PINNACLE CONTROL SYSTEMS, LLC v. LARRY HERMAN (C-000031-21, MERCER COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3643-20
PINNACLE CONTROL
SYSTEMS, LLC, a New Jersey
Limited Liability Company,
Plaintiff-Respondent,
v.
LARRY HERMAN, and
REDLINE CONTROL
DESIGN, LLC, a New Jersey
Limited Liability Company,
Defendants-Appellants.
_________________________
Argued August 30, 2022 – Decided September 6, 2022
Before Judges Mawla and Mitterhoff.
On appeal from the Superior Court of New Jersey,
Chancery Division, Mercer County, Docket No.
C-000031-21.
Eugene Song argued the cause for appellants.
Jill R. Cohen argued the cause for respondent (Eckert
Seamans Cherin & Mellott, LLC, attorneys; Robert P.
Avolio and Jill R. Cohen, of counsel and on the brief).
PER CURIAM
Defendants Larry Herman and Redline Control Design, LLC (Redline) appeal
from an August 12, 2021 order of the Chancery Division finding them in contempt
for violating non-competition restraints in the March 25, 2021 and April 28, 2021
orders. We affirm.
Plaintiff Pinnacle Control Systems, LLC (Pinnacle) is a provider of energy
services for buildings of all types and sizes "with a focus on comprehensive
control of equipment and reducing total building energy consumption, including
refrigeration, heating, ventilating, air-conditioning, lighting and all energy
consuming systems found in commercial, industrial, and educational facilities."
Plaintiff's services include: "[c]omplete [e]nergy [m]anagement for all facility
types; fully licensed and insured electrical contractor for installation and
service; [c]omprehensive certified level [one], [two], [and three] energy audits;
[e]ngineering and [d]esign for customer building needs; [twenty-four-hour]
control system monitoring; and [photovoltaic] [s]olar and installation service."
The firm participates in a competitive market comprised of a small number of
providers.
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Defendant Herman is a highly skilled technician in this field who
specializes in starting and installing energy control systems (EMS),
programming, and functional testing. He was hired by plaintiff on May 1, 2017
for the senior-level position of Operations Manager. Defendant's annual salary
was $245,924 plus a bonus. Prior to working for plaintiff, defendant worked in
the supermarket and construction industries as an EMS contractor and consultant
for over thirty-six years. During that time, he developed a wide range of
contacts consisting of contractors, vendors, and suppliers in the supermarket
industry. Some of defendant's clients followed him to Pinnacle. While at
Pinnacle, defendant's job responsibilities included: overseeing sales,
installation, services and administration; bidding and project management for
incoming work; overseeing and scheduling all field work; assisting with
technical and design issues; communicating with customers; overseeing office
administration; working and technical interfacing with third-party vendors;
providing IT support and direction; working with owners on new company
technology; purchasing materials and maintaining inventory; and reviewing
sales, profits, and losses.
After defendant allegedly "failed to meet his essential job functions,"
plaintiff terminated him on December 30, 2020. Prior to the termination,
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plaintiff learned that defendant was converting company property for his
personal use and making improper personal charges on his company credit card
that included flowers for his wife's birthday and anniversary, the rehearsal
dinner for his son's wedding, and expensive personal dining charges that were
not business related.
On December 30, 2020, plaintiff offered defendant a Separation
Agreement and General Release (the agreement). Relevant to this appeal, the
agreement contained a twelve month non-compete provision, prohibiting
defendant in paragraph (a) from contributing his "knowledge, directly or
indirectly, in whole or part, as an employee, employer, owner, operator . . . or
any other similar capacity to an entity engaged in the same or similar business
as [plaintiff,]" and in paragraph (c) from engaging in any activity "whether
directly or indirectly to solicit, contact, or attempt to solicit or contact, using
any other form of oral, written, or electronic communication, . . . or meet with
[plaintiff]'s current, former, or prospective customers for purposes of offering
or accepting goods or services similar to or competitive with those offered by
[plaintiff.]"
Pursuant to the Age Discrimination in Employment Act of 1967, 29 U.S.C.
§ 626(f)(1)(F)-(G), defendant was advised that he had up to twenty-one days to
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consider the agreement and that he could revoke it for a period of seven days
after signing. Revocation instructions were included on pages six and seven of
the agreement. Defendant elected to waive the twenty-one-day period and
signed the agreement on December 30, 2020.
On December 31, 2020, defendant sent a letter to plaintiff in an effort to
alter the terms of the agreement and narrow the scope of the post-employment
restrictive covenants. Notably, this letter was not drafted in the manner
designated to revoke the agreement. Instead, defendant explained that he wanted
"to have an amicable separation and therefore request[ed] modification to
[s]ection [eight] in general, and in specific paragraphs 'a' and 'c' which are quite
draconian and overly broad." He also proposed substitution of certain language
and said that he would "leave it to [plaintiff] to correct the language[.]" In a
follow-up email, defendant stated "we need to discuss the changes I proposed.
