Pittsburgh Logistics v. Beemac Trucking ( 2018 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
PITTSBURGH LOGISTICS SYSTEMS, : IN THE SUPERIOR COURT OF
INC. : PENNSYLVANIA
:
Appellant :
:
:
v. :
:
: No. 134 WDA 2017
BEEMAC TRUCKING, LLC AND :
BEEMAC LOGISTICS, LLC :
Appeal from the Order December 22, 2016
In the Court of Common Pleas of Beaver County Civil Division at No(s):
No. 11571-2016
BEFORE: BOWES, J., LAZARUS, J., and OTT, J.
DISSENTING MEMORANDUM BY BOWES, J.: FILED MARCH 26, 2018
Pittsburgh Logistics Systems, Inc. (“PLS”) appeals from the order
granting in part and denying in part its petition for a preliminary injunction
against BeeMac Trucking, LLC, and BeeMac Logistics, LLC (“BeeMac”).1 In
that order, the trial court upheld a non-solicitation provision contained within
PLS’s freight-services contract with BeeMac, and, as is pertinent herein,
invalidated a no-hire provision included within the same. The learned majority
concluded that the trial court had a reasonable basis for denying PLS’s
requested relief, and affirms. Since this matter involves an issue of first
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1 The record contains reference to a company named Hybrid Global Logistics
(“Hybrid”). Hybrid purportedly hired two of the disputed employees, and is
supposedly owned by one of those employees and BeeMac Trucking, LLC.
These allegations raise questions of fact not decided by the trial court, and
thus, the question of Hybrid’s affiliation with BeeMac and PLS is not presently
before us. I note that Hybrid is not a party to this suit.
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impression, and there is strong support on both sides of the issue among our
sister jurisdictions, I would find that the trial court abused its discretion in
ruling that PLS was not entitled to a preliminary injunction enjoining BeeMac
from hiring its employees. Hence, for the reasons outlined below, I dissent.
We garner the following from the certified record. As a third-party
logistics service company, PLS coordinated the transportation of freight
between its customers and certain freight carriers. On August 30, 2010, PLS
entered into a Motor Carriage Services Contract (the “MCSC”) with BeeMac,
who specialized in trucking and transporting freight, and, in addition, also
provided third-party logistics services. Of import herein, the MCSC stated:
14.3 The parties acknowledge that during the term of this Contract
there may be disclosed to CARRIER [(BeeMac)] confidential
information concerning PLS’ operations including, but not limited
to, the names and addresses of Shippers and others who are
clients of PLS, volumes of traffic and rate data. During the term
of this Contract and for a period of one year after termination of
this Contract, CARRIER hereby agrees that it will not, either
directly or indirectly, solicit any individual Shipper or other client
of PLS, back-solicit and/or transport for itself, without involvement
of PLS, any freight that CARRIER handles pursuant to this Contract
or freight which first becomes known to CARRIER as a result of
CARRIER’S past, present or future dealings with PLS.
....
14.6 CARRIER agrees that, during the term of this Contract and
for a period two (2) years after the termination of this Contract,
neither CARRIER nor any of its employees, agents, independent
contractors or other persons performing services for or on behalf
of CARRIER in connection with CARRIER’s obligations under this
Contract will, directly or indirectly, hire, solicit for employment,
induce or attempt to induce any employees of PLS or any of its
Affiliates to leave their employment with PLS or any Affiliate for
any reason.
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MCSC, 8/30/10, at 9-10.
In its complaint, PLS alleged, inter alia, that BeeMac breached the terms
of the MCSC by hiring four former employees and encouraging those
employees to solicit PLS customers. Thus, it requested the court to
preliminarily and permanently enjoin this conduct pursuant to the terms
enunciated above. After a hearing on the preliminary injunction, the trial court
granted PLS’s request for injunctive relief based on the no-solicitation
provision contained within section 14.3, but denied injunctive relief as to the
no-hire provision contained within section 14.6. With regard to the no-hire
provision, the trial court determined that it “exceed[ed] the necessary
protection PLS needs to secure its business, and is void as a matter of public
policy.” Trial Court Opinion, 12/22/16, at 13. Nevertheless, it recognized that
“there is no case law in Pennsylvania on the issue of no-hire restrictive
covenants between contracting parties.” Id. PLS filed a timely notice of
appeal, and complied with the trial court’s order to file a Rule 1925(b) concise
statement of errors complained of on appeal. 2 The trial court authored its
Rule 1925(a) opinion, and this matter is now ready for our review.3
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2 Pursuant to Pa.R.A.P. 311(a)(4), an appeal from an interlocutory order
denying a preliminary injunction may be taken as a matter of right.
