Amquip Crane Rental v. Crane & Rig Services

Citation: 199 A.3d 904Docket: 871 EDA 2017

Court: Superior Court of Pennsylvania; November 26, 2018; Pennsylvania; State Appellate Court

Original Court Document: View Document

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The Pennsylvania Superior Court affirmed a preliminary injunction against appellants Harvey Ray Graham, Kristian B. Bruu, Robbin O. Rainey, and Thomas Newell, along with Crane Rig Services, LLC (C&R) and A Crane Rental, LLC (ACrane). The injunction prohibits the Individuals from working in the crane rental industry in specific geographic areas, soliciting customers of appellees Amquip Crane Rental, LLC and Maxim Crane Works, L.P. (collectively "AmQuip"), and using AmQuip's confidential information. The Individuals were previously employed by AmQuip before joining ACrane and were terminated when the injunction was issued.

The Individuals contested the injunction, arguing that Newell did not breach his duty of loyalty, that there were factual errors in the trial court's ruling, and that the enforcement of noncompetition covenants against Graham, Bruu, and Rainey was an abuse of discretion. The court found C&R and ACrane lacked standing to appeal as they were not directly affected by the injunction, which was specifically aimed at the Individuals. 

AmQuip and Maxim, significant players in the global crane rental market with substantial revenue and assets, had acquired each other and were merging operations at the time. The Individuals had signed confidentiality covenants with AmQuip, which restricted their ability to compete or solicit customers for two years following their employment, although Newell did not sign such covenants. Nevertheless, all four Individuals acknowledged AmQuip's confidentiality policies through the Employee Handbook they signed.

AmQuip's Atlanta branch experienced significant success during the tenure of Newell, Bruu, and Rainey, who were effective salesmen. Evidence presented at an injunction hearing indicated that AmQuip's resources facilitated these individuals in acquiring new customers and enhancing revenue from existing relationships. Newell acknowledged that he secured new clients using AmQuip's resources, and significant customers like Ansco and SAC Wireless were acquired after his arrival in 2008. Rainey similarly testified about gaining new customers after joining the company.

The individuals had access to numerous confidential AmQuip resources, including customer lists, order histories, vendor lists, pricing formulas, and financial data. Graham detailed his access to various confidential information categorized under AmQuip's Code of Business Conduct and Ethics, including pricing strategies, business leads, and employee compensation details. He confirmed that AmQuip treated this information as confidential and restricted its disclosure to competitors.

Graham utilized this confidential information regularly, including pricing formulas developed at AmQuip and a customized dashboard for accessing customer and financial information. Both Graham and Newell had extensive access to customer data, with Newell also recognizing the confidentiality of the pricing information discussed within their office. Bruu confirmed access to a wide range of AmQuip's confidential data via their AS400 computer systems. Following a merger involving AmQuip and Maxim in July 2016, Graham left the company on August 11, 2016. There was a dispute regarding the nature of his departure—whether he was terminated or resigned—but the trial court concluded he resigned with the intent to join ACrane.

In August 2016, Graham collaborated with Anderson and McCabe to establish ACrane, a crane rental company in Atlanta. Anderson sought Graham's expertise on crane rental pricing to assess the company's feasibility, and Graham provided the necessary information. On August 14, Anderson emailed McCabe, indicating the need for Graham's assistance with various operational costs and forecasting an opening for ACrane in September 2016. Graham confirmed he supplied labor and billing rates and that the email's attachment forecasted profits while listing Graham and others as employees.

Graham and Anderson met again on August 16 to further plan ACrane's Atlanta operations. Several individuals, still employed by AmQuip, assisted in the setup. Notably, on August 23, Newell emailed a quote template from AmQuip to Burns, who was to be ACrane's billing manager, which was later modified for ACrane's use. On September 2, Graham communicated with Anderson and McCabe regarding recruiting AmQuip employees and redirecting AmQuip customers, specifically targeting Service Electric and Georgia Power, which had recently generated significant revenue for AmQuip.

