EEOC v. Severn Trent ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-2631
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION,
Plaintiff-Appellee,
v.
SEVERN TRENT SERVICES, INC.,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03 C 3337—Robert W. Gettleman, Judge.
____________
ARGUED JANUARY 12, 2004—DECIDED FEBRUARY 10, 2004
____________
Before POSNER, EASTERBROOK, and KANNE, Circuit Judges.
POSNER, Circuit Judge. Severn Trent Services appeals from
the grant to the EEOC of an injunction against Severn’s
“enforcing or threatening or attempting to enforce any pro-
vision of any contract . . . which prohibits or purports to
prohibit Kevin Murphy . . . from participating in the EEOC’s
investigation and processing of” a charge filed with the
Commission by a former employee of Severn named
Petolick, or from “providing any information, testimony,
and documents to EEOC in connection” with the investiga-
tion.
2 No. 03-2631
Murphy had sold his business, which was called Hydra-
Stop and employed Petolick, to Pitometer Associates, Inc. In
connection with the sale, he had signed a consulting agree-
ment with Pitometer that contained a nondisparagement
clause forbidding him “directly or indirectly, in public or
private, [to] deprecate, impugn or otherwise make any
remarks that would tend to or could be reasonably con-
strued to tend to defame” Pitometer or its affiliates, officers,
or employees.
Such private gag orders appear to be fairly common.
Wayne N. Outten, “Negotiations, ADR, and Severance/
Settlement Agreements: An Employee’s Lawyer’s
Perspective,” 604 PLI/Lit 235, 316-17 (1999); see, e.g.,
Patlovich v. Rudd, 949 F. Supp. 585, 594-95 (N.D. Ill. 1996)
(Illinois law); Eichelkraut v. Camp, 513 S.E.2d 267, 268 (Ga.
App. 1999). Naturally an employer doesn’t want to be bad-
mouthed by a disgruntled employee who may be privy to
the employer’s dark secrets—especially in a case such as this
in which a person sells his firm and may intend to reenter
the business and seek a competitive advantage by disparag-
ing the firm’s buyer. Cf. John L. Hines, Jr., Michael H.
Cramer & Peter T. Berk, “Anonymity, Immunity & Online
Defamation: Managing Corporate Exposures to Reputation
Injury,” 4 Sedona Conf. J. 97, 106 (2003); Laurence H. Reece
III, “Valuation and Settlement of Business Disputes,” in
Winning Through Settlement: Valuation and Settlement of
Business Disputes § 6.5 (Paul G. Garrity ed., Massachusetts
Continuing Legal Education, Inc. 2001). The
nondisparagement clause in the consulting agreement may
thus have been a substitute for a noncompete clause, which
would be unenforceable if its duration were “unreason-
able,” as it might be under Illinois law (which governs
disputes arising under the agreement) if it exceeded two or
three years, and almost certainly if it exceeded five. Com-
No. 03-2631 3
pare Midwest Television, Inc. v. Oloffson, 699 N.E.2d 230, 235
(Ill. App. 1998), and Fister/Warren v. Basins, Inc., 578 N.E.2d
37, 41 (Ill. App. 1991), with Eichmann v. National Hospital &
Health Care Services, Inc., 719 N.E.2d 1141, 1148 (Ill. App.
1999), and Hamer Holding Group, Inc. v. Elmore, 613 N.E.2d
1190, 1197-1201 (Ill. App. 1993). Although the term of the
consulting agreement itself was only three years, the
nondisparagement clause is by its terms perpetual, which
appears to be common, see, e.g., Patlovich v. Rudd, supra, 949
F. Supp. at 594-95, and, so far as we are aware, unexception-
able. A related provision of the agreement forbids Murphy
to solicit or hire any employees of Pitometer or its affiliates
for two years after his consultantship terminates.
The defendant, however, is Severn, not Pitometer.
