Tilden Recreational Vehicles v. Belair ( 2019 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 18-2737
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TILDEN RECREATIONAL VEHICLES, INC.
d/b/a Boat-N-RV Superstore, a New York Corporation
v.
GEORGE BELAIR,
Appellant
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On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 5-17-cv-01406)
District Judge: Jeffrey L. Schmehl
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Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
on April 17, 2019
Before: AMBRO, GREENAWAY, JR., and SCIRICA, Circuit Judges.
(Filed: September 5, 2019)
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OPINION *
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*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
SCIRICA, Circuit Judge
When George Belair joined Tilden Recreational Vehicles, Inc., d/b/a Boat-N-RV
Superstore (“BNRV”) as a sales representative, he signed an employment non-compete
agreement stating he could not work in recreational vehicle sales within fifty miles of
BNRV for a year after his employment. When Belair left BNRV for its competitor
Chesaco, BNRV sued for breach of contract. Upon BNRV’s request the District Court
granted a preliminary injunction enforcing a modified, less-restrictive version of the
agreement.
The District Court did not abuse its discretion in concluding BNRV was entitled to
preliminary relief. Because Belair received significant training specific to RV sales,
including confidential information regarding BNRV’s pricing and sales strategies relative
to competitors, BNRV showed it likely had several legitimate protectable interests in
restraining Belair’s employment to the extent the District Court did so. Nor did the
District Court err in finding the remaining equitable factors supported BNRV’s motion
for preliminary injunction. The District Court, though, was required to consider Federal
Rule of Civil Procedure 65(c)’s bond requirement before issuing the preliminary
injunction. Because it did not do so, we must vacate the preliminary injunction and,
without disturbing the District Court’s other holdings, remand with instructions to
consider an appropriate bond should the District Court reissue the injunction.
I.
Belair started work as a Product Specialist selling RVs and boats at BNRV in
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Hamburg, Pennsylvania in February 2016. His background included past work in sales,
but he had no prior experience in the RV industry. At the start of his employment, Belair
signed BNRV’s Confidentiality/Non-Compete Agreement, a restrictive covenant limiting
Belair’s employment and his disclosure of BNRV’s confidential information after his
employment with BNRV. With respect to future employment, the agreement provided,
“Employee shall not accept employment with any Company and/or establishment whose
primary business is the sale and/or service of new and/or used . . . Recreational
Vehicles/Camper . . . located within fifty (50) miles radius of any of the Company’s
locations for a period of one (1) year . . . Employee agrees that the scope and duration of
the non-competition/non-solicitation provisions are both reasonable and necessary to
protect the Company.” Tilden Recreational Vehicles, Inc. v. Belair, No. 17–1406, 2018
WL 3350399, *2 (E.D. Pa. July 9, 2018). The agreement also included provisions
restricting the disclosure of confidential information and promising attorneys’ fees to
BNRV in the event of litigation, among other terms. Belair discussed these provisions
with BNRV’s Human Resources director and understood them; he also understood he
would not be hired unless he signed the agreement. After starting at BNRV, Belair first
spent several days receiving training and reviewing BNRV’s training materials.
About a year later, Belair was contacted by Chesaco, an RV dealer with a location
in Shoemakersville, Pennsylvania, about ten miles from BNRV. Chesaco hoped to recruit
Belair as a sales representative. Belair accepted an offer from Chesaco and resigned from
BNRV in March 2017. In response to Belair’s resignation, BNRV told Belair it planned
to enforce the non-compete agreement and also offered Belair a potentially more
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favorable, commission-only pay package. Belair refused the counter-offer and started
work at Chesaco.
After notifying Belair it would do so, BNRV sued Belair to enforce the agreement.
In addition to its claim of breach of the agreement’s employment provisions, BNRV’s
suit included a claim of breach of the agreement’s non-disclosure provisions, and claims
of misappropriation of trade secrets. On the day of filing, the District Court granted
BNRV a temporary restraining order enjoining Belair from working at Chesaco or any
other BNRV competitor within fifty miles “in regard to customer sales” and from
disclosing any of BNRV’s trade secrets. Id. at *1. The District Court did not require
BNRV to post an injunctive bond at the time of the grant of the initial TRO, nor with any
successive modification of the TRO. A bond would have secured Belair against any
damages incurred while the restrictions were in effect, should it later be determined
Belair was wrongfully enjoined. See Wright & Miller, 11A Fed. Prac. & Proc. Civ. §
2954 (3d ed. 2019).
