not persuaded that the flexible

approach can be used here.

               First, it is not clear that Maryland has adopted the

flexible approach.       The flexible approach was used by the Maryland

Court of Special Appeals in Holloway v. Faw, Casson & Co., 552 A.2d

1311 (Md. Ct. Spec. App. 1988).           On appeal, however, the Maryland

Court of Appeals decided the case without adopting or endorsing the

flexible approach.         The Court of Appeals expressly refused to

consider the “provocative questions” involved in considering the

flexible approach.        Holloway, 572 A.2d at 511, 524.               And, in the

fifteen years since Holloway was decided, no Maryland court has

endorsed or discussed the flexible approach.

               Second,   and   more    importantly,    even    if   the    flexible

approach can be used in Maryland, DPGM still cannot prevail. Under

the flexible approach, before a court is permitted to modify the

terms     of    a   restrictive       covenant   to   align       the    reasonable

expectations of the parties, the court must first inquire into

whether    “the     restrictive       covenant   as   a   whole     evidence[s]   a

deliberate      intent   by    the    employer   to   place   unreasonable      and

oppressive restraints on the employee/covenantee.”                  Holloway, 552

A.2d at 1327.        If the covenant exhibits this deliberate intent,

then the entire covenant is unenforceable.                    Id.       As written,

section 5(a)(ii) prohibits Conrad and Gemmill from engaging in any

activity, business or otherwise, that may adversely affect the

                                         13
interests of DPGM.      This sweeping prohibition leads us to conclude

that the restrictive covenant exhibits a deliberate attempt to

impose   unreasonable     and   oppressive    restraints      on   Conrad   and

Gemmill.

                                     2.

           DPGM finally argues that we should allow it to seek

damages on a breach-by-breach basis. DPGM argues that it should be

permitted to recover damages for each breach of the restrictive

covenant in which Conrad and Gemmill solicited DPGM customers with

whom they had contact while at DPGM.            It cites to the Maryland

Court of Appeals case, Holloway, 572 A.2d 510, for the proposition

that when a court assesses an employer’s claim for damages under a

restrictive   covenant,     the    court     should    look    only   at     the

individualized facts of each breach to determine whether it is

reasonable to award damages for each particular breach.                     DPGM

basically urges us to refrain from engaging in any analysis of the

covenant’s facial validity and instead focus solely on the facts of

each alleged breach to determine whether an award of damages would

be reasonable.

           Under DPGM’s interpretation of Holloway, an employer

could draft a covenant that is unreasonably broad in scope, knowing

that it could recover damages for any breach held to violate an

interest   that   was   reasonably   deserving    of    protection.         This

                                     14
approach would give employers no incentive to negotiate reasonable

restrictive covenants in the first place; moreover, it is not

consistent with Holloway.      In Holloway the restrictive covenant

prohibited    an   employee-accountant     from   practicing    accountancy

within forty miles of any of his employer’s offices.            572 A.2d at

512.   The Maryland Court of Appeals began its analysis of the

reasonableness of the restrictive covenant’s scope by examining the

covenant on its face.     Id. at 518.      The court concluded that the

covenant, as written, was too broad because the employee would be

liable for damages even if he never rendered services to a client

of   the   employer.     Id.   Due    to   the    restrictive    covenant’s

overbreadth, the court severed one of the damages provisions, the

effect of which was to transform the restrictive covenant into a

prohibition against servicing the employer’s clients.           Id. at 519.

DPGM nevertheless relies on a comment made by the court after it

severed the one provision: the court noted that the covenant might

still be too broad because it would prohibit the employee from

servicing employer clients with whom he had no contact.             Id. at

520.   The court, however, determined that this was irrelevant

because every breach for which the employer had been awarded

damages involved customers with whom the employee had contact. Id.

at 521.    While this reasoning does create some ambiguity, it is

apparent that the Maryland Court of Appeals maintained the general

requirement that a restrictive covenant must meet some threshold of

                                     15
facial reasonableness in order to be enforceable.                    After all, the

court began its analysis by assessing whether the covenant, as

originally written, was reasonable on its face. Holloway, 572 A.2d

at 518-19; see also Becker, 299 A.2d at 838 (holding that analysis

of restrictive covenant must begin with a determination of whether

it is “too broad on its face”).

              Like   the    restrictive       covenant      in   Holloway,     DPGM’s

restrictive     covenant     is   overbroad      on   its    face.      Unlike   the

restrictive     covenant     in   Holloway,     DPGM’s      restrictive    covenant

cannot   be    saved   by    severing    its    offending        provisions.      The

restrictive covenant is therefore unenforceable in its entirety,

and DPGM cannot recover damages.

                                        III.

              We affirm the district court’s order of November 14,

2003, awarding summary judgment to Conrad and Gemmill and denying

partial summary judgment to DPGM.

                                                                             AFFIRMED

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