Opinion
10CVH-03-4169
01-06-2012
SCHNEIDER DOWNS & CO., INC., Plaintiff, v. THOMAS P. GIUSTI, et al., Defendants.
Jerri A. Ryan, Esq., Kerri L. Corriston, Esq., Thorp Reed & Armstrong, LLP, 19 Counsel for Plaintiff Schneider Downs & Co., Inc. Randall S. Rabe, Esq. Kravitz, Brown & Dortch, LLC, Counsel for Defendant Thomas P. Giusti Joseph F. Murray, Esq. Murray Murphy Moul + Basil, Counsel for Defendant Fentress and Barnes, LLC
Jerri A. Ryan, Esq., Kerri L. Corriston, Esq., Thorp Reed & Armstrong, LLP, 19 Counsel for Plaintiff Schneider Downs & Co., Inc.
Randall S. Rabe, Esq. Kravitz, Brown & Dortch, LLC, Counsel for Defendant
Thomas P. Giusti Joseph F. Murray, Esq. Murray Murphy Moul + Basil, Counsel for Defendant Fentress and Barnes, LLC
DECISION AND ENTRY GRANTING PRELIMINARY INJUNCTION
RICHARD A. FRYE, JUDGE
I. Introduction
This case involves an experienced and well regarded certified public accountant. Mr. Giusti developed a thriving practice over a number of years, but as that practice matured he and his former colleagues elected to sell it and join a larger accounting firm. Giusti then practiced with the new firm for over four years during which he was paid for ongoing client service and for his so-called "book of business." When the new firm sought Mr. Giusti's voluntary separation and retirement, however, Mr. Giusti balked. Last fall he joined a new accounting firm from which he could continue to actively practice and from which he might also serve many of his longstanding clients. A number of the accountant's clients opted to attempt to follow him to this newest firm, having loyalty to Guisti as an individual rather than to the accounting firm to which his "book" had been sold.
Between May 4 and May 7, 2010 a preliminary injunction hearing was held in this matter.
Schneider Downs & Co., Inc. brought this case seeking to enjoin former employee, Thomas P. Giusti, from violating restrictive covenants in his employment agreement. Plaintiff also sought to enjoin the former employee's new firm, Fentress & Barnes, from tortiously interfering with Mr. Giusti's employment agreement (Count Two) and from tortiously interfering with plaintiff's prospective economic advantage (Count Three.)
II. Findings of Fact
After weighing the evidence and the credibility of the witnesses, the Court makes the following factual findings based upon clear and convincing evidence and reasonable inferences drawn from the evidence.
Defendant Thomas Giusti has been a certified public accountant since 1969. Uncontroverted testimony from several longtime clients established that Mr. Giusti is experienced and well-regarded professionally. Despite his professional stature, however, the Court found much of Mr. Giusti's own testimony disingenuous.
See, testimony of Thomas Ridgley, Esq., Grant Morrow, III, M.D., and John Hoppers, Esq. – two experienced and well-respected attorneys and one well-respected doctor who all seek to follow Mr. Giusti from Schneider Downs to his new accounting firm.
Before joining Schneider Downs in 2005, Mr. Giusti was a partner (and one of the founders) of another firm named BKR Longabach Giusti, LLC ("BKR"). At BKR, Mr. Giusti built his own book of business (also referred to in some of the testimony as his "silo" of clients.) It was worth roughly around $800,000 -$900,000 per year. Each BKR partner had their own silo.
In 2005, BKR engaged in merger negotiations with Schneider Downs. Schneider Downs is a much larger accounting firm based in Pittsburgh, Pennsylvania. The merger entailed BKR dissolving, with some of its partners and staff transitioning to the employ of Schneider Downs, plus Schneider Downs purchased BKR's assets.