In April 2017, after a hearing, the District Court continued its TRO, but modified
it to permit Belair to work at Chesaco’s Fredericksburg location. Chesaco
Fredericksburg, although within fifty miles of BNRV, sells only used vehicles and was
therefore determined not in direct competition with BNRV. In July 2017, at a second
hearing, BNRV asked the District Court to continue the TRO through September 2017,
when its interests in restraining Belair’s employment would be significantly lessened
with the yearly changeover of RV product lines. After considering the evidence, the
District Court modified its order to vacate the restriction on Belair’s employment
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beginning August 4, 2017. Although the Court continued to denominate each of these
successive orders as “temporary restraining orders,” their length in force indicates they
may also be considered preliminary injunctions. See 11A Fed. Prac. & Proc. Civ. § 2953
(3d ed. 2019).
Belair was thus ultimately prevented from working for Chesaco in any sales
capacity from March 29 to May 17. He was prevented from working at his preferred
Chesaco location, though permitted to work for Chesaco Fredericksburg, from May 17 to
August 4, an additional two and a half months.
In 2018, after hearing additional testimony, the District Court issued a preliminary
injunction which affirmed the propriety of its now-terminated restrictions on Belair’s
employment, and continued to enjoin Belair from violating any other terms of the
agreement. The District Court again did not require a bond from BNRV and does not
appear to have considered the issue, which was not raised by the parties.
Belair now makes an interlocutory appeal of the District Court’s grant of
preliminary relief, challenging the temporary restriction of his employment, the District
Court’s decision not to require a bond accompanying its TRO and preliminary injunction,
and the District Court’s award of attorneys’ fees to BNRV. BNRV’s underlying action
against Belair has been stayed in the District Court pending appeal.
II. 1
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The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under
28 U.S.C. § 1292 (a)(1). We review the District Court’s fact findings for clear error, its
legal conclusions de novo, and its procedural decisions including the ultimate decision to
grant the injunction for abuse of discretion. Zambelli Fireworks Mfg. Co. v.
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We first address the District Court’s decision to grant preliminary relief to BNRV
restricting Belair’s employment. A movant for a preliminary injunction must first satisfy
the two “most critical” factors: the movant must show “(1) a reasonable probability of
eventual success in the litigation, and (2) that it will be irreparably injured . . . if relief is
not granted.” Reilly v. City of Harrisburg, 858 F.3d 173, 179, 176 (3d Cir. 2017)
(alteration in original) (internal quotation marks and citation omitted). If these two factors
are met, the District Court balances them in its equitable discretion alongside two others:
“(3) the possibility of harm to other interested persons from the grant or denial of the
injunction, and (4) the public interest.” Id. at 176 (internal quotation marks and citation
omitted). Here, the District Court made no error of law or fact and did not abuse its
discretion in finding BNRV entitled to a preliminary injunction against Belair.
A.
BNRV’s first task is to establish a likelihood of success on the merits in its breach
of contract claim against Belair, meaning “a showing significantly better than negligible
but not necessarily more likely than not.” Id. at 179. To succeed in a breach of contract
claim involving an employment non-compete agreement, BNRV would have to show the
agreement was enforceable by meeting three conditions. The agreement must be
“incident to an employment relationship between the parties; the restrictions imposed by
the covenant are reasonably necessary for the protection of the employer; and the
restrictions imposed are reasonably limited in duration and geographic extent.” Hess v.
Wood, 592 F.3d 412, 418, 425 (3d Cir. 2010).
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Gebhard Co. & Inc., 808 A.2d 912, 917 (Pa. 2002). Both parties acknowledge the non-
compete agreement was incident to Belair’s employment, but Belair contests the other
two conditions. The District Court, however, persuasively analyzed BNRV’s interests in
restricting Belair’s employment with Chesaco, satisfying the second condition. Belair’s
objection as to the third condition, the agreement’s geography and duration, also fails
because he does not identify any specific aspect of the agreement he finds excessive.
1.
