Court Opinion

ID: 2805097
Source: CourtListenerOpinion
Date Created: 2015-06-02 19:13:29.512533+00
Date Added: 2024-06-11T12:31:51.646547
License: Public Domain

J-A07036-15

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

FITNESS ESSENTIALS, L.L.C.                       IN THE SUPERIOR COURT OF
                                                       PENNSYLVANIA
                            Appellee

                       v.

DAVID NILL

                            Appellant                No. 1345 WDA 2014

                  Appeal from the Order Entered July 17, 2014
               In the Court of Common Pleas of Allegheny County
                      Civil Division at No(s): AR 14-002198

BEFORE: BENDER, P.J.E., LAZARUS, J., and MUNDY, J.

MEMORANDUM BY LAZARUS, J.:                             FILED JUNE 02, 2015

       David Nill appeals from the order, entered in the Court of Common

Pleas of Allegheny County, granting a preliminary injunction to Fitness

Essentials, L.L.C. (“Fitness”). After careful review, we affirm.

       Fitness is in the physical fitness training business.   Nill is a fitness

trainer who worked as an independent contractor for Fitness at its facility at

the Pittsburgh Athletic Club (“PAA”).1 Nill began working for Fitness in 1998

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1
  The PAA has, and had, almost all of the paraphernalia and equipment
associated with fitness training. Fitness, at best, had some elastic bands,
medicine balls and the like on site. Fitness has a lease with the PAA under
which it used the equipment in the facility and sold its services to members
of the PAA who wanted to become or remain fit. Under the lease, Fitness
paid the PAA $1,500 to $1,650 per month.
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and continued to do so until early 2014.2 Nill signed independent contractor

agreements with Fitness in 1998, 2000, 2002, and 2004, all of which

contained restrictive covenants and non-compete language.

       The non-compete clause in the 2004 Agreement reads as follows:

       5. Non-Competition.      Fitness Essentials acknowledges and
       agrees that Trainer may provide personal training or other
       fitness related services on its own behalf or to other persons or
       organizations and does not object to Trainer’s affiliations with
       other persons or organizations. However, in order to adequately
       protect the interests of Fitness Essentials, it is necessary for
       Trainer to undertake limited obligations of non-competition.
       Therefore, during the terms of this Agreement and for a period
       of two years immediately following the termination of this
       agreement for any reason, Trainer will not, without Fitness
       Essentials’ written consent, directly or indirectly engage or
       employ any person who is engaged by Fitness Essentials as a
       personal trainer during the times this Agreement is in effect or in
       any manner seek to induce any person to leave his or her
       engagement with Fitness Essentials, or any client to stop
       engaging the services of Fitness Essentials, or solicit any
       corporate client or customer of Fitness Essentials to engage
       Trainer or a fitness business affiliated with Trainer in place of
       Fitness Essentials, or otherwise interfere with ay contractual
       relationship of Fitness Essentials.

Independent Contractor Agreement for Personal Training Services, 2/12/04,

at 1-2 (emphasis added).

       In 2014, Fitness presented Nill with an independent contractor

agreement that included a more restrictive non-compete clause.               Nill

declined to sign the new agreement and was subsequently terminated from

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2
 When Nill started, he made about $15 per session.         By 2014, Nill’s rate
was $45 per session.

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Fitness.    Despite the non-compete clause of the 2004 Agreement, Nill

continued to train 21 of his former Fitness clients at the PAA.

       Thereafter, both parties filed complaints in the Magisterial District

Court, which were appealed to the Court of Common Pleas of Allegheny

County. The cases were consolidated and assigned to arbitration dockets.

       On May 13, 2014, Fitness filed a motion for preliminary injunction,

seeking to enforce the non-compete clause of the 2004 Agreement.              The

court heard argument on Fitness’ motion on June 17 and June 23, 2014. On

July 17, 2014, the Honorable Timothy O’Reilly issued an order and

memorandum, granting the preliminary injunction. On August 12, 2014, Nill

filed an emergency motion for reconsideration, which the court denied

following oral argument.