I believe that they are not so overly broad as to restrict me from anything (like
is currently written) but will still alleviate your concerns about me getting a job
where I would be competing directly with Pinnacle."
Between January 7, 2021 and March 4, 2021, the parties communicated
through counsel to negotiate revised terms. During this time, plaintiff's counsel
held defendant's severance money in escrow. The parties could not come to
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revised terms for the agreement and therefore plaintiff has not released the
severance.
Since 2013, prior to his employment with plaintiff, defendant maintained
a close business relationship with R3 Retail Development (R3) which is an
"[e]ngineering and [i]ntegrating company that develops the design of HVAC and
lighting controls at various construction project sites." The firm also "prepare[s]
the installation plans and specifications, purchase[s] and [starts up] the HVAC
and lighting controls equipment, and also program[s] and commission[s] them
for operation."
Defendant previously worked with R3 as a subcontractor at a series of
Trader Joe's sites performing EMS commissioning and programming work. R3
would directly contract with defendant "by way of purchase order . . . to perform
commissioning and programming work" for the firm. The owner of R3
explained that it is not a customer of plaintiff's and noted that "Pinnacle does
not have the capacity to perform the work that only Larry Herman can do and
that I trust." He further explained that "[t]here are only [three] fully vetted and
specially trained persons throughout the country that perform EMS start ups,
programming and functional testing; and Larry is the only one residing in the
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Northeast that I use. If Pinnacle did not have Larry Herman, I would have
looked elsewhere for the job."
On or about April 30, 2020, R3 issued purchase order #5177i to plaintiff.
The purchase order was for plaintiff to perform EMS work at a Trader Joe 's in
Long Island City, New York. R3 also issued a second purchase order to plaintiff
for EMS work at a Trader Joe's in Christiana, Delaware. The onset of the
pandemic delayed this work until 2021, and work for these purchase orders was
not completed prior to defendant's termination.
In January 2021, Pinnacle contacted R3 about the status of the two
purchase orders. Once R3 learned that defendant was no longer employed by
plaintiff, R3 informed plaintiff that the purchase orders had expired due to
delays and stated that it would perform the contracted work "in-house."
Between January and February 2021, R3 contacted defendant to confirm that he
no longer worked for plaintiff. After defendant confirmed that he had been
terminated, R3 asked if he would be able to commission both jobs. Defendant
agreed to do the commissioning in February 2021.
After being terminated by plaintiff, defendant created Redline. He
incorporated the firm on January 27, 2021, less than one month after signing the
agreement. Plaintiff concedes that neither the agreement nor the subsequent
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negotiations regarding potential modifications to the agreement stopped
defendant from forming Redline. Defendant proceeded to advertise his new
venture on LinkedIn. Additionally, he reportedly visited and contacted two of
plaintiff's customers—LiDL grocery stores in Lawrenceville and Garwood, New
Jersey—to introduce and discuss his new company in violation of the agreement.
Defendant also reportedly did not return a company laptop that belonged to
plaintiff.
Based on these violations, on March 24, 2021, plaintiff filed its verified
complaint and order to show cause seeking temporary restraints because of
defendant's violation of the post-employment restrictive covenants and refusal
to return company property. The next day, the Chancery Division entered an
order imposing temporary restraints, and scheduled the show cause hearing for
April 28, 2021.
On April 9, 2021, defendant was observed performing EMS work at the
Trader Joe's location in Christiana, Delaware. As a result of this newly
discovered violation, plaintiff filed its first motion for contempt on April 27,
2021.
On April 28, 2021, the parties appeared for the show cause hearing. At
the conclusion of the show cause hearing, the court continued the temporary
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restraints entered in the March 25, 2021 order pending full and final disposition
of the matter by order dated April 29, 2021. The judge ordered that defendant
was restrained from "doing business with any supermarket, box store or other
customer or client for which Pinnacle has done business or developed a
prospective business relationship with at any time through . . . December 30 [],
2020."
On May 14, 2021, the court conducted the hearing on the first contempt
motion and reserved its ruling. On or about May 17, 2021, plaintiff
inadvertently received emails intended for defendant that were sent to his old
Pinnacle email address. Plaintiff owns its own email server which includes
defendant's former work email account. When defendant was terminated,
plaintiff asked its employee Steve Green "to periodically monitor [defendant's]
email in-box . . . to ensure continuity of service to Pinnacle's customers who
may not know that [defendant]'s employment had been terminated." The context
of the email chain made it "evident that [defendant] was performing work that
was the subject of . . . the [R3] [p]urchase [o]rder" for the Trader Joe's in Long
Island City, New York in violation of the Chancery Division's restraints.
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In light of this discovery, plaintiff returned to court and filed its second
motion for contempt on May 21, 2021. The hearing on the motion occurred on
July 14, 2021, and the court once again reserved its ruling.
On August 12, 2021, the court granted both of plaintiff's contempt motions
and ordered defendant to produce certain discovery and appear for deposition.
