Opinion
Civil Action No. 03-2402.
August 11, 2004
AND NOW, this 11th day of August, 2004, after a non-jury trial at which it had the opportunity to observe the demeanor of the witnesses and to evaluate their testimony, the Court makes the following findings of fact and conclusions of law.
FINDINGS OF FACT
1. Coyne International Enterprises Corporation, d/b/a Coyne Textile Services, ("Coyne"), is a New York corporation with its principal place of business in Syracuse, New York.
2. Aramark Uniform Career Apparel, Inc. ("Aramark"), a subsidiary of Aramark Corporation, is a Delaware corporation which has its principal place of business in Burbank, California.
3. Christopher J. Taylor ("Taylor") is a Pennsylvania citizen and resident who is currently employed by Aramark as Assistant General Manager of Aramark's Reading Market Center which is located in Reading, Pennsylvania.
4. Coyne and Aramark are competitors in the highly competitive industrial laundry business, which engages in the selling, renting, marketing, delivering, designing, manufacturing, cleaning, maintaining and processing of work uniforms and career apparel, including protective apparel and safety accessories.
5. Aramark and Coyne pick up, launder, process and return processed uniforms, including protective apparel, to customers.
6. Coyne and Aramark sell and rent flame resistant ("FR") protective apparel garments.
7. Coyne and Aramark each have two divisions, Operations and Sales. The former runs the daily laundry business and renews existing contracts while maintaining customer service. The latter identifies and solicits potential customers.
8. Coyne has 47 facilities, consisting of laundry processing plants and terminals, in 30 states in the northeastern, southeastern and midwestern United States.
9. Coyne operates a facility in York, Pennsylvania, which is within 100 miles of Aramark's Reading Market Center.
10. Aramark's Reading Market Center is a processing center from which garments, including protective apparel, are collected, laundered, pressed, folded and returned to customers for a fee.
11. Taylor started working for Coyne in 1993 and was promoted to the position of Regional Sales Manager for the New England territory in December 1997.
12. Before joining Coyne, Taylor had worked for Standard Uniform which was also in the industrial laundry business.
13. While employed at Standard Uniform, Taylor had signed a covenant not to compete.
14. In July 2002, Coyne started a protective apparel team ("team") for the purpose of developing a specialized FR sales force composed of salespersons who had performed well in its regular sales force.
15. There were five salespersons selected for the team, each responsible for a defined geographical region.
16. Taylor was selected for the Coyne team as its salesperson for the northeast region.
17. Merci Flores-Magari ("Magari"), Coyne's Regional Vice President for Protective Apparel, informed Taylor that he had been hand picked by Tom for the team; and, she did not tell him that he could refuse.
18. Each member selected for the team was presented a covenant not to compete agreement ("agreement") which they were asked to sign on July 22, 2002.
19. With the exception of Taylor, the team members signed the agreements then and there.
20. Taylor informed Magari that he wanted to read and consider the agreement before signing it.
21. Coyne scheduled a meeting for July 23, 2002, to instruct and inform the team members regarding Coyne's sales approach to the FR market, which included information regarding target markets, sales strategy, pricing models, standard proposals and contracts.
22. Taylor's prior sales job at Coyne paid commission and the new job did not.
23. Team members were to receive increased compensation, a raise from $66,000 to $89,000 annually, and a potential bonus.
24. Prior to learning that he had been selected for the team, Taylor had had conversations with John O'Hayre, a former Coyne employee and an Aramark manager, regarding Taylor's contemplating leaving Coyne as a result of reports of Coyne's alleged bleak financial future.
25. The following day, after Taylor told Magari that he was reluctant to sign the agreement, Magari spoke privately to Tom Coyne.
26. After conferring with Tom Coyne, Magari informed Taylor that if he did not sign the agreement, he was "out" — an ultimatum which Taylor interpreted as meaning he would be fired if he did not sign the agreement.
27. Taylor signed the agreement on July 23, 2002.
28. At the training seminar on July 23, 2002, team members were given pricing information, an outline of the sales strategy, governmental and industry standards, customer lists and Goldmine software, which included a breakdown of customers, types of business and Standard Industrial Classification codes derived from the Harris Directory.
