Court Opinion

ID: 4258215
Source: CourtListenerOpinion
Date Created: 2018-03-26 18:50:48.904475+00
Date Added: 2024-06-11T14:28:22.706316
License: Public Domain

J-A18040-17

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

    PITTSBURGH LOGISTICS SYSTEMS,              :   IN THE SUPERIOR COURT OF
    INC.                                       :        PENNSYLVANIA
                                               :
                       Appellant               :
                                               :
                                               :
                v.                             :
                                               :
                                               :   No. 134 WDA 2017
    BEEMAC TRUCKING, LLC AND                   :
    BEEMAC LOGISTICS, LLC                      :

                  Appeal from the Order December 22, 2016
    In the Court of Common Pleas of Beaver County Civil Division at No(s):
                              No. 11571-2016

BEFORE: BOWES, J., LAZARUS, J., and OTT, J.

DISSENTING MEMORANDUM BY BOWES, J.:                      FILED MARCH 26, 2018

       Pittsburgh Logistics Systems, Inc. (“PLS”) appeals from the order

granting in part and denying in part its petition for a preliminary injunction

against BeeMac Trucking, LLC, and BeeMac Logistics, LLC (“BeeMac”).1           In

that order, the trial court upheld a non-solicitation provision contained within

PLS’s freight-services contract with BeeMac, and, as is pertinent herein,

invalidated a no-hire provision included within the same. The learned majority

concluded that the trial court had a reasonable basis for denying PLS’s

requested relief, and affirms.        Since this matter involves an issue of first
____________________________________________

1 The record contains reference to a company named Hybrid Global Logistics
(“Hybrid”). Hybrid purportedly hired two of the disputed employees, and is
supposedly owned by one of those employees and BeeMac Trucking, LLC.
These allegations raise questions of fact not decided by the trial court, and
thus, the question of Hybrid’s affiliation with BeeMac and PLS is not presently
before us. I note that Hybrid is not a party to this suit.
J-A18040-17

impression, and there is strong support on both sides of the issue among our

sister jurisdictions, I would find that the trial court abused its discretion in

ruling that PLS was not entitled to a preliminary injunction enjoining BeeMac

from hiring its employees. Hence, for the reasons outlined below, I dissent.

      We garner the following from the certified record.        As a third-party

logistics service company, PLS coordinated the transportation of freight

between its customers and certain freight carriers. On August 30, 2010, PLS

entered into a Motor Carriage Services Contract (the “MCSC”) with BeeMac,

who specialized in trucking and transporting freight, and, in addition, also

provided third-party logistics services. Of import herein, the MCSC stated:

      14.3 The parties acknowledge that during the term of this Contract
      there may be disclosed to CARRIER [(BeeMac)] confidential
      information concerning PLS’ operations including, but not limited
      to, the names and addresses of Shippers and others who are
      clients of PLS, volumes of traffic and rate data. During the term
      of this Contract and for a period of one year after termination of
      this Contract, CARRIER hereby agrees that it will not, either
      directly or indirectly, solicit any individual Shipper or other client
      of PLS, back-solicit and/or transport for itself, without involvement
      of PLS, any freight that CARRIER handles pursuant to this Contract
      or freight which first becomes known to CARRIER as a result of
      CARRIER’S past, present or future dealings with PLS.

            ....

      14.6 CARRIER agrees that, during the term of this Contract and
      for a period two (2) years after the termination of this Contract,
      neither CARRIER nor any of its employees, agents, independent
      contractors or other persons performing services for or on behalf
      of CARRIER in connection with CARRIER’s obligations under this
      Contract will, directly or indirectly, hire, solicit for employment,
      induce or attempt to induce any employees of PLS or any of its
      Affiliates to leave their employment with PLS or any Affiliate for
      any reason.

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MCSC, 8/30/10, at 9-10.