As might be expected, the business arrangement was reasonably well documented. On August 10, 2005 a letter of intent was executed between Schneider Downs, BKR, and the partners of BKR anticipating the acquisition of the BKR's practice assets. (Exhibit "4") Specifically, this 8 page document was signed by the President of Schneider Downs Raymond Buehler, the President of BKR Neal Longanbach, the Secretary of BKR Ronald Kuck, and BKR partners: Neal Longanbach, Ronald Kuck, Mr. Giusti, Jay Meglich, and Jamie McKenna, Jr. (Id. )
The parties' stated intention was that Mr. Giusti receive a lump sum payment of $55,000 at the time of the closing of the Asset Purchase Agreement, plus a $240,000 salary per year through September 30, 2007 (and then an agreed-upon hourly rate for professional work performed after September 30, 2007), plus over $400,000 of additional deferred compensation payments over a number of years. (See, Exhibit "P-1" to Exhibit "4A")
Contained within sections 9 and 10 of the Letter of Intent were "Non- Competition/Solicitation" provisions. (Id. ) Section 9, entitled "Seller Non- Competition/Solicitation Agreement, " provided:
As a condition to consummation of the purchase of the Purchased Assets by Buyer, as of the Closing Date, Buyer and Seller shall enter into a mutually acceptable non-competition/solicitation agreement (the "Non-Competition/ Solicitation Agreement") covering acquired assets (clients) and employees pursuant to which all parties shall agree not to compete with Buyer within a radius of 150 miles from the current location of Seller's place of business for a period of thirty-six (36) months following and including the period of the payments made pursuant to the Purchase Agreement.
Section 10 of the Letter of Intent entitled "Employee Non- Competition/Solicitation Agreement, " provided:
As a condition to consummation of the purchase of the Purchased Assets by Buyer, as of the Closing Date, all of the members and existing employees of Seller will be required as a condition of hiring by the Buyer to executed the "Non-Competition/Solicitation Agreement" customary to Buyer's practice – See Exhibit G.
Both Mr. Giusti and Mr. Buehler confirmed in their testimony that a proposed employment agreement was attached to the Letter of Intent. (See, Exhibit "4A")
On September 1, 2005 the Asset Purchase Agreement referenced in the Letter of Intent was executed. (Exhibit "6") §6.2 of the Asset Purchase Agreement was entitled "Noncompetition, " and stated that the sellers and equityholders of BKR "acknowledge that the employment agreements to be executed by the [e]quityholders contain covenants which, among other things, restrict and prohibit the [e]quityholders, for the period described [in the employment agreements], from (i) competing with [Schneider Downs] in the territory described in the employment agreements, and (ii) soliciting clients or employees of [Schneider Downs. (Id. ) At the time, Mr. Giusti's book of business, or silo, was worth approximately $780,000.
The same time that the Asset Purchase Agreement was executed Mr. Giusti executed an individual "Executive Employment Agreement." (Exhibit "3") Section 2 of the Executive Employment Agreement provided thatMr. Giusti was "initially" to serve in the position of "income shareholder" [emphasis original] and as such to "devote his entire time, attention, and energies to [Schneider Downs'] business" during his employment. The focus on Giusti's anticipated effort to help build the Schneider Downs's firm's practice simply cannot be missed. For instance, he was precluded from engaging in "other business activity which may detract from or interfere with the performance of Employee under this Agreement." Id.
Post employment activity was addressed in §7 of the Executive Employment Agreement entitled "Covenant Not to Compete" and indirectly by §10 "Termination." Although Mr. Giusti now appears to suggest that he somehow was entitled to a lengthy and indefinite period of employment at Schneider Downs, in fact what he agreed-to in September 2005 was that the firm could terminate him – with or without cause - on only 90 days advance written notice. Id . at §10. The parties also specifically contemplated (under § 7) that:
Employee shall not, for a period of three (3) years immediately following the termination of his or her employment with Employer, either directly or indirectly:
a. Call on, solicit, divert, or take away or attempt to call on, solicit, divert or take away any of the clients or active prospects (defined as: written proposals to perform services that have been or will be issued within a six month period from the date of termination – exception being if said prospect was already a client of new employer) of Employer or any person or persons for whom the Employer had performed services within one (1) year prior to the date of termination of employment with the employer, either for himself or herself or any other person, firm or corporation; provided, however, that Employee's covenant not to compete shall not apply in the event that Employee becomes a full time employee of a client of Employer and in such capacity renders services to such client; or
b. Induce, attempt to induce or assist others to induce or attempt to induce any shareholder, employee, agent, representative or other person associated with Employer to terminate his or her association with Employer, or in any manner interfere with the relationship between Employer and any of such persons; or
c. Attempt in any way to secure for himself or herself or another, profit, employment or any other advantage by use, exploitation, sale or implementation of any Confidential Information belonging to Employer, or the knowledge of which Employee acquired in the course and during the term of Employee's employment with Employer.
