Court Opinion

ID: 214513
Source: CourtListenerOpinion
Date Created: 2011-04-12 16:40:31+00
Date Added: 2024-06-11T17:28:20.266836
License: Public Domain

NOT PRECEDENTIAL

               UNITED STATES COURT OF APPEALS
                    FOR THE THIRD CIRCUIT
                         ____________

                              No. 10-4449
                             ____________

                         JOSEPH FIGUEROA,

                                   v.

                    PRECISION SURGICAL, INC.,
                                       Appellant.

                                   v.

JOSEPH FIGUEROA D/B/A FIGUEROA MEDICAL-PUERTO RICO;
         FIGUEROA MEDICAL & ASSOCIATES, LLC
                     ___________

             On Appeal from the United States District Court
                      for the District of New Jersey
                    (D.C. Civil No. 02-10-cv-05575)
              District Judge: Honorable Peter G. Sheridan
                              ___________

               Submitted Under Third Circuit LAR 34.1(a)
                           March 11, 2011

   Before:     SCIRICA, AMBRO and VANASKIE, Circuit Judges

                         (Filed: April 12, 2011)
                              ___________

                      OPINION OF THE COURT
                           ___________
VANASKIE, Circuit Judge.

          Appellant Precision Surgical, Inc. (“Precision”) appeals a decision by the District

Court denying its motion to preliminarily enjoin a former sales representative, Appellee

Joseph Figueroa, from working for a competitor. Because we find that the District Court

did not abuse its discretion in denying the motion for a preliminary injunction, we will

affirm.

                                                I.

          As we write only for the parties, who are familiar with the facts and procedural

history of the case, we will set forth only those facts necessary to our analysis. Precision

is a distributor of surgical supplies and equipment, actively marketing in New York, New

Jersey, Delaware, and Pennsylvania, with a customer base throughout the United States

and abroad. It represents on an exclusive basis six manufacturers of surgical equipment

and supplies, and also represents approximately 50 manufacturers on a non-exclusive

basis.

          In October, 2003, Precision employed Joseph Figueroa (“Figueroa”) as an

independent sales representative. On April 23, 2004, Precision and Figueroa entered into

a written Independent Contractor Agreement (“ICA”). The ICA contained a number of

restrictive covenants, including a non-solicitation covenant, a non-competition covenant,

and a confidentiality covenant, all of which extended for a 24-month period beyond the

termination of the ICA.

          During the course of his relationship with Precision, Figueroa worked from his

home while also maintaining an office at Precision. His official Job Description called

                                                2
Figueroa an “account executive.” It mandated that “[a]proximately, eighty percent, 80%,

of representative[‟]s time … be spent selling primary exclusive manufacturer product line

. . . . [and] [a]pproximately twenty percent, 20%, of representative‟s time to be spent

selling non-exclusive „support‟ products offered by Precision….” (J.A. 475.) Numerous

other restrictions were also placed on Figueroa‟s work performance, including daily

reporting, attending monthly or semi-monthly meetings, reporting absences, posting his

schedule on a corporate electronic calendar, instructions on how to dress, orders to

receive immunizations, and obtaining permission to give quotes to companies outside his

territory. In 2008, at Precision‟s direction, Figueroa created a limited liability company,

Figueroa Medical & Associates, LLC, to which Precision began making Figueroa‟s

commission payments.

       It appears from the record that numerous problems developed between Figueroa,

who wanted to be an independent contractor free from what he regarded as Precision‟s

micromanagement of his performance, and Precision, who felt that the restrictions on

Figueroa were consistent with the ICA. Tensions reached a boiling point when Figueroa

claimed that his accountant discovered that Precision had made deductions from

Figueroa‟s commissions. On September 23, 2010, Figueroa met with John Kalman,

Precision‟s president, and asked Kalman to enter into a new independent contractor

agreement with him. Precision, however, had determined that it desired to “move people

towards an employee relationship” and abolish its independent contractor positions.

Accordingly, it countered by proposing to convert Figueroa to employee status. Figueroa

refused, and Precision terminated the ICA.