3In its 1925(a) opinion, the trial court adopted its reasoning as set forth in its
opinion and order filed December 22, 2016.
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PLS presents one question for our review: “Did the [trial court] err by
finding the contractual no-hire provision of the contract between PLS and
Bee[M]ac to be unenforceable as a matter of law?” Appellant’s brief at 4.
When reviewing an order denying a preliminary injunction, it is well
settled that:
our review of a trial courts’ order granting or denying preliminary
injunctive relief is highly deferential. This highly deferential
standard of review states that in reviewing the grant or denial of
a preliminary injunction, an appellate court is directed to examine
the record to determine if there were any apparently reasonable
grounds for its denial of injunctive relief where the trial court has
properly found that any one of the following essential
prerequisites for a preliminary injunction is not satisfied.
There are six essential prerequisites that a party must establish
prior to obtaining preliminary injunctive relief. The party must
show: 1) that the injunction is necessary to prevent immediate
and irreparable harm that cannot be adequately compensated by
damages; 2) 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; 3) that a preliminary injunction will properly
restore the parties to their status as it existed immediately prior
to the alleged wrongful conduct; 4) that the activity that its 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; 5) that the injunction it seeks is
reasonably suited to abate the offending activity; and, 6) that a
preliminary injunction will not adversely affect the public interest.
Warehime v. Warehime, 860 A.2d 41, 46-47 (Pa. 2004) (cleaned up).
The trial court found that PLS was not entitled to injunctive relief with
regard to BeeMac’s hiring of its former employees. In so finding, the trial
court recognized that this matter represented an issue of first impression in
Pennsylvania. Further, it acknowledged that there was disagreement among
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our sister jurisdictions. Trial Court Opinion, 12/22/16, at 13 (noting “some
states have held that these types of agreements are void against public policy.
Other states have held that these provisions are a permissible partial restraint
of trade, and are thus not void against public policy.” (comparing Heyde
Companies, Inc. v. Dove Healthcare, LLC, 654 N.W.2d 830 (Wis. 2002),
and VL Systems, Inc. v. Unisen, Inc., 61 Cal. Rptr. 3d 818 (Cal.Ct.App.
2007), to Ex parte Howell Engineering and Surveying, Inc., 981 So. 2d
413 (Ala. 2006), and H & M Commercial Driver Leasing, Inc. v. Fox Valley
Containers, Inc., 805 N.E.2d 1177 (Ill. 2004)). Despite this divergence and
a lack of any Pennsylvania case law on point, the trial court stated
We believe these types of no-hire contracts should be void against
public policy because they essentially force a non-compete
agreement on employees of companies without their consent, or
even knowledge, in some cases. We believe that if an employer
wishes to limit its employees from future competition, this matter
should be addressed directly between the employer and the
employee, not between competing businesses. Moreover, in this
case, such a restriction goes beyond the protected interest of PLS,
which is its customers. So long as the former employee, or any
employee of BeeMac, does not contact former customers of PLS,
for the time period in the contract, in this case one year under
section 14.3 of the [MCSC], there is no need to enforce the no-
hire provision contained in section 14.6. For these reasons, we
do not believe PLS has a substantial likelihood of success on the
merits of its claim under section 14.6, and we will vacate the
injunction prohibiting [BeeMac] from hiring former PLS
employees.
Trial Court Opinion, 12/22/16, at 13-14. Hence, the trial court found that PLS
had not established the fourth essential prerequisite necessary to justify
injunctive relief, and denied its petition in that regard.