Section 10 ("Termination") amplified these arrangements, and again demonstrates that the parties' goal in 2005 was to transfer clients to Schneider Downs. Accordingly, even "[a]after a notice of termination is given, Employee [Giusti] agrees to use his best efforts to cooperate in completing and transitioning active matters on which Employee is then engaged" and he would not "without written authorization from a shareholder, notify any client of his termination until after the effective date thereof." (emphasis added).
The 2005 Executive Employment Agreement contained a "Remedies" section stating that a breach of Sections 5, 6 or 7 would "cause irreparable damage to Employer." Section 5 was entitled "Confidential Information, " and Section 6, was entitled "Ownership of Confidential Information." Leaving those disputes aside, other matters were to be arbitrated. Id . at § 11.
The Executive Employment Agreement contained an integration clause. It stated in part that "[t]his Agreement sets forth the entire agreement and understanding of the parties concerning the subject matter hereof and supersedes all prior agreements, arrangements and understanding between the parties hereto concerning the subject matter hereof. ." Id . at §13.
Furthermore, modifications of the Agreement had to be in writing. Id.
Section 8, subsection d of the Executive Employment Agreement stated that "[i]f the scope of the restrictions contained in Section 5, 6 or 7 hereunder is too broad to permit enforcement thereof to the full extent of such Section, then such restriction shall be enforced to the maximum extent permitted by law, and Employee hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction." Pennsylvania law was selected to control. Id . at §16.
In September 2005 Mr. Giusti began working for Schnieder Downs. From that vantage point he contemplated working full-time until September 1, 2007 and part-time thereafter. (10/24/05 e-mail by Giusti, Pltf. Exhibit "26") The intent of the parties in scaling-back Mr. Giusti to part-time employment after several years was, again, plainly to aid in transitioning clients from Mr. Giusti over to other professional staff at Schneider Downs.
In early 2009, Mr. Giusti became dissatisfied with employment at Schneider Downs. He contends that chargeable hours for which he could be compensated were being reduced to 125 hours and that he was concerned with the quality of client work being provided by others at the firm. In a May 2, 2009 e-mail to his former partner at BKR Neal Longabach, Mr. Giusti referenced a project and stated "I cannot turn this over to SD." (Exhibit "11") In that same e-mail, Mr. Giusti wrote "I am turning nothing else over to SD." (Id. ) Additionally, Mr. Giusti stated that "I want to continue with the accounts I still have for a while. This is impossible at SD." (Id. )
On May 4, 2009, Mr. Longabach responded to Giusti (writing in all capital letters), "You need to copy the 2008 tax returns of the clients you are taking – just quietly print them off and take them home. Also get dates of birth and other detail that doesn't print out. Later you can ask Joe for a disc but protect yourself in case he doesn't want to." (Exhibit "12") Mr. Longabach also advised Mr. Giusti to get an e-mail address where clients can contact him outside of Schneider Downs. (Id. )
Fast forwarding to September 21, 2009, Mr. Giusti sent an e-mail to Douglas Mayer at Cohen & Company – another accounting firm – with the subject line "Potential affiliation." (Exhibit "13") By then, Mr. Giusti had set-up a "gmail" account outside Schneider Downs. In that September 21 e-mail, Mr. Giusti wrote "I believe I would get about $372,000 in billings to follow me." (Exhibit "13) Rick Schiraldi, responded to both Mr. Giusti and Mr. Mayer on October 2, 2009, "I have a threshold question. The $372k of which you reference below (that would follow you), hasn't S.D. already paid you for that business? Don't they own it? And if you were to take it with you, would be a violation of your non-compete contract with them?" (Id. ) Mr. Mayer pointedly also responded, "Tom, as we discussed, this is our major concern." (Id. ) But, in an earlier e-mail on September 21 Mr. Giusti rationalized his proposed conduct by observing that "I sincerely believe that what I brought to S.D. has paid for me the last 4 years and the partial payout that S.D. has disbursed to me." (Id. )
