Court Opinion

ID: 6352971
Source: CourtListenerOpinion
Date Created: 2022-06-23 16:11:06.681313+00
Date Added: 2024-06-11T09:13:44.374624
License: Public Domain

J-A06034-22

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

    HOWARD HANNA D/B/A HOWARD                  :   IN THE SUPERIOR COURT OF
    HANNA REAL ESTATE SERVICES                 :        PENNSYLVANIA
                                               :
                       Appellant               :
                                               :
                                               :
                v.                             :
                                               :
                                               :   No. 967 WDA 2021
    MICHAEL HORNUNG, AN                        :
    INDIVIDUAL; JENNIFER CROUSE, AN            :
    INDIVIDUAL; LEAH GEORGE, AN                :
    INDIVIDUAL; COMPASS, INC. F/K/A            :
    URBAN COMPASS, INC., A                     :
    DELAWARE CORPORATION AND                   :
    COMPASS PENNSYLVANIA, LLC, A               :
    DELAWARE LIMITED LIABILITY                 :
    COMPANY                                    :

                 Appeal from the Order Entered August 6, 2021
               In the Court of Common Pleas of Allegheny County
                         Civil Division at GD 21-001894

BEFORE:      MURRAY, J., SULLIVAN, J., and COLINS, J.*

MEMORANDUM BY MURRAY, J.:                            FILED: JUNE 23, 2022

        Howard Hanna, d/b/a Howard Hanna Real Estate Services (Appellant),

appeals from the order denying its motion for a preliminary injunction to

enforce the non-compete clauses in contracts with former sales associates

____________________________________________

*   Retired Senior Judge assigned to the Superior Court.
J-A06034-22

Jennifer Crouse (Crouse) and Leah George (collectively, Defendants).1 Upon

review, we reverse and remand for further proceedings.

       Appellant provides comprehensive real estate services and is one of the

ten largest real estate brokerage companies in the country.           Defendants

worked for Howard Hanna as self-employed independent contractors. On June

29, 2015, Appellant and Crouse executed an Agreement Between Broker and

Sales Associate (Crouse Agreement). In relevant part, the Crouse Agreement

included a restrictive covenant not to compete (the non-compete clause):

       During the term of this Agreement and for a period of eight
       (8) months thereafter, Sales Associate shall not, directly or
       indirectly, acting alone or in conjunction with others: (1) list or
       sell real estate in which said real estate is located within a
       five (5) mile radius around any of Broker’s branch offices
       in which Sales Associate worked during the term of this
       Agreement; (2) furnish to any person, partnership or corporation
       or any other entity engaged in any business that is in competition
       with any business then being conducted by Broker, any
       information regarding Broker’s clients, customers’ properties,
       prices, terms of negotiations, policies or relationships with clients
       and customers, nor any other information and all materials
       supplied by Broker to Sales Associate, including but not limited to,
       publications, cards, records, and any other material files or data;
       (3) solicit, either directly or indirectly, any listing or buyers
       brokerage contract held by Broker at the time of termination of
       this Agreement; and (4) solicit, either directly or indirectly, any
       personnel or other Sales Associate or other persons associated
       with Broker to terminate their relationships with Broker. It is
       expressly agreed that the aforementioned records and information
       are the sole property of the Broker.

____________________________________________

1 “An appeal may be taken as of right … from … [a]n order that grants or
denies, modifies or refuses to modify, continues or refuses to continue, or
dissolves or refuses to dissolve an injunction[.]” Pa.R.A.P. 311(a)(4).

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Amended Complaint, Exhibit B, ¶ 10 (emphasis added). On October 9, 2015,

Appellant and George executed a substantively identical agreement (George

Agreement), which included a six-month restriction on competitive activities.

Amended Complaint, Exhibit C, ¶ 5.

     The trial court described the events that ensued as follows:

           On March 2, 2021, Crouse submitted oral and written notice
     of her resignation to [Appellant].     Crouse thereafter joined
     Compass Pennsylvania, LLC (“Compass”) [another real estate
     company]. According to [Appellant], Crouse has since attempted
     to transfer certain listings over to Compass in violation of the
     Crouse [Agreement].        Crouse contends that she does not
     remember ever signing the Crouse [] Agreement.