29. Each team member recorded information garnered from sales calls in his Goldmine database on his laptop computer. Each team member had access only to his assigned region and could not retrieve information from another salesman's database.
30. The only information on Goldmine that is not readily available through public sources is the information that each team member generated and inserted into the Goldmine program.
31. Coyne spent approximately $83,000 to train the team at the seminar.
32. Taylor's new territory included Maine, Vermont, Rhode Island, Massachusetts, New Hampshire, New York and New Jersey.
33. Taylor worked on the team from September 2 through November 13, 2002.
34. On October 17, 2002, Taylor applied for an assistant general manager's position at Aramark's Reading Market Center, completing an employment application which noted that he was available as of November 11, 2002, and that O'Hayre had referred him.
35. Taylor interviewed with Jim Cashman ("Cashman"), Aramark's Regional Vice President, seeking a position in Aramark's uniform laundering business.
36. During the interview, Cashman informed Taylor that the only position available was the Assistant General Manager for Operations.
37. During the interview with Cashman, Taylor advised him that he had a "heavy non-compete agreement."
38. No one at Aramark inquired of Coyne about the covenant not to compete issue.
39. On October 31, 2002, Aramark offered Taylor the position of Assistant General Manager for Operations at the Reading Market Center.
40. On November 2, 2002, Taylor accepted Aramark's job offer.
41. On November 4, 2002, Taylor delivered his resignation letter to Coyne.
42. Although he had developed customer relationships and leads, Taylor had not made any sales while on the team.
43. On November 15, 2002, Taylor's employment with Coyne terminated.
44. When Taylor left Coyne, he had outstanding sales proposals which he turned over to Magari.
45. Since leaving Coyne, Taylor has not contacted any sales prospects on the list he had developed while working for Coyne nor has he contacted any prospective customers for the purposes of developing sales for Aramark.
46. During his entire tenure with Coyne, Taylor had never worked or solicited business in Pennsylvania.
47. Taylor's understanding of the Coyne covenant not to compete was that he could not sell or develop FR business for a competitor and could not work in New England, his former Coyne territory.
48. The agreement prevents Taylor's employment in any capacity with any industrial laundry business and names approximately twenty-five specific uniform companies, including Aramark.
49. Taylor did not retain any non-public information that he could use in his current position with Aramark.
50. As part of his job with Aramark, Taylor is charged with keeping existing customers satisfied.
51. Taylor's position with Aramark is on the service side of the business and not in sales.
52. Depending on the volume of the account and the severity of any customer problem, Taylor personally calls on Aramark customers to maintain customer satisfaction.
53. Taylor has no involvement in Aramark's FR group, and he can perform his employment responsibilities without revealing or using any Coyne trade secrets or confidential information.
54. In early 2003, PennEx Aluminum ("PennEx"), an Aramark customer, told Aramark that it intended to cancel one of its garment contracts which it had erroneously believed expired in March 2003, but which actually did not expire until October 2003.
55. Aramark had another contract with PennEx covering another location which was due to expire in October 2005.
56. Because customer retention was one of his job functions, Taylor met with PennEx's district manager to determine why PennEx wanted to terminate the contract.
57. Expressing a desire to upgrade its cotton uniforms to FR uniforms, PennEx suggested that Aramark submit a bid on supplying FR uniforms.
58. Taylor and O'Hayre completed a pro forma requesting FR pricing from supply chain management to give to PennEx.
59. Taylor did not have authority to deviate from the pricing and was merely a messenger delivering the quotes.
60. PennEx rejected Aramark's offer and chose Coyne to supply its FR garments because Coyne's pricing was 25-30% lower than Aramark's.
61. PennEx did not renew the Aramark contract which expired in October 2003.
62. Aramark agreed to release PennEx from the garment portion of the Aramark contract, originally set to expire in October 2005, in order to keep another more profitable contract for non-garment goods.