Belair argues the restrictive covenant was not reasonably necessary to protect
BNRV’s legitimate interests. Pennsylvania courts recognize several types of interests a
post-employment restrictive covenant may serve. These include the employer’s
investment in training the employee, confidential employer information the employee
possesses, and customer goodwill that would travel with the employee to a new place of
employment. Victaulic Co. v. Tieman, 499 F.3d 227, 235 (3d Cir. 2007). Here, each of
these three interests is at play. The District Court reasonably concluded the evidence
supporting BNRV’s legitimate interests in restricting Belair’s employment was enough to
demonstrate a likelihood of success.
First, BNRV claims an interest in the training it gave Belair, and in preventing that
training from benefitting its competitor Chesaco. A non-compete agreement may be used
to protect an employer’s investment in training an employee when, through the
employer’s efforts, the employee “acquired and developed unique skills that are very
specific to the [employer’s] industry.” Zambelli Fireworks Mfg. Co. v. Wood, 592 F.3d
412, 424 (3d Cir. 2010). Here, BNRV offered Belair, who had no experience in the RV
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industry, several days of formal training from managers and senior sales representatives,
a sales training manual and time to review it, and a shadowing opportunity with a more
experienced employee. Belair also received regular training on BNRV products, as
compared to competitors’, from visiting product representatives. BNRV’s pay structure
evidences its commitment to on-the-job training: sales representatives begin their
employment receiving a salary even if they make no sales, before transitioning to more
heavily commission-based pay. Belair cites Pennsylvania precedent holding, in the case
of a window sales representative, the training the employee received was not sufficiently
specialized to be protectable. Thermo-Guard, Inc. v. Cochran, 596 A.2d 188, 194 (Pa.
Super. Ct. 1991). But whereas in Thermo-Guard, the sales representatives, who made
sales through telephone cold calls, received no “sales training that could be considered
materially different from that received by any salesman,” here Belair’s training was
specific to the RV industry, dealing in large part with the features of BNRV’s and
competitors’ vehicles. Id. Although the District Court acknowledged this training was
“perhaps not the most extensive training ever provided to a new employee,” it reasonably
concluded a trial might well determine the training was specialized and extensive enough
to merit protection. Tilden, 2018 WL 3350399, at *4.
Second, BNRV claims a protectable interest in Belair’s knowledge of confidential
information to which he had access as part of his job. In the sales context, courts have
held this kind of interest justifies enforcing a restrictive covenant when, because the
employee’s new role relies on the same knowledge of “customers, products, technical
details, and marketing strategies” as did the former role, “it is virtually inconceivable that
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[the employee] would be able to avoid utilizing the confidential information.” Zambelli,
592 F.3d at 424 (internal quotation marks omitted) (quoting Nat’l Bus. Servs., Inc. v.
Wright, 2 F. Supp. 2d 701, 708 (E.D. Pa. 1998). Here Belair had access to pricing
information, including BNRV’s pricing guidelines for deals, the value of a product to
BNRV, and general costing information. Tilden, 2018 WL 3350399, at *5. Although
Belair notes certain pricing information may be publicly available and thus not
confidential, the District Court identified other price elements established in the record as
both important and confidential, such as “the minimum amount of profit that BNRV has
to make on a deal, the actual cost to BNRV and what BNRV paid for a vehicle.” Id.
Third, BNRV claims an interest in the customer goodwill Belair would bring with
him from BNRV to Chesaco. “[G]oodwill represents a preexisting relationship arising
from a continuous course of business which is expected to continue indefinitely.” Butler
v. Butler, 663 A.2d 148, 152 n.9 (Pa. 1995). Here, as the District Court explained, “Belair
met customers while employed at BNRV, gave out his cell phone number to them and
allow[ed] them to contact him with RV-related issues. Belair had no prior relationship
with any of these customers.” Tilden, 2018 WL 3350399, at *5. Belair notes he did not
bring any customer lists or customer documents with him when leaving BNRV. But the
District Court’s opinion rested not on formal customer lists, but on evidence of Belair’s
ongoing relationships.
Evaluating these three potential types of interests, then, the District Court
reasonably determined there was a likelihood that BNRV had a protectable interest in
restricting Belair’s employment with Chesaco.
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2.