Around the same time that Mr. Giusti began discussions with Cohen & Company over "potential affiliation" he also had discussions with Fentress & Barnes – another accounting firm competing in the Columbus market with Schneider Downs. In a September 29, 2009 e-mail to Mr. Giusti from Todd Fentress, the managing partner of Fentress & Barnes, Fentress indicates he believes Fentress & Barnes has quality people and resources to undertake "this venture" with Mr. Giusti. (Exhibit "14") Mr. Fentress stated he would like to further discuss, among other things, Mr. Giusti's "non-compete arrangement" and the "commission % paid for work that is gained from your former clients ." (Id. )
By October 13, 2009 Todd Fentress was welcoming Mr. Giusti to the Fentress & Barnes team via e-mail. (Exhibit "16") Mr. Fentress outlined the commission percentage for Mr. Giusti's current clients, to be paid out over 8 years and stated "We believe that the process of transitioning your clients in the manner we have discussed will prove to be a rewarding experience for you, your clients, and our firm." (Id. ) Mr. Fentress' October 13 e-mail does note that "We are a little concerned about the non-compete agreement, " and pointedly suggested that Mr. Giusti incur all legal costs surrounding the defense of the "non-compete agreement." (Id. )
After an inquiry was made by Mr. Giusti on October 30, 2009, he was told by management at Schneider Downs that it was interested in keeping Mr. Giusti's book of business and continuing to pay Mr. Giusti for it. (See, Exhibit "17") In an e-mail following that conversation, Mr. Giusti told Mr. Fentress "That makes it a little more cumbersome as I will have to wait for many of the clients to come forward due to the non solicitation agreement. However, I still expect to get what we discussed, before. I must be diligent in going forward in light of the covenant. Hopefully, you are a John Paul Jones type, as am I, and will stick with me in this battle." (Id. ) That was the first time, via e-mail, that Mr. Giusti refers to his restrictive covenant as a "non solicitation."
Mr. Giusti's last day with Schneider Downs fell on November 13, 2009. Three days later, on November 16, Schneider Downs had a going-away luncheon for him. Some witnesses described the luncheon as a "retirement party, " while others, such as Mr. Giusti, described it merely as a luncheon. Mr. Giusti never told anyone from Schneider Downs that he was taking employment or otherwise affiliating with another accounting firm.
Before leaving Schneider Downs, a "notification letter" was sent to many of Mr. Giusti's clients to aid in transition. The first draft of that letter indicated that Mr. Giusti would be retiring, but Mr. Giusti's revised version that actually was sent-out did not use the word retirement. This letter was not sent to Mr. Giusti's more lucrative clients. When Mr. Giusti was asked why no letter was sent to them, Giusti responded that he was afraid his "Oil and Gas" clients would go by the way if he sent them any type of a "retirement letter."
Although Mr. Giusti officially left Schneider Downs on November 13, his secretary, Deborah Gray remained employed there. Ms. Gray acknowledged on November 23 and November 30 that she sent documents containing confidential client tax information to Mr. Giusti at Mr. Giusti's request. Ms. Gray did not question Mr. Giusti's request and did not notify anyone else at Schneider Downs this had occurred.
It is noteworthy that Ms. Gray and Mr. Giusti have had a long working history together. Before her employment with Schneider Downs, Ms. Gray was employed by BKR. Up until Mr. Giusti left Schneider Downs, Ms. Gray had worked with Giusti since 1979. After Mr. Giusti's departure, her employment with Schneider Downs did not last long. She resigned on November 23, 2009, effective December 4, 2009, citing as a reason one of her long-time co-worker's termination of employment (in July) as the catalyst for her own resignation.
Before resigning, Ms. Gray had already been offered a job with Fentress & Barnes. She accepted the offer on November 26, and started working for Fentress & Barnes on December 16, 2009.
Mr. Giusti claims to have actually started working for Fentress & Barnes on January 4, 2010. In short order, in part because of tax season beginning, a number of Giusti's clients followed him to Fentress & Barnes. It is estimated that about $380,000 worth of business from Mr. Giusti's Schneider Downs' "silo" was solicited or otherwise encouraged to follow him to Fentress & Barnes. Most of the business that Schneider Downs lost to Fentress & Barnes consists of clients to whom Mr. Giusti sent no "retirement" letter.
Specific examples of contacts that Mr. Giusti had with his former clients after his employment with Fentress & Barnes are discussed later in this Decision. Mr. Giusti asks the court to find that he never "solicited" any Schneider Downs' clients and almost suggests surprise that they followed him. This is a twisted interpretation of what actually occurred.
