Joseph, L. v. O'Laughlin, J. ( 2017 )

J-A20015-16
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
LAURIE A. JOSEPH IN THE SUPERIOR COURT OF
PENNSYLVANIA
v.
JOHN B. O’LAUGHLIN
Appellant No. 1706 WDA 2015
Appeal from the Order September 30, 2015
In the Court of Common Pleas of Fayette County
Civil Division at No(s): 1691 of 2015 G.D.
BEFORE: BOWES, STABILE AND MUSMANNO, JJ.
FILED AUGUST 22, 2017
CONCURRING AND DISSENTING MEMORANDUM BY BOWES, J.:
The learned majority misapplied the restrictive covenant by extending
it to organizational measures related to the future operation of a veterinary
clinic after the covenant expires. As I do not agree that Appellant’s
preparations are tantamount to competition in violation of the covenant not
to compete, I respectfully dissent from that aspect of the memorandum.
The majority accurately outlined the relevant facts, procedural history,
and the applicable standard of review. Similarly, it cogently explained
Appellee’s burden of establishing the three components of a permanent
injunction: (1) clear right to relief; (2) necessary to avoid an injury that
cannot be compensated by damages; and (3) greater injury will result from
J-A20015-16
refusing rather than granting the relief requested. Kuznik v.
Westmoreland County Bd. of Comm'rs, 902 A.2d 476, 489 (Pa. 2006).
I agree with the majority’s analysis regarding the trial court’s improper
reliance upon Atkinson & Mullen Travel, Inc., et al. v. O’Brien, et al,
2944 EDA 2012 (unpublished memorandum, filed May 5, 2014) as
authoritative precedent. Likewise, I join the well-reasoned discussion
affirming the trial court’s imposition of a permanent injunction relating to
Appellant’s use of social media. In my view, any and all communications
with the public relating to veterinary services equates to soliciting clients and
therefore is a clear violation of the asset transfer agreement.
I write separately because, unlike my learned colleagues, I believe
that the asset transfer agreement does not bar Appellant’s preparatory
measures and that, by creating that requirement on Appellee’s behalf, the
majority deprived Appellant of the benefit of his bargain. Plainly, the
majority and I have a contrasting view of what constitutes a business or
practice that is in “competition” with Appellee. While we agree that the
defendant’s Facebook page violates the restrictive covenant, we view the
remaining activities in divergent lights. Unlike my colleagues, I believe that
the contract permits Appellant to mobilize his resources for immediate
competition once the restrictive covenant expires. In my view, Appellant’s
nonpublic preparatory measures fall short of competition.
-2-
J-A20015-16
As contract interpretation is a question of law, we are not bound by
the trial court's construction of the writing. See Kraisinger v. Kraisinger,
928 A.2d 333, 339 (Pa.Super. 2007). We have explained the relevant
principles as follows: “In construing a contract, the intention of the parties is
paramount and the 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.”
Charles D. Stein Revocable Trust v. General Felt Industries, Inc., 749
A.2d 978, 980 (Pa.Super. 2000). As we explained in In re Jerome
Markowitz Trust, 71 A.3d 289, 301 (Pa.Super. 2013),
In determining the intent of the parties to a written agreement,
the court looks to what they have clearly expressed, for the law
does not assume that the language of the contract was chosen
carelessly.
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 accepting meaning of the language used.
Id. (citation omitted).
-3-
J-A20015-16
The instant restrictive covenant prohibited Appellant from engaging in
the practice of veterinary medicine for five years within a fifty-mile radius of
Appellee’s clinic. The pertinent clause provided as follows:
Seller acknowledges and agrees that he will not be involved in
any of the following activities at any location within fifty (50)
miles of the veterinary clinic ("Geographic Area"). Seller
covenants and agrees that for a period of five (5) years following
the execution of this Agreement, he shall not directly or
indirectly, as an employer, employee, principal, agent,
consultant, partner, stockholder, creditor or in any other
capacity, engage or participate in any business or practice within
the Geographic Area that is in competition in any manner
whatsoever with the Buyer. Further, Seller shall not contact,
solicit, or engage in any activity to contact or solicit, indirectly or
directly, any client, past, present, or future, during that five (5)
year period.
Asset Transfer Agreement, 12/24/14, ¶ 3 (at unnumbered page 3).