On August 16, 2021, defendant filed a notice of appeal of the contempt order
and moved to stay the case pending appeal. By order dated September 13, 2021,
the court denied defendant's motion to stay the case pending appeal. We denied
defendant's emergent motion to stay on September 27, 2021. Defendant now
appeals the August 12, 2021 order finding him in contempt of the restraints
imposed in the Chancery Division's March 25 and April 29 orders.
On appeal, plaintiff presents the following arguments for our
consideration:
POINT I
THE COURT ABUSED ITS DISCRETION BY
IGNORING CASELAW PRECEDENT AND
EXPANDED THE SCOPE OF PINNACLE'S
LEGITIMATE BUSINESS INTERESTS IN ITS
CLIENT/CUSTOMERS, BASED ONLY UPON
PINNACLE'S IPSE D[I]XIT STATEMENTS OF
HAVING A "BUSINESS RELATIONSHIP" WITH
TRADER JOE'S.
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A. Pinnacle Does Not Have A Legitimate
Business Interest In R3 Because Herman
Developed His Relationship with R3 Prior to
Joining Pinnacle.
1. Pinnacle Does Not Have a Legitimate
Business Interest in R3 Because R3 Is The
Customer In Question, Not Trader Joe's.
B. The Court's Rulings Ignored The Policies
Against Anti-Competition and Restraints On
Trade In Restrictive Covenants Of An
Employment Agreement.
POINT II
PINNACLE IS IN BREACH FOR NOT PAYING
HERMAN HIS SEVERANCE MONEY, AND
PINNACLE IS ESTOPPED FROM ENFORCING THE
SEPARATION AGREEMENT.
A. Pinnacle Is Estopped From Enforcing the
Separation Agreement Because The Parties Were
Negotiating New Terms of the Agreement
Accord, As Evidenced by Pinnacle's Non-
Payment to Herman.
POINT III
PINNACLE USED INTERCEPTED EMAILS AS AN
EXHIBIT IN PINNACLE'S SECOND MOTION FOR
CONTEMPT IN VIOLATION OF THE DOCTRINE
OF UNCLEAN HANDS.
A. Pinnacle Obtained The Intercepted Emails By
Misappropriating Herman's Name Through
Pinnacle's Website for Commercial and
Exploitative Purposes.
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B. Pinnacle Has Violated The Electronic
Communications Privacy Act by Intercepting
Emails That Were Intended For . . . Herman By
Misappropriating Herman's Name In Its Website
for Commercial and Exploitative Purposes.
We "review a trial court's order enforcing litigant's rights pursuant to Rule
1:10-3 under an abuse of discretion standard." Wear v. Selective Ins. Co., 455
N.J. Super. 440, 458 (App. Div. 2018). An abuse of discretion "only arises on
demonstration of 'manifest error or injustice[,]'" Hisenaj v. Kuehner, 194 N.J. 6,
20 (2008) (quoting State v. Torres, 183 N.J. 554, 572 (2005)), and occurs when
the trial judge's "decision is 'made without a rational explanation, inexplicably
departed from established policies, or rested on an impermissible basis.'" Milne
v. Goldenberg, 428 N.J. Super. 184, 197 (App. Div. 2012) (quoting Flagg v.
Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002)).
We first observe that defendant is primarily challenging the substantive
enforceability of the anti-competition agreement and the legitimacy of the trade
restraints imposed by the Chancery Division's March 25, 2021 and April 29,
2021 orders. Defendant did not appeal those orders and the issues must await
the final adjudication of the matter below. See State v. Robinson, 200 N.J. 1,
19 (2009). The only issue before us is whether the court abused its discretion
by entering the August 12, 2021 contempt order.
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The record amply supports the judge's conclusion that defendant violated
the existing restraints by performing work at Trader Joe's stores in Christiana,
Delaware and Long Island City, New York. Defendant was restrained from
"doing business with any supermarket, box store or other customer or client for
which Pinnacle has done business or developed a prospective business
relationship with at any time through . . . December 30 [], 2020." As a result,
we discern no abuse of discretion in the judge's finding of contempt.
Defendant's remaining arguments are without merit. Defendant argues,
first, that plaintiff failed to fulfill its obligation to pay severance under the
agreement. This argument was properly rejected by the Chancery Division.
Plaintiff's alleged failure to perform has no bearing on whether defendant
violated the Chancery Division's March 25 and April 29, 2021 orders imposing
restraints.
Next, defendant argues that plaintiff improperly intercepted his email and
relied on those emails as an exhibit in its second motion for contempt.
Employers may monitor and regulate the use of workplace computers because
they have a legitimate interest to protect their assets, reputation, and business
productivity. Stengart v. Loving Care Agency, Inc., 201 N.J. 300, 324–25
(2010). Plaintiff's viewing of emails sent to defendant's former Pinnacle email
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address for the purpose of business continuity after he left the firm does not
violate any identified law. To the extent the judge relied on emails sent to
defendant's former work email address, we perceive no abuse of discretion or
reversible error.
To the extent we have not addressed defendant's remaining arguments, we
find they lack sufficient merit to warrant discussion in a written opinion. See
R. 2:11-3(e)(1)(E).
Affirmed.
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