Court Opinion

ID: 4220299
Source: CourtListenerOpinion
Date Created: 2017-11-14 20:15:49.12573+00
Date Added: 2024-06-11T14:42:11.475859
License: Public Domain

J-A18041-17

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

    PITTSBURGH LOGISTICS SYSTEMS,              :    IN THE SUPERIOR COURT OF
    INC.,                                      :         PENNSYLVANIA
                                               :
                      Appellant                :
                                               :
                                               :
               v.                              :
                                               :
                                               :    No. 135 WDA 2017
    MICHAEL CERAVOLO, AN ADULT                 :
    INDIVIDUAL, MARY COLEMAN, AN               :
    ADULT INDIVIDUAL, NATALIE                  :
    HENNINGS, AN ADULT INDIVIDUAL,             :
    AND RACQUEL PAKUTZ, AN                     :
    INDIVIDUAL                                 :

               Appeal from the Order Entered December 22, 2016
                In the Court of Common Pleas of Beaver County
                    Civil Division at No(s): No. 11542-2016

BEFORE:      BOWES, LAZARUS and OTT, JJ.

MEMORANDUM BY OTT, J.:                                FILED NOVEMBER 14, 2017

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

entered on December 22, 2016, in the Court of Common Pleas of Beaver

County, denying PLS’s petition for preliminary injunction, that sought to

uphold    non-competition       agreements     in   the   employment   contracts   of

defendants Michael Ceravolo, Natalie Hennings, and Racquelle Pakutz.1              In

this timely appeal, PLS claims the trial court erred in, 1) finding the non-

competition agreements were overbroad, and 2) in failing to “blue line” the
____________________________________________

1
 Pittsburgh Logistics is not appealing from the order as applied to defendant
Mary Coleman.
J-A18041-17

agreements to make them enforceable.         After a thorough review of the

submissions by the parties, relevant law, and the certified record, we affirm.

      Our standard of review for an order granting or denying a preliminary

injunction is as follows:

      We have emphasized that our review of a trial court's order
      granting or denying preliminary injunctive relief is “highly
      deferential”. Summit Towne Centre, Inc. v. Shoe Show of
      Rocky Mount Inc., 573 Pa. 637, 828 A.2d 995, 1000 (2003).
      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 the action of
      the court below.” Id. We will find that a trial court had
      “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.” Id. at 1002.

      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 it 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.” Id. at 1002. The burden is on the party who requested
      preliminary injunctive relief[.]

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

omitted).

                                     -2-
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     Ceravolo, Hennings and Pakutz all worked for PLS, a logistics firm

working with the trucking industry. Because of the proprietary information

used by PLS to provide service for its clients, PLS requires its employees to

sign employment agreements that include a non-competition clause.

Hennings and Pakutz both signed a similar agreement.           Ceravolo, on the

other hand, had worked for PLS for a longer time and had signed an earlier,

less restrictive version. While PLS had Ceravolo also sign the later version,

the trial court disallowed that agreement as being unsupported by

consideration.

     In relevant part, the agreement signed by Hennings and Pakutz states:

     7. Non-Solicitation. I agree not to directly or indirectly solicit, for
     the purpose of offering or attempting to offer any service,
     product or other application which is the same or similar to the
     services, products or other applications offered by the Company
     or in the process of being developed by the Company within the
     last year prior to termination of my employment with the
     Company, any of the Company’s customers for a period of two
     (2) years after termination of my employment with the
     Company. I further agree, for a period of two (2) years after the
     termination of my employment with the Company, that I will not
     directly or indirectly hire or directly or indirectly solicit or
     attempt to solicit any employee of, or consultant to, the
     Company at anytime within the six month period immediately
     preceding the termination of my employment, to leave the
     employ of, or no longer render service to or for the benefit of,
     the Company.

     8. Non-Competition. During the term of my employment with
     the Company and for a period of one (1) year thereafter, I shall
     not become an officer or director of, or consultant to or be
     employed by, or otherwise render services to or on behalf of, a

                                      -3-
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       Competing Business. …[2] I acknowledge and agree that the
       Company is engaged in business throughout the world and that
       the marketplace for the Company’s products and services is
       worldwide, and thus, the geographic area, length and scope of
       this noncompetition provision are reasonable and necessary to
       protect the legitimate business interests of the Company. In the
       event that a court of competent jurisdiction shall determine that
       one or more of the provisions of Paragraphs 7 or 8 are so broad
       as to be unenforceable, then such provision shall be deemed to
       be reduced in scope or length, as the case may be, to the extent
       required to make such Paragraphs enforceable. If I violate the
       provisions of Paragraph 7 or 8 of this Agreement, I acknowledge
       that the periods described therein shall be extended by the
       number of days which equals the aggregate of all days during
       which any such violations occurred. I acknowledge that this
       provision does not prevent me from earning a livelihood after the
       termination of my employment.

