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finding defendant had "not shown complete relief cannot be accorded" because "[t]he fact that [the non-party's] success and productivity as a corporation are affected by the outcome of the case is irrelevant to the question of the enforceability of the agreements—the only legal claim currently before the court—and the relief that can be accorded in the form of a declaratory judgment"
Summary of this case from Soderberg v. PiersonOpinion
CIVIL NO. JFM-04-0060
April 28, 2004
MEMORANDUM
Plaintiffs Keith McGovern, Thomas Parry, Andrea Taylor, and Cheri Tetrault ("Plaintiffs") bring this action against Defendant Deutsche Post Global Mail, Ltd. ("DPGM"), their former employer, for a declaratory judgment that certain portions of the restrictive covenants in Plaintiffs' employment contracts with DPGM are unenforceable under Maryland law. Their suit is founded on this court's previous ruling in Deutsche Post Global Mail, Ltd. v. Conrad, 292 F. Supp.2d 748 (D. Md. 2003) (" Conrad"), in which I found the non-solicitation provisions of identical employment contracts between DPGM and two other former employees unenforceable. Now pending before me is DPGM's motion to dismiss for failure to join an indispensable party — namely, American International Mailing, Inc. ("AIM"), the corporation formed by Plaintiffs to compete with DPGM. For the reasons discussed below, DPGM's motion to dismiss will be denied.
I.
DPGM is the largest international mail company in the United States, possessing over thirty percent of the U.S. market. It is a wholly owned subsidiary of Deutsche Post World Net, a large multinational corporation headquartered in Germany. Plaintiffs were originally sales managers for a company called International Postal Consultants, Inc. ("IPC"). As IPC employees, Plaintiffs each signed an employment agreement, which included a restrictive covenant. Section 5 of the agreements provided in pertinent part:
(a) Sales Representative covenants and agrees that during the term of his/her employment with the Company, and in the event of and for a period of two (2) years following the termination of his employment with the Company for any reason, he/she shall not, without the prior written consent of the Company, directly or indirectly:
. . . (ii) Engage in any activity which may affect adversely the interests of the Company or any Related Corporation and the businesses conducted by either of them, including, without limitation, directly or indirectly soliciting or diverting customers and/or employees of the Company or any Related Corporation or attempting to so solicit or divert such customers and/or employees, or
(iii) Engage in any capacity whatsoever (whether as stockholder, officer, director, employee, agent, consultant, advisory or investor) in any form of business entity seeking to engage or engaging in any activity which is then in competition with the company or any Related Corporation in such geographical or territorial markets as the Company or any Related Corporation then is doing or seeking to do business. It is intended that this prohibition of competitive activity be proscribed only in such geographical area in which the Company then is engaged. Sales Representative agrees that the term, scope, and geographic area of the covenants contained herein are reasonable and necessary; however, if any court of competent jurisdiction shall determine this covenant to be unenforceable as to either the term, scope, or geographic area imposed above, then this covenant nevertheless shall be enforceable by such court as to such shorter term, such lesser scope or within such lesser geographic area as may be determined by the court to be reasonable and enforceable. If such court shall refuse to enforce this covenant as to a particular geographic area, then, in such event, the parties hereto declare and agree that for a period of two (2) years from the date on which employment of Sales Representative terminates for any reason, Sales Representative shall be prohibited from soliciting all persons to whom the Company has sold products or rendered services during the three (3) year period immediately preceding the termination of the Sales Representative.
DPGM acquired IPC in July 2000 through a stock purchase. Soon thereafter, DPGM assumed full control of IPC's operations, and Plaintiffs became DPGM employees. No formal hiring process took place, and DPGM did not require Plaintiffs to execute any restrictive covenants or seek their consent to assign the IPC agreements to DPGM. It was not until April 2003 that DPGM informed Plaintiff Taylor that the agreement she had signed with IPC was a legally enforceable contract with DPGM. This statement was made shortly after DPGM had filed suit against Gerard Conrad and Guy Gemmill, the two former DPGM employees who were parties in Conrad. None of the other Plaintiffs were ever similarly advised.
In November 2003, I decided Conrad. In Conrad, the defendants, Conrad and Gemmill, were identically situated as the Plaintiffs here — they were former IPC employees who had signed the same employment agreements with IPC and later became DPGM employees following the stock purchase. Conrad and Gemmill became dissatisfied with their employment at DPGM, and in February 2002, while still DPGM employees, they formed their own international mail business called Postal Logistics International (" PLI"). They did not, however, operate PLI until March 2002, after resigning from their jobs at DPGM. In April 2003, DPGM sued Conrad, Gemmill, and PLI. After asserting many claims in its complaint, DPGM ultimately chose to pursue only one claim against Conrad and Gemmill — violation of the non-solicitation provisions of the restrictive covenants in their employment agreements. On cross-motions for summary judgment, I held that the non-solicitation provisions, which prohibited Conrad and Gemmill from soliciting any of DPGM's customers for a period of two years, were overly broad, restricted more activity than necessary to protect DPGM's interests, and could not, under Maryland law, be "blue-penciled" to become enforceable. Deutsche Post Global Mail, Ltd. v. Conrad, 292 F. Supp.2d at 755-56, 757-58.