       Nill then filed this interlocutory appeal as of right3 on August 18, 2014.

On September 3, 2014, he applied to the trial court for a stay, either whole

or in part, of the preliminary injunction order, pending disposition of this

appeal pursuant to Pa.R.A.P. 1732(a).            This Court denied the stay by per

curiam order on September 30, 2014.

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3
  See Pa.R.A.P. 311(a)(4)(ii), which states: An appeal may be taken as of
right and without reference to Pa.R.A.P. 341(c) from an order that grants an
injunction unless the order was entered after a trial but before entry of the
final order. Such order is immediately appealable, however, if the order
enjoins conduct previously permitted or mandated or permits or mandates
conduct not previously mandated or permitted, and is effective before entry
of the final order.

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        On appeal, Nill presents the following issues for our review:

        1. Did the trial court abuse its discretion and/or commit error of
           law by granting a preliminary injunction based on the
           enforcement of a non-competition covenant in an
           independent contractor agreement?

        2. Did the trial court abuse its discretion and/or commit error of
           law by determining that the non-competition covenant was
           part of the “initial entry into a new contract” even though the
           2004 agreement was the third provisional agreement
           between the parties?

        3. Was the non-competition covenant in the 2004 agreement
           unenforceable due to the insufficiency or lack of
           consideration?4

        4. Did the trial court abuse its discretion and/or commit error of
           law by issuing a preliminary injunction when Fitness did not
           establish all of the criteria and, therefore, has unclean hands?

Appellant’s Brief, at 4.

        Appellate review of a trial court order granting or denying preliminary

injunctive relief is highly deferential.       Warehime v. Warehime, 860 A.2d

41, 46 (Pa. 2004).        As such, an appellate court “will not inquire into the

merits of the controversy, but instead will examine the record only to

determine if there were any apparently reasonable grounds for the action of

the court below.”        Lutz Appellate Printers, Inc. v. Department of

Property and Supplies, 370 A.2d 1210, 1212-13 (Pa. 1977). 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 an appellate court

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4
    For ease of disposition, we will address issues two and three together.

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interfere with the decision of the trial court. Blair Design & Constr. Co. v.

Kalimon, 530 A.2d 1357, 1359 (Pa. Super. 1987).

        [I]n order to be enforceable a restrictive covenant must satisfy
        three requirements: (1) the covenant must relate to either a
        contract for the sale of goodwill or other subject property or to a
        contract for employment; (2) the covenant must be supported
        by adequate consideration; and (3) the application of the
        covenant must be reasonably limited in both time and territory.

Piercing Pagoda, Inc. v. Hoffner, 351 A.2d 207, 210 (Pa. 1976).

        In his first issue, Nill argues that a non-compete clause cannot be

enforced with respect to an independent contractor relationship.         Fitness

argues to the contrary and relies on Quaker City Engine Rebuilders, Inc.

v. Toscano, 535 A.2d 1083 (Pa. Super. 1987), in support of its argument.

        We begin by noting that Nill voluntarily and repeatedly entered into

agreements with Fitness that explicitly classified him as an independent

contractor.     Nill was aware of the restrictive language included in the

agreements from the beginning, and knew that in the event of termination,

a non-compete covenant would be triggered.

        In Quaker City, this Court held that a restrictive covenant can apply

to situations beyond the traditional employer-employee relationship. Id. at

1088.    There, appellee was a company that sold and distributed auto and

truck engines.      Appellant entered into an agreement with appellee to

become a sales representative in the capacity of an independent contractor.

The independent contractor agreement in Quaker City also contained a

restrictive covenant not to engage in the manufacturing, buying, selling, or

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dealing in automotive products for a competitor for a period of two (2) years

after termination or expiration of the independent contractor agreement.