III. Conclusions of Law
Per Section 16 of the Executive Employment Agreement, "[t]he construction and interpretation of this Agreement shall be governed by the laws of the Common Wealth of Pennsylvania." Consistent with the parties' choice, this court will look to Pennsylvania substantive law in interpreting the Executive Employment Agreement. However, "[i]n choice-of-law situations, the procedural laws of the forum state, are generally applied." Lawson v. Valve Trol. Co. (1991), 81 Ohio App.3d 1, 4, 610 N.E.2d 425, citing Howard v. Allen (1972), 30 Ohio St.2d 130, 283 N.E.2d 167.
To prevail on a request for a preliminary injunction under Ohio procedural law, a plaintiff must establish by clear and convincing evidence: "(1) there is a substantial likelihood that the plaintiff will prevail on the merits, (2) the plaintiff will suffer irreparable injury if the injunction is not granted, (3) no third parties will be unjustifiably harmed if the injunction is granted, and (4) the public interest will be served by the injunction." Procter & Gamble Co. v. Stoneham (1stDist. 2000), 140 Ohio App.3d 260, 267, 747 N.E.2d 268; see, Civ. R. 65. Pennsylvania law applies the same four-factor test. E, g, Maaco Franchising, Inc. v. Augustin (E.D. Pa. April 20, 2010), Case No. 09-4548, 2010 U.S. Dist. LEXIS 39650 at *5 (Pollak, J.).
A. Substantial Likelihood of Success on the Merits
"Although restrictive covenants are a disfavored restraint on trade under Pennsylvania law, they are enforceable in equity where they are 'incident to an employment relationship between the parties; the restrictions imposed by the covenant are reasonably necessary for the protection of the employer; and the restrictions imposed are reasonably limited in duration and geographic extent.' Victaulic Co. v. Tieman, 499 F.3d 227, 235 (3d Cir. 2007) (quoting Hess v. Gebhard Co. & Inc. (2002), 570 Pa. 148, 808 A.2d 912, 917); See also, Zambelli Fireworks Mfg. Co. v. Wood (3rd Cir. 2010), 592 F.3d 412, 424.
Unlike §9 of the Letter of Intent, the final executed Executive Employment Agreement made with Giusti contained an integration clause, and did not contain any language specifically prohibiting Mr. Giusti from competing with Schneider Downs within a 150 mile geographic radius (or any other territory). Instead, the Executive Employment Agreement's "non-compete" provision merely prohibited Giusti from "directly or indirectly" doing certain acts toward Schneider Downs' clients for three years after Giusti's employment terminated. The prohibited conduct was that Guisti could not "call on, solicit, divert, or take away" clients of Schneider Downs. The Asset Purchase Agreement also contained a "Noncompetition" clause at §6.2, on page 16. It too focused upon soliciting clients or employees away from Schneider Downs.
The Employment Agreement (Exhibit "3") made by Mr. Giusti as an individual controls although the other document made by Giusti and others at BKR (the "Asset Purchase Agreement, "Exhibit "6") was contemporaneous, and may be consulted to aid in understanding the intent of the parties. To the extent the two documents differ, however, this court believes Giusti's Employment Agreement controls.
The parties argue over the meaning of some terms contained in Giusi's Employment Agreement. "[W]here a term in the parties' contract is ambiguous, 'parol evidence is admissible to explain or clarify or resolve the ambiguity, irrespective of whether the ambiguity is created by the language of the instrument or by extrinsic or collateral circumstances.' Estate of Herr, 400 Pa. 90, 161 A.2d 32, 34 (Pa. 1960); see also Waldman v. Shoemaker, 367 Pa. 587, 80 A.2d 776, 778 (Pa. 1951)." Yocca v. Pittsburgh Steelers Sports, Inc. (Pa. 2004), 578 Pa. 479, 498, 854 A.2d 425, 437. In this case, the terms use in § 7 of the Employment Agreement such as "directly, " "indirectly, " "call on, " "solicit, " "divert, " and "take away" were not specifically defined. However, in plain English they speak to a broad protection for Schneider Downs. Reading the terms broadly to protect what Schneider Downs was buying is consistent with the weight of the evidence at the preliminary injunction hearing. It is certainly also confirmed by language elsewhere in the Executive Employment Agreement and related documents.
