Lehigh Anesthesia Assoc. v. Mellon, M. ( 2016 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
LEHIGH ANESTHESIA ASSOCIATION IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellant
v.
MICHAEL MELLON, CRNA
Appellee No. 1570 EDA 2015
Appeal from the Order May 5, 2015
In the Court of Common Pleas of Lehigh County
Civil Division at No(s): 2012-C-3692
BEFORE: GANTMAN, P.J., MUNDY, J., and MUSMANNO, J.
MEMORANDUM BY GANTMAN, P.J.: FILED APRIL 26, 2016
Appellant, Lehigh Anesthesia Association (“LAA”), appeals from the
order entered in the Lehigh County Court of Common Pleas, which granted
summary judgment in favor of Appellee, Michael Mellon, CRNA. We affirm.
The relevant facts and procedural history of this case are as follows.
Appellee, a certified nurse anesthetist, began working for LAA in 2001. Both
parties entered into a written employment agreement (“Agreement”) on
September 24, 2001. Paragraph 9 of the Agreement contains a restrictive
covenant, which states in relevant part:
9. Restrictive Covenant
A. In the course of inviting Employee to join
Employer’s practice of anesthesia, and in his employment,
he will be introduced to and have made available to him
certain of Employer’s contacts and referring doctor
relationships, hospital sources, business and professional
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relationships and the like. Employee acknowledges that
because he has not been in a private (fee-for-service)
practice in anesthesia previously, he has no referring
doctor or facility following in the area, nor does he have
any substantial experience in the “business” of a private,
fee-for-service anesthesia practice.
Accordingly, Employee recognizes and agrees that
termination of his employment for any reason followed by
his entering into a business or practice competitive with
that of Employer (i.e., the rendering of anesthesia services
to clients of Employer), as an employee, owner,
contractor, or otherwise, would allow Employee to take
many of the sources of the Employer’s success with
Employee to the ongoing practice’s detriment, for
Employer would have established the Employee is in a
situation that makes him a very strong competitor for the
Employer’s current and potential practice sources.
Therefore, Employee agrees that he will pay to
Employer the amount specified below for each “client” of
“Employer” for whom he, or his subsequent employers(s),
employee(s), subcontractor(s) or the like, provide,
services to within the twenty-four (24) months after
termination of this Agreement. Any amounts payable
hereunder shall be due in two (2) equal installments
thirteen (13) and twenty-five (25) months after
commencement of Employee’s competitive activity.
For purposes of this Paragraph 9, “Employer” is defined
to include Lehigh Anesthesia Associates, P.C., and the
Center for Ambulatory Anesthesia, Inc., and Employer’s
“clients” are clients of any of those entities.
* * *
For this purpose, Employer’s clients are clients for
whom Employer has provided any billable services within
the forty-eight (48) months preceding Employee’s
termination of employment.
* * *
B. For the reasons described above, Employee
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further agrees he will not solicit any clients or contractual
arrangement of the Employer or convert to his possession
and/or disclose in any manner any contractual
arrangements, patient lists, addresses or other data about
the patients, clients, and/or contracts neither before nor
after termination of his employment hereunder. All such
information is hereby agreed to be confidential to
Employer and of essential importance to its ongoing
practice. All reasonable legal fees and costs incurred by
Employer in connection with the enforcement of this
subparagraph upon a breach hereof of Employee shall be
paid by employee.
(See Appellee’s Brief in Support of Motion for Summary Judgment, Exhibit D
at 6-8; R.R. at 25a-27a). LAA subsequently terminated Appellee’s
employment in May 2012, after receiving numerous complaints from
patients and clients regarding Appellee’s poor work and behavior.
Thereafter, Appellee began working for Professional Anesthesia Consultants,
P.C. (“PAC”) in King of Prussia. While working for PAC, Appellee provided
anesthetist services for Carlisle Endoscopy Center (“CEC”), one of LAA’s
clients from 2001 until 2011.