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PLS contends that the trial court abused its discretion because “the
contractual no-hire provision was ancillary to an arm’s length transaction
between sophisticated businesses, it was reasonably limited in duration and
scope, and critically, was reasonably necessary for the protection of PLS’[s]
legitimate business interests.” Appellant’s brief at 19-20. PLS’s argument is
multi-faceted. First, it analogizes the no-hire agreement to a non-compete
agreement entered into between an employer and its employee. PLS asserts
that under Pennsylvania law those agreements are prima facie enforceable if
they meet certain requirements, that the contract herein satisfies those
requirements, and thus, that “it is conceptually inconsistent to find no-hire
provision[s] between two companies to be unenforceable as against public
policy.” Id. at 21. Notably, PLS alleges that, in the context of knowledge-
based services such as its own business model, such an agreement is
necessary to protect not only its customer base, but also its investment in the
training, development, and industry-specific knowledge of its employees.
Second, PLS emphasizes the reasoning of our sister jurisdictions who
have found no-hire provisions to be enforceable. Specifically, it highlights the
United States District Court for the Middle District of Pennsylvania’s decision
in GeoDecisions v. Data Transfer Solutions, LLC, 2010 WL 5014514 (M.D.
Pa. December 3, 2010), which found that the no-hire provision at issue therein
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was a reasonable restraint on trade.4 In that decision, the district court
applied Pennsylvania state law, which permits a restraint on trade if “it is
ancillary to the main purpose of a lawful transaction; (2) it is necessary to
protect a party’s legitimate interest; (3) is supported by adequate
consideration; and (4) it is reasonably limited in both time and territory.”
Appellant’s brief at 25, citing GeoDecisions, supra at *4. PLS contends that
the no-hire provision passes this test, and thus, the trial court erred in finding
it unenforceable.
After reviewing the certified record, the learned majority determined
that the trial court’s decision had an apparently reasonable basis. It observed
that “[t]he trial court supported its decision by examining various decisions
from other jurisdictions and concluding the reasoning of those cases that
disfavor such restrictions better approximate the current state of Pennsylvania
law.” Majority Memorandum at 8. In support of this conclusion, the majority
reviewed case law that endorses the enforcement of reasonable no-hire
provisions, see H & M, supra, and found that those provisions were tailored
more narrowly than section 14.6 of the MCSC. Further, it agreed with the trial
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4 Although the decisions of the federal district courts are not binding on this
Court, we may “utilize the analysis in those cases to the extent we find them
persuasive.” Umbelina v. Adams, 34 A.3d 151, 159 n.2 (Pa.Super. 2011)
(citation omitted).
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court assessment that section 14.6 “was largely superfluous in light of the
non-competition clause.”5 Id. at 8-9.
The majority also agreed with the trial court’s determination that the
no-hire provision violated public policy since it “prevented non-signatories
from exploring alternate work opportunities.” Id. at 9. In this vein, it
compared the no-hire provision to a restrictive covenant not to compete
entered into between an employer and an employee. It found that, by its
terms, the no-hire provision diminished the pool of potential employers for a
PLS employee each time PLS gained a new client.6 The majority asserted that
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5 Although the majority references a “non-competition clause,” I believe it is
referring to the non-solicitation clause described in section 14.3 of the MCSC.
The trial court analyzed that provision as a restraint on trade, as described
infra, and found that it “furthered PLS’s legitimate interest in preventing
BeeMac from cutting PLS out of the equation.” Majority Memorandum at 6,
citing Trial Court Opinion, 12/22/16, at 12. I would find the trial court erred
in determining that the non-solicitation clause adequately protected PLS’s
business interests. PLS alleged that it also had an interest in guarding the
investment it made in training and developing its employees, and in
safekeeping the specialized industry knowledge those employees gained while
in PLS’s employment. In my estimation, only the no-hire provision sufficiently
safeguards this interest.