Plaintiffs, like Conrad and Gemmill, were also unhappy with the changes that accompanied DPGM's purchase of IPC. In June 2003, they formed their own international mailing corporation, AIM. AIM did not conduct any business until January 8, 2004, when Plaintiffs resigned their employment with DPGM. That same day, Plaintiffs began operations on behalf of AIM, directly competing with DPGM for international mail business. In fact, Plaintiffs notified DPGM on the day of their resignations that they were forming their own competing business.
Just prior to resigning from DPGM, Plaintiffs filed this Declaratory Judgment action on January 3, 2004, seeking a declaration that the restrictive covenants in their employment agreements were unenforceable. Plaintiffs argue that the covenants are overly broad, and also that the change of employer from IPC to DPGM constituted a modification of the agreements to which Plaintiffs did not consent. On January 20, 2004, DPGM filed a verified petition and motion for injunctive relief in the Circuit Court of St. Louis County, Missouri against Plaintiff Tetrault, a Missouri citizen, and AIM. DPGM alleged that Tetrault engaged in outrageous conduct in Missouri, including misrepresenting to DPGM customers that DPGM had changed is name to AIM. DPGM brought claims against AIM of misappropriation of trade secrets and confidential and proprietary information, tortious interference with existing and prospective contractual and business relationships, accounting, and unfair competition. On January 22, 2004, the Missouri court granted the temporary restraining order, prohibiting Tetrault and AIM from, among other things, soliciting customers of DPGM that Tetrault and other AIM employees had serviced while DPGM employees, as well as disclosing, using, or maintaining any materials that are trade secrets of DPGM.
The next day, Plaintiffs filed a motion for temporary restraining order and preliminary injunction in this court, requesting that DPGM be enjoined from taking any further action in any state against Plaintiffs to enforce the restrictive covenants of their employment agreements. I denied Plaintiffs' motion on February 2, 2004, deferring to the Missouri court for resolution of the issues pending before it. After a hearing in the Missouri court regarding DPGM's motions, on February 5, 2004, that court applied non-mutual collateral estoppel to the issue of the non-compete provisions of the employment agreements, finding them unenforceable based on my decision in Conrad. See Deutsche Post Global Mail, Ltd. v. Tetrault, Cause No. 04CC-245, Division No. 13 (Cir.Ct. St. Louis Co. Feb. 5, 2004). However, recognizing that Tetrault had confidential information and/or trade secrets gained from her employment with DPGM, the court granted a preliminary injunction only with respect to the use and dissemination of this information. Trial for DPGM's petition for a permanent injunction and any other claims was set for March 24-25, 2004.
In the meantime, DPGM filed this motion to dismiss the declaratory judgment action brought by Plaintiffs in this court for failure to join AIM as a plaintiff. Because the declaratory judgment action is premised on diversity, DPGM argues that joinder of AIM would be impossible because it is not diverse from DPGM. DPGM claims that AIM is both a necessary and indispensable party under Fed.R.Civ.P. 19, and that accordingly, the case must be dismissed because it cannot proceed in AEVI's absence.
Both DPGM and AIM are incorporated in Delaware.
II.
Fed.R.Civ.P. 19 provides for the joinder of persons needed for just adjudication and sets out a two-part inquiry. First, under Rule 19(a), the court must determine whether a person is necessary to the proceeding because of his relationship to the matter under consideration. Owens-Illinois, Inc. v. Meade, 186 F.3d 435, 440 (4th Cir. 1999). A person is necessary to the action if: (1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject matter of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest. Fed.R.Civ.P. 19(a). If the person is deemed necessary and is subject to service of process, he shall be joined as a party so long as joinder will not deprive the court of subject matter over the action. Id.