Pitometer is not a party to this lawsuit. When and how did
Severn come into the picture? We know that Murphy was
working for Severn by September of 2002 at the latest, for it
was then that the EEOC subpoenaed him to testify con-
cerning Petolick’s charge, and the subpoena designates him
as an executive vice-president of Severn. Also according to
the charge, Hydra-Stop was already part of Severn in June
2000 even though the consulting agreement, which was
between Murphy and Pitometer, not Severn, recites that it
is effective from May 31, 2000. It seems that overnight
Pitometer turned into Severn. In fact we’ll see later in this
opinion that Murphy’s relationship with Severn dated from
Pitometer’s acquisition of Hydra-Stop and that Pitometer,
despite the “Inc.” after its name, may be a division of Severn
and, if not, is a subsidiary—and was in May and June of
2000.
The consulting agreement either expired or was termi-
nated during this litigation. Murphy no longer works for
Severn or, so far as appears, has any other relationship with
4 No. 03-2631
the company. The vagueness of the record in these and
other respects is notable.
Murphy told the EEOC that he wouldn’t comply with
the subpoena because Severn had refused to assure him that
it would not sue him for breach of the nondisparagement
clause if he cooperated with the Commission. The
Commission could have sought and obtained judicial en-
forcement of the subpoena, since obviously Murphy could
not by signing a contract excuse or disable himself from
testifying. EEOC v. Astra USA, Inc., 94 F.3d 738, 743-45 (1st
Cir. 1996); Camp v. Eichelkraut, 539 S.E.2d 588, 597-98 (Ga.
App. 2000); cf. EEOC v. Indiana Bell Telephone Co., 256
F.3d 516, 521-24 (7th Cir. 2001) (en banc); Baker v. General
Motors Corp., 522 U.S. 222, 238-41 (1998); Hartlep v. Torres,
756 N.E.2d 371, 373 (Ill. App. 2001). But instead it wrote
Severn asking the company to give Murphy “an enforceable
waiver or amendment to the consulting agreement indicat-
ing that Severn Trent will not take action against him for
any statements he might make to the EEOC in connection
with its investigation” of Petolick’s charge. Severn replied
by expressing puzzlement that the Commission hadn’t
sought to enforce the subpoena and stating that “Severn
Trent has taken no action, nor does its agreement with Mr.
Murphy purport to restrain him from participating in any
EEOC proceeding. Accordingly, Severn Trent will not waive
a negotiated provision of an agreement, made in connection
with the sale of a business and totally unrelated to this or
any other EEOC proceeding or charge of discrimination.”
The Commission then filed this suit for injunctive relief
pursuant to 42 U.S.C. § 2000e-5(f)(2), which authorizes the
agency to seek such relief in aid of its investigations when
“prompt judicial action is necessary to carry out the pur-
poses” of Title VII. Ahearn v. Jackson Hospital, 351 F.3d 226,
No. 03-2631 5
235 and n. 1 (6th Cir. 2003); EEOC v. Pacific Press Publishing
Ass’n, 535 F.2d 1182, 1184-85 (9th Cir. 1976). The district
judge did not issue a written opinion explaining the basis
for his decision to grant the injunction but in oral remarks
said that Severn Trent “has basically conceded that . . . it [is]
intend[ing] to use that provision of the contract [that is, the
nondisparagement clause] to prohibit Mr. Murphy from
going beyond the legitimate bounds of the investigation
itself.” This sounds like a point against the grant of
an injunction, since the EEOC has no right to question
Murphy about matters that are “beyond the legitimate
bounds of the investigation” of Petolick’s complaint. But no.
The judge said that “because the parties were for some
inexplicable reason unable to work this out themselves . . .
[a]nd I said I would issue the injunction, . . . I will.”
At a previous hearing the judge had expressed exaspera-
tion at Severn’s refusal to give Murphy a blanket assurance
that he wouldn’t be sued. The judge said that Murphy “is
willing to show up [to be questioned by the EEOC], he just
doesn’t want to be hammered by your client [i.e., Severn],
and I don’t blame him.” The assurance the government was
seeking, however, was that Severn “will not enforce the
non-disparagement provision based on any information he
provides to us” (emphasis added). That was too broad.
Later the demand was narrowed, but ambiguously, to
“communications with the EEOC in the context of our
investigation of the charge.” Severn’s lawyer then told the
judge that “perhaps the parties could work out what that
[’the context of our investigation’] means exactly.” The
hearing was adjourned to let the parties work it out. They
didn’t work it out (we don’t know what the stumbling block
was), so the judge issued the injunction.