                                     ***

            On March 4, 2021, George emailed notice of her resignation
     to [Appellant’s] Chief Executive Officer, Chairman, and Senior
     Executive. George thereafter joined Compass. According to
     [Appellant], George has since refused to submit offers on various
     listings with [Appellant] so that she could submit those offers with
     Compass. Additionally, [Appellant] asserts that George solicited
     other sales associates or persons associated with [Appellant]
     when George sent an email regarding the benefits of working at
     Compass. George contends that she was never aware of the
     restrictive covenants in the George [Agreement] and [Appellant]
     never discussed or advised her regarding the restrictive
     covenants.

Trial Court Opinion, 10/25/21, at 1-2.

     On March 5, 2021, Appellant filed a complaint against another former

sales associate, Michael Hornung, alleging breach of a non-compete clause as

well as misappropriation of trade secrets.     Appellant additionally named

Compass and an affiliate, Compass, LLC, as defendants.       Appellant filed a

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motion for preliminary injunction against Hornung and the Compass

defendants which was resolved by consent order.

        On March 23, 2021, Appellant filed a first amended complaint against

Defendants, claiming Defendants violated the non-compete clauses in their

respective Agreements.         On March 28, 2021, Appellant filed a motion for

preliminary injunction based on the alleged violations. After a hearing, the

trial court denied relief. Trial Court Order, 8/6/21. Appellant timely appealed.

Both Appellant and the trial court have complied with Pa.R.A.P. 1925.

        Appellant presents the following issues for review:

        Whether the [trial] court erred in its August 6, 2021, Order of
        Court, as explained in its October 25, 2021, Opinion:

        a. By ignoring the relevant Pennsylvania law that a breach of a
           restrictive covenant coupled with evidence of some damages
           constitutes irreparable harm; and

        b. In holding that greater injury would occur from refusing to
           grant the injunction than from granting it and in performing a
           flawed test for balancing of the potential harms[?]

Appellant’s Brief at 4.

        Prior to addressing Appellant’s issues, we consider Defendants’ claim

that this appeal is moot because Crouse’s eight-month restriction expired on

November 2, 2021, and George’s six-month restriction expired on September

4, 2021.2 Defendants’ Brief at 16, 17-18.

____________________________________________

2   “We may address mootness sua sponte, as we generally cannot decide moot

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       We recognize:

       An issue can become moot during the pendency of an appeal due
       to an intervening change in the facts of the case or due to an
       intervening change in the applicable law[.] In that case, an
       opinion of this Court is rendered advisory in nature. An issue
       before a court is moot if in ruling upon the issue the court cannot
       enter an order that has any legal force or effect.

                                          ***

       Nevertheless, this Court will decide questions that otherwise have
       been rendered moot when one or more of the following exceptions
       to the mootness doctrine apply: 1) the case involves a question of
       great public importance, 2) the question presented is capable of
       repetition and apt to elude appellate review, or 3) a party to the
       controversy will suffer some detriment due to the decision of the
       trial court.

Lico, Inc. v. Dougal, 216 A.3d 1129, 1132 (Pa. Super. 2019) (citation

omitted).

       We agree Appellant’s challenge to the trial court’s denial of injunctive

relief appears moot, as the dates set forth in Defendants’ non-compete clauses

have passed. Any ruling this Court could enter would lack legal force or effect

with respect to Defendants.           See id. (concluding appeal from denial of

preliminary injunction to enforce non-compete agreement was moot because

____________________________________________

or abstract questions, nor can we enter a judgment or decree to which effect
cannot be given.” M.B.S. v. W.E., 232 A.3d 922, 927 (Pa. Super. 2020)
(quotation marks and citations omitted).

                                           -5-
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agreement had expired).3          However, we must consider whether this case

presents an exception to the mootness doctrine.

       Appellant claims its issues are capable of repetition and likely to evade

judicial review because Appellant has hundreds of agreements with sales

associates who are bound by non-compete clauses of short duration.

Appellant’s Brief at 8-11.          Appellant further emphasizes that Compass

continues to actively recruit Appellant’s agents. Id. Upon review, we agree

that the parties’ dispute is capable of repetition.