On September 6, 2012, LAA filed a praecipe for a writ of summons
against Appellee. LAA filed a complaint on February 28, 2013, against
Appellee that alleged breach of the Agreement’s restrictive covenant.
Appellee filed on March 20, 2013, an answer with new matter and
counterclaims. On April 11, 2013, LAA filed an answer and new matter to
the counterclaims, to which Appellee replied. Appellee filed, on April 30,
2014, a motion for summary judgment and a brief in support of his motion.
LAA filed a response on May 30, 2014, as well as a memo in opposition to
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the summary judgment motion. Appellee filed a reply brief on June 10,
2014.
The court granted Appellee’s summary judgment motion on September
2, 2014, as to all of LAA’s claims. Thereafter, Appellee filed a praecipe to
discontinue his counterclaims. LAA timely filed a notice of appeal on May
29, 2015. The court ordered LAA on June 5, 2015, to file a concise
statement of errors complained of on appeal pursuant to Pa.R.A.P. 1925(b),
and LAA timely complied on June 25, 2015.
LAA raises the following issues for our review:
DID THE TRIAL COURT ERR AS A MATTER OF LAW AND/OR
ABUSE ITS DISCRETION IN HOLDING THAT BECAUSE
[LAA] HAD TERMINATED [APPELLEE]—REGARDLESS OF
THE REASON—THEN AS A MATTER OF LAW, [LAA]
FORFEITED THE RIGHT TO ENFORCE THE CLIENT-
SPECIFIC RESTRICTIVE COVENANT IN [APPELLEE’S]
EMPLOYMENT AGREEMENT, AND IN RELYING ON
INSULATION CORP. OF AMERICA V. BROBSTON, 667
A.2D 729 (Pa.Super. 1995) FOR THAT PROPOSITION?
DID THE TRIAL COURT ERR AS A MATTER OF LAW AND/OR
ABUSE ITS DISCRETION IN GRANTING [APPELLEE’S]
SUMMARY JUDGMENT MOTION, AND REFUSING TO
ENFORCE THE CLIENT-SPECIFIC RESTRICTIVE COVENANT
IN [LAA’S] EMPLOYMENT AGREEMENT, ON THE BASIS
THAT THE COVENANT WAS AIMED AT RESTRAINING
[APPELLEE] “FROM THE EXERCISE OF HIS PROFESSION
WITHIN CERTAIN GEOGRAPHIC…BOUNDS” WHEN THE
COVENANT CLEARLY WAS NOT BASED ON ANY
GEOGRAPHIC LIMITATION?
DID THE TRIAL COURT ERR AS A MATTER OF LAW AND/OR
ABUSE ITS DISCRETION IN GRANTING [APPELLEE’S]
SUMMARY JUDGMENT MOTION AND REFUSING TO
ENFORCE THE RESTRICTIVE COVENANT IN HIS
EMPLOYMENT AGREEMENT ON THE BASIS THAT THERE
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WAS NO GENUINE ISSUE ON THE MATERIAL FACT AS TO
WHETHER [LAA] HAD TERMINATED [APPELLEE] FOR POOR
JOB PERFORMANCE?
(LAA’s Brief at 5).
In the issues combined, LAA argues the restrictive covenant at issue
should be enforced. LAA claims the court’s reliance on Brobston, supra is
misplaced in light of more recent case law that confirms LAA’s termination of
Appellee does not automatically prohibit LAA as a matter of law from
enforcing a restrictive covenant against Appellee. LAA also alleges the
restrictive covenant did not prohibit Appellee from practicing his profession
within a particular geographic area upon termination; the covenant allowed
Appellee to provide anesthesia services at any facility so long as it was not
one of the 40+/− medical offices or facilities in eastern and central
Pennsylvania under contract with LAA or which had been under contract with
LAA during the four-year period before Appellee’s termination. LAA claims
Appellee violated these terms of the restrictive covenant when, after his
termination in 2012, Appellee took a position with PAC in King of Prussia.