                                             3
          Figueroa then brought a civil action against Precision in the Superior Court of

New Jersey, Bergen County, alleging that the restrictive covenants in the ICA were

unenforceable. The case was removed to the District Court for the District of New

Jersey. Precision filed a counterclaim against Figueroa as well as a third-party complaint

against Figueroa‟s companies, Figueroa Medical & Associates, LLC, and Figueroa

Medical-Puerto Rico. In its counterclaim, Precision alleged that Figueroa was acting in

violation of the ICA by working as an independent sales representative for R. C. Sales,

one of Precision‟s direct competitors. Precision further alleged that Figueroa‟s

establishment of Figueroa Medical-Puerto Rico, which sought to distribute products in

Puerto Rico, violated the ICA because Precision was entitled to a right of first refusal to

sales in that region. Precision filed an Emergency Motion for Entry of an Order to Show

Cause and Issuance of a Preliminary Injunction, seeking to uphold the ICA‟s restrictive

covenants. Following a hearing, the District Court denied the requested relief. Precision

now appeals.

                                                II.

          The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction

pursuant to 28 U.S.C. § 1292(a)(1).

          Although we apply state law to the substantive issues in this diversity action, see

Erie Railroad v. Tompkins, 304 U.S. 64 (1938), 1 “[w]e utilize a federal standard in

examining requests to federal courts for preliminary injunctions.” See Instant Air Freight

1
    The parties agree that Pennsylvania law applies to the substantive issues in this case.

                                                4
Co. v. C. F. Air Freight, Inc., 882 F.2d 797, 799 (3d Cir. 1989). There are four factors to

consider in assessing a motion for a preliminary injunction: (1) whether the movant has

shown a reasonable probability of success on the merits; (2) whether the movant will be

irreparably harmed by the denial of relief; (3) whether granting preliminary relief will

result in even greater harm to the nonmoving party; and (4) whether granting the

preliminary relief will be in the public interest. Council of Alternative Political Parties v.

Hooks, 121 F.3d 876, 879 (3d Cir. 1997).

       “[W]hen reviewing a decision to grant or deny a preliminary injunction, this court

reviews a district court's findings of fact for clear error, conclusions of law de novo, and

the ultimate decision to grant or deny the preliminary injunction for an abuse of

discretion.” McTernan v. City of York, 577 F.3d 521, 526 (3d Cir. 2009). “It frequently

is observed that a preliminary injunction is an extraordinary and drastic remedy, one that

should not be granted unless the movant, by a clear showing, carries the burden of

persuasion.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (internal quotation marks

and citation omitted). Moreover, covenants not to compete are disfavored in

Pennsylvania, and their provisions may be equitably enforced “only so far as reasonably

necessary for the protection of the employer‟s protectible [sic] business interests.” Hess

v. Gebhard & Co., Inc., 808 A.2d 912, 920 (Pa. 2002).

                                             A.

       The District Court found that Precision was not entitled to the extraordinary

injunctive relief that it sought because it had not demonstrated a substantial likelihood of

prevailing on the merits due to its apparent failure to abide by the terms of the ICA.

                                              5
Specifically, the District Court concluded that Precision had likely breached the ICA by

treating Figueroa as an employee, as opposed to according him the flexibility to be

accorded an independent contractor, the status contemplated by the parties in the ICA.

The District Court also found that Precision had likely breached the ICA by failing to pay

the commissions to which Figueroa was entitled. We discern no error in the District

Court‟s findings.

       First, there was ample evidence presented at the hearing to suggest that Precision

had breached the ICA by treating Figueroa as an employee rather than as an independent

contractor. Figueroa‟s title was “Account Executive.” Precision established primary and

secondary levels of reporting authority, as well as dress requirements, training

obligations, and sales goals. (See J.A. 238.) Figueroa testified that he “wasn‟t allowed

to” solicit clients independent of Precision‟s involvement, and that “[i]f I had a

relationship or even talked to someone, they were all over me.” (J.A. 755.) Figueroa was

given what “looks almost like an employment identification picture,” a Precision business

card, and a Precision headquarters telephone number. He was required to devote 100%

of his time to Precision, and he was apparently required to inform Precision of future

market opportunities, such as those cultivated in Puerto Rico. (J.A. 831-32.) All of these

factors make it look much more likely that Figueroa was treated as an employee in

derogation of Precision‟s agreement in the ICA to retain Figueroa as an independent

contractor.2

2
  Precision responds that restrictive covenants are enforceable as a matter of law, whether
they are in the context of an employment agreement or an agreement with an independent
                                              6
       Second, there was sufficient evidence to support a determination that Precision

breached the ICA by failing to pay commissions to which Figueroa was entitled. On

numerous occasions, Figueroa attempted to use subcontractors for service or maintenance

work on equipment sold to hospitals. Precision repeatedly instructed Figueroa to use