       First, similar disputes are likely to arise in the future.    Testimony

presented at the injunction hearing confirms Appellant has entered into

hundreds of agreements with sales associates who are bound by non-compete

clauses of limited duration, and each year, many of Appellant’s sales

associates leave to join a competitor. See N.T., 6/17/21, at 94-98. Future

disputes are likely to evade judicial review given the short duration of the

sales associates’ non-compete term. It is doubtful that litigation would resolve

prior to the non-compete term’s expiration. See Public Defender’s Office

of Venango County v. Venango County Court of Common Pleas, 893

____________________________________________

3 Appellant argues the issues are not moot because a court sitting in equity
may extend the terms of an agreement to prevent injustice to the non-
breaching party. However, the cases Appellant cites in support of this
argument involve contracts outside of this context. See Erkess v. Eisenthal,
47 A.2d 154 (Pa. 1946) (agreement to sell real estate); Levin v. Pittsburgh
United Corp., 199 A. 332 (Pa. 1938) (shareholder agreement); Bloshinski
v. Falaz, 79 A.2d 798 (Pa. Super. 1951) (agreement to sell real estate).

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A.2d 1275, 1280 (Pa. 2006) (issue of whether trial court has authority to

appoint public defender as counsel for non-indigent defendant was capable of

repetition and likely to evade judicial review, as criminal defendants must be

tried within 365 days of the filing of a criminal complaint); cf. Lico, 216 A.3d

at 1132 (concluding issue was not capable of repetition and apt to evade

judicial review, as case involved “non-compete agreement in the contract of

a single former employee” and question of enforceability of clause between

employer and employee would not reoccur). Because this case presents an

exception to the mootness doctrine, we consider Appellant’s claims.

      This Court reviews a trial court’s denial of a motion for preliminary

injunction for an abuse of discretion. Summit Towne Centre, Inc. v. Shoe

Show of Rocky Mount, Inc., 828 A.2d 995, 1000 (Pa. 2003); Eckman v.

Erie Ins. Exch, 21 A.3d 1203, 1206 (Pa. Super. 2011). Our review is highly

deferential to the trial court. Pittsburgh Logistics Sys., Inc. v. Beemac

Trucking, LLC, 249 A.3d 918, 923 (Pa. 2021).

      [W]e do not inquire into the merits of the controversy, but only
      examine the record to determine if there were any apparently
      reasonable grounds for the action of the court below. Only if it is
      plain that no grounds exist to support the decree or that the rule
      of law relied upon was palpably erroneous or misapplied will we
      interfere with the decision of the trial court.

Summit Towne Centre, Inc. v. Shoe Show of Rocky Mount, Inc., 828

A.2d 995, 1000 (Pa. 2003) (citation brackets omitted). Our scope of review

is plenary. Porter v. Chevron Appalachia, LLC, 204 A.3d 411, 416 (Pa.

Super. 2019).

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          A petitioner seeking a preliminary injunction must establish six

prerequisites; failure to establish any one of them results in the denial of

relief:

          [A] petitioner must establish that: (1) relief is necessary to
          prevent immediate and irreparable harm that cannot be
          adequately compensated by money damages; (2) greater injury
          will occur from refusing to grant the injunction than from granting
          it; (3) the injunction will restore the parties to their status quo as
          it existed before the alleged wrongful conduct; (4) the petitioner
          is likely to prevail on the merits; (5) the injunction is reasonably
          suited to abate the offending activity; and (6) the public interest
          will not be harmed if the injunction is granted.

Id. (citation omitted)).

          Appellant first disputes the trial court’s determination that Appellant did

not suffer irreparable harm because Appellant “lost only a small amount of

identifiable commissions on home sales.” Appellant’s Brief at 26. Appellant

relies on Pennsylvania case law holding that breach of a restrictive covenant,

coupled with evidence of damages, constitutes irreparable harm. Id. at 22.

According to Appellant, “even a small amount of monetary harm signals a

bigger problem. A minor breach often portends a large deluge.” Id. Appellant

posits:

          Fearing no consequences, other like-minded individuals soon
          begin to breach their restrictive covenants. In addition, the
          competitor’s market standing, goodwill, clientele and brand are
          increased at the cost of the former employer….

                                          ***

          It is not the initial breach of a covenant which necessarily
          establishes the existence of irreparable harm but rather the threat
          of the unbridled continuation of the violation and resultant

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      incalculable damage to the former employer’s business that
      constitutes the justification for equitable intervention. Bryant,
      369 A.2d at 1167 …. Indeed, equitable relief is almost always
      necessary in these cases.           Records Center[, Inc. v.
      Comprehensive Management, Inc.,] 525 A.2d [433,] 436 [(Pa.
      1987)].

Appellant’s Brief at 23-24 (emphasis omitted).