Graham's strategy included hiring employees from AmQuip's Atlanta office and acquiring its customer base. Following Graham's invitation, several individuals met to discuss employment at ACrane. On September 28, C&R emailed new hire paperwork to Newell, Bruu, and Rainey, who completed it shortly thereafter. Even before officially leaving AmQuip, they began diverting its customers to ACrane. Newell acknowledged informing AmQuip's customers about the new company and facilitating the transition of their business. He also arranged to connect with Ansco's vendor manager to initiate ACrane’s service to them, sending necessary documentation while still employed by AmQuip. On September 30, Newell announced his resignation from AmQuip to transition to ACrane along with his colleagues, indicating that AmQuip's service quality would decline post-merger with Maxim Crane.

Transition difficulties are anticipated with the establishment of A Crane, which currently operates 10 cranes and plans to expand. The company aims to maintain high service standards, and while telephone numbers will remain unchanged, new email addresses will be introduced for correspondence. On October 2, 2016, Newell announced his resignation from AmQuip, subsequently deleting business information from his work computer and informing customers via email of his new association with Maxim Crane. A Crane quickly achieved significant sales, generating over $2 million in just three months and projecting $10 million for its first year.

In response, AmQuip filed a lawsuit against Newell and others for breach of contract and other claims, alongside a motion for a preliminary injunction. After a four-day hearing, the court issued a preliminary injunction on February 10, 2017, prohibiting the individuals from engaging in the crane rental business within specific geographic areas, soliciting AmQuip employees or clients, and using AmQuip's confidential information. The injunction is effective immediately and will remain until further court order, with a required bond of $50,000 to be posted by AmQuip within ten days.

Individuals filed an appeal and a statement of matters complained of on appeal. The trial court issued a Pa.R.A.P. 1925 opinion on May 9, 2017, which incorporated its earlier opinion from February 10, 2017, along with additional analysis. The appellants raise four issues: 

1. The propriety of the trial court's preliminary injunction against Newell, who lacked an effective restrictive covenant and any duty of loyalty to his former employer.
2. Whether the trial court adequately considered sufficient evidence for the injunction against Graham, Bruu, Rainey, and Newell.
3. The appropriateness of the preliminary injunction given Pennsylvania case law indicating no justification for such action against those parties.
4. Whether the trial court meaningfully balanced the hardships of the parties in relation to the injunction.

The trial court concluded that Pennsylvania law governs all substantive issues, a point not contested by the parties. For a preliminary injunction, six elements must be proven: necessity to prevent irreparable harm, greater injury from refusing the injunction, restoration of parties to their prior status, actionable conduct with a clear right to relief, suitability of the injunction to abate the activity, and no adverse effect on public interest. 

The appellate court's review of preliminary injunctions is plenary but deferential, assessing whether reasonable grounds supported the trial court's actions and allowing for reversal only in cases of abuse of discretion or misapplication of law. 

The court specifically addressed Newell's case, concluding he breached his common law duty of loyalty by diverting customers from AmQuip to ACrane while still employed there and inducing others to breach their non-compete agreements. The court upheld the injunction against Newell, affirming the trial court's decision to protect AmQuip's confidential information and customer relationships.

Newell's actions, despite lacking a formal non-compete agreement with AmQuip, breached his common law duty of loyalty. An agent is required to act in utmost good faith and solely for the benefit of their principal, avoiding conflicts of interest during their agency. After the agency ends, the agent may compete unless they solicited customers while still employed. In a similar case, SHV Coal, an employee diverted business from SHV to a competitor while still employed, violating their duty of loyalty. Newell similarly induced AmQuip's customers to switch to ACrane without AmQuip's consent, constituting a breach. The appellants incorrectly cited PTSI, Inc. v. Haley to argue no breach occurred, as the trainers in that case did not contact clients until after leaving PTSI. This case differs significantly because Newell acted to divert customers before his departure. The appellants also misapplied Socko v. Mid-Atlantic Systems, which addressed a separate issue regarding the enforceability of non-compete agreements.