Hearing Exhibits C and D.

       The original Agreement signed by Ceravolo is similar to the above

agreement in all relevant aspects except for the length of the non-

solicitation provisions of paragraph 7.          Ceravolo is subject to a one-year

non-solicitation restriction rather than a two-year restriction. See Hearing

Exhibit E.

       Defendants Ceravolo, Hennings, and Pakutz all left PLS’s employ and

went to work for BeeMac Trucking (BeeMac), a “competing business.”3

____________________________________________

2
  This omitted section defines “Competing Business.” This definition is not
relevant to the arguments of the parties nor to our disposition of this matter.
As this definition is somewhat lengthy, we have omitted it for ease of
reading.
3
  Ceravolo asserts he works for, and possesses an ownership share of, a
sales and marketing company called “Hybrid.” See Appellees’ Brief at 12.
Although in the brief Ceravolo denies Hybrid is a broker or coordinator for
(Footnote Continued Next Page)

                                           -4-
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      In   seeking      the   preliminary        injunction,   PLS   sought   to   enforce

paragraphs 7 and 8 as written, thereby preventing the three former

employees from working for BeeMac. The current state of the law regarding

the enforceability of restrictive covenants in employment contracts is as

follows:

      While generally disfavored, Pennsylvania law, however, has
      recognized the validity and enforceability of covenants not to
      compete in an employment agreement, assuming adherence to
      certain requirements. See Pulse Technologies, Inc. v.
      Notaro, 620 Pa. 322, 67 A.3d 778 (2013); Morgan’s [Home
      Equip. Corp. v. Martucci, 390 Pa. 618], 136 A.2d [838] at
      844; see generally Kurt H. Decker, Refining Pennsylvania’s
      Standard for Invalidating a Non-Competition Restrictive
      Covenant When an Employee’s Termination is Unrelated to the
      Employer’s Proctectible Business Interest, 104 Dick. L.Rev. 619
      (2000). Our Court noted in Morgan's the evolution of the
      treatment of restrictive covenants. Such covenants were first
      found to be absolutely void as against public policy due to a high
      societal demand for, but low supply of, skilled workers. Later,
      due to the reality of the new era brought on by the industrial
      revolution, a more balanced approach was taken by the courts
      which accepted partial restraints on trade, provided they were
      ancillary to the employment relationship and reasonably limited:

           Such general covenants not to compete present centuries
           old legal problems. The earliest cases were decided
           against the economic background of a chronic shortage of
           skilled workers in England, the result of the virulent
           epidemics of the Black Death during the fourteenth
           century. It was not surprising, then, that all covenants to
                       _______________________
(Footnote Continued)

BeeMac or any other trucking company, neither Ceravolo nor the trial court
ruled that non-competition clause was unenforceable because Hybrid was
not a “competing business.” For purposes of this decision, we will accept
that Ceravolo works either directly for BeeMac or for Hybrid as an agent of
BeeMac, because the trial court made no specific finding regarding Hybrid.

                                            -5-
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           refrain from practicing a trade were held to be void as
           against public policy. This policy carried over into the
           early seventeenth century when the grants of exclusive
           trading privileges by the Sovereign caused widespread
           public indignation which broadened into a dislike for all
           restraints upon the free exercise of trade. However, by
           the eighteenth century England found itself in the midst
           of a new commonercial [sic] era, and adjusting to
           changed economic conditions, the courts upheld at
           common law contracts in partial restraint of trade
           provided they were ancillary to a principal transaction,
           and were reasonably limited both in geographical extent
           and duration of time.
       Morgan’s, 136 A.2d at 844; see also Hess [Gebhard & Co.
       Inc., 570 Pa. 148] 808 A.2d [912] at 917-18.

       Consistent with this legal background, currently in Pennsylvania,
       restrictive covenants are enforceable only if they are: (1)
       ancillary to an employment relationship between an employee
       and an employer; (2) supported by adequate consideration; (3)
       the restrictions are reasonably limited in duration and
       geographic extent; and (4) the restrictions are designed to
       protect the legitimate interests of the employer. Hess, 808 A.2d
       at 917; Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 351
       A.2d 207, 210 (1976); Morgan’s, 136 A.2d at 844-46.

Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266, 1274 (Pa.

2015).

       Following a three day hearing4 on the merits of the preliminary

injunction, the trial court found that the non-competition clause, which

forbade Ceravolo, Hennings, and Pakutz from working for a competing

business    world-wide,      was    geographically   overbroad   and   accordingly

unenforceable. Further, the trial court reasoned PLS knew the covenant was

____________________________________________

4
    12/8-9/16 and 12/13/2016.

                                           -6-
J-A18041-17

overbroad when it required the employees to sign it, this fact demonstrated

PLS had unclean hands and therefore the trial court refused to provide PLS

the equitable relief of modifying the contract.

      Specifically, the trial court stated:

      The agreement provides that “the Company is engaged in
      business throughout the world and that the marketplace for the
      Company's products and services is worldwide, and thus, the
      geographical area, length and scope of this noncompetition
      provision are reasonable and necessary to protect the legitimate
      business interests of the Company.” (Exhibit F). It further
      provides that if the court finds this provision to be too broad,
      that it shall be deemed to be reduced in scope or length to the
      extent required to make the paragraph enforceable. PLS argues
      this extensive coverage of the non-compete clause is necessary
      because the nature of its business is worldwide. PLS has cited no
      authority supporting the enforcement of a world-wide non-
      competition agreement. We have found no Pennsylvania case
      that upheld a worldwide non-competition clause. In fact, we
      found the opposite.

      The enforceability of a world-wide non-compete clause was
      recently addressed in Adhesives Research Inc. v. Newsom,
      2015 WL 1638557 (M.D. Pa. 2015). The court observed that "the
      geographic scope of a non-compete agreement is reasonably
      limited if it encompasses only such territory ‘as may be
      reasonably necessary for the protection of the employer without
      imposing undue hardship on the employee.”’ Id. at *6, (quoting
      Jacobson & Co. v. International Environ. Corp., 235 A.2d
      612, 620 (Pa. 1967). This test is satisfied if the geographic
      restriction, even if broad in extent, is “roughly consonant with
      the scope of the employee's duties.” Victaulic Co. v. Tieman,
      499 F. 3d 227, 237 (3rd. Cir. 2007). For example, in the context
      sales representatives, the Supreme Court of Pennsylvania has
      held that in order for a non-compete agreement to be
      reasonably limited, the geographic restriction can extend no
      farther than the employee's sales territory and customer base.
      Boldt Mach. & Tools. Inc. v. Wallace, 366 A.2d 902, 909 (Pa
      1976).

                                       -7-
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     In Adhesives, the court noted that despite the defendant's
     sale's territory consisting of the western half of the United
     States, the geographic restriction contained in the non-compete
     agreement extends to anywhere in the world where the plaintiff’s
     products are sold. Because the breadth of the restriction was
     much larger than the defendant's sales territory, the restriction
     was not “roughly consonant” with the defendant’s duties. Id. at
     *6. Therefore, the court found that the geographic scope was
     not limited to an area reasonably necessary to protect the
     plaintiff’s interests. Id. See also Boldt, 366 A.2d at 909.
     Moreover, by prohibiting the defendant from engaging in her
     profession anywhere in the world where plaintiff’s products are
     sold, the restriction imposed a severe hardship on defendant. ld.
     Accordingly, the Adhesives court found that the geographic
     extent of the agreement was unreasonably broad. ld.

     The court’s finding of an overly broad geographic scope did not
     end its inquiry. Under Pennsylvania law, courts may exercise
     their equitable power to narrow an overly broad restriction.
     Sidco Paper Co. v. Aaron, 351 A.2d 250, 254 (Pa. 1976). In
     fact, the Adhesives court found that if it exercised that power
     and tailored the geographic scope to a reasonable territory, the
     plaintiff might have prevailed on the merits. Id. at *7. However,
     the court believed that the case fell within the one exception
     when the use of equitable powers to modify a restrictive
     covenant is not permitted.

     “When a covenant not to compete contains an unlimited
     geographic scope, although the nature of the business was such
     that a relevant geographical area could have been specified, the
     agreement is void, and courts may not use their equitable power
     to alter the agreement.” Reading Aviation Serv., lnc. v.
     Bertolet, 311 A.2d 628 (Pa. 1973) (finding that the non-
     competition agreement, which bound the employee not to
     compete with the employer in the general aviation business
     without any limitation as to time or area, was void on its face as
     being in unreasonable restraint of trade, and was therefore
     unenforceable, either in whole or in part). The Supreme Court of
     Pennsylvania has instructed that such overbreadth “militates
     against enforcement because it indicates an intent to oppress
     the employee and/or to foster a monopoly, either of which is an
     illegitimate purpose. An employer who extracts a covenant in
     furtherance of such purpose comes to the court ... with unclean

                                   -8-
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     hands and is ... not entitled to equitable enforcement. ...”
     Adhesives, at* 6. (citing Sidco, 351, A.2d at 257).