      Appellant claims Crouse violated her non-compete clause by listing at

least eight homes for Compass within the eight month and five-mile

restriction, totaling over $3,900,000.   Id. at 27-28.   George, within three

months of resigning, listed several properties with Compass within the

restricted area.   Id. at 28.   Appellant asserts Defendants “provided no

indication that they would respect their restrictive covenants, and in fact,

believe they can work without restrictions.” Id. Appellant stresses it suffered

“actual harm as well as potential harm that entitles [Appellant] to injunctive

relief.” Id.

      Appellant also disputes the trial court’s pronouncement that “clients and

client loyalty at issue belonged to Defendants as self-employed independent

contractors[.]” Id. at 29-30 (emphasis added). According to Appellant, real

estate listings are the property of licensed brokers, and not sales associates.

Id. at 30 (citing 63 P.S. § 455.101, et seq.; 49 Pa. Code § 35.201 et seq.).

Appellant argues the Crouse Agreement and George Agreement expressly

confirm that Defendants were to engage in real estate business on behalf of

Appellant, and Appellant owned all listings. Appellant’s Brief at 30-31.

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     After careful review of the record, we disagree with the trial court’s

conclusion that the limited damages sustained by Appellant controls the

determination of irreparable harm. In John G. Bryant, Co. v. Sling Testing

& Repair, Inc., 369 A.2d 1165 (Pa. 1977), the Pennsylvania Supreme Court

upheld the issuance of a preliminary injunction where an employer established

$427.00 in damages.      Id. at 1167.       The Supreme Court rejected the

appellants’ claim that “meager” damages failed to establish irreparable harm,

explaining:

     [Appellants’] reasoning … ignores the nature of the violation
     herein involved. It is not the initial breach of a covenant
     which necessarily establishes the existence of irreparable
     harm, but rather the threat of the unbridled continuation of
     the violation and the resultant incalculable damage to the
     former     employer’s      business     that   constitutes    the
     justification for equitable intervention. … The covenant
     seeks to prevent more than just the sales that might result by the
     prohibited contact but also the covenant is designed to prevent a
     disturbance in the relationship that has been established between
     appellees and their accounts through prior dealings. It is the
     possible consequences of this unwarranted interference
     with customer relationships that is unascertainable and not
     capable of being fully compensated by money damages.

Id. (emphasis added).

     Here, the evidence established that Crouse repeatedly violated the non-

compete clause by listing properties within the prohibited area. See N.T.,

6/3/21, Exhibit 4 (detailing Crouse’s multiple listings within the prohibited

time frame and geographic area). Significantly, Crouse admitted that repeat

business is the “lifeblood” of her profession.   Id. at 94.   George likewise

violated the non-compete clause by listing properties within the restricted

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area. See id., Exhibit 8. The trial court ignored this evidence and “the threat

of the unbridled continuation of the violation and the resultant incalculable

damage to [Appellant’s] business” caused by Defendants’ continuous

violations. John G. Bryant, 369 A.2d at 1167.

      While Appellant identifies specific properties Defendants listed in

violation of the non-compete clauses, there remains a more nebulous

calculation of how Defendants’       violations   harmed Appellant’s market

advantages and future business opportunities. In an industry dependent on

referrals and repeat business, it is difficult to quantify Appellant’s loss. The

nature of the loss, by definition, renders it irreparable. See Sheridan Broad.

Networks, Inc. v. NBN Broad., Inc., 693 A.2d 989, 995 (Pa. Super. 1997)

(“In the commercial context, the impending loss of business opportunities or

market advantages may aptly be characterized as irreparable injury for this

purpose.”). Consequently, we discern no apparently reasonable grounds for

the trial court’s denial of a preliminary injunction on this basis. See Summit

Towne Centre, 828 A.2d at 1000.

      In its second issue, Appellant claims the trial court erred by determining

that greater injury would occur from granting a preliminary injunction than

denying it. Appellant’s Brief at 35. Appellant argues the trial court improperly

applied a “comparative injury” standard when finding greater injury would

accrue to Defendants.     Id. at 35-36.       Appellant asserts the trial court

improperly focused on economic damages when the court opined:

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      At most, denying [Appellant’s] request for injunctive relief will
      cause [Appellant] to lose specific commissions it otherwise might
      have obtained from Defendants.           Nonetheless, … any of
      [Appellant’s] alleged lost commissions could be adequately
      compensated by monetary damages should [Appellant] ultimately
      prevail in this lawsuit. Accordingly, in comparing the possible
      financial harms that an injunction would likely cause to
      Defendants and their families with that of [Appellant’s] alleged
      lost commissions, this Court concluded that [Appellant] also failed
      to establish the second essential prerequisite necessary for
      obtaining injunctive relief. The balance of harms weighs in favor
      of denying [Appellant’s] request for injunctive relief.