63. Since resigning from Coyne, Taylor has not contacted any of Coyne's customers to solicit business for Aramark.
64. Coyne has not lost any customer accounts as a result of Taylor's employment with Aramark.
65. Coyne has suffered no monetary damages as a result of Taylor's employment with Aramark.
66. Only Magari had access to Coyne's pricing materials and she alone submitted pricing for proposals.
67. Taylor never had any of Coyne's confidential business plans.
68. Taylor's employment responsibilities with Aramark do not require him to divulge confidential Coyne information even if he had it.
69. Neither Taylor nor Aramark have made use of any confidential Coyne information which had been acquired by Taylor prior to his leaving Coyne.
70. Taylor neither possesses nor has used any Coyne trade secrets since leaving Coyne.
CONCLUSIONS OF LAW
1. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332 because the parties are completely diverse and the amount in controversy exceeds $75,000, exclusive of interests and costs.
2. Venue is proper in this district under 28 U.S.C. § 1391 because a substantial part of the facts giving rise to these claims arose here.
3. Substantive New York law applies to the construction and enforceability of the covenant not to compete.
Injunction
4. An injunction is proper where the party seeking equitable relief has demonstrated that in the absence of the requested injunction, it will suffer irreparable harm and monetary damages will be inadequate to remedy the injury. Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 68 (2d Cir. 1999).
5. Loss of an employee's livelihood is strongly disfavored. Ticor, 173 F.3d at 69; Reed, Roberts Assocs., Inc. v. Strauman, 690 N.Y.S.2d 677, 679-80 (N.Y. 1976) ("[N]o restrictions should fetter an employee's right to apply to his own best advantage the skills and knowledge acquired by the overall experience of his previous employment.") (emphasis added).
6. Restrictive covenants must be reasonable in time, geography and scope. Ticor, 173 F.3d at 69; EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299, 312 (S.D.N.Y. 1999); Karpinski v. Ingrasci, 320 N.Y.S.2d 1, 4 (N.Y. 1971); Battenkill Veterinary Equine P.C., v. Cangelosi, 768 N.Y.S.2d 504, 506 (App.Div. 2003).
7. The greater the geographic restriction, the time period must be shorter and the scope of the prohibited activities must be narrower. See Natsource LLC v. Paribello, 151 F. Supp. 2d 465, 471 (S.D.N.Y. 2001) (enforcing a nationwide restrictive covenant preventing former employee from directly competing for ninety days because of the very small and spread out customer pool); Battenkill Veterinary Equine, P.C., 768 N.Y.S.2d at 506 (enforcing restrictive covenant barring defendant from practicing equine veterinary medicine within a thirty-five mile area for three years).
8. A restrictive employment covenant is reasonable if: (1) its restrictions are no greater than required to protect the employer's legitimate business interests; (2) it does not impose undue hardship upon the employee; and, (3) it does not violate public policy. BDO Seidman v. Hirshberg, 690 N.Y.S. 2d 854, 856-57 (N.Y. 1999); see also Ticor, 173 F.3d at 69; Reed, Roberts, 386 N.Y.S.2d at 679.
9. When evaluating reasonableness, the court must focus on the particular facts and circumstances involved in the case. Ticor, 173 F.3d at 70; BDO Seidman, 690 N.Y.S.2d at 858; Karpinski, 320 N.Y.S.2d at 4.
10. The agreement's twenty-four month provision standing alone is reasonable. Cf. Unisource Worldwide, Inc. v. Valenti, 196 F. Supp. 2d 269, 277 (E.D.N.Y. 2002) (two years); Karpinski, 390 N.Y.S.2d at 4 (enforcing unlimited time provision because of narrowness of the geography and scope of prohibited activities); Mallory Factor, Inc. v. Jicka, 562 N.Y.S.2d 666, 667 (App.Div. 1990) (enforcing two year covenant preventing former employee from performing services for new employer with clients with whom defendant had dealt while employed by his former employer).
11. The agreement is unduly restrictive because it prohibits Taylor from working in the only industry in which he has real work experience.
12. The agreement is unreasonable because the scope of the restricted activities is too broad and the prohibited geographical area is too large, effectively resulting in preventing Taylor from working in the entire industrial laundry business nationwide.