Not yet mentioned but somewhat to be noted in passing are the "WHEREAS" clauses in the Employment Agreement. Giusti agreed that he would be exposed to sensitive and confidential business information of his new Employer, which was deemed "proprietary" information and he agreed up front that "such confidential business information is not [to be] disclosed to or utilized by the competitors of Employer." (Fifth and Sixth "Whereas" clauses, Exhibit "3."). Giusti also agreed to devote his "entire time, attention and energies" to Schneider Downs and not to "other business activity which may detract from or interfere with the performance of Employee under this Agreement." (§ 2, Exhibit "3.") He agreed that "confidential information" included information about "clients" and he agreed that Schneider Downs owned all confidential information. (§§5, 6, of Exhibit "3.") Against the background in which all of these promises were made – the costly purchase of Giusti's "book of business" - Schneider Downs understandably wanted protection. Conversely, defendants can point to nothing in the documents giving Mr. Giusti any right to just walk away from Schneider Downs if he did not want to abide by their rules, or did not feel like transitioning clients to Schneider Downs' employees. Mr. Giusti's reading of the documents is completely at odds with economic reality, and leads to absurd results.
In Harry Blackwood, Inc. v. Caputo (Pa. Super. 1981), 290 Pa. Super. 140, 434 A.2d 169, the Superior Court of Pennsylvania considered a restrictive covenant which provided that the former employee may not "directly or indirectly, solicit, divert or take away or attempt to solicit, divert or take away, any of the clients " of the former employer for a period of 5 years. 290 Pa. Super at 142, 434 A.2d at 170. The court affirmed a trial court's ruling that the former employee could still provide services to the former employer's customers, so long as the former employee took no affirmative action, directly or indirectly, toward the securing of business from any person or firm who was a customer of the former employer at the time the former employee left the employment. 290 Pa. Super at 143, 434 A.2d at 170. Defendants urge is court to utilize Caputo in interpreting Mr. Giusti's covenants. Plaintiff argues that Caputo is distinguishable and does not apply because Mr. Giusti's covenant was ancillary to the sale of a business, as opposed to being part of a simple employment agreement.
Apparently Pennsylvania is not the only state to hold that a restrictive covenant may be unenforceable when it prevents a former employee from accepting business unsolicited from former clients. See, Pregler v. C&Z, Inc. (Ga.App. 2003), 259 Ga.App. 149, 575 S.E.2d 915; U.S. Trust Co., N.A. v. Maclachlan (N.Y. App. 2008), 2008 N.Y. Slip Op. 3003OU, 2008 N.Y. Misc. LEXIS 7748; Inergy Propane, LLC v. Lundy (Ok. App. 2008), 219 P.3d 547. On the other hand, at least one state has found that a former employee could not even accept business from unsolicited former clients when the covenant references "competition" as does the agreement here. See, Manuel Lujan Ins., Inc. v. Jordan (1983), 100 N.M. 573, 673 P.2d 1306.
This Court agrees that cases like Caputo are distinguishable from the case at hand. Mr. Giusti, in addition to negotiating his employment, also sold his clients to Schneider Downs. While the Caputo court found "soliciting, "
"diverting, " and "taking away" requires an affirmative action on the part of a former employee, the Caputo court was not faced with a former employee having sold clients to the employer. In light of Mr. Giusti having been paid for access to his clients, and having been advised in the agreements and otherwise that it was expected he would "transition" them to Schneider Downs permanently, the terms of his "Covenant Not to Compete" in § 7 of the Executive Employment Agrement must be given their broader, more ordinary meanings than the terms of the restrictive covenant considered in Caputo. Thus, Mr. Giusti violates his restrictive covenant even if he is merely "reactive" and not "proactive" in "calling on, " "soliciting, " "diverting, " or "taking away" clients.
Section 7 expressly bars Mr. Giusti from "soliciting" or "attempting to solicit" clients or active prospects of Schneider Downs. (Exhibit "3", p. 3.) The term solicit has a broad meaning, and the prohibition against an attempt to solicit makes it even broader. Recently a court applied Pennsylvania law in a case like this one, and held "soliciting business includes communicating with and/or meeting with customers and also includes giving advice, suggestions, or other commentary to other [new employer] employees or representatives concerning such customers, entities or persons." Fisher Bioservices, Inc. v. Bilcare, Inc. (E.D. Pa. May 31, 2006), Case No. 06-567, 2006 U.S. Dist. LEXIS 34841, at *68-69.