Id. at 1084-85.       Appellant ceased performing sales work for appellee, and

soon thereafter commenced advertising to potential customers to purchase

and rebuild engines.       Id.   As in the case sub judice, appellant in Quaker

City ceased working as an independent contractor for appellee and

attempted to go into the same business on his own.

       Citing Piercing Pagoda,5 Bryant Co. v. Sling Testing and Repair,

Inc., 369 A.2d 1164 (Pa. 1977),6 and § 516 of the Restatement (1st) of

Contracts,7 we concluded that the independent contractor relationship in

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5
  In Piercing Pagoda, the enforceability of a covenant not to compete was
addressed within a franchise setting. There, our Supreme Court held that an
employment relationship is established when a “franchise” agreement exists.
Piercing Pagoda, 351 A.2d at 211.          Particularly, where a franchisee
received an opening line of inventory, basic training in fundamentals of the
business, directions and guidance for market development, use of a
corporate name carrying a degree of identity in the area of business, and an
exclusive right to sell the product in a specified area, a franchise is
considered a legitimate business interest and is therefore protectable. Thus,
a covenant not to compete provision within a franchise agreement would
create an employment relationship, satisfying the first requirement of a valid
and enforceable covenant not to compete. Id.
6
  In Bryant Co., our Supreme Court held that a restrictive covenant was
valid and enforceable outside the purview of a traditional employment
setting.  See Bryant Co., 369 A.2d at 1168-69 (holding that post-
employment restrictive covenant was valid and enforceable).
7
       Section 516 states in pertinent part:
(Footnote Continued Next Page)

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Quaker City was “sufficiently analogous to that of an employment

relationship that the same equitable principles should apply.” Id. at 1087.

Accordingly, we will extend the validity of restrictive covenants beyond the

pure employment setting “if the rationale behind the covenant can be

analogized to that which exists in the employer/employee relationship.” Id.

at 1088.

      Here, the impetus for the restrictive covenant was to prevent

independent contractors from exploiting Fitness’ existing infrastructure of

clients and facilities for their own pecuniary benefit. The restrictive covenant

also served to prevent independent contractors from conducting their own

                       _______________________
(Footnote Continued)

      The following bargains do not impose unreasonable restraint of
      trade unless effecting, or forming part of a plan to effect, a
      monopoly:
           (f) A bargain by an assistant, servant, or agent not to
           compete with his employer, or principal, during the term of
           the employment or agency, or thereafter, within such
           territory and during such time as may be reasonably
           necessary for the protection of the employer or principal,
           without imposing undue hardship on the employee or
           agent.
      This section clearly demonstrates that the first Restatement
      contemplates application of restrictive “employment” covenants
      to situations beyond the traditional employer/employee
      relationship. Therefore, § 516 when considered in conjunction
      with our Supreme Court’s holdings in Piercing Pagoda and
      Bryant, indicates to us that the restrictive covenant should not
      be set aside in the case before us, merely because appellant is
      an independent contractor rather than an employee.
Quaker City, 535 A.2d at 1088-89 (emphasis in original).

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business in direct competition with Fitness. In other words, the rationale for

the restrictive covenant was to protect Fitness, its business model and

practices, and its viability as a company. This is the same rationale present

in any traditional employer/employee relationship. Thus, applying the same

analysis in Quaker City, the non-compete clause of the 2004 Agreement is

valid and enforceable against Nill because it is sufficiently related to a

“contract for employment” to create a legitimate, protectable business

interest. See id. at 1083.

       In his second issue, Nill argues that the trial court committed an error

of law when it determined that the 2004 Agreement constituted “initial entry

into   a   new   contract”   and,   therefore,   the   job   itself   was   adequate

consideration to enforce the non-compete clause. Although we disagree with

the trial court’s reasoning, we still find that Nill received actual valuable

consideration sufficient to enforce the non-compete clause contained in the

2004 Agreement.

       In Socko v. Mid-Atlantic Systems of CPA, Inc., 99 A.3d 928, 931-

32 (Pa. Super. 2014), appeal granted, 105 A.3d 659, 2014 WL 6991669 (Pa.