       In its complaint, PLS alleged, inter alia, that BeeMac breached the terms

of the MCSC by hiring four former employees and encouraging those

employees to solicit PLS customers.              Thus, it requested the court to

preliminarily and permanently enjoin this conduct pursuant to the terms

enunciated above. After a hearing on the preliminary injunction, the trial court

granted PLS’s request for injunctive relief based on the no-solicitation

provision contained within section 14.3, but denied injunctive relief as to the

no-hire provision contained within section 14.6. With regard to the no-hire

provision, the trial court determined that it “exceed[ed] the necessary

protection PLS needs to secure its business, and is void as a matter of public

policy.” Trial Court Opinion, 12/22/16, at 13. Nevertheless, it recognized that

“there is no case law in Pennsylvania on the issue of no-hire restrictive

covenants between contracting parties.” Id.           PLS filed a timely notice of

appeal, and complied with the trial court’s order to file a Rule 1925(b) concise

statement of errors complained of on appeal. 2 The trial court authored its

Rule 1925(a) opinion, and this matter is now ready for our review.3

____________________________________________

2 Pursuant to Pa.R.A.P. 311(a)(4), an appeal from an interlocutory order
denying a preliminary injunction may be taken as a matter of right.

3In its 1925(a) opinion, the trial court adopted its reasoning as set forth in its
opinion and order filed December 22, 2016.

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      PLS presents one question for our review: “Did the [trial court] err by

finding the contractual no-hire provision of the contract between PLS and

Bee[M]ac to be unenforceable as a matter of law?” Appellant’s brief at 4.

      When reviewing an order denying a preliminary injunction, it is well

settled that:

      our review of a trial courts’ order granting or denying preliminary
      injunctive relief is highly deferential. This highly deferential
      standard of review states that in reviewing the grant or denial of
      a preliminary injunction, an appellate court is directed to examine
      the record to determine if there were any apparently reasonable
      grounds for its denial of injunctive relief where the trial court has
      properly found that any one of the following essential
      prerequisites for a preliminary injunction is not satisfied.

      There are six essential prerequisites that a party must establish
      prior to obtaining preliminary injunctive relief. The party must
      show: 1) that the injunction is necessary to prevent immediate
      and irreparable harm that cannot be adequately compensated by
      damages; 2) that greater injury would result from refusing an
      injunction than from granting it, and, concomitantly, that issuance
      of an injunction will not substantially harm other interested parties
      in the proceedings; 3) that a preliminary injunction will properly
      restore the parties to their status as it existed immediately prior
      to the alleged wrongful conduct; 4) that the activity that its seeks
      to restrain is actionable, that its right to relief is clear, and that
      the wrong is manifest, or, in other words, must show that it is
      likely to prevail on the merits; 5) that the injunction it seeks is
      reasonably suited to abate the offending activity; and, 6) that a
      preliminary injunction will not adversely affect the public interest.

Warehime v. Warehime, 860 A.2d 41, 46-47 (Pa. 2004) (cleaned up).

      The trial court found that PLS was not entitled to injunctive relief with

regard to BeeMac’s hiring of its former employees.       In so finding, the trial

court recognized that this matter represented an issue of first impression in

Pennsylvania. Further, it acknowledged that there was disagreement among

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our sister jurisdictions. Trial Court Opinion, 12/22/16, at 13 (noting “some

states have held that these types of agreements are void against public policy.

Other states have held that these provisions are a permissible partial restraint

of trade, and are thus not void against public policy.” (comparing Heyde

Companies, Inc. v. Dove Healthcare, LLC, 654 N.W.2d 830 (Wis. 2002),

and VL Systems, Inc. v. Unisen, Inc., 61 Cal. Rptr. 3d 818 (Cal.Ct.App.

2007), to Ex parte Howell Engineering and Surveying, Inc., 981 So. 2d
413 (Ala. 2006), and H & M Commercial Driver Leasing, Inc. v. Fox Valley

Containers, Inc., 805 N.E.2d 1177 (Ill. 2004)). Despite this divergence and

a lack of any Pennsylvania case law on point, the trial court stated

      We believe these types of no-hire contracts should be void against
      public policy because they essentially force a non-compete
      agreement on employees of companies without their consent, or
      even knowledge, in some cases. We believe that if an employer
      wishes to limit its employees from future competition, this matter
      should be addressed directly between the employer and the
      employee, not between competing businesses. Moreover, in this
      case, such a restriction goes beyond the protected interest of PLS,
      which is its customers. So long as the former employee, or any
      employee of BeeMac, does not contact former customers of PLS,
      for the time period in the contract, in this case one year under
      section 14.3 of the [MCSC], there is no need to enforce the no-
      hire provision contained in section 14.6. For these reasons, we
      do not believe PLS has a substantial likelihood of success on the
      merits of its claim under section 14.6, and we will vacate the
      injunction prohibiting [BeeMac] from hiring former PLS
      employees.