That is all we can find in explanation of the judge’s action,
except for his repeating when he issued the injunction that
6 No. 03-2631
“the EEOC wants to talk to Mr. Murphy. Mr. Murphy feels
that he is being prohibited by this contract and is under the
threat of suit.”
The judge’s impatience is understandable, but he was too
abrupt. An injunction so poorly buttressed by explanation
flunks Fed. R. Civ. P. 65(d), which provides that “every
order granting an injunction and every restraining order
shall set forth the reasons for its issuance.” See also Fed. R.
Civ. P. 52(a); 7th Cir. R. 50; Advent Electronics, Inc. v.
Buckman, 112 F.3d 267, 272-74 (7th Cir. 1997); Weitzman
v. Stein, 897 F.2d 653, 658 (2d Cir. 1990). The explanation can
be oral rather than written, as in Six Clinics Holding Corp.
v. Cafcomp Systems, Inc., 119 F.3d 393, 400-01 (6th Cir.
1997), and the absence of explanation can be forgiven
when the justification for the injunction is clear from the
record. Books v. Chater, 91 F.3d 972, 978 (7th Cir. 1996); Hsu
By and Through Hsu v. Roslyn Union Free School Dist. No. 3, 85
F.3d 839, 848 n. 1 (2d Cir. 1996); Sunray DX Oil Co. v.
Helmerich & Payne, Inc., 398 F.2d 447, 450 (10th Cir. 1968); cf.
Ross Brothers Construction Co. v. International Steel Services,
Inc., 283 F.3d 867, 872 (7th Cir. 2002). But it is not clear in
this case.
If Severn merely wanted to prohibit Murphy from making
gratuitous disparagements of it—disparagements wholly
unrelated to the Petolick investigation—there would be no
cause for an injunction unless Murphy or the Commission
had evidence that Severn meant to sue him regardless of
what he said to the Commission, in order to deter signato-
ries to the company’s nondisparagement clauses from
cooperating in government investigations of the company.
Such suits would be frivolous, since a nondisparagement
clause can no more trump a subpoena issued by a govern-
ment agency than any private contract could. (The contract
explicitly, if unnecessarily, disclaims any intention that it be
No. 03-2631 7
enforced beyond the limits permitted by law.) Indeed, they
would be beyond frivolous; they would be obstructions of
justice. See Yockey v. Horn, 880 F.2d 945, 950-51, 953 (7th Cir.
1989). But we don’t even know whether Severn is a party to
any other contracts that contain a nondisparagement clause
and so may have a policy of using such clauses to intimidate
potential witnesses. And Severn claims to “have informa-
tion from the witness that he plans to share things unrelated
to the underlying charge . . ., in breach of his agreement.”
The judge did not attempt to determine whether this is true.
Analysis is complicated, however, by a specious argument
by Severn that casts doubt on its good faith—namely that it
is not a party to the agreement containing the non-
disparagement clause and has not been shown to be a third-
party beneficiary either. Were this true, it would support an
inference that Severn’s refusal to offer a blanket waiver of
its rights under the agreement had indeed been intended to
intimidate Murphy, for the refusal would imply that Severn
was prepared to sue him to enforce rights that it knew it
didn’t have. The argument may reflect a tendency of
lawyers to multiply arguments without always considering
the effect on the coherence or persuasiveness of their overall
position. The effect in this case is to create an acute problem
of coherence because at the same time that Severn argues
that it is “not a party to the Consulting Agreement[,] . . . had
no control over the Non-Disparagement Provision when the
Consulting Agreement was signed and cannot waive the
provision now [and]. . . is [not] a successor in interest to
Pitometer,” it insists that “to the extent Mr. Murphy’s
communications with the EEOC are not privileged or
otherwise protected by federal or state law, the terms of the
Non-Disparagement Provision are enforceable. . . . For
example, Mr. Murphy does not have the right to intention-
ally and maliciously defame Severn Trent about matters
8 No. 03-2631
wholly unrelated to the Petolick Charge just because he is
appearing before the EEOC. The EEOC’s proposed injunc-
tion would prevent enforcement of the Non-Disparagement
Provision even under these circumstances” (emphasis in
original). Notice how the potentially defamed party is
identified as Severn, not Pitometer. Recall too how in its
letter to the EEOC Severn had referred to the consulting
agreement as “its” agreement and how it had also said in
the letter that it “will not waive” the nondisparagement
clause.