6 In the majority writing, the majority argues that the application of provisions
like section 14.6 harms PLS’s employees since it results in additional
restrictions on an employee’s ability to obtain employment without providing
adequate consideration each time PLS obtains a new client. Majority
Memorandum at 9. I find this hypothetical application of the MCSC
inappropriate on the record before us, as it presumes that PLS enters into
similar agreements containing a no-hire provision with each new client. This
presumption is not supported by the record, and further, I believe that only
the validity of the no-hire provision contained within the MCSC, as it pertains
to BeeMac and its affiliates who dealt with PLS, is relevant to the disposition
of this matter.
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such an arrangement is only permissible if it is supported by additional
consideration each time the employment pool is narrowed in this way. Thus,
it concluded that “[i]f the section 14.6 restriction, between companies, is
allowed, then PLS would essentially be evading the requirement to pay
additional consideration in exchange for additional restrictions,” which,
“demonstrates this aspect of [the trial court’s] decision is also based on
reasonable grounds.” Id.
At the outset, I observe that the only prong of the preliminary injunction
test outlined above at issue herein is the fourth prong, which required PLS to
establish that the activity that it sought to restrain was actionable, that its
right to relief was clear, and that the wrong was manifest, or, in other words,
show that it was likely to prevail on the merits. Warehime, supra. Indeed,
that PLS established the other five prongs is confirmed by the trial court’s
decision to grant PLS’s motion for a preliminary injunction based on its
determination that the non-solicitation provision was a reasonable restraint
on trade. Trial Court Opinion, 12/22/16, at 11-12. Hence, my analysis is
limited to a discussion of the fourth prong as it relates to the no-hire provision.
Instantly, PLS and BeeMac operate third-party logistics operations, and
entered into a carrier-services agreement on August 30, 2010. PLS contends
that the parties engaged in arm’s length negotiations and exchanged valuable
consideration in arriving at the agreement set forth in the MCSC. It alleged
that BeeMac breached the terms of the MCSC by hiring PLS employees and
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encouraging them to solicit PLS clients. As a result, PLS sought injunctive
relief in order to protect its interest in its customers and its interest in the
investment it made in training and developing those employees.
Undoubtedly, Pennsylvania law governs this matter. Both enterprises
are organized under the laws of this Commonwealth. In addition, the MCSC
entitled PLS to seek injunctive relief from a court of competent jurisdiction for
violations of sections 14.3 and 14.6, and it required the terms of the
agreement to be construed “in accordance with the laws of the Commonwealth
of Pennsylvania.” MCSC, 8/30/10, at §§ 13.1 and 24.1. Nevertheless, it is
undisputed that the laws of this Commonwealth are mute regarding the
enforceability of a no-hire provision, such as the condition provided in § 14.6.
Under these circumstances, notwithstanding BeeMac’s alleged breach, PLS
could not definitively establish that it was “likely to prevail on the merits”
under the laws of Pennsylvania. Warehime, supra. Simply, there is no law
in Pennsylvania that directly resolves this dispute. Thus, insofar as PLS was
tasked with establishing a clear likelihood of success under the laws of this
state, it faced a nearly impossible task, despite otherwise proving its right to
injunctive relief. I find this situation to be problematic and unfair to PLS in its
endeavor to protect its legitimate business interests.
First, I disagree with the majority that the trial court’s ruling “better
approximate[s] the current state of Pennsylvania law,” Majority Memorandum
at 8, for the simple reason that there is no Pennsylvania law on point.
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Although our sister jurisdictions provided a basis for treating the agreement
like a non-compete agreement between an employer and employee, which the
no-hire provision arguably violates, other jurisdictions consider such
agreements to be restraints on trade, under which law this provision is
arguably reasonable. Since Pennsylvania law does not clarify the matter, and
to a certain extent, those divergent tests rely on the resolution of disputed
factual matters, I believe it was inappropriate for the trial court to decide the
issue, seemingly on the merits, at this juncture.
With regard to the majority’s analysis, I observe that, generally
speaking, Pennsylvania law favors contracts entered into at arm’s length
between sophisticated parties. John B. Conomos, Inc. v. Sun Co., Inc.