In the absence of a specific agreement, employees may compete with their former employers post-termination, as noted by the Socko court. However, Socko did not address pre-departure solicitation, which is central to this case involving Newell's actions assisting others in violating their noncompetition agreements. The Reading Radio, Inc. v. Fink case illustrates relevant principles, where Kline, a station manager, engaged in solicitation during his notice period, leading to a breach of fiduciary duty. The jury found Kline liable for acting against his employer's interests by diverting sales representatives and ignoring their noncompetition covenants. Similarly, Newell violated his loyalty by facilitating Graham, Bruu, and Rainey's breaches of their noncompetition agreements with AmQuip to join ACrane. Evidence showed Newell met with ACrane's principals and shared AmQuip's confidential pricing information. The preliminary injunction against Newell was justified, as he had accessed and possibly misused AmQuip's confidential information, constituting a risk of further breaches. For information to qualify as a trade secret, it must provide a competitive advantage and not just be common knowledge. While customer lists may not inherently be confidential, they can be considered trade secrets if they reflect a significant investment of the employer's resources.

A court may prevent an employee from joining a competitor if it could lead to the disclosure of trade secrets, even without a noncompetition agreement. AmQuip's pricing formulas, derived from confidential data such as crane utilization schedules, market conditions, and operational costs, were compiled into a document known as the "AmQuip Bible." The company invested significantly in its salesmen to foster customer relationships and provided access to sensitive information like customer lists and pricing models. Testimony confirmed that Newell and others had access to AmQuip's confidential pricing formulas critical for servicing existing clients and attracting new business. Despite Newell not signing a noncompetition agreement, he did sign a confidentiality policy. The court determined that various confidential business information, including customer histories and pricing information, qualified for protection as trade secrets. Evidence showed Newell misappropriated AmQuip's quote template and assisted others in violating their own noncompetition agreements. The court found sufficient grounds to enjoin Newell from using AmQuip's confidential information. The Individuals contested the court's factual conclusions, claiming they were misled regarding restrictive covenants; however, evidence showed both Rainey and Bruu had signed noncompetition agreements upon their hiring. They argued they had the right to leave due to a merger affecting service quality, but this claim was not substantiated.

Unhappiness with an employer's merger decisions or customer service does not justify breaching noncompetition covenants or common law duties of loyalty. AmQuip successfully demonstrated irreparable harm when a group of skilled individuals left to join competitor ACrane, diverting significant customers and generating over $2 million in sales within three months. The trial court found that Graham voluntarily resigned to join ACrane, despite claims he was involuntarily terminated. The court's factual finding was supported by credible testimony and remains uncontested. 

The Individuals argued that the trial court did not apply the balancing test from Hess v. Gebhard & Co., Inc., which weighs the employer's interests against the employee's right to work. The trial court determined that AmQuip met the test's requirements, including sufficient consideration for the noncompetition covenants, which were a condition of employment. The reasonableness of the covenants' duration and geographic scope was not contested. 

The evidence indicated that the individuals had access to AmQuip's confidential information, which ACrane exploited for significant growth after their departure. Enforcement of the covenants was deemed necessary to protect this information. The Individuals' claims of hardship in finding new employment were countered by the fact that they breached their own covenants, which was a self-created issue. Accepting their argument would undermine employers’ interests in protecting their business from disloyal employees.

The court in Varga emphasized that the harm faced by an employee when leaving for a competitor often outweighs the harm to a successful employer. However, various courts have upheld the enforcement of non-compete covenants, prioritizing the employer's harm over the employee's financial struggles. The enforcement of these covenants serves the public interest by preventing unfair competition, protecting confidential information and trade secrets, and ensuring the fulfillment of contractual obligations. Consequently, the trial court's decision to issue a preliminary injunction against the individuals was deemed appropriate. The court ordered that the trial court's opinions from February 10, 2017, and May 9, 2017, be included in future case filings. The order was affirmed, and judgment was entered by Joseph D. Seletyn, Esq., Prothonotary, on 11/27/18.