The majority reads the proviso as a broad prohibition that equates
preparatory measures as competition. However, that is not the parties’
agreement. In reality, the provision is refined and reasoned. “[Appellant]
shall not directly or indirectly . . . engage or participate in any business or
practice within the Geographic Area that is in competition in any manner
whatsoever with [Appellee].” Id. Thus, at a minimum, to establish a
violation of the clause, Appellee was required to demonstrate that Appellant
participated in a business or practice that was in competition with her
veterinary clinic. The majority construed the accord as precluding
organizational measures and concluded that Appellee satisfied her
evidentiary burden by introducing evidence that Appellant incorporated a
-4-
J-A20015-16
business, purchased equipment, acquired land, and sought a zoning variance
to operate a clinic in the future. Similarly, the trial court inferred from
Appellant’s actions that Appellant was preparing to violate the agreement
before its expiration. In my view, both the majority’s broad interpretation of
the restrictive convent and the trial court’s supposition run contrary to the
ensconced principle of contract interpretation that courts should avoid
reading clauses into the agreement terms that do not exist. See In re
Jerome Markowitz Trust, supra, at 301 (“we need only examine the
writing itself to give effect to the parties' intent.”).
Under the majority’s far-reaching perspective of “competition,”
Appellant is precluded from engaging in any preparatory activity for the
entire five-year period. That view gives Appellee the benefit of the
additional time that it would take Appellant to launch his veterinary practice
once the covenant expires. Applying the suggested reasoning, the effective
term of the five-year covenant necessarily would exceed the parties’ stated
intent without compensating Appellant for the additional impairment. From
my perspective, the majority’s suggestion that Appellant is not entitled to
make preparations before opening a practice after December 24, 2019 is
untenable.
Although the majority frames its discussion in reference to cases that
address non-compete clauses included in employment contracts, the case at
bar involves an interpretation of the restrictive covenant that the parties
-5-
J-A20015-16
negotiated as part of the asset transfer agreement. In Morgan's Home
Equipment Corp. v. Marticci, 136 A.2d 838, 846 (Pa. 1957), our High
Court explained that different reasons motivate covenants not to compete
attendant to employment and those dependent upon the sale of a business.
As to the former type of non-compete clauses, the Court explained that they
are “enforced by the courts as reasonably necessary for the protection of the
employer.” Id.
In contrast to covenants not to compete in employment contracts,
restrictive covenants included in agreements for the sale of an established
business are intended to temporarily limit a seller’s competition with a
purchaser in order for the purchaser to establish its own cliental. The Court
elucidated this point as follows:
General covenants not to compete which are ancillary to the sale
of a business serve a useful economic function; they protect the
asset known as ‘good will’ which the purchaser has bought.
Indeed, in many businesses it is the name, reputation for
service, reliability, and the trade secrets of the seller rather than
the physical assets which constitute the inducements for a sale.
Were the seller free to re-enter the market, the buyer would be
left holding the proverbial empty poke.
Id. Hence, consistent with our Supreme Court’s perspective, I would review
the restrictive covenant in the present case with an eye toward ensuring that
both sides to the asset transfer agreement obtain the benefit of their
bargain.
-6-
J-A20015-16
Unlike the non-compete clauses in employment contracts that the
majority references in its analysis, where, as here, the parties to an
agreement stand on equal footing, courts simply ensure that both sides get
the deal they negotiated. Instantly, Appellee paid $17,973.50 for
Appellant’s promise to forego competition with her in any manner
whatsoever. While Appellant had a contractual duty to avoid competition
with the Grace Veterinary Clinic, nothing in the sales agreement imposed the
correlate duty to refrain from getting ready to compete once the restrictive
covenant expired on December 24, 2019. Although Appellee was free to
negotiate for the inclusion of preliminary and preparatory activities in the
non-compete, presumably for an increased premium, she neglected to
include such a clause, and this Court should be opposed to fashioning one
for her benefit. Thus, unless or until Appellant engages in an activity that is
tantamount to competition, whether direct or indirect, in my view, he is not
in violation of the accord.
Appellant neither practiced veterinary medicine within the geographic
area nor engaged or participated directly or indirectly, in any business in
competition with Appellee’s practice. To the contrary, in anticipation of
opening a veterinary practice at some unknown future point, Appellant
formed a limited liability company styled, “O' Laughlin Veterinary Services,”
acquired medical equipment, purchased real estate, and applied for a special
use zoning exception that would permit him to build and use a facility as a
-7-
J-A20015-16
veterinary clinic. None of the foregoing actions can be convincingly argued
to equate with competition with Appellee’s veterinary clinic. Plainly,
Appellant, who continued to practice veterinary medicine outside the
territorial scope of the covenant, did not operate a veterinary clinic in
contravention of the agreement.1 He did not conduct examinations, treat
animals, or provide any other veterinary services. At most, the evidence
revealed Appellant’s intention to operate a clinic on the site in the future.
However, that does not render Appellant’s actions to be in present
competition with Appellee.
I find instructive the Ohio Court of Appeals discussion in Berardi’s
Fresh Roast, Inc. v. PMD Enter., Inc. 2008 WL 4681825, 2008 Ohio App.