The final condition for enforcement of BNRV’s non-compete agreement is the
reasonableness of the agreement’s scope in geography and duration. The District Court
found Belair did not contest this element. Belair now disagrees, claiming the evidence in
the record “raises a question as to the reasonableness of any restriction, let alone
restrictions of 50 miles and one year.” Appellant’s Br. 29. But Belair does not actually
identify a specific aspect of the geography and duration of the agreement he believes is
unreasonable. By arguing any non-compete agreement would be unreasonable in this
context, Belair simply repeats his argument that the restrictions were not necessary to
protect the employer’s interests. Moreover, the District Court modified the scope and
duration of the restrictions to ensure they would not exceed BNRV’s interests. The
District Court “blue-penciled” the agreement to allow Belair to work at a Chesaco
location well within 50 miles of BNRV, in contradiction of the agreement’s actual terms,
because that location’s focus on used vehicles meant it was not a direct BNRV
competitor. The District Court also ceased its enforcement of the restrictive covenant
altogether after about four months, significantly less than the full year specified in the
agreement.
Because the parties agree the restrictive covenant was incident to Belair’s
employment, and BNRV has demonstrated a likelihood that it has a protectable interest in
restraining Belair’s employment and that the geographic and temporal scope of the
agreement as enforced likely did not exceed that interest, BNRV has shown a likelihood
of success on the merits.
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B.
BNRV has also demonstrated potential irreparable harm, the second threshold
factor necessary to obtain a preliminary injunction. Reilly, 858 F.3d at 179. “Irreparable
harm” means harm “such that legal remedies are rendered inadequate.” Anderson v.
Davila, 125 F.3d 148, 163 (3d Cir. 1997). Here, as the District Court explained, “Belair
learned about BNRV’s products, pricing strategy and other things that can be used to
compete with BNRV and cause harm to it that cannot be calculated.” Tilden, 2018 WL
3350399, at *5. The court held Belair might harm BNRV’s customer goodwill by using
his training, confidential information, and personal customer goodwill to attract sales and
customer loyalty from BNRV to Chesaco.
Belair argues the record includes no evidence he has already caused harm to
BNRV’s interests during his week of work at Chesaco Shoemakersville. But BNRV is
not required to demonstrate irreparable harm did occur, only that it would likely have
occurred absent the TRO. See Anderson, 125 F.3d at 163–64 (irreparable harm inquiry
concerns threat of future harm, not past harm). The District Court reasonably found, had
Belair continued work at Chesaco Shoemakersville, BNRV would have suffered
irreparable harm.
C.
The District Court did not abuse its discretion in balancing these two factors with
the remaining two, the potential for harm to Belair himself and the public interest. Reilly,
858 F.3d at 179. Belair’s alleged harm is that he was not able to work in sales for his
preferred employer at his preferred location for just over four months. The District Court
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appropriately worked to minimize the harm to Belair, while also protecting BNRV’s
interests, by modifying the agreement to allow Belair to work at a Chesaco
Fredericksburg, and by shortening the length of any employment restrictions from one
year to approximately four months.
Nor did the District Court evaluate the public interests at stake in the case
incorrectly. Belair argues the Court should have favored the public interest “in employers
being free to hire whom they please and in employees being free to work for whom they
please.” Appellant’s Br. 44 (quoting Bimbo Bakeries, USA, Inc. v. Botticella, 613 F.3d
102, 119 (3d Cir. 2010)). The Court, though, identified other public interest factors
favoring BNRV in this case: enforcement of the agreement would “discourage the
wrongful use of confidential information, protect legitimate business interests and
prevent unlawful competition.” Tilden, 2018 WL 3350399, at *6; see id. (holding, on the
facts of the case, protection of confidential information “outweighs the temporary
restriction on [the former employee’s] choice of employment”). This reasoning provided
sufficient support for the conclusion that the public interest favored enforcement of the
agreement.
In light of BNRV’s likelihood of success, the likelihood of irreparable harm to
BNRV absent preliminary relief, the court’s minimization of harm to Belair, and policy
factors favoring both enforcement and non-enforcement of a non-compete agreement, the
District Court did not abuse its discretion in finding the balance of the equities favored
BNRV.
III.