13. The agreement is unreasonable to the extent it prevents Taylor from holding any employment in the industrial laundering business in any capacity.
14. The agreement is unreasonable in its geographic coverage which extends to territory within 100 miles of any Coyne facility and Coyne has so many facilities throughout many regions in the United States.
15. Reasonable restrictive covenants will be enforced to the extent necessary (1) to prevent an employee's solicitation or disclosure of trade secrets, (2) to prevent an employee's use of confidential customer information, or (3) where the employee's services are special or unique. Ticor, 173 F.3d at 70.
16. The agreement is reasonable and enforceable to the extent that it: (1) restricts the dissemination and use of confidential information obtained during the course of Taylor's employment; (2) prohibits Taylor from soliciting or communicating with Coyne's customers for the purpose of renting or selling industrial laundry goods and services; and, (3) requires Taylor to return all confidential and proprietary information upon leaving Coyne's employ.
17. The reasonable enforceable portions of the restrictive covenant are valid and continue to bind Taylor until November 15, 2004.
18. No permanent injunction will issue because Taylor has not violated the reasonable enforceable provisions of the restrictive covenant, specifically, Taylor has already returned all confidential and proprietary information to Coyne, has not contacted any of Coyne's customers to solicit business for Aramark, has not made use of any confidential Coyne information, and neither possesses nor has used any Coyne trade secrets.
Conflicts of Law
19. Pennsylvania conflicts of law rules apply in determining which state's law applies to the tort claims. Shuder v. McDonald's Corp., 859 F.2d 266, 269 (3d Cir. 1988).
20. Absent a conflict between the states' bodies of law, we may refer interchangeably to the laws of either state in discussing the rights and liabilities of the parties. On Air Entm't Corp. v. Nat'l Indem. Co., 210 F.3d 146, 149 (3d Cir. 2000).
21. The elements of a claim of tortious interference with business relations are the same under Pennsylvania and New York law. See, e.g., Wild v. Jungle Media Group, No. 02-5123, 2004 WL 834695, at *3 n. 6 (E.D. Pa. Mar. 17, 2004) (Yohn, J.) (determining that the elements of a tortious interference with contract claim are the same in Pennsylvania and New York) . Compare Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 530 (3d Cir. 1998) (Pennsylvania elements of tortious interference with contractual relations) with Tactica Int'l, Inc. v. Atl. Horizon Int'l, Inc., 154 F. Supp. 2d 586, 608 (S.D.N.Y. 2001) (New York elements of a claim for tortious interference with contractual relations).
22. Both New York and Pennsylvania use the Restatement (First) of Torts § 757 as the basis for their trade secret law. Compare N. Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 43-44 (2d Cir. 1999) (New York elements of misappropriation of trade secret claim), and Ivy Mar Co. v. C.R. Seasons Ltd., 907 F. Supp. 547, 556 (E.D.N.Y. 1995) (New York elements of misappropriation of trade secret claim), with Van Prods. Co. v. Gen. Welding Fabricating Co., 213 A.2d 769, 774-75 (Pa. 1965) (Pennsylvania elements).
23. Neither New York nor Pennsylvania recognize an independent fiduciary duty to refrain from soliciting a former employer's customers, absent an enforceable covenant not to compete. Walter Karl, Inc. v. Wood, 528 N.Y.S.2d 94, 97 (App.Div. 1988); Carl A. Colteryahn Dairy v. Schneider Dairy, 203 A.2d 469, 472 (Pa. 1964).
24. Applying either New York or Pennsylvania law does not affect the outcome of the analysis of the tort claims, resulting in no true conflict. Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994).
25. Coyne has failed to establish tort liability for each of the state law tort claims under Pennsylvania and New York law.
Misappropriation of Trade Secrets
26. To make out a claim for misappropriation of trade secrets, a plaintiff must prove: (1) the existence of a valuable and important trade secret; (2) communication of the trade secret learned pursuant to a confidential relationship; (3) use of the trade secret in violation of the confidence; and, (4) harm to the plaintiff. Moore v. Kulicke Soffa Indus., Inc., 318 F.3d 561, 566 (3d Cir. 2003); Van Prods. Co., 213 A.2d at 774; RESTATEMENT (FIRST) OF TORTS § 757 (1939).
