Pittsburgh Logistics v. Beemac Trucking

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2019 Pa. Super. 13
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: GANTMAN, P.J., BENDER, P.J.E., BOWES, J., PANELLA, J.,
LAZARUS, J., OTT, J., STABILE, J., DUBOW, J., and MURRAY, J.
OPINION BY OTT, J.: FILED JANUARY 11, 2019
Pittsburgh Logistics Systems, Inc. (PLS) appeals from the order entered
on December 22, 2016, in the Court of Common Pleas of Beaver County, that
determined the contractual no-hire provision in the Motor Carriage Services
Contract (MCSC) between PLS and BeeMac Trucking, LLC and BeeMac
Logistics, LLC (BeeMac)1 was unenforceable as a matter of law. A panel of
this Court previously affirmed the trial court decision. PLS sought reargument
before a court en banc on the issue of whether the trial court erred in denying
a request for a preliminary injunction that sought to enforce a no-hire
provision in a contract between PLS and BeeMac. PLS’s request was granted
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1 Although both BeeMac Trucking and BeeMac Logistics are in the caption,
PLS’s original appeal only involved the trucking concern. Accordingly, herein,
“BeeMac” refers only to BeeMac Trucking, LLC.
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and substituted briefs were filed by both parties. The case was submitted to
the en banc panel without oral argument. After a thorough review of the
submissions by the parties, relevant law, and the certified record, we affirm.
PLS is a third party logistics provider. Essentially, it is a facilitator
between those who need items shipped and those who are shippers. In its
Appellant’s Brief, PLS has provided a hypothetical transaction demonstrating
its business model.
- PLS will be retained by a potential shipper or existing customer to
ship freight from its facility to certain specified locations;
- PLS’s employee is well-trained to recognize the type of truck
necessary for particular freight, and to know what “lane” the
shipment must take to get to its destination;
- PLS’s employee knows which reliable trucking companies can offer
the needed transportation in the designated lane and under certain
cost parameters;
- PLS arranges the shipment with the carrier.
PLS’s Brief, at 9-10.
BeeMac is a shipping company that does non-exclusive business with
PLS. As a non-exclusive shipper, BeeMac was required to enter into the MCSC
with PLS. This contract is at the heart of the instant litigation. Paragraph
14.6 of the contract2 is a no-hire provision that prohibits BeeMac from directly
or indirectly hiring, soliciting for employment, inducing or attempting to
induce, any employee of PLS or any of its affiliates to leave their employment
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2 The contract will be quoted in relevant part later in this decision.
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with PLS or the affiliate. This prohibition is ostensibly in place for the duration
of the contract, which is self-renewing,3 and for two years post-contract.
While the contract was still in force, four employees of PLS, Mary
Colman, Racquel Pakutz, Michael Ceravolo,4 and Natalia Hennings, left PLS
and took employment with BeeMac.5
PLS filed suit against both BeeMac and PLS’s former employees, seeking
an injunction preventing BeeMac from employing any former employees and
to prevent BeeMac from soliciting business directly from other entities that
had done business with PLS. The trial court granted PLS relief in part,
preventing BeeMac from soliciting other PLS customers for the two-year period
established by the Motor Carriage Services Contract. However, the trial court
refused to grant PLS the injunctive relief it sought regarding BeeMac’s
employment of the former PLS employees. PLS appealed.
With this background in place, we turn our attention to the substance of
our review. Our standard of review for an order granting or denying a
preliminary injunction is as follows:
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3 MCSC, ¶ 2.1, at 2.
4Michael Ceravolo has denied working for BeeMac. He claims to be employed
by Hybrid Global Logistics Services, LLC. We need not resolve this issue.
5 It is notable that PLS’s contract with its employees also contained a provision
that prevented them from working for any similar company anywhere in the
world. See PLS v. Ceravolo, et al, 2017 WL 5451759 (11/14/2017)
(unpublished memorandum). The trial court found this prohibition to be
unenforceable as being overbroad, against public policy, and oppressive. That
ruling has not been appealed herein.
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We have emphasized that our review of a trial court's order
granting or denying preliminary injunctive relief is “highly
deferential”. Summit Towne Centre, Inc. v. Shoe Show of
Rocky Mount, Inc., 573 Pa. 637, 828 A.2d 995, 1000 (2003).