(R&M), 831 A.2d 696, 708 (Pa.Super. 2003) (observing “[a]bsent fraud or
unconscionability, courts should not set aside terms on which sophisticated
parties agreed.”). The record before us is devoid of allegations that PLS
engaged in fraud or that the terms of the MCSC were unconscionable. Rather,
the record reflects that BeeMac appreciated the consequences of entering into
the MCSC with PLS, including its promise to refrain from hiring any PLS
employee during the term of the contract, and for two years following its
termination. Thus, in my mind, Pennsylvania law generally supports a finding
that the agreement is enforceable on its face.
For similar reasons, I disagree with the majority’s conclusion that the
trial court had a reasonable basis for finding that the no-hire provision violated
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public policy. The majority premised this conclusion on its contention that the
provision was similar to a restrictive covenant between an employer and
employee. Since the no-hire provision affected the rights of non-signatory
third-parties without adequate consideration, it found reasonable support for
concluding that it violated public policy. However, this line of reasoning falls
victim to the same attack, i.e., that there is no basis in Pennsylvania law for
treating a no-hire provision as a restrictive covenant between an employer
and an employee.
Further, our Supreme Court has cautioned against finding a contract
violates public policy unless that violation is clear:
[p]ublic policy is to be ascertained by reference to the laws and
legal precedents and not from general considerations of supposed
public interest. As the term “public policy” is vague, there must
be found definite indications in the law of the sovereignty to justify
the invalidation of a contract as contrary to that policy . . . . Only
dominant public policy would justify such action. In the absence
of a plain indication of that policy through long governmental
practice or statutory enactments, or of violations of obvious
ethical or moral standards, the Court should not assume to declare
contracts . . . contrary to public policy. The courts must be
content to await legislative action.
Safe Auto Ins. Co. v. Oriental-Guillermo, 170 A.3d 1170, 1175 (Pa.Super.
2017) (citing Hall v. Amica Mut. Ins. Co., 648 A.2d 755, 760 (Pa. 1994)).
Here, BeeMac received valuable consideration for its promise not to hire PLS
employees, thereby limiting its own pool of applicants from which it could hire.
Although this agreement had an indirect effect on those PLS employees
seeking employment away from PLS, that effect, insofar as the MCSC is
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concerned, prohibited those employees only from seeking employment with
BeeMac and its affiliates who deal with PLS. I discern no strong public policy
against such a limitation, and the dearth of Pennsylvania statutory or case law
invalidating such an agreement supports the conclusion that it does not violate
“dominant public policy.” Id. Thus, for these additional reasons, I would not
find that the trial court had “apparently reasonable grounds” for its denial of
injunctive relief. Warehime, supra. Frankly, the trial court’s determination
cannot be apparent based on the law or record before us.
This conclusion is bolstered by the principle underlying injunctive relief.
We have long held that the purpose of injunctive relief is “to prevent
irreparable injury or gross injustice by preserving the status quo as it exists
or as it previously existed before the acts complained of in the complaint.
Ambrogi v. Reber, 932 A.2d 969, 974 (Pa.Super. 2007) (citation omitted).
Here, PLS made a showing of irreparable harm caused by BeeMac allegedly
hiring its former employees, which PLS trained and developed. By denying
PLS’s petition for injunctive relief, the trial court effectively permitted BeeMac
to enjoy the benefit of its purported breach while the issue proceeded through
litigation. In the interim, BeeMac is free to leverage the specialized knowledge
that PLS’s former employees acquired while under its employment. Even if
PLS were to succeed on the merits following trial, BeeMac still gained a
competitive advantage. Such an outcome fails to maintain the status quo,
and falls far short of satisfying the spirit of fairness underlying the doctrine.
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In a case such as this, where a disputed restraint on trade appears necessary
to ensure a level playing field among direct competitors, we should aspire to
maintain that equilibrium insofar as possible.
The unusual circumstances surrounding this issue lead me to believe
that, when the trial court recognized this case represented a matter of first
impression to which there was considerable disagreement, it had a duty to
maintain the status quo, and in failing to do so, it abused its discretion. Hence,
this dissent.
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