Lexis 4618 (Ohio Ct. App. 2008), wherein the appeals court examined
whether an appellee’s actions violated the terms of a restrictive covenant
negotiated as part of an agreement for the sale of a coffee roasting
business. The court determined that the appellee did not violate the
restrictive covenant when he organized a new coffee roasting enterprise,
investigated finance options, leased warehouse space, hired employees, and
ordered equipment and supplies prior to the expiration of the
noncompetition agreement. Significantly, the appellee made all of the
____________________________________________
1
Appellant testified that, after leaving Pennsylvania, he practiced at a clinic
in Florida until July 2015. N.T., 9/24/15, at 88.
-8-
J-A20015-16
preparations in anticipation of operating the business immediately after the
restriction expired. In concluding that the agreement was not violated, the
court observed that the appellee’s actions “constituted ‘preparations’ to
compete” rather than actual competition insofar as the appellee never
engaged in actual competition until after the the noncompetition agreement
expired. Id. at *5. In short, the court reasoned, “preparing to compete
does not equate to actively competing.” Id. I would apply the identical
reasoning herein to find that Appellant’s preparatory measures did not
breach the asset transfer agreement.
The majority discounts the appeals court’s holding in Berardi’s Fresh
Roast, Inc. because that decision did not reveal the precise terms of the
restrictive covenant that was under review. However, this attempt to
bypass the appeals court’s cogent reasoning misses the mark. It is obvious
from the Ohio court’s opinion that the non-compete clause at the center of
the dispute prohibited “competition” and did not specifically exclude
“preparations”—if the covenant had precluded preparations than the case
would have been a nonstarter. Furthermore, whether the prohibition related
to an identified industry, e.g., coffee roasting, or included any competing
business or practice whatsoever is of no moment. The crux of the Ohio
Court of Appeals’ legal rationale, which the majority is determined to avoid,
is that preparations do not equate to competition. Id. at *5 (preparing to
compete is not equivalent to competing.). As the pertinent holding
-9-
J-A20015-16
Berardi’s Fresh Roast, Inc. was not dependent upon the specific language
in the restrictive convent, I would apply that holding herein as persuasive
legal authority in Appellant’s favor.
Moreover, I observe that there was no evidence in the certified record
to support the conclusion that Appellant’s organizational measures caused
Appellee harm. Indeed, Appellant’s preparations existed in chorus with
Appellee’s continued operation of Grace Veterinary Clinic without violating
the non-compete clause. Accordingly, I believe that the trial court erred in
finding that the above-cited examples of Appellant’s anticipated opening of
the O’Laughlin Veterinary Services within the territorial scope of the
covenant evinced Appellant’s intention to initiate competition prior to the
date that the agreement expires on December 24, 2019. To the contrary, I
would find that Appellant’s measures did not breach the non-competition
provisions contained in the sales agreements, and therefore, the trial court
erred in concluding that Appellant established a clear right to injunctive relief
based upon those actions.
Finally, I note that, in contrast with my colleagues, I am not
persuaded by the the trial court’s supposition that Appellant was preparing
to violate the non-compete agreement. First, the trial court’s theories do
not warrant the deference reserved for factual findings and credibility
determinations. Since the facts regarding Appellant’s actions were
unchallenged, that evidence is not subject to a credibility determination. In
- 10 -
J-A20015-16
reality, the trial court’s purported finding was, in fact, a legal conclusion
drawn from the defendant’s preparations as well as his creation of the
Facebook page. It is beyond peradventure that we are not bound by the
trial court's deductions or inferences drawn from the facts. A.V. v. S.T., 87
A.3d 818 (Pa.Super. 2014) (appellate court is not bound by deductions or
inferences made by trial court from its findings of fact). Thus, the court’s
belief that Appellant was preparing to violate the non-compete agreement is
not entitled to the heighten deference typically associated with its role as the
ultimate arbiter of facts. Moreover, whether characterized as inference,
finding of fact, or legal conclusion, the trial court’s anticipation of a violation
is not supported by the certified record.
Instantly, aside from the Facebook page, none of the remaining
activities in which Appellant engaged, i.e., incorporating a business,
purchasing equipment, acquiring land, and seeking a zoning variance,
announced a practice to the public or entailed the participation of a business
or practice in competition with Appellee’s clinic.2 To the contrary, the
evidence in this case demonstrated that the preponderance of Appellant’s
actions were preparatory.
____________________________________________
2
I recognize that the zoning form that the defendant submitted to the
review board indicated that the intended use of his property was for a
“veterinary clinic,” however, I do not think that a required entry on a form
equates with a public announcement.
- 11 -
J-A20015-16
For all of the foregoing reasons, I would affirm the order granting the
permanent injunction insofar as it prohibited Appellant from operating a
veterinary clinic in contravention of the restrictive covenant contained in the
asset transfer agreement, including the solicitation of former clients,
whether directly or indirectly, by advertisement or social media. However, I
would reverse the order granting a permanent injunction to the extent that it
purported to enjoin Appellant from engaging in organizational activities.
- 12 -