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 the action of
the court below.” Id. We will find that a trial court had “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.” Id. at 1002.
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 it 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.”
Id. at 1002. The burden is on the party who requested preliminary
injunctive relief[.]
Warehime v. Warehime, 860 A.2d 41, 46-47 (Pa. Super. 2004) (footnotes
omitted).
Upon review of the parties’ arguments, the trial court determined that
a no-hire provision such as the one between PLS and BeeMac has never been
the subject of litigation in Pennsylvania in any reported case. Accordingly, the
trial court looked to case law from other jurisdictions for guidance and followed
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the logic of those jurisdictions that do not allow such provisions between
companies. The trial court determined the no-hire provision would violate
public policy by preventing persons from seeking employment with certain
companies without receiving additional consideration for the prohibition, or
even necessarily having any input regarding or knowledge of the restrictive
provision. Additionally, the trial court reasoned the no-hire provision was
overly broad in that the enforceable no-solicitation provision between PLS and
BeeMac sufficiently protected PLS from the loss of its clients, which was the
ultimate purpose of all the relevant restrictions. Based upon the nature and
limitations of our review, we agree with the trial court.
Initially, we quote the relevant language from the MCSC:
14.3 The parties acknowledge that during the term of the
Contract there may be disclosed to CARRIER [BeeMac
Trucking, LLC] 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
the involvement of PLS, and 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.[6]
…
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6 The trial court determined this restrictive clause was valid and enforceable.
The enforceability of this clause was relevant to the trial court’s subsequent
invalidation of Paragraph 14.6.
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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.
MCSC, 8/30/2010, at 9-10.
The trial court set forth its reasoning regarding the restrictive provisions
of the MCSC, as follows:7
We now address the terms of the Motor Carrier [sic]
Services Contract (Carrier Contract) between PLS and BeeMac
Trucking. PLS is seeking an injunction with respect to two of the
provisions of this contract, namely section 14.3, the non-
solicitation of PLS customers, and section 14.6, the no-hiring of
PLS employees. We will address each of these provisions.
First, with respect to section 14.3 of the parties’ Carrier
Contract, we note that such restrictions on trade are not always
favored by the courts. Indeed, the Pennsylvania Supreme Court
acknowledged that “it has long been the rule at common law, that
contracts in restraint of trade made independently of a sale of a
business or contract of employment are void as against public
policy regardless of the valuableness of the consideration
exchanged.” Jacobson & Co. v. Int’l Environ. Corp., 235 A.2d
612, 617 (Pa. 1967). However, certain restrictive covenants are
valid if they are ancillary to the main purpose of the contract. Id.
The covenant must be inserted only to protect one of the parties
from the injury which, in the execution of the contract or
enjoyment of its fruits, he may suffer from the unrestrained
competition of the other. Id. The main purpose of the contract
must suggest the measure of protection needed, and furnish a
sufficiently uniform standard by which the validity of such a
restraint may be judicially determined. Id. We believe that the
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7 The entire reasoning of the trial court, including its discussion of the
contractual provisions the trial court endorsed, is useful to provide the context
for the trial court’s decision regarding the no-hire provision.
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restrictive covenant in section 14.3 of the Carrie[]r Contract meets
these requirements; it was ancillary to the main purpose of the
agreement and was necessary to protect PLS’s interest in its
customers.
In the instant case, the covenant contained in section 14.3
furthered PLS’s legitimate interest in preventing BeeMac from
cutting PLS out of the equation. Courts have held that a business’s
customers are a protectable interest. See Sidco Paper Co. v.
Aaron, 351 A.2d 250, 254, 257 (Pa. 1976) (holding that “Sidco
clearly has a protectable interest in customer goodwill” and
“properly used a restrictive covenant to protect its customer
relationships”); see also Bimbo Bakeries USA, Inc. v.
Botticella, 613 F.3d 102, 112-[1]14 (3d. Cir. 2010) (noting that
Pennsylvania law protects non-technical trade secrets).
PLS offered evidence that the customers listed on Exhibits
N and 12 were its customers, by showing receipts for shipments
made. BeeMac could not establish similar, prior, direct dealings
with these clients. As such, we will uphold the provisions of
section 14.3, and allow the injunction to [sic] prohibiting BeeMac
from soliciting these customers for one year to remain in effect.