Northeast Medical for service and maintenance work.3 Northeast Medical was owned by

John Kalman. Figueroa was told that his failure to use Northeast as a subcontractor “is

not an acceptable response to our service hiring protocol.” (J.A. 270.) Figueroa rejoined

that he was an independent contractor and would proceed as he saw fit. (J.A. 546-47.)

When Figueroa invoiced Precision for payments connected with subcontractor

maintenance expenses, Precision deducted the amount of the invoices from his

commission. (J.A. 759-60.) For this reason, the parties dispute whether Precision has

paid Figueroa in full. Precision claims that it has; Figueroa claims that he should be

compensated for the amount of the deductions as well.4

contractor. While true in the abstract, the manner in which Precision treated Figueroa is
relevant to the issue of whether its breaches of the parties‟ contract militates against
preliminary injunctive relief.
3
 In fact, Kalman indicated that “[t]here was a policy written that we wanted that done.”
(J.A. 727.) This policy appears to be a directive from Robert F. Sariego, Vice President
of Sales & Project Management, dated September 11, 2009. (J.A. 304.)
4
  We agree with Precision‟s contention that, pursuant to its previous agreement with
Figueroa, it is not responsible for paying commissions on sales made by Figueroa for
which Precision has not received payment. Such “accelerated” payments are not
supported by the agreement or by past practice, as Figueroa acknowledges by
acknowledging that they are “new rules,” and Figueroa can hardly complain that a failure
to pay them renders the agreement unenforceable. (See J.A. 627.)
                                             7
       “The burden lies with the plaintiff to establish every element in its favor, or the

grant of a preliminary injunction is inappropriate.” P. C. Yonkers v. Celebrations of the

Party and Seasonal Superstore, 428 F.3d 504, 508 (3d Cir. 2005). It is, of course, a well-

settled principle of contract law that “a material breach by one party to a contract entitles

the non-breaching party to suspend performance.” Widmer Engineering, Inc. v. Dufalla,

837 A.2d 459, 467 (Pa. Super. Ct. 2003). In the context of a motion for a preliminary

injunction seeking to enforce a restrictive covenant, an apparent material breach of

contract by the employer undermines its claim to such extraordinary relief. The District

Court found that the evidence indicated that Precision did not perform as required by the

ICA, observing that Precision “has not shown that it has consistently paid Mr. Figueroa

all the compensation due him under his contract.” (J.A. 830.) The District Court‟s

findings are not clearly erroneous, and provide a rational basis for denying preliminary

injunctive relief.

       There appears to be another basis for denying preliminary injunctive relief not

addressed by the District Court, and that is whether the restrictive covenants at issue here

were supported by adequate consideration.5 Under Pennsylvania law, a restrictive

covenant imposed subsequent to the establishment of an employment or independent

contractor relationship “must be supported by new consideration.” Gagliardi Bros., Inc.

v. Caputo, 538 F. Supp. 525, 528 (E.D. Pa. 1982) (quoting George W. Kistler, Inc. v.

O’Brien, 347 A.2d 311, 316 (Pa. 1975)). In Caputo, an employer sought to enforce a

       5
         We, of course, may affirm the District Court‟s ruling on any ground supported by
the record. See Tourscher v. McCullough, 184 F.3d 236, 240 (3d Cir. 1999).

                                              8
covenant not to compete which was contained in a contract executed two years after the

employment relationship was formed. Id. at 526. Although the employee was given a

raise at about the time of the contract‟s execution, the raise was found to be a routine

salary increase. Id. Accordingly, the court found that there was insufficient

consideration to support the restrictive covenants.