Trial Court Opinion, 12/22/16, at 13-14. Hence, the trial court found that PLS

had not established the fourth essential prerequisite necessary to justify

injunctive relief, and denied its petition in that regard.

                                      -5-
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      PLS contends that the trial court abused its discretion because “the

contractual no-hire provision was ancillary to an arm’s length transaction

between sophisticated businesses, it was reasonably limited in duration and

scope, and critically, was reasonably necessary for the protection of PLS’[s]

legitimate business interests.” Appellant’s brief at 19-20. PLS’s argument is

multi-faceted. First, it analogizes the no-hire agreement to a non-compete

agreement entered into between an employer and its employee. PLS asserts

that under Pennsylvania law those agreements are prima facie enforceable if

they meet certain requirements, that the contract herein satisfies those

requirements, and thus, that “it is conceptually inconsistent to find no-hire

provision[s] between two companies to be unenforceable as against public

policy.” Id. at 21. Notably, PLS alleges that, in the context of knowledge-

based services such as its own business model, such an agreement is

necessary to protect not only its customer base, but also its investment in the

training, development, and industry-specific knowledge of its employees.

      Second, PLS emphasizes the reasoning of our sister jurisdictions who

have found no-hire provisions to be enforceable. Specifically, it highlights the

United States District Court for the Middle District of Pennsylvania’s decision

in GeoDecisions v. Data Transfer Solutions, LLC, 2010 WL 5014514 (M.D.

Pa. December 3, 2010), which found that the no-hire provision at issue therein

                                     -6-
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was a reasonable restraint on trade.4            In that decision, the district court

applied Pennsylvania state law, which permits a restraint on trade if “it is

ancillary to the main purpose of a lawful transaction; (2) it is necessary to

protect a party’s legitimate interest; (3) is supported by adequate

consideration; and (4) it is reasonably limited in both time and territory.”

Appellant’s brief at 25, citing GeoDecisions, supra at *4. PLS contends that

the no-hire provision passes this test, and thus, the trial court erred in finding

it unenforceable.

       After reviewing the certified record, the learned majority determined

that the trial court’s decision had an apparently reasonable basis. It observed

that “[t]he trial court supported its decision by examining various decisions

from other jurisdictions and concluding the reasoning of those cases that

disfavor such restrictions better approximate the current state of Pennsylvania

law.” Majority Memorandum at 8. In support of this conclusion, the majority

reviewed case law that endorses the enforcement of reasonable no-hire

provisions, see H & M, supra, and found that those provisions were tailored

more narrowly than section 14.6 of the MCSC. Further, it agreed with the trial

____________________________________________

4 Although the decisions of the federal district courts are not binding on this
Court, we may “utilize the analysis in those cases to the extent we find them
persuasive.” Umbelina v. Adams, 34 A.3d 151, 159 n.2 (Pa.Super. 2011)
(citation omitted).

                                           -7-
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court assessment that section 14.6 “was largely superfluous in light of the

non-competition clause.”5 Id. at 8-9.

       The majority also agreed with the trial court’s determination that the

no-hire provision violated public policy since it “prevented non-signatories

from exploring alternate work opportunities.”       Id. at 9.   In this vein, it

compared the no-hire provision to a restrictive covenant not to compete

entered into between an employer and an employee. It found that, by its

terms, the no-hire provision diminished the pool of potential employers for a

PLS employee each time PLS gained a new client.6 The majority asserted that

____________________________________________

5 Although the majority references a “non-competition clause,” I believe it is
referring to the non-solicitation clause described in section 14.3 of the MCSC.
The trial court analyzed that provision as a restraint on trade, as described
infra, and found that it “furthered PLS’s legitimate interest in preventing
BeeMac from cutting PLS out of the equation.” Majority Memorandum at 6,
citing Trial Court Opinion, 12/22/16, at 12. I would find the trial court erred
in determining that the non-solicitation clause adequately protected PLS’s
business interests. PLS alleged that it also had an interest in guarding the
investment it made in training and developing its employees, and in
safekeeping the specialized industry knowledge those employees gained while
in PLS’s employment. In my estimation, only the no-hire provision sufficiently
safeguards this interest.