     At the time the parties entered into the contract, Adhesives
     Research Inc. knew that the defendant's sales territory would
     consist of the western half of the United States. Despite this
     knowledge, the restrictions in the non-compete agreement were
     unlimited in geographic scope-they extend to the entire world.
     Therefore, the court concluded that the non-compete
     agreement provision was void under Pennsylvania law and not
     subject to equitable tailoring. Accord Fres-Co Sys. USA Inc. v.
     Bodell, 2005 WL 3071755 at *8 (E.D. Pa. 2005). Because the
     geographic extent was unreasonably broad and not susceptible
     to equitable modification, the Adhesives court found that the
     plaintiff was not likely to prevail under Pennsylvania law and
     denied the request for injunctive relief.

     Courts in other jurisdictions have likewise refused to modify
     world-wide   noncompetition      agreements,    finding   such
     agreements void on their face. See Hay Group Inc. v. Bassick,
     2005 WL 2420415 (N.D. Ill. 2005); Pure Power Boot Camp,
     Inc. v. Warrior Fitness Boot Camp, LLC, 813 F. Supp. 2d 489
     (S.D.N.Y. 2011). Our research revealed that only courts in
     Michigan and Louisiana were willing to enforce world-wide non-
     compete clauses. Superior Consulting Co, Inc, v. Walling,
     831 F. Supp. 830 (E.D. Mich 1994); Kadant Josnson, Inc. v.
     D'Amico, 2012 WL 1605458 (E.D. La. 2012).

     Defendant Ceravolo argues that PLS’s non-compete clause is
     “overreaching” with respect to the restrictive covenants and this
     invalidates his employment agreement. He maintains that the
     agreement's restrictive covenants are so broad and restrictive
     that they reflect “an intent to oppress the employee [or] to
     foster a monopoly, either of which is an illegitimate purpose.”
     Sidco Paper Co. v. Aaron, 351 A.2d 250, 254 (Pa. 1976). We
     agree.

     The testimony indicated that the scope of PLS’s work in the
     Energy Sector, where Mr. Ceravolo worked, was mostly national,
     or, at best, included Canada and Mexico. Trucking routes
     between Chicago and Philadelphia were discussed, as were
     routes in Texas. There was also testimony that PLS has an office
     in Jacksonville, Florida. Exhibits T and U indicate shipments to
     throughout the United States, with one shipment in Ontario,

                                   -9-
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      Canada. A map produced by PLS for its Energy Services, Exhibit
      B, showed PLS had a shipment network that stretched
      throughout the United States, Canada and Mexico. No testimony
      indicated that Mr. Ceravolo did freight brokering or
      transportation logistics on an international level (aside from his
      attendance at a convention in Calgary, Canada), such that a
      non-competition clause of world-wide magnitude would be
      necessary to protect the interests of PLS.

      We agree with the analysis in Adhesives, and similarly find that
      this case falls within the one exception when the use of equitable
      powers to modify a restrictive covenant is not permitted. We
      decline to modify the non-competition clause to a different
      geographic area. We believe PLS is not likely to succeed on the
      merits of the case with respect to the non-competition
      agreement, and for this reason, we will vacate the injunction
      prohibiting Mr. Ceravolo from working for BeeMac Trucking or
      Hybrid Global Logistics.

Trial Court Opinion, 12/22/2106, at 4-9 (emphasis in original).

      Although this quote from the trial court opinion is specifically directed

to Ceravolo’s contract, the trial court applied the same logic to both

Hennings and Pakutz.       The trial court found no evidence that either

Hennings’ or Pakutz’s employment with PLS encompassed worldwide

responsibilities.   Therefore, just as with Ceravolo, the worldwide ban on

similar employment was unenforceable and demonstrated an improper intent

to oppress the employee.

      Our review of the certified record convinces us that the reasoning and

application of case law is supported by the factual record.       Our task in

reviewing this matter, as explained above, is to determine if the trial court’s

ruling is supported by “apparently reasonable grounds.” It is. Accordingly,

                                    - 10 -
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we affirm the trial court’s order regarding non-competition clauses in the

contracts of Ceravolo, Hennings and Pakutz.5

       PLS’s second claim is that the trial court erred in failing to amend the

non-competition clause to an enforceable geographic area as contemplated

by the employment agreements.             See Paragraph 8, Exhibits C, D, and E.