       The situation here appears similar. By letter dated October 23, 2003, Figueroa

was offered a “subcontractor position” with Precision as an “Executive Account

Manager.” According to this letter, Figueroa‟s compensation was initially set at $8,000

per month, from November 1, 2003, through April 30, 2004. From May 15, 2004,

through October 15, 2004, he would be put “on a conventional draw against

commissions,” and on September 30, 2004, Figueroa was to be evaluated for the purpose

of determining whether his commissions exceed the amount drawn on his account; if so,

he would be compensated for the extra amount. His commission rate was set in October,

2003, at 50% of net profits less a 10% administrative fee, for amounts $500,000 or less.

For amounts from $500,001 and above, he was to receive 55% of net profits less a 10%

administrative fee. Figueroa commenced working for Precision in October of 2003.

       Figueroa signed the ICA on April 23, 2004, nearly six months after the parties‟

contractual relationship was formed. The ICA is silent about compensation, providing

only that Figueroa “shall be paid in the form of commissions pursuant to a calculation

mutually agreed upon by the parties.” (J.A. 252.) Significantly, Kalman, Precision‟s

president, admitted at the preliminary injunction hearing that there was no alteration of

compensation between October 2003 and December of 2004. (J.A. 702.) He further

                                              9
stated that “[t]he intent [behind the ICA] was to have an agreement,” and that his “intent

was not to give [Figueroa] any more benefits or anything additional to what he was

getting before the agreement.” (J.A. 711.) In light of the evidence, there is a substantial

issue as to whether there was adequate consideration for the restrictive covenants, thus

warranting denial of preliminary injunctive relief.

       In summary, the record discloses ample reasons for concluding that Precision had

not demonstrated a reasonable probability of succeeding on the merits. Accordingly, the

District Court did not abuse its discretion in denying Precision‟s motion for a preliminary

injunction.

                                             B.

       Even if Precision had demonstrated a likelihood of prevailing on the merits,

preliminary injunctive relief was foreclosed by the District Court‟s finding that Precision

did not demonstrate irreparable injury. In the context of the grant of a preliminary

injunction in this Circuit, irreparable injury has been defined as “potential harm which

cannot be redressed by a legal or an equitable remedy following a trial.” Instant Air

Freight Co. v. C. F. Air Freight, Inc., 882 F.2d 797, 801 (3d Cir. 1989). Indeed, such

loss must not be merely economic, but “of a peculiar nature, so that compensation in

money cannot atone for it.” A. O. Smith Corp. v. F.T.C., 530 F.2d 515, 525 (3d Cir.

1976) (internal quotation marks omitted). No less than a “clear showing of immediate

irreparable injury” is required. Ammond v. McGahn, 532 F.2d 325, 329 (3d Cir. 1976).

       When asked to discuss the harm Precision sustained as a result of Figueroa‟s

conduct, John Kalman, the President of Precision, opined that he had received letters

                                             10
“terminating the . . . exclusive territory that we had with Dornoch Medical Systems,”

(J.A. 655), and that “Lista International has also reduced our territory,” although he could

not state with certainty that Figueroa was handling sales for either supplier. (J.A. 658).

Kalman also testified that a purchase order of $36,000 had been cancelled by the

Maimonides Medical Center, (J.A. 660), and that Figueroa had attempted, apparently

unsuccessfully, to solicit business from another Precision customer, Englewood Surgical

Center. (J.A. 664.) Although Kalman testified that he believed that Figueroa was

diverting business to Precision‟s competitor, R.C. Sales, he conceded that, even if the

injunction were granted, direct competition with R.C. Sales would continue. (J.A. 687.)

The District Court concluded that “[t]here‟s nothing in the proofs before me today that

shows that Precision could not remedy the situation through monetary damages.” (J.A.

833.)

        We have previously held that even when an action will result in the destruction of

a business, a District Court was still justified in refusing to grant a preliminary injunction

when the loss was “capable of ascertainment and award at final judgment if [petitioner]

prevails.” Instant Air Freight Co. v. C. F. Air Freight, Inc., 882 F.2d 797, 801 (3d Cir.

1989). Precision‟s evidence focused on its projected loss of income and the diversion of

its business interests, indicating that any injury was compensable through a monetary

damages award. Precision failed to meet the high standard required for the granting of a

preliminary injunction to enforce a covenant not to compete. For this reason as well, the

District Court did not abuse its discretion when it denied Precision‟s request for a

preliminary injunction.

                                              11
                                    III.

For the foregoing reasons, we will affirm the judgment of the District Court.

                                     12