2014), this court determined:

       For a restrictive covenant to be enforceable, the employee must
       receive actual valuable consideration in exchange for signing an
       employment agreement containing one. When the restrictive
       covenant is contained in the initial contract of employment, the
       consideration is the job itself. But when the restrictive covenant
       is added to an existing employment relationship, however, to
       restrict himself the employee must receive a corresponding
       benefit or a change in job status.

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Socko, 99 A.3d at 935.

        Presently, the trial court concluded,

        In Socko we are told that a restrictive covenant entered at the
        initial taking of employment is enforceable and the job is the
        consideration. Here as an independent contractor the 2004
        contract was an initial entry in a new contract because that
        contract continued until a new one was entered. Thus, the
        covenant applies.

Trial Court Opinion, 7/17/14, at 6 (emphasis in original).

        This reasoning circumvents real the issue. The 2004 Agreement was,

in actuality, a continuation of the parties’ relationship that began in 1998 as

demonstrated by the successive nature of the agreements, which all

included a non-compete clause. With this understanding, we proceed with

our analysis.

        It is undisputed that under the 2004 Agreement, Nill received a raise

(in excess of the rate he negotiated for) and his responsibilities with Fitness

expanded to include nutrition counseling.       Pursuant to that expansion, Nill

received new business cards and Fitness updated his biography on the

company’s website to reflect his new role as a nutrition counselor. The raise

and change in job status constituted actual valuable consideration. Id., at

933 quoting Maintenance Specialties, Inc. v. Gottus, 314 A.2d 279, 282-

83 (Pa. 1974).

        In his fourth issue, Nill asserts that Fitness has failed to satisfy the

elements necessary for granting a preliminary injunction. We have long held

that:

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       In ruling on a preliminary injunction request, a trial court has
       apparently reasonable grounds for its denial of relief where it
       properly finds that any one of the following essential
       prerequisites for a preliminary injunction is not satisfied. First, a
       party seeking a preliminary injunction must show that an
       injunction is necessary to prevent immediate and irreparable
       harm that cannot be adequately compensated by damages.
       Second, the party must show 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.
       Third, the party must show that a preliminary injunction will
       properly restore the parties to their status as it existed
       immediately prior to the alleged wrongful conduct. Fourth, the
       party seeking an injunction must show 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. Fifth, the party must show that
       the injunction it seeks is reasonably suited to abate the
       offending activity.    Sixth and finally, the party seeking an
       injunction must show that a preliminary injunction will not
       adversely affect the public interest.

Summit Towne Ctr., Inc. v. Shoe Show of Rocky Mt., Inc., 828 A.2d

995, 1001 (Pa. Super. 2003) (quotations and citations omitted).

       First, Nill argues that a preliminary injunction was not necessary

because the 2004 agreement contained a liquidated damages provision that

could adequately compensate Fitness.8 We have previously considered the

grant of preliminary injunctions where liquidated damages are available, and

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8
   Nill raises this argument despite the plain language of the 2004
agreement, which reads, “Trainer further agrees that enforcement of this
paragraph [the non-compete] may also be by injunction, in addition to all
other remedies that may be available at law or equity.” Exhibit “A” to
Plaintiff’s Brief in Support of Defendant’s Response in Opposition to Plaintiff’s
Motion for a Preliminary Injunction, at 2.

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ultimately, our decisions have turned on whether the liquidated damages are

sufficient to compensate the petitioner.       In The York Group, Inc. v.

Yorktowne Caskets, Inc., 924 A.2d 1234 (Pa. Super. 2007), this Court

distinguished precedent supporting Nill’s argument on the grounds that

where liquidated damages are available, a preliminary injunction may

nonetheless be granted where the harm incurred involves the loss of market

share or business opportunity, and thus cannot be clearly calculated. Id. at

1243-44.      The nature of those losses, by definition, renders them

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.”).