6 In the majority writing, the majority argues that the application of provisions
like section 14.6 harms PLS’s employees since it results in additional
restrictions on an employee’s ability to obtain employment without providing
adequate consideration each time PLS obtains a new client.               Majority
Memorandum at 9.          I find this hypothetical application of the MCSC
inappropriate on the record before us, as it presumes that PLS enters into
similar agreements containing a no-hire provision with each new client. This
presumption is not supported by the record, and further, I believe that only
the validity of the no-hire provision contained within the MCSC, as it pertains
to BeeMac and its affiliates who dealt with PLS, is relevant to the disposition
of this matter.

                                           -8-
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such an arrangement is only permissible if it is supported by additional

consideration each time the employment pool is narrowed in this way. Thus,

it concluded that “[i]f the section 14.6 restriction, between companies, is

allowed, then PLS would essentially be evading the requirement to pay

additional consideration in exchange for additional restrictions,” which,

“demonstrates this aspect of [the trial court’s] decision is also based on

reasonable grounds.” Id.

      At the outset, I observe that the only prong of the preliminary injunction

test outlined above at issue herein is the fourth prong, which required PLS to

establish that the activity that it sought to restrain was actionable, that its

right to relief was clear, and that the wrong was manifest, or, in other words,

show that it was likely to prevail on the merits. Warehime, supra. Indeed,

that PLS established the other five prongs is confirmed by the trial court’s

decision to grant PLS’s motion for a preliminary injunction based on its

determination that the non-solicitation provision was a reasonable restraint

on trade. Trial Court Opinion, 12/22/16, at 11-12. Hence, my analysis is

limited to a discussion of the fourth prong as it relates to the no-hire provision.

      Instantly, PLS and BeeMac operate third-party logistics operations, and

entered into a carrier-services agreement on August 30, 2010. PLS contends

that the parties engaged in arm’s length negotiations and exchanged valuable

consideration in arriving at the agreement set forth in the MCSC. It alleged

that BeeMac breached the terms of the MCSC by hiring PLS employees and

                                       -9-
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encouraging them to solicit PLS clients. As a result, PLS sought injunctive

relief in order to protect its interest in its customers and its interest in the

investment it made in training and developing those employees.

      Undoubtedly, Pennsylvania law governs this matter. Both enterprises

are organized under the laws of this Commonwealth. In addition, the MCSC

entitled PLS to seek injunctive relief from a court of competent jurisdiction for

violations of sections 14.3 and 14.6, and it required the terms of the

agreement to be construed “in accordance with the laws of the Commonwealth

of Pennsylvania.” MCSC, 8/30/10, at §§ 13.1 and 24.1. Nevertheless, it is

undisputed that the laws of this Commonwealth are mute regarding the

enforceability of a no-hire provision, such as the condition provided in § 14.6.

Under these circumstances, notwithstanding BeeMac’s alleged breach, PLS

could not definitively establish that it was “likely to prevail on the merits”

under the laws of Pennsylvania. Warehime, supra. Simply, there is no law

in Pennsylvania that directly resolves this dispute. Thus, insofar as PLS was

tasked with establishing a clear likelihood of success under the laws of this

state, it faced a nearly impossible task, despite otherwise proving its right to

injunctive relief. I find this situation to be problematic and unfair to PLS in its

endeavor to protect its legitimate business interests.

      First, I disagree with the majority that the trial court’s ruling “better

approximate[s] the current state of Pennsylvania law,” Majority Memorandum

at 8, for the simple reason that there is no Pennsylvania law on point.

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Although our sister jurisdictions provided a basis for treating the agreement

like a non-compete agreement between an employer and employee, which the

no-hire   provision   arguably   violates,   other   jurisdictions consider   such

agreements to be restraints on trade, under which law this provision is

arguably reasonable. Since Pennsylvania law does not clarify the matter, and

to a certain extent, those divergent tests rely on the resolution of disputed

factual matters, I believe it was inappropriate for the trial court to decide the

issue, seemingly on the merits, at this juncture.

      With regard to the majority’s analysis, I observe that, generally

speaking, Pennsylvania law favors contracts entered into at arm’s length

between sophisticated parties.     John B. Conomos, Inc. v. Sun Co., Inc.