While working for PAC, Appellee provided anesthesia services for CEC, one of
LAA’s clients from 2001 until 2011. LAA asserts the court in this case
misperceived there was some “geographic extent” to the restrictive
covenant, as Appellee could have worked for any employer that did not meet
the restrictive covenant definition of a “client.” LAA states it had a particular
interest to protect and Appellee’s termination did not affect his ability to
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earn a living. LAA maintains there are genuine issues of material fact which
barred summary judgment. LAA concludes this Court should reverse the
order granting summary judgment and remand for further proceedings. We
do not agree.
Initially, we observe:
Our scope of review of an order granting summary
judgment is plenary. [W]e apply the same standard as the
trial court, reviewing all the evidence of record to
determine whether there exists a genuine issue of material
fact. We view the record in the light most favorable to the
non-moving party, and all doubts as to the existence of a
genuine issue of material fact must be resolved against the
moving party. Only where there is no genuine issue as to
any material fact and it is clear that the moving party is
entitled to a judgment as a matter of law will summary
judgment be entered. All doubts as to the existence of a
genuine issue of a material fact must be resolved against
the moving party.
Motions for summary judgment necessarily and directly
implicate the plaintiff’s proof of the elements of [his] cause
of action. Summary judgment is proper if, after the
completion of discovery relevant to the motion, including
the production of expert reports, an adverse party who will
bear the burden of proof at trial has failed to produce
evidence of facts essential to the cause of action or
defense which in a jury trial would require the issues to be
submitted to a jury. In other words, whenever there is no
genuine issue of any material fact as to a necessary
element of the cause of action or defense, which could be
established by additional discovery or expert report and
the moving party is entitled to judgment as a matter of
law, summary judgment is appropriate. Thus, a record
that supports summary judgment either (1) shows the
material facts are undisputed or (2) contains insufficient
evidence of facts to make out a prima facie cause of action
or defense.
Upon appellate review, we are not bound by the trial
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court’s conclusions of law, but may reach our own
conclusions. The appellate Court will disturb the trial
court’s order only upon an error of law or an abuse of
discretion.
Judicial discretion requires action in conformity with
law on facts and circumstances before the trial court
after hearing and consideration. Consequently, the
court abuses its discretion if, in resolving the issue
for decision, it misapplies the law or exercises its
discretion in a manner lacking reason. Similarly, the
trial court abuses its discretion if it does not follow
legal procedure.
* * *
Where the discretion exercised by the trial court is
challenged on appeal, the party bringing the challenge
bears a heavy burden.
[I]t is not sufficient to persuade the appellate court
that it might have reached a different conclusion
if…charged with the duty imposed on the court
below; it is necessary to go further and show an
abuse of the discretionary power. An abuse of
discretion is not merely an error of judgment, but if
in reaching a conclusion the law is overridden or
misapplied, or the judgment exercised is manifestly
unreasonable, or the result of partiality, prejudice,
bias or ill-will, as shown by the evidence or the
record, discretion is abused.
* * *
Glaab v. Honeywell Intern., Inc., 56 A.3d 693, 696-97 (Pa.Super. 2012)
(quoting Chenot v. A.P. Green Services, Inc., 895 A.2d 55, 60–62
(Pa.Super. 2006) (internal citations and quotation marks omitted)).
Contract construction and interpretation is a question of law for the
court to decide. Profit Wise Marketing v. Wiest, 812 A.2d 1270, 1274
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(Pa.Super. 2002); J.W.S. Delavau, Inc. v. Eastern America Transport &
Warehousing, Inc., 810 A.2d 672, 681 (Pa.Super. 2002), appeal denied,
573 Pa. 704, 827 A.2d 430 (2003) (reiterating: “The proper interpretation of
a contract is a question of law to be determined by the court in the first
instance”). In construing a contract, the intent of the parties is the primary
consideration. Tuscarora Wayne Mut. Ins. Co. v. Kadlubosky, 889 A.2d
557, 560 (Pa.Super. 2005).