Plaintiff has shown by clear and convincing evidence that has a substantial likelihood of success on the merits. Mr. Giusti either "directly" or "indirectly" "called on, ""solicited, " "diverted, " or "took away" - or surely attempted to do so -with clients whom Schneider Downs had serviced between November 13, 2008 and November 13, 2009. For example, Mr. Giusti set up a telephone conversation between Mr. Ridgley and Matt Barnes from Fentress & Barnes regarding the preparation of Mr. Ridgley's 2009 tax returns, after Mr. Ridgley contacted Mr. Giusti. For another example, Mr. Giusti sat in on a meeting while Fentress & Barnes was securing Dr. Morrow's business. As another example, Mr. Giusti portrayed Schneider Downs in a poor light when he told Gerald Jacobs, a Schneider Downs client that followed Mr. Giusti to Fentress & Barnes (as did businesses with which Mr. Jacobs was related), that Schneider Downs was phasing out the older accountants and replacing them with new, inexperienced accountants. According to Mr. Jacobs, Mr. Giusti had called Mr. Jacobs after Mr. Giusti joined Fentress and Barnes and set up a meeting between Mr. Jacobs and Fentress & Barnes. As a final example, Timothy Crawford, who still has an outstanding account with Schneider Downs, testified that he met with Mr. Giusti at Fentress & Barnes.
The Court finds that the covenant contained in § 7 of Mr. Giusti's Executive Employment Agreement is reasonable in all respects to protect Schneider Downs. See, Fisher Bioservices, Inc. v. Bilcare, Inc., supra, 2006 U.S. Dist. LEXIS 34841, at * 41, 2006 WL 1517382, at *13 (holding that a non-compete lacking any geographic restriction was enforceable because the former employer sought only to prevent the employee from soliciting customers she had dealt with while at her former employer); see also, Quaker Chem. Corp. v. Varga (E.D. Pa. 2007), 509 F.Supp.2d 469; Caputo, supra (five-year restriction was reduced to a reasonable three year time-restriction.)
Plaintiff has also shown by clear and convincing evidence that it has a probability of success against Fentress & Barnes for tortious interference under Ohio law. To succeed on a claim for tortious interference with business or economic relationships, a plaintiff must show that one, without privilege to do so, induced or otherwise purposely caused "a third party not to enter into, or continue, a business relationship with another, or perform a contract." Brahim v. Ohio College of Podiatric Medicine (1994), 99 Ohio App.3d 479, 489, 651 N.E.2d 30; Ashcroft v. Mt. Sinai Medical Center (1990), 68 Ohio App.3d 359, 365, 588 N.E.2d 280. Even Fentress & Barnes was apprehensive about getting into a new relationship with Mr. Giusti under the circumstances that existed last fall. Yet, sometimes through subterfuge and sometimes by turning a blind eye, Fentress & Barnes actively assisted in inducing clients known to have been Schneider Downs' clients to discontinue their relationship and come to a new accounting firm. Using Mr. Giusti's client relationships as the springboard to people with whom they had no other contact, Fentress & Barnes embarked upon "the process of transitioning your clients in the manner we have discussed" (see, Exhibit "16"), and purposely aided Mr. Giusti in violating his Executive Employment Agreement contemplating "commission % paid for work that is gained from your former clients." (see, Exhibit "14") Fentress & Barnes' knowledge of Mr. Giusti's restrictive agreement with Schneider Downs is undisputed and they proceeded at their peril.
B. The Public Interest will be Served in Granting an Injunction
The court is mindful that if injunctive relief is granted accounting clients that seek to follow Mr. Giusti from Schneider Downs will be deprived of the services of an accountant of their choosing and with whom many have developed a level of professional trust. However, the source of clients' discomfort is not fairly traceable to Schneider Downs but instead flows directly from Mr. Giusti's conscious decision in 2005 to sell his "book of business" in the commercial marketplace.
Pennsylvania law permits contract terms that facilitate a sale of physical assets or intangible things like good will, reputation, or customer lists. Therefore "restrictive covenants ancillary to the sale of a business, as here, are designed to protect, in addition to physical assets and investments, the goodwill of the business, i.e. its name, reputation and reliability. For that reason, a restrictive covenant ancillary to the sale of a business promotes goodwill as a saleable asset 'by protecting the buyer in the enjoyment of that for which he pays'.[citation omitted]." Prison Health Services, Inc. v. Umar (E.D. Pa. 2002), Case No. Civ. A02-2642, 2002 WL 32254510 at *12. Otherwise, "‛[w]ere the seller free to re-enter the market, the buyer would be left holding the proverbial empty poke'. [citations omitted]." Id . at 13.