(R&M), 831 A.2d 696, 708 (Pa.Super. 2003) (observing “[a]bsent fraud or

unconscionability, courts should not set aside terms on which sophisticated

parties agreed.”).    The record before us is devoid of allegations that PLS

engaged in fraud or that the terms of the MCSC were unconscionable. Rather,

the record reflects that BeeMac appreciated the consequences of entering into

the MCSC with PLS, including its promise to refrain from hiring any PLS

employee during the term of the contract, and for two years following its

termination. Thus, in my mind, Pennsylvania law generally supports a finding

that the agreement is enforceable on its face.

      For similar reasons, I disagree with the majority’s conclusion that the

trial court had a reasonable basis for finding that the no-hire provision violated

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public policy. The majority premised this conclusion on its contention that the

provision was similar to a restrictive covenant between an employer and

employee. Since the no-hire provision affected the rights of non-signatory

third-parties without adequate consideration, it found reasonable support for

concluding that it violated public policy. However, this line of reasoning falls

victim to the same attack, i.e., that there is no basis in Pennsylvania law for

treating a no-hire provision as a restrictive covenant between an employer

and an employee.

      Further, our Supreme Court has cautioned against finding a contract

violates public policy unless that violation is clear:

      [p]ublic policy is to be ascertained by reference to the laws and
      legal precedents and not from general considerations of supposed
      public interest. As the term “public policy” is vague, there must
      be found definite indications in the law of the sovereignty to justify
      the invalidation of a contract as contrary to that policy . . . . Only
      dominant public policy would justify such action. In the absence
      of a plain indication of that policy through long governmental
      practice or statutory enactments, or of violations of obvious
      ethical or moral standards, the Court should not assume to declare
      contracts . . . contrary to public policy. The courts must be
      content to await legislative action.

Safe Auto Ins. Co. v. Oriental-Guillermo, 170 A.3d 1170, 1175 (Pa.Super.

2017) (citing Hall v. Amica Mut. Ins. Co., 648 A.2d 755, 760 (Pa. 1994)).

Here, BeeMac received valuable consideration for its promise not to hire PLS

employees, thereby limiting its own pool of applicants from which it could hire.

Although this agreement had an indirect effect on those PLS employees

seeking employment away from PLS, that effect, insofar as the MCSC is

                                      - 12 -
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concerned, prohibited those employees only from seeking employment with

BeeMac and its affiliates who deal with PLS. I discern no strong public policy

against such a limitation, and the dearth of Pennsylvania statutory or case law

invalidating such an agreement supports the conclusion that it does not violate

“dominant public policy.” Id. Thus, for these additional reasons, I would not

find that the trial court had “apparently reasonable grounds” for its denial of

injunctive relief. Warehime, supra. Frankly, the trial court’s determination

cannot be apparent based on the law or record before us.

      This conclusion is bolstered by the principle underlying injunctive relief.

We have long held that the purpose of injunctive relief is “to prevent

irreparable injury or gross injustice by preserving the status quo as it exists

or as it previously existed before the acts complained of in the complaint.

Ambrogi v. Reber, 932 A.2d 969, 974 (Pa.Super. 2007) (citation omitted).

Here, PLS made a showing of irreparable harm caused by BeeMac allegedly

hiring its former employees, which PLS trained and developed. By denying

PLS’s petition for injunctive relief, the trial court effectively permitted BeeMac

to enjoy the benefit of its purported breach while the issue proceeded through

litigation. In the interim, BeeMac is free to leverage the specialized knowledge

that PLS’s former employees acquired while under its employment. Even if

PLS were to succeed on the merits following trial, BeeMac still gained a

competitive advantage. Such an outcome fails to maintain the status quo,

and falls far short of satisfying the spirit of fairness underlying the doctrine.

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In a case such as this, where a disputed restraint on trade appears necessary

to ensure a level playing field among direct competitors, we should aspire to

maintain that equilibrium insofar as possible.

      The unusual circumstances surrounding this issue lead me to believe

that, when the trial court recognized this case represented a matter of first

impression to which there was considerable disagreement, it had a duty to

maintain the status quo, and in failing to do so, it abused its discretion. Hence,

this dissent.

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