      While we acknowledge that Nill can identify the clients he took from

Fitness, and the amount they paid for his services, there remains the much

more nebulous calculation of how his venture has harmed Fitness’ market

advantages and business opportunities.        In an industry as dependent on

referrals and reputation as personal training, it is difficult to estimate these

figures accurately. As such, we find a reasonable basis to support a finding

for Fitness on the first element.

      Next, Nill challenges the second element, whether greater injury will

occur from refusing the injunction than granting it, because the injunction is

overly broad in scope.     Fitness has suffered harm by losing some of its

customers, and potentially some of its goodwill and market advantage in the

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community. By contrast, though Nill has lost some of his clients, he is not

precluded from earning a living as a personal trainer.     He remains free to

train clients, so long as he does so in a manner consistent with the

restrictive covenant that he willingly signed.    As such, Nill has failed to

disprove the lower court’s reasoning in finding the second element satisfied.

      Nill broadly challenges the third element, arguing that injunctive relief

does not restore the status quo.    The purpose of the restrictive covenant

was to prevent Fitness from suffering a loss of clients and/or business in the

event that Nill no longer worked for Fitness.     Despite that language, Nill

began training 21 of Fitness’ clients.   The injunction, therefore, serves to

restore Nill and Fitness to their status as it existed immediately prior to the

alleged wrongful conduct.

      Finally, Nill challenges the injunction on the grounds that it is not

reasonably suited to abate the allegedly offending activity.      As we have

already noted, the injunction serves only to enforce the restrictive covenants

that Nill willingly entered.   This Court has previously held, “[e]quitable

enforcement of restrictive covenants is permitted when they are incident to

an employment relation between the           agreement’s parties, they are

reasonably necessary for the protection of the employer, and they are

reasonably limited in duration and geographic extent.”     Blair Design and

Const. Co., Inc. v. Kalimon, 530 A.2d 1357, 1359-60 (Pa. Super. 1987).

We conclude that the injunction fits comfortably within those articulated

boundaries because the non-compete clause was incident to the employment

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relationship, necessary to protect Fitness from cannibalization, limited in

duration to two years, and only extended to Fitness’ existing clients.

       While Nill avers that the covenant restricts him from practicing his

trade, he fails to recognize the limited scope of the injunction.             Nill has

significant experience as a personal trainer.           He is not barred from using

those skills and experiences to solicit new clients. He is free to train anyone

at any facility, except for Fitness clients at the PAA and Pittsburgh Golf Club,

where Fitness has obtained lease rights and customarily trained its clients.

       Lastly, Nill challenges the imposition of the injunction, by asserting the

equitable defense of unclean hands. We have long recognized that, “[t]he

doctrine of unclean hands requires that one seeking equity act fairly and

without fraud or deceit as to the controversy in issue.”              Terraciano v.

Department of Transportation, 753 A.2d 233, 237-38 (Pa. 2000).

Instantly, Nill claims that Fitness acted in bad faith, both in employing him

as an independent contractor and in imposing indemnity and hold harmless

provisions in his contract.      Regardless of the merit of Nill’s claim that this

was a sham independent contractor arrangement, we find his argument

underdeveloped9 and unpersuasive.              Nill has failed to meaningfully discuss

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9
  The only case law supporting Nill’s argument, other than a terse footnote,
is Philadelphia Housing Corp. v. Willoughby, 97 A.3d 866 (Pa. Cmwlth.
2014). That case involves an unclean hands defense asserted against a
fraudulent action to quiet title, and does not discuss the use of “captive
independent contractor” arrangements to escape tax liability.

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why Fitness’ arrangement constituted bad faith. Further, to the extent Nill

makes arguments regarding bad faith present in the 2014 contract, we will

not examine those claims as that agreement was never signed, and is thus,

not at issue in the matter sub judice. As such, there are insufficient grounds

to apply the doctrine of unclean hands.

      Order affirmed.

      BENDER, PJE., Joins the majority.

      MUNDY, J., Concurs in result.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 6/2/2015

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