When interpreting agreements containing clear and
unambiguous terms, we need only examine the writing
itself to give effect to the parties’ intent. The language of
a contract is unambiguous if we can determine its meaning
without any guide other than a knowledge of the simple
facts on which, from the nature of the language in general,
its meaning depends. When terms in a contract are not
defined, we must construe the words in accordance with
their natural, plain, and ordinary meaning. As the parties
have the right to make their own contract, we will not
modify the plain meaning of the words under the guise of
interpretation or give the language a construction in
conflict with the accepted meaning of the language used.
On the contrary, the terms of a contract are ambiguous if
the terms are reasonably or fairly susceptible of different
constructions and are capable of being understood in more
than one sense. Additionally, we will determine that the
language is ambiguous if the language is obscure in
meaning through indefiniteness of expression or has a
double meaning.
Profit Wize Marketing, supra at 1274-75 (internal citations and quotation
marks omitted).
Where there is any doubt or ambiguity as to the meaning
of the covenants in a contract or the terms of a grant, they
should receive a reasonable construction, and one that will
accord with the intention of the parties; and, in order to
ascertain their intention, the court must look at the
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circumstances under which the grant was made. It is the
intention of the parties which is the ultimate guide, and, in
order to ascertain that intention, the court may take into
consideration the surrounding circumstances, the situation
of the parties, the objects they apparently have in view,
and the nature of the subject-matter of the agreement.
Giant Food Stores, LLC v. THF Silver Spring Development, L.P., 959
A.2d 438, 448 (Pa.Super. 2008), appeal denied, 601 Pa. 697, 972 A.2d 522
(2009) (internal citations and quotation marks omitted). In either event,
“[T]he court will adopt an interpretation which under all circumstances
ascribes the most reasonable, probable, and natural conduct of the parties,
bearing in mind the objects manifestly to be accomplished.” E.R. Linde
Const. Corp. v. Goodwin, 68 A.3d 346, 349 (Pa.Super. 2013).
The general rules of contract interpretation also apply in the context of
restrictive covenants. Baumgardner v. Stuckey, 735 A.2d 1272, 1274
(Pa.Super. 1999). Non-compete covenants in employment contracts exist to
protect the rights of the employer. Hess v. Gebhard & Co., 570 Pa. 148,
159, 808 A.2d 912, 918 (2002). These covenants are important business
tools, because they allow employers to prevent their employees and agents
from learning the employers’ business practices and then moving into
competition with them. Id. Non-compete clauses permit an employer to
protect its legitimate business interests, client base, good will, and
investments in employees. WellSpan Health v. Bayliss, 869 A.2d 990,
996 (Pa.Super. 2005).
For a covenant not to compete to be enforceable in Pennsylvania, it
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must be: (1) ancillary to the employment relationship; (2) reasonably
necessary for the protection of the employer; (3) reasonable in duration and
geographic reach. Missett v. Hub Inter. Pennsylvania, LLC, 6 A.3d 530,
538 (Pa.Super. 2010). For an employment restriction to be considered
“ancillary to employment,” the restriction must relate to a contract of
employment. Modern Laundry & Dry Cleaning Co. v. Farrer, 536 A.2d
409, 411 (Pa.Super. 1987). So long as the employment restriction is “an
auxiliary part of the taking of employment and not a later attempt to impose
additional restrictions on an unsuspecting employee, such a covenant is
supported by valid consideration and is therefore enforceable.” Id.
Pennsylvania courts have consistently held the acceptance of employment is
sufficient consideration to support a restrictive covenant. Brobston, supra
at 733; Modern Laundry & Dry Cleaning Co., supra at 411; Records
Center, Inc. v. Comprehensive Management, Inc., 525 A.2d 433
(Pa.Super. 1987).