Essentially, PLS argues the trial court should have simply shrunk the

geographic limitation found in the employment agreement to fit the instant

circumstance.

       [T]he scope of the Appellees’ non-competition covenants are
       self-narrowing. To the extent that the court finds that the scope
       is too broad, the contractual language itself requires it to be
       deemed narrowed to the extent necessary for it to be enforced.

PLS Brief at 34-35.

       PLS has argued that no matter the worldwide geographic scope found

in the employment contract, because PLS operates in a worldwide fashion,

the actual scope will self-limit to whatever size is legally needed to prevent

the employee from gaining employment. PLS asserts that this self-limiting

feature is easily enforced in the instant matter as BeeMac operates within

miles of PLS.

____________________________________________

5
  The trial court’s order also upheld the restrictive covenant regarding non-
solicitation. That aspect of the order has not been appealed. Ceravolo’s
contract contained a one-year non-solicitation restriction; Hennings’ and
Pakutz’s contracts contained two-year non-solicitation restrictions.
Therefore, those restrictions against contacting PLS clients remain in place
and are enforcable.

                                          - 11 -
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        Nevertheless, the trial court determined that such amendment was

improper and unavailable to PLS given the nature of the geographic

limitation.    The trial court reasoned, as quoted above,                    pursuant to

Adhesives Research Inc. v. Newson, 2015 WL 1638557 (M.D. Pa.

2015),6 Reading Aviation Serv., Inc. v. Bertolet, 311 A.2d 628 (Pa.

1973), and Sidco Paper Co. v. Aaron, 351 A.2d 250 (Pa. 1976), that the

worldwide scope of the covenant, where the relevant geographic could have

been originally specified, was gratuitously overbroad and as such militated

against enforcement because that indicates an intent to oppress the

employee or to foster a monopoly. See Trial Court Opinion at 9. Either of

these intents are improper and so the employer who imposed such a

restriction has unclean hands and is not entitled to the equitable amendment

of the agreement.

        We agree with this assessment. Not only was the original worldwide

scope    of   the   covenant     facially      overbroad,   but   if   we   accept   PLS’s

interpretation, the self-limiting clause essentially renders the limitation

unchallengeable.      As related above, Paragraph 8 of the Contract contains

mandatory language that if a court determines any provision to be
____________________________________________

6
  The trial court recognized the Federal Rules of Appellate Procedure allow
for the unrestricted use of unpublished decisions, and therefore accepted
Adhesives Research as persuasive authority.          Given that Adhesives
Research relies heavily on Sidco and Reading Aviation, two Pennsylvania
Supreme Court cases the trial court also cited, we also recognize Adhesives
Research as merely persuasive.

                                            - 12 -
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overbroad then the employee agrees that said term “shall be deemed to be

reduced in the scope or length, as the case may be, to the extent required to

make such Paragraphs enforceable.”7                However, the power to amend a

contract in such a manner is equitable, and we know of no authority that

mandates a court modify the contract. We find that the mandatory language

merely directs the employee to accept the trial court’s authority to make

such     determinations     as    are    necessary     and   proper   regarding   the

enforceability of such provisions.

        In addition to Paragraph 8, we also note that all of the employment

agreements contain a “unique nature of agreement” clause that states, in

relevant part, “Should any court find any part of this Agreement to be

invalid, unenforceable, or overly broad to any extent, the Company and I

intend that such court enforce this Agreement in such less broad or other

manner as the court finds appropriate.”             See Paragraph 12, Exhibits C, D

and E. We believe this clause recognizes the equitable powers of the court

to amend the terms of a contract as appropriate which would include the

option not to enforce, as provided by law. This interpretation of Paragraph

12 supports our interpretation of Paragraph 8 – the power to amend the

Contract is equitable and the employee agrees that a court has the power to

amend the Contract as it deems proper. Here, as demonstrated above, the

____________________________________________

7
    Exhibits C, D, and E, Paragraphs 8.

                                          - 13 -
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trial court found the offending clause to be indicative of an improper motive

to oppress its employees. The trial court determined the proper manner of

enforcing such an oppressive contractual term was to render it void.

     In light of the foregoing, we find the trial court has provided

apparently reasonable grounds determining that Ceravolo, Hennings and

Pakutz will prevail on the merits.     Therefore, we affirm the order of

December 22, 2016.

     Order affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 11/14/2017

                                   - 14 -