27. In evaluating whether information qualifies as a trade secret, we consider (1) the extent to which the information is known outside the employer's business; (2) the extent to which it is known by employees and others within the employer's business; (3) the extent of measures taken to guard the information's secrecy; (4) the value of the information; (5) the amount of effort or money expended in developing the information; and, (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. N. Atl. Instruments, 188 F.3d at 44; Christopher M's Hand Poured Fudge, Inc. v. Hennon, 699 A.2d 1272, 1275 (Pa.Super. 1997).
28. A worker's aptitude, skill, manual and mental ability, and other subjective knowledge obtained while in the course of his employment do not qualify as trade secrets. Christopher M's, 699 A.2d at 1275 (citing Pittsburgh Cut Wire Co. v. Sufrin, 38 A.2d 33, 34 (Pa. 1944)).
29. Coyne's potential customer list, which was derived from the Harris Directory, does not qualify for trade secret protection. Potential customers in the industrial laundry business can be identified by purchasing a publicly available database from Harris InfoSource. Coyne purchased this information and uploaded it into the Goldmine software program.
30. The specific customer information input by each Coyne team member as a result of his sales calls was accessible only to that salesperson.
31. Taylor did not misappropriate any confidential customer information from Goldmine.
32. Coyne has failed to demonstrate that it suffered any damages, an essential element of causes of action for tortious interference with contract, tortious interference with business relations, breach of fiduciary duty, and misappropriation of trade secrets or confidential information.
Breach of Fiduciary Duty
33. An employee has no general duty to refrain from soliciting a former employer's customers. In the absence of a restrictive covenant, a former employee may use his memory to solicit customers from his former employment. Carl A. Colteryahn Dairy, 203 A.2d at 472 (citing RESTATEMENT (SECOND) OF AGENCY § 396 (1958)). Therefore, there is no general duty, separate from a contractually imposed one, to refrain from soliciting a former employer's customers. Reed, Roberts, 353 N.E.2d at 594.
34. Even in the absence of an enforceable restrictive covenant, a former employee may not solicit customers of the former employer if the customer's existence is deemed confidential or protectable as a trade secret. Carl A. Colteryahn Dairy, 203 A.2d at 471-72; Walter Karl, Inc., 528 N.Y.S.2d at 97.
Tortious Interference with Business Relations
35. In order to prove tortious interference with prospective business relations, a plaintiff must prove: (1) a prospective contractual relation between itself and a third party; (2) purposeful action on the part of the defendant specifically intended to prevent the prospective relation from occurring; (3) the absence of a justification on the part of the defendant; (4) actual legal damage as a result of the defendants' conduct; and, (5) a reasonable likelihood that the relationship would have occurred but for the interference of the defendant. Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 530 (3d Cir. 1998) (citing Pelagatti v. Cohen, 536 A.2d 1337, 1343 (Pa.Super. 1988)); Guard-Life Corp. v. Parker Hardware Mfg. Corp., 428 N.Y.S.2d 628, 631-32 (N.Y. 1980). The elements of tortious interference with an existing contract are essentially the same. Brokerage Concepts, Inc., 140 F.3d at 529.
36. Because Coyne was awarded the PennEx contract, it suffered no legal damages as a result of any allegedly tortious conduct on the part of Taylor or Aramark.
37. Because Taylor has not violated the reasonable enforceable portions of the restrictive covenant, Aramark cannot be liable for interfering with Taylor's contractual relationship with Coyne.
Conclusion
38. Permanent injunctive relief is appropriate when the plaintiff succeeds on the merits of its claims. Am. Civil Liberties Union of N.J. v. Black Horse Pike Reg'l Bd. of Educ., 84 F.3d 1471, 1477 (3d Cir. 1996).
39. While some of the provisions in the agreement are reasonable and enforceable, the plaintiff has failed to demonstrate that Taylor's employment at Aramark in the operations aspect of the business has or will cause Coyne irreparable harm. Therefore, issuance of an injunction is not necessary or warranted.