If, however, the person cannot be joined because his joinder destroys diversity, the court must determine whether the action can continue in his absence, or whether the person is indispensable pursuant to Rule 19(b) and the action must be dismissed. Owens-Illinois, 186 F.3d at 440. Rule 19(b) directs the court to determine "whether in equity and good conscience" the action should proceed among the parties before it. The factors the court must consider to make this determination are: (1) to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; (3) whether a judgment rendered in the person's absence will be adequate; and (4) whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder. Fed.R.Civ.P. 19(b). Rule 19(b) does not instruct the court as to how much weight each of the four factors must be given; the court must make this determination based on the facts of the particular case and in light of the "equity and good conscience" test. Associated Dry Goods Corp. v. Towers Financial Corp., 920 F.2d 1121, 1124 (2d Cir. 1990) (citing 7 Charles Alan Wright et al., Federal Practice and Procedure § 1608 (3d ed. 2001)).
The Rule 19 inquiry is a practical one and rests in the sound discretion of the trial court. Heinrich v. Goodyear Tire Rubber Co., 532 F. Supp. 1348, 1359 (D. Md. 1982). However, dismissal of a case for nonjoinder is a drastic remedy and should be employed sparingly. Nat'l Union Fire Ins. Co. of Pittsburgh, Pennsylvania v. Rite Aid of South Carolina Inc., 210 F.3d 246, 250 (4th Cir. 2000). Generally dismissal is only ordered when the resulting defect cannot be remedied and prejudice or inefficiency will certainly result from continuing with the action without the absent defendant. Owens-Illinois, 186 F.3d at 441.
III.
Rule 19(a) provides three methods of inquiry for determining whether a person may be considered a necessary party that should be joined if feasible.
The first is if in the person's absence, complete relief cannot be accorded among those already parties. Fed.R.Civ.P. 19(a)(1). In this case, DPGM argues that it cannot be accorded complete relief if AIM is not joined because the court will not be able to decide DPGM's legal claims against AIM. DPGM has not yet asserted any claims in this action, against Plaintiffs or AIM, but it suggests that it intends to assert claims against AIM of misappropriation of confidential and proprietary business information, tortious interference with existing and prospective contractual and business relationships, unfair competition, unjust enrichment, and interference with the contracts between DPGM and its former employees. As noted in part I supra, however, almost all of these claims have already been asserted against AIM in the Missouri state action which is still pending.
In addition, DPGM improperly relies on claims that it plans to bring. The Rule 19(a) inquiry must be based on the pleadings as they appear at the time of the proposed joinder. Associated Dry Goods Corp., 920 F.2d at 1123-24; La Chemise Lacoste v. General Mills, Inc., 53 F.R.D. 596, 601 (D. Del. 1971), aff'd, 487 F.2d 312, 314 (3d Cir. 1973). That is to say, a court must not reach its conclusion regarding necessity by considering claims that a party has proposed but not yet pled. Associated Dry Goods, 920 F.2d at 1124; see also Halpern v. Rosenbloom, 459 F. Supp. 1346, 1354 (S.D. N.Y. 1978) ("plaintiffs are not required to anticipate defendant's counterclaims and join all parties that may be necessary for defendant's benefit").
Even setting these considerations aside, DPGM has not shown that complete relief cannot be accorded. The concept of "complete relief refers to relief as between the persons already parties, not as between an existing party and the absent person whose joinder is sought. Heinrich, 532 F. Supp. at 1359. Thus, the vital question is not whether relief can be accorded between DPGM and AIM, whose joinder is sought, but between DPGM and Plaintiffs, the current parties to the action. The declaratory judgment action seeks determination by the court that Sections 5(a)(ii) and 5(a)(iii) of Plaintiffs' employment agreements are unenforceable under Maryland law. While AIM may be the corporation formed by Plaintiffs, it is not a party to the employment agreements. If I were to find the agreements unenforceable, Plaintiffs would be accorded complete relief — they would be able to compete against DPGM in the international mail business, whether as employees of AIM or any other company. If, on the other hand, I found the agreements enforceable, DPGM would also be accorded complete relief — Plaintiffs would have to abide by the contracts and would be liable for any actions taken that violated them. The fact that AIM's success and productivity as a corporation are affected by the outcome of the case is irrelevant to the question of the enforceability of the agreements — the only legal claim currently before the court — and the relief that can be accorded in the form of a declaratory judgment.
The second way a person may be deemed necessary under Rule 19(a) is if he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may as a practical matter impair or impede his ability to protect that interest. Fed.R.Civ.P. 19(a)(2)(i). DPGM argues that AIM has such an interest in this action because if the court chose to enforce Plaintiffs' employment agreements, Plaintiffs would be prevented from soliciting or doing business with DPGM customers and, as a result, would be forced to breach their obligations to AIM. However, this argument is merely speculative, and the Rule 19 inquiry is practical. Heinrich, 532 F. Supp. at 1359. If a party to an action is able to adequately represent an absent person's interests, then the absent person's interests are not impaired or impeded by its absence from the suit. Nat'l Union Fire, 210 F.3d at 250-51. Here, the interests of the four plaintiffs and of AIM are completely aligned. Plaintiffs founded AIM and are its officers, directors, and, as far as the record reveals, its sole employees. Thus, this case is unlike The Torrington Co. v. Yost, 139 F.R.D. 91, 93 (D.S.C. 1991), relied upon by DPGM, where the person alleged to have been subject to a restrictive covenant entered into an employment contract with an entirely independent third party who could not be joined in the litigation.