Nevertheless,
Post-employment restrictive covenants are subject to a
more stringent test of reasonableness…. This heightened
scrutiny stems from a historical reluctance on the part of
our courts to enforce any contracts in restraint of free
trade, particularly where they restrain an individual from
earning a living at his trade. This close scrutiny also stems
from our recognition of the inherently unequal bargaining
positions of employer and employee when entering into
such agreements. The determination of whether a post-
employment restrictive covenant is reasonable, and
therefore enforceable, is a factual one which requires the
court to consider all the facts and circumstances. A
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restrictive covenant found to be reasonable in one case
may be unreasonable in others.
Brobston, supra at 733-34 (internal citations omitted). “[A] post-
employment covenant that merely seeks to eliminate competition per se to
give the employer an economic advantage is generally not enforceable. The
presence of a legitimate, protectable business interest of the employer is a
threshold requirement for an enforceable non-competition covenant.”
WellSpan Health, supra at 996-97 (citations omitted). “If the threshold
requirement of a protectable business interest is met, the next step in
analysis of a non-competition covenant is to apply the balancing test defined
by our Supreme Court.” Id. at 999 (citing Hess, supra at 163, 808 A.2d at
920). “First, the court balances the employer’s protectable business interest
against the employee’s interest in earning a living. Then, the court balances
the employer and employee interests with the interests of the public.” Id.
To weigh the competing interests of the employer and employee, the court
must conduct an examination of reasonableness. WellSpan Health, supra
at 999.
To determine reasonableness, a covenant must be reasonably
necessary for the employer’s protection, and the terms of the covenant must
be reasonably limited in terms of the temporal and geographical restrictions
imposed on the former employee. Id. (citations omitted).
An [employee] may receive specialized training and skills,
and learn the carefully guarded methods of doing business
which are the trade secrets of a particular enterprise. To
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prevent an [employee] from utilizing such training and
information in competition with his former employer, for
the patronage of the public at large, restrictive covenants
are entered into. They are enforced by the courts as
reasonably necessary for the protection of the employer.
A general covenant not to compete, however,
imposes a greater hardship upon an [employee]
than upon a seller of a business. An [employee] is
prevented from practicing his trade or skill, or from
utilizing his experience in the particular type of work
with which he is familiar. He may encounter difficulty
in transferring his particular experience and training to
another line of work, and hence his ability to earn a
livelihood is seriously impaired. Further, the [employee]
will usually have few resources in reserve to fall back
upon, and he may find it difficult to uproot himself and his
family in order to move to a location beyond the area of
potential competition with his former employer.
Contrarywise, the mobility of capital permits the
businessman to utilize his funds in other localities and in
other industries.
Brobston, supra at 734 (citations omitted) (emphasis in original).
Furthermore, “[w]hen…the covenant imposes restrictions broader than
necessary to protect the employer, we have repeatedly held that a court of
equity may grant enforcement limited to those portions of the restrictions
that are reasonably necessary for the protection of the employer.” Hess,
supra at 162-63, 808 A.2d at 920 (citation omitted). “If…an employer does
not compete in a particular geographical area, enforcement of a non-
competition covenant in that area is not reasonably necessary for the
employer’s protection.” WellSpan Health, supra at 1001.
Moreover,
Where an employee is terminated by his employer on the
grounds that he has failed to promote the employer’s
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legitimate business interests, it clearly suggests an implicit
decision on the part of the employer that its business
interests are best promoted without the employee in its
service. The employer who fires an employee for failing to
perform in a manner that promotes the employer’s
business interests deems the employee worthless. Once
such a determination is made by the employer, the need to
protect itself from the former employee is diminished by
the fact that the employee’s worth to the corporation is
presumably insignificant. Under such circumstances, we
conclude that it is unreasonable as a matter of law to
permit the employer to retain unfettered control over that
which it has effectively discarded as worthless to its
legitimate business interests.
Brobston, supra at 735. Still, “the circumstances of termination are,
alone, not determinative of whether the restrictive covenant is enforceable
under Brobston.” Missett, supra at 539.