Turning to section 14.6 of the Carrier Contract, which
prohibits BeeMac from hiring former employees of PLS for a period
of two years following the termination of the Carrier Contract, we
believe that provision constitutes an unfair restraint on trade. We
believe this no-hire provision exceeds the necessary protection
PLS needs to secure its business, and is void as a matter of public
policy.
Pennsylvania courts have addressed the appropriateness of
non-compete clauses between employers and employees, but
there is no case law in Pennsylvania on the issue of no-hire
restrictive covenants between contracting companies. Some
states have held that these types of agreements are void against
public policy. See, e[.]g[.] Heyde Cos. v. Dove Healthcare,
LLC, 654 N.W.2d 830 (Wis. 2002); and see VL Sys., Inc. v.
Unisen, Inc., 61 Cal. Rptr. 3d 818 (Cal. Ct. App. 2007). Other
states have held that these provisions are a permissible partial
restraint of trade, and are thus not void against public policy.
See, e[.]g[.] Ex parte Howell Eng’g & Surveying, 981 So. 2d
413 (Ala. 2006); and see H & M Commercial Driver Leasing,
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Inc. v. Fox Valley Containers, Inc., 805 N.E.2d 1177 (Ill.
2004).
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 Carrier Contract, 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 Trucking from hiring
former PLS employees.
Trial Court Opinion, 12/22/2016, at 11-14.
The trial court supported its decision by examining various decisions
from other jurisdictions and concluding the reasoning of those cases that
disfavor such restrictions better represents the current state of Pennsylvania
law. Our duty in reviewing the trial court’s decision is to determine whether
that decision is based upon “any apparently reasonable grounds.”
Warehime, supra. We have reviewed the certified record, the submissions
by the parties, relevant law and find that the trial court’s decision is, in fact,
based upon reasonable grounds.
In Heyde, supra, cited by the trial court, the restrictive covenant
between companies was unenforceable because there was no proof that the
employee knew of the clause and there was no similar clause in the employee’s
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work contract. Here, there is no proof that the employees knew of the clause
between the companies. While there was a restrictive covenant in the
employees’ contracts with PLS, the trial court determined it was unenforceable
as being oppressive or an attempt to foster a monopoly, thereby
demonstrating unclean hands on the part of PLS. See Trial Court Opinion,
12/22/206 at 7. See also, PLS v. Ceravolo, supra, affirming the trial court,
and footnote 5, supra. It would be incongruous to strike the employees’
restrictive covenant, finding PLS to have had unclean hands, yet allow PLS to
achieve the same result via the contract between companies. In VL Systems,
supra, also cited by the trial court, the California court found the restrictive
clause between companies to be overbroad, applying to any VL Systems
employee regardless of that person’s contact with the other company, as well
as against the policy of favoring employee mobility. The clause at issue herein
is similarly overbroad, preventing any PLS employee from working for any PLS
client.
Additionally, the essence of the trial court’s sound decision is summed
up in Richards Energy Compression, LLC v. Dick Glover, Inc., 2013 WL
12147626, USDC New Mexico, memorandum, 9/16/2013,8 which quoted two
published decisions from Texas and Wisconsin.
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8 We are aware that this case, as both a Federal and memorandum decision,
is not binding. However, we quote the succinct analysis of the previously
published decision of Haire and Heyde. As such, this case provides an
instructive single source.
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This Court finds the Court of Civil Appeals case of Texas Shop
Towel v. Haire, 246 S.W.2d 482, 484 (Tex. Civ. App. – San
Antonio 1952) especially instructive. In Haire, the buyer of a
business brought claims against the seller for breach of the non-
compete agreement the parties had negotiated as part of the sale
of the business. Id., at 483. The non-compete agreement
executed by the seller specifically provided that the owner (seller)
and all of the companies’ employees would not participate in a
competing business for a number of years. Id. At trial, the jury
found that the seller had not breached the non-compete
agreement and found in the seller's favor. Id. The buyer asked
the Court to grant a judgment notwithstanding the verdict; the
trial court denied that motion. Id. The buyer appealed the trial
court's ruling. Id., at 484.