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Belair next challenges the District Court’s failure to require BNRV to post a bond
in conjunction with the issuance of the preliminary injunction pursuant to Federal Rule of
Civil Procedure 65(c). Here, Belair is correct. The Federal Rules’ requirements are firm:
“[t]he court may issue a preliminary injunction . . . only if the movant gives security in an
amount that the court considers proper to pay the costs and damages sustained by any
party found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c)
(emphasis added). The District Court must set a bond even where the parties have
neglected to raise the issue. Zambelli, 592 F.3d at 426. There is an “extremely narrow
exception” allowing for waiver of the bond requirement only “when complying with the
preliminary injunction raises no risk of monetary loss to the defendant,” and the District
Court “make[s] specific findings” in support of that conclusion. Id. (quoting Hoxworth v.
Blinder, Robinson & Co., 903 F.2d 186, 210 (3d Cir. 1990); Elliott v. Kiesewetter, 98
F.3d 47, 60 (3d Cir. 1996)) (internal citations omitted). But we have held a former
employee enjoined to comply with a non-compete agreement does not fall within this
exception. Zambelli, 592 F.3d at 426. Moreover, there is no indication in the record that
the District Court considered requiring BNRV to post a bond, or made any findings to
excuse it from doing so.
BNRV argues it is not necessary to vacate the preliminary injunction because the
restrictions on Belair’s employment have long since lapsed, after the District Court
vacated those portions of its initial TRO in July 2017. But because no final determination
on the merits has yet been made in the underlying action, the rationale for requiring a
bond has not disappeared. Although the District Court has held, and we affirm, that it
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appropriately issued the preliminary injunction, it remains possible the Court will
ultimately find for Belair, potentially entitling him to damages for harm suffered while
the TRO was enforced against him. See, e.g., Nintendo of America, Inc. v. Lewis Galoob
Toys, Inc., 16 F.3d 1032, 1036 n. 4 (9th Cir. 1994) (explaining even where there was no
abuse of discretion in the grant of a preliminary injunction, later determination on the
merits may nonetheless prove the defendant was “wrongfully enjoined”). The Court’s
July 2018 preliminary injunction, moreover, continues to enjoin Belair from “violating
any other provisions of the Agreement until the applicable time periods have expired.”
App. vol. I 6. It is possible this continuing injunction presents minimal risk to Belair, but
if the Court wished to waive the bond requirement, it was required to consider the
question explicitly. We therefore vacate the preliminary injunction and remand to the
District Court to determine in its discretion whether to reissue the injunction after
appropriate consideration of the Rule 65(c) bond requirement.
IV.
Finally, Belair challenges the preliminary injunction’s award to BNRV of
“attorneys’ fees from the time of filing of this action up to and including the July 7, 2017
hearing,” in an amount yet to be calculated. Id. at 6. Because we vacate the preliminary
injunction, we vacate its award of attorneys’ fees. But should the District Court reissue
the preliminary injunction, Belair offers no legal reason why the District Court may not
reinstate its award to BNRV.
Belair and BNRV’s agreement provides for attorneys’ fees to Belair in the event
of an enforcement suit. In Pennsylvania, “parties may contract to provide for the
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breaching party to pay the attorney fees of the prevailing party in a breach of contract
case” as long as such fees are “reasonable.” McMullen v. Kutz, 985 A.2d 769, 776–77
(Pa. 2009). Citing analogous federal law, Belair argues an interim award of attorneys’
fees is inappropriate at the preliminary injunction stage because it is not certain that
BNRV will ultimately prevail on the merits. People Against Police Violence v. City of
Pittsburgh, 520 F.3d 226, 234 (3d Cir. 2008). Here, although proceedings on the
underlying claims remain, the District Court has made its final assessment of the
propriety of the preliminary injunction. The preliminary injunction if validly issued is
enough to render BNRV a prevailing party because it “alter[s] the legal relationship
among the parties in a manner that afford[s] plaintiffs substantial relief on the merits of
their claims.” Id. Under a valid preliminary injunction, BNRV will have received what it
sought: enforcement of restrictions on Belair’s employment for almost the entire the
period it requested. Pennsylvania law does not bar an award of attorneys’ fees to a party
in this posture.
V.
For the foregoing reasons, although the District Court correctly held that the 2016
Confidentiality/Non-Compete Agreement is enforceable as modified by the District
Court’s orders, we vacate the preliminary injunction including its attorneys’ fees award
for failure to comply with the requirements of Rule 65(c), and remand to the District
Court for proceedings consistent with this opinion.
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