Instantly, the trial court relied on Brobston and concluded:
[D]espite its asseverations in respect to the court’s duty to
scrutinize the “fact[s] and circumstances” of each case,
[LAA] nevertheless fails to point to any fact of record
indicative of why the present matter is distinguishable
from Brobston. Rather, perusal of [LAA’s] brief reveals
merely the contention that the present restrictive covenant
does not resemble to the sort of “unfettered control” to
which Brobston adverted in arriving at is holding. The
argument is unavailing. Here, as in Brobston, the subject
covenant is aimed at restraining the previous employee
from the exercise of his profession within certain
geographic and temporal bounds.
Additionally, [LAA] argues that even though an employee
may be terminated for cause, he may still have
“knowledge of protectable trade secrets, or significant
customer contacts constituting protectable business
interests.” However, such an argument misconstrues the
import of Brobston. The disclosure of trade secrets
remains actionable as a common law tort…but what
Brobston proscribes is an employer discarding an
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employee deemed worthless by the organization while
simultaneously asserting, through a restrictive covenant,
that the employee is nevertheless capable of posing a
competitive threat. The [Superior] Court, in fact,
underscored this very point: “The salesman discharged for
poor sales performance cannot reasonably be perceived to
pose the same competitive threat to his employer’s
business interests as the salesman whose performance is
not questioned, but who voluntarily resigns to join another
business in direct competition with the employer.”
Brobston, supra [at 735-36]. As such, any “significant
customer contacts,” so long as they do not constitute
confidential information protected by the law of tort,
cannot be deemed a legitimate business interest of the
employer vis-à-vis a discarded employee.
The facts and circumstances of this case reveal no genuine
issue of fact on the issue of whether [LAA] terminated
[Appellee] for what it deemed to be poor job performance.
In view of [LAA’s] failure to point to any record evidence to
refute such a conclusion, as a matter of law it cannot
prevail on any claim based on the subject restrictive
covenant. [Appellee] is, therefore, entitled to summary
judgment in his favor on the claim.
(Trial Court Opinion, filed July 2, 2015, at 4-6) (some internal citations
omitted). The record supports this decision. An examination of the
restrictive covenant at issue reveals that the terms are both ambiguous and
overly broad or unreasonable. The covenant specifically prohibits Appellee
from rendering anesthesia services to any of LAA’s current or former clients
dating back to 2008. (See Appellee’s Brief in Support of Motion for
Summary Judgment, Exhibit D at 6; R.R. at 25a.) The covenant defines
“clients” as those “for whom [LAA] has provided any billable services
[within] the forty-eight (48) months preceding [Appellee’s] termination of
employment.” See id. Nevertheless, LAA interprets the term “clients” more
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broadly to include also businesses which conduct business with current and
prior clients of LAA, even if these businesses have not been direct clients of
LAA. By virtue of this unwarranted extension, LAA wants to hold Appellee in
violation of the restrictive covenant because, after his termination, Appellee
took a position with PAC in King of Prussia. While working for PAC, Appellee
was asked to provide anesthesia services for CEC, which happened to be one
of LAA’s clients from 2001 until 2011. Thus, the reach of the covenant
terms is overly broad and cannot be understood to limit businesses in PAC’s
position. See Profit Wize Marketing, supra. There is no indication from
the surrounding circumstances that the parties intended for the covenant to
restrict Appellee by restricting his new employer. See Giant Food Stores,
supra. The covenant restrictions in this regard are broader than necessary
to protect LAA’s business interests. See Hess, supra. Interpreting the
covenant so generally as to restrict Appellee from working for any employer
that might happen to conduct business with one of LAA’s current or former
clients places an undue hardship on Appellee in terms of finding potential
future employment, especially when coupled with the unlimited geographical
scope of the covenant. See Brobston, supra. Construing the restrictive
covenant so broadly is not reasonably necessary to protect LAA, whereas it
prevents Appellee “from practicing his trade or skill, or from utilizing his
experience in the particular type of work with which he is familiar.” See id.;
WellSpan Health, supra. We conclude the court properly granted
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summary judgment in favor of Appellee. See Glaab, supra. Accordingly,
we affirm.
Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 4/26/2016
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