C. Plaintiff will Suffer Irreparable Injury if an Injunction is not Granted
Although Section 11 of the Executive Employment Agreement states that a breach of Section 7 (the restrictive covenant) would "cause irreparable harm, " this alone is not determinative. Nevertheless, Schneider Downs has shown by clear and convincing evidence that it has suffered and would continue to suffer irreparable harm as direct and proximate result of Mr. Giusti breaching his "Covenant Not to Compete."
The exact loss to Schneider Downs is unlikely to be determinable with any certainty. Deposing clients endlessly about their real or imagined reasons for following Giusti when he left Schneider Downs would be burdensome on the clients, and depending upon the loyalty to Giusti might almost invite perjury. Surely it is speculative to guess how long clients that left Schneider Downs for Fentress & Barnes may stay with Fentress & Barnes just as it is impossible to know how long they would have stayed with Schneider Downs had Giusti declined to take them out the door. Professional firms experience an ebb and flow of clients driven by many factors, such as clients moving away, increases or decreases in hourly rates, and the personal interactions between clients and their professional firm's personnel.
So, the court is satisfied that there is, and would continue to be significant monetary harm to Schneider Downs which is practically speaking unknowable and irreparable. Furthermore, the reputation of Schneider Downs will continue to be diminished if its clients were permitted to leave in violation of otherwise reasonable commercial contracts such as the firm made with Mr. Giusti and BKR.
D. Third Parties will not be Unjustifiably Harmed by an Injunction The Court does not believe that third-parties will be unfairly harmed if a preliminary injunction is granted. Schneider Downs' clients are free to continue to use their services or to employ any other accountant/consultant/tax preparation firm other than Mr. Giusti and Fentress & Barnes. There is no shortage of alternatives. Again, if there is anyone to blame here it is those from BKR who structured the 2005 deal in the way they did, in order to profit from the sale of the accounting practice to Schneider Downs.
IV. Injunctive Relief
Plaintiff's request for a preliminary injunction against Mr. Giusti and Fentress & Barnes is GRANTED on the following terms:
A. Until further order of this court or November 13, 2012, Mr. Giusti, Fentress & Barnes, their agents, and all those in active concert or participation with them, are prohibited from calling on, soliciting, diverting, taking away, or attempting to call on, solicit, divert, or take away any clients of Schneider Downs for whom defendant Giusti had performed services within one year prior to his termination of employment in November 2009, and they are further prohibited from calling on, soliciting, diverting, taking away, or attempting to call on, solicit, divert, or take away active prospects of Schneider Downs known to Mr. Giusti through his work at Schneider Downs prior to November 2009 unless that prospect had been a client of Fentress and Barnes before defendant Giusti joined that firm.
B. Defendants Giusti and Fentress & Barnes must advise all of Mr. Giusti's former Schneider Downs' clients and prospective clients that have transitioned to Fentress & Barnes that, effective immediately (absent clear hardship to the client which cannot be avoided by taking an extension of tax deadlines or similar work) and until November 13, 2012 neither defendant Giusti nor Fentress & Barnes are able to advise them, provide professional services to them, or refer them to any other individual or accounting firm other than Schneider Downs.
C. Fentress & Barnes shall promptly forward all files, tax returns, backup documents and information, or similar records sought by any of Mr. Giusti's former Schneider Downs' clients or prospective clients to another accountant or firm of the client's independent choosing and shall do so at no cost to the client or prospective client.
D. For those of Mr. Giusti's former Schneider Downs' clients that have not transitioned to Fentress & Barnes, but hereafter seek the advice, or a referral from Mr. Giusti or Fentress & Barnes, defendants shall respond as follows: "The Common Pleas Court in Columbus, Ohio has ordered me not to further solicit your business, initiate further communication with you, advise you, or provide professional service to you. You may consider returning to Schneider Downs, or through your own means may identify and retain another accounting and tax firm of your choice. The court's order is effective through November 13, 2012."
E. Bond of $10,000 shall remain in place as security for this preliminary injunction.
IT IS SO ORDERED.