The Court of Appeals upheld the trial court’s ruling. Id. The Court
of Appeals noted that the only possible method of relief for the
buyer was to find that all of the seller’s employees were bound by
the non-compete agreement. The Court noted “in a contract
restricting trade, we do not think that an employee’s individual
right and freedom to contract may be traded away by a third
person, even by the third party’s express contract.” Id., at 485.
“It is one thing for an employee voluntarily to surrender his known
rights; it is vastly different when an employee is placed under
servitude by a contract to which he is not a party and about which
he may know nothing.” Id. Even though the contract specifically
stated that it was to apply to employees of the seller, the Court of
Appeals refused to hold the employee accountable to the terms of
the non-compete agreement, because the employee was not a
party to that agreement. Other courts have relied on the
reasoning in Haire. See e.g. Heyde Companies, Inc. v. Dove
Healthcare, LLC, 2001 WI 278, 249 Wis. 2d 32, 39, 637 N.W.2d
437, 440 aff’d. 2002 WI 131, 258 Wis. 2d 28, 654 N.W.2d 830
(“We agree with the reasoning in [Haire]. It is one thing to uphold
the restriction on an employee’s freedom where it results from an
agreement freely entered into by the employee. But where the
restriction on an employee’s freedom results from the employer’s
agreement with another [ ], the employee is deprived of his or her
freedom without acquiescence and with no resulting benefit.”).
Richards Energy v. Glover, at *3.
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This reasoning aligns with the trial court’s determination that Paragraph
14.6 violated public policy by preventing non-signatories, PLS employees,
from exploring alternate work opportunities in a similar business. An example
of how such covenants can produce harm is demonstrated by the following
application of Paragraph 14.6. The PLS MCSC ostensibly prevents BeeMac
from hiring any PLS employee for the term of the agreement, which is self-
renewing,9 and for an additional two years thereafter. Accordingly, each
MCSC contract with a new carrier, results in a new restriction upon current
employees from obtaining employment in the same or similar field of work.
Employment restrictions are valid, in certain circumstances, in contracts
between employer and employee.10 As a general rule, those restrictions are
in place, in an agreement between the employer and employee, at the time
of initial employment. When a new restriction is added, to be enforceable,
that restriction must be supported by additional consideration. See
generally, Insulation Corp. of America v. Brobston, 667 A.2d 729 (Pa.
Super. 1995); Modern Laundry & Dry Cleaning Co. v. Farrer, 536 A.2d
409 (Pa. Super. 1988). If additional restrictions to the agreement between
employer and employee are rendered unenforceable by a lack of additional
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9 MCSC ¶ 2.1.
10 We note, again, that PLS’s employment restrictions with its employees were
also found to be unenforceable. That aspect of the related decision was not
raised before this en banc panel.
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consideration, PLS should not be entitled to circumvent that outcome through
an agreement with a third party.
Finally, the caselaw that supports such inter-company employment
provisions generally uphold narrowly tailored restrictions. For example, in
H & M Commercial Driver Leasing v. Fox Valley Containers, Inc., supra,
the provision at issue prevented Fox Valley from hiring only those drivers who
had been supplied to Fox Valley by H & M. It did not prevent Fox Valley from
hiring any other driver who was working for H & M. Here, Paragraph 14.6
prevents BeeMac, or any agent or independent contractor of BeeMac who is
involved with providing services related to PLS, from hiring any PLS employee.
By the plain reading of the language of this restrictive provision, it was meant
to have effect in the broadest possible terms. This fact, coupled with the trial
court’s finding that Paragraph 14.6 was largely superfluous in light of the
enforceable non-solicitation clause, further supports our determination that
the trial court’s decision was based upon reasonable grounds.
The scope of our review for a preliminary injunction is to determine if
the trial court’s ruling regarding injunctive relief had a sound basis. Our
review and analysis demonstrates the trial court’s ruling in this matter is
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reasonably based. See Warehime, supra. Accordingly, we affirm the order
of December 22, 2016 as it applied to the MCSC between PLS and BeeMac.11
Order affirmed.
President Judge Gantman, President Judge Emeritus Bender, Judges
Panella, Lazarus, Stabile and Dubow join the Opinion.
Judge Bowes files a Dissenting Opinion in which Judge Murray joins.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 1/11/2019
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11 We acknowledge the possibility that the passage of time during the
pendency of this appeal may have rendered our decision moot. However,
neither of the parties have raised that concern.
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