Torrington is distinguishable on the additional ground that the record here does not reveal that Plaintiffs have entered into employment contracts with AIM.
The final set of circumstances in which Rule 19(a) directs that a person be joined as a party is where any of the persons already parties would be subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the absent party instituting separate litigation in another forum. Fed.R.Civ.P. 19(a)(2)(ii). The existence of that risk was one of the primary considerations underlying the holding in Torrington, 139 F.R.D. at 93. Here, although DPGM has instituted separate litigation against AIM in Missouri, there is no "substantial risk" that any party will be subjected to inconsistent obligations. The only issue presently pending before me is the enforceability of sections 5(a)(ii) and 5(a)(iii) of DPGM's employment agreements. The Missouri court has already deferred to the ruling I made on that issue in the Conrad case and there is no reason to expect that it would not give similar deference to my ruling on the same issue in this case.
IV.
Even if I were to find that AIM is a necessary party that should be joined, AIM's presence in this case is not so vital that its absence requires dismissal of the case. An examination of the four relevant factors from Rule 19(b), in the context of the "equity and good conscience" test, demonstrates that the balance of these factors tips against a finding of AIM as an indispensable party.
The first Rule 19(b) factor is to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties. For the reasons I have previously stated, there is no realistic possibility of any such prejudice here.
The second factor in the Rule 19(b) inquiry directs a court to examine the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided. DPGM claims that I must rule on all portions of the restrictive covenants in the employment agreements, and not just those at issue in the Conrad case, including such matters as AIM's use of DPGM's confidential information. This claim is simply erroneous. Confidential information is addressed in Section 5(a)(i) of the agreements, and in this action Plaintiffs have sought a declaratory judgment only as to Sections 5(a)(ii) and 5(a)(iii). Moreover, even if they were asking for broader relief, Rule 19(b) allows me to limit my ruling to address only Sections 5(a)(ii) and 5(a)(iii) in order to avoid making rulings inconsistent with those made in Missouri.
Plaintiffs argue that DPGM could avoid any prejudice by joining AIM pursuant to Rule 13(h). Under this rule, DPGM could assert a counterclaim against Plaintiffs and then join AIM by asserting the same counterclaim against AIM. See 6 Charles Alan Wright et al., Federal Practice and Procedure § 1435 (2d ed. 1990). However, only if the counterclaim is compulsory may a person be joined under Rule 13(h) without regard to his citizenship. Id. § 1436. If the counterclaim is merely permissive, and the person to be joined would destroy diversity, joinder is not allowed. Id. A district court in this circuit has held that counterclaims to declaratory judgment actions are always permissive, not compulsory, because of the nature of declaratory relief. Rapoca Energy Co. v. AMCI Export Corp., 199 F.R.D. 191, 193-94 (W.D. Va. 2001). While the Fourth Circuit has not directly ruled on this issue, it has recognized that parallel proceedings for declaratory judgment and substantive relief arising out of the same transaction and occurrence may exist in different jurisdictions at the same time. Id. In light of my other rulings, I need not decide whether the Rule 13(h) option is available to DPGM here.
The third Rule 19(b) factor is whether a judgment rendered in the person's absence would be adequate. If I were to rule that Plaintiffs' employment contracts were unenforceable, this judgment would certainly be adequate for Plaintiffs, who could then pursue their solicitation activities without fear of liability. If I found the contracts enforceable, DPGM would be afforded relief with respect to Plaintiffs' conduct, and they would still have the opportunity to recover against AIM because of the action pending in Missouri. Although DPGM would require two actions to obtain relief against all parties, DPGM created this situation for itself by filing suit against AIM in Missouri state court so quickly.
As to the final Rule 19(b) factor, DPGM argues that all the parties could be joined in an action in Maryland state court. While this is true, if the Plaintiffs filed such an action, there would still be two simultaneous lawsuits involving similar parties pending in state court — the Maryland state action, and the Missouri action filed by DPGM against AIM and Tetrault. Thus, dismissal of this action would not increase judicial efficiency and would merely force Plaintiffs into a forum of DPGM's own choosing.
For these reasons, Defendant DPGM's motion to dismiss for failure to join AIM as an indispensable party is denied.
A separate order is being entered therewith.