Severn’s argument that it is not bound by the contract
with Murphy leaves us breathless. The press release that
Severn issued announcing the purchase of Hydra-Stop is
captioned “Hydra-Stop Acquired by Severn Trent Services,
Inc.’s Pipeline Services Group” and states that “Severn Trent
Services, Inc. announced today that it has acquired Hydra-
Stop, a pipeline products and services company with special
expertise in water pipelines, serving industry and munici-
palities worldwide. Hydra-Stop will become a part of the
Pitometer Pipeline Services Group of Severn Trent Services,
Inc. Kevin Murphy, President of Hydra-Stop stated, ‘Severn
Trent Services, Inc. is an excellent fit for our products and
services because of its breadth of capabilities in both water
and wastewater.’ ” From these and other documents it
appears that Pitometer is actually a division of Severn rather
than a corporate subsidiary. It appears that Pitometer
Associates, Inc. was acquired by Severn in 1996 (long before
the acquisition of Hydra-Stop), but later became either
“Pitometer Pipeline Services Group” or just “Pipeline
Services group,” but in either case with no “Inc.” after its
name.
Pitometer is either Severn, or (as Severn unguardedly let
slip in its reply brief, as it had earlier done in its letter to the
No. 03-2631 9
district court) an affiliate of Severn. Either way, it is clear
that Murphy was working for Severn from the date of the
acquisition of his company and that Severn whether directly
or through orders to Pitometer would be entitled to enforce
the consulting agreement, including its nondisparagement
clause. Remarkably, both the EEOC and the district court
failed to determine the relation between Pitometer, the
nominal party to the contract, and Severn, the would-be
enforcer.
Severn’s equivocation concerning its contractual rights
against Murphy is something for the district judge to con-
sider on remand in deciding whether to issue an injunction.
Had Severn unequivocally and irrevocably disclaimed all
rights under the contract, so that it would unquestionably
be estopped to ever try to sue Murphy for breach of the
contract, there would be an argument not only that the
injunction should not have been issued, Alaska Airlines, Inc.
v. City of Long Beach, 951 F.2d 977, 986 (9th Cir. 1991), but
also and more fundamentally that there is no actual con-
troversy before us. Severn could not be adversely affected
by the injunction if it had precluded itself from ever suing
to enforce the nondisparagement clause. It would be as if
Severn’s president had been enjoined from putting on a pair
of wings and flying to Alpha Centauri. And while it is true
that deliberately violating an injunction is punishable as
criminal as well as civil contempt, trying to intimidate a
witness is also criminal conduct; it is, as we pointed out,
obstruction of justice.
We are mindful that unless an injunction is insufficiently
precise to be enforced by contempt sanctions or is otherwise
void, Marseilles Hydro Power, LLC v. Marseilles Land & Water
Co., 299 F.3d 643, 646-47 (7th Cir. 2002); Board of Education v.
Illinois State Bd. of Education, 79 F.3d 654, 657 (7th Cir. 1996);
Gates v. Shinn, 98 F.3d 463, 468 (9th Cir. 1996), the person
10 No. 03-2631
enjoined can challenge it even if the fence that it erects
around him does not actually restrain him because he has in
any event no intention of straying outside the boundary
marked by the fence. If someone obtained an injunction
against a federal judge’s joining the Nazi Party, and the
judge challenged it, it would not be a defense that the judge
had no present or potential interest in joining. That would
be different, however, from a case in which a person was
enjoined from doing something he couldn’t possibly do. But
that is not this case. Severn has not disclaimed its right to
enforce the nondisparagement clause, let alone done so
unequivocally and irrevocably, and so the injunction really
is fencing Severn in.
This is true even though the EEOC could have
subpoenaed Murphy to testify, and still can, with arguably
the same effect on Severn as the injunction. If it makes no
practical difference at all either to Severn or the judiciary
which path of judicial relief is taken—enforcing the sub-
poena or enjoining Severn from interfering with Murphy’s
testifying—then, it may be asked, why remand the case
for the entry of a further order, whether granting or denying
an injunction, that would be likely to be appealed?