Appellant’s Brief at 36 (citation omitted).

      Appellant argues the trial court improperly “pitted the relative financial

conditions of a company against individuals, creating a standard that could

rarely, if ever, be satisfied.” Id. at 43. Appellant asserts, “comparing the

relative financial condition of individuals against whom an injunction is sought

is not part of the balancing test to be performed by the [c]ourt.” Id.      We

agree.

      In determining whether greater harm would result from enforcing the

non-compete clause, we “balance the employer’s protectible interests against

the employee’s interests in earning a living in his chosen occupation and the

public interest.” AmQuip Crane Rental, LLC v. Crane & Rig Servs., LLC,

199 A.3d 904, 917 (Pa. Super. 2019).          In AmQuip, former employees of

AmQuip Crane Rental (AmQuip) appealed a preliminary injunction enforcing a

restrictive covenant favoring AmQuip. Id. at 907. In determining whether

greater harm would result from granting the preliminary injunction, this Court

reasoned:

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      The [former employees] insist that any difficulties incurred by
      AmQuip are miniscule compared to the difficulty that the
      [i]ndividuals will face in finding new employment after working in
      the crane industry for decades.         Nevertheless, [the former
      employees] brought this problem on themselves by breaching
      their noncompetition covenants.          To accept the [former
      employees’] argument would be to frustrate large employers who
      have substantial interests in safeguarding against employees who
      would otherwise betray them. As the court in [Quaker Chemical
      Corp. v. Varga, 509 F. Supp. 2d 469, 480 (E.D.Pa. 2007)
      (applying Pennsylvania law)] reasoned:

        [I]n a case such as this, the harm to the employee almost
        always seems greater than the harm to the company. The
        employer, as a company—in this case, a very successful
        company, it appears—will be able to financially survive an
        employee’s leaving for a competitor. And the employee, as
        an individual, apparently will have a hard time financially
        surviving if he is out of work. By this superficial calculus, the
        harm to the employee is always greater. … If this were the
        rule, no restrictive covenant would be enforced against a
        large and successful company.

      But the numerous courts that have specifically enforced
      noncompete covenants against the employee have concluded
      that, regardless of the relative wealth of the employer and
      employee, the harm to the employer trumps the harm to the
      employee.

Id. at 918 (citation omitted).

      Instantly, the trial court improperly balanced the parties’ disparate

financial positions. See Trial Court Opinion, 10/25/21, at 5 (distinguishing

Defendants as “individuals with families,” from Appellant, “a well established

company”).

      Critically, the trial court failed to factor Appellant’s “protectible

interests against [Defendants’] interests in earning a living in [their] chosen

occupation and the public interest[.]” AmQuip, 199 A.3d at 918.

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      The record reflects that Defendants were not barred from earning a

living in their chosen profession. For example, George admitted she listed

properties outside of the restricted area. See N.T., 6/3/21, at 96 (describing

a $665,000 home she listed outside of the restricted area). Both Defendants

were free to work as real estate agents, with the exception of the 5-mile

prohibition for the six- or eight- month term set forth in the respective

Agreements. Consequently, we discern no apparently reasonable grounds for

the trial court’s denial of a preliminary injunction on this basis. See Summit

Towne Centre, 828 A.2d at 1000.

      For the above reasons, we conclude that no apparently reasonable

grounds exist for the trial court’s determinations that (1) Appellant failed to

establish irreparable harm resulting from Defendants’ actions; and (2) greater

harm would result from granting the preliminary injunction than from denying

it. Accordingly, we reverse the order denying injunctive relief and remand for

further proceedings.   On remand, the trial court shall determine whether

Appellant has established the remaining prerequisites for a preliminary

injunction. See Porter, 204 A.3d at 416.

      Order reversed. Case remanded for further proceedings consistent with

this Memorandum. Superior Court jurisdiction relinquished.

      Judge Sullivan joins the memorandum.

      Judge Colins files a Dissenting statement.

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Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 6/23/2022

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