That sounds like yo-yo jurisprudence. If the subpoena is
enforced, Severn will be disabled from taking any step
to retaliate against Murphy, as by trying to enforce the
nondisparagement clause, so Severn seems not to be
aggrieved by the injunction, and only an adversely affected
or aggrieved party can get appellate relief. There are,
however, differences between the two paths that may ex-
plain why Severn has appealed rather than just shrugging
its shoulders in the belief that subpoena and injunction are
equivalent. A subpoena would be directed at Murphy,
not Severn, and Murphy might have and assert defenses
against complying with the subpoena that would not
No. 03-2631 11
inculpate Severn. This possibility indicates that Severn may
have something to gain from getting the injunction lifted. In
addition, the injunction is, as we are about to see, both
vague, and so may encourage Murphy to testify beyond the
legitimate scope of the Commission’s inquiry, and without
limitation of time.
There are too many uncertainties to permit us to terminate
the case. It must be returned to the district judge for further
consideration of whether to enjoin Severn. Should the judge
decide to reinstate the injunction, he should give it a more
precise statement of scope than “in connection” with the
Commission’s investigation of Petolick’s charge— such as
“reasonably calculated to lead to evidence pertinent to” the
investigation. “In connection with” might suggest that
Murphy could say anything that came into his mind,
provided only that he said it while testifying in
the Commission’s investigation of Petolick’s charge. In
addition, the injunction has to have a deadline, because 42
U.S.C. § 2000e-5(f)(2) authorizes only “temporary or prelim-
inary relief pending final disposition of such [EEOC]
charge.” See EEOC v. CNA Ins. Cos., 96 F.3d 1039, 1042-
43 (7th Cir. 1996). The injunction must by its terms end
when Petolick’s charge is finally disposed of.
Of course an injunction so limited may not provide
adequate relief, because Murphy may be afraid of being
sued after as well as before Petolick’s charge is resolved.
This conjecture could be tested, and further disputes over
the scope and limits of the injunction perhaps bypassed, by
the Commission’s moving for judicial enforcement of the
subpoena—a course we urge. But should that route not be
taken, or fail, we add that the possibility that Murphy may
balk even if a proper section 2000e-5(f)(2) preliminary
injunction is entered is not an insuperable objection to plac-
ing a time limit on that injunction (anyway that limitation
12 No. 03-2631
is dictated by the statute). The EEOC can obtain a perma-
nent injunction (42 U.S.C. § 2000e-5(g)(1)) against Severn
if Severn interferes with or retaliates against a participant
(namely Murphy) in its investigation of Petolick’s charge.
For that would be a separate, permanently enjoinable
violation of Title VII. 42 U.S.C. § 2000e-3(a); Robinson v. Shell
Oil Co., 519 U.S. 337 (1997); Twisdale v. Snow, 325 F.3d 950,
952-53 (7th Cir. 2003); Deravin v. Kerik, 335 F.3d 195, 204-
05 (2d Cir. 2003). True, the participation clause of Title VII
is applicable to an employer only when the participant
against whom he is retaliating is an employee or, we now
know from the Robinson decision, a former employee. But
remember that Murphy was not only a consultant to Severn
but also an executive vice-president of the company. That
would almost certainly have made him an employee of
Severn, employee status for purposes of Title VII and cog-
nate laws protecting employees being determined by the
principles of agency law rather than by labels. Clackamas
Gastroenterology Associates, P.C. v. Wells, 123 S. Ct. 1673(2003); EEOC v. Sidley Austin Brown & Wood, 315 F.3d 696,
705 (7th Cir. 2002); Hojnacki v. Klein-Acosta, 285 F.3d 544,
549-52 (7th Cir. 2002); Vakharia v. Swedish Covenant Hospital,
190 F.3d 799, 805-06 (7th Cir. 1999); Christopher v. Stouder
Memorial Hospital, 936 F.2d 870, 874-77 (6th Cir. 1991).
So Murphy must now be a former employee of Severn’s—
as in any event the company has conceded by stating in
its reply brief that the EEOC can obtain a permanent
injunction against its retaliating against Murphy if the
Commission can prove that Severn has violated or is vio-
lating the participation clause.
The injunction is vacated and the case is remanded for
further proceedings consistent with this opinion.
VACATED AND REMANDED.
No. 03-2631 13
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-10-04