The opinion of the court was delivered by: Savage, J.
Plaintiff USA Technologies, Inc. ("USAT") seeks a preliminary injunction enjoining the defendants, a group of USAT shareholders acting as S.A.V.E. Partners, IV, LLC ("SAVE"),*fn1 from making certain statements about the company and those responsible for its management, which it contends violate a non-disparagement provision in a settlement agreement.*fn2 The defendants argue that USAT has failed to show that it will likely prevail on the merits and it will suffer irreparable harm unless an injunction is issued. Alternatively, they contend that a preliminary injunction would constitute a prior restraint on their free speech rights guaranteed under the United States and Pennsylvania Constitutions.
After reviewing the parties' submissions and after a hearing, we conclude that USAT is entitled to a preliminary injunction. The statements, in their original form, violate the nondisparagement provision of the parties' agreement. In the negotiated settlement agreement, the parties waived their respective rights to the speech USAT seeks to enjoin and agreed that an injunction was an appropriate remedy for a violation of the settlement agreement. Thus, we shall grant USAT's motions for a temporary restraining order and for a preliminary injunction.
USAT, a Pennsylvania corporation, provides networked credit card and other non-cash payment systems in vending, commercial laundry, hospitality, and digital imaging industries. Defendant Bradley Tirpak is a former USAT board member, current shareholder, and leader of SAVE, an organization that has initiated a proxy contest to place a slate of candidates on USAT's Board.
The parties have a contentious past. Beginning in the Fall of 2009, the parties have made charges and countercharges of nonfeasance and misfeasance. SAVE charges mismanagement of USAT by the current board members. USAT accuses Tirpak of misconduct during his tenure as a board member. The rhetoric has arisen in the context of SAVE's campaign to replace the current members of the board with its candidates.
Duringthis vitriolic dispute, the parties have signed three settlement agreements. The Second Settlement Agreement, dated May 19, 2011, contains a broad "nondisparagement" provision, which applies to all signatories. It reads in relevant part:
Each party to this Agreement agrees that he and it will not express, orally or in writing, any disparaging or unfavorable remarks, comments or criticisms with regard to: (a) the Company and/or its directors, officers [or] executives . . . concerning any action taken or statement made by any of them prior to the date of this Agreement, . . . or (b) SAVE, Thomas, Tirpak and/or Michel concerning any action taken or statement made by any of them prior to the date of this Agreement, including but not limited to any positions taken or expressed, orally or in writing . . . . Each party to this Agreement further agrees that he and it will refrain from engaging in any publicity or any other activity that damages or impairs, or could damage or impair, the business, goodwill or reputation of the Company and its directors . . . or of SAVE, Thomas, Tirpak and Michel concerning any action taken or statement made by any of them prior to the date of this Agreement, including but not limited to any position taken or expressed, orally or in writing . . . .*fn3
There are four exceptions. Pertinent to this action is section 9(c), which provides: Nothing in this Section 10 [sic] shall prohibit or restrict any member of the SAVE group or any of the Company Released Parties from . . . (c) complying with any disclosure obligations under the rules and regulations of the SEC or other securities laws . . . .*fn4
USAT shareholders will elect a new board of directors on June 28, 2012. SAVE has nominated a slate of candidates for the board, including Craig Thomas and Bradley Tirpack. The campaign has increased the heat of the rhetoric. Shortly after SAVE announced its nominations, USAT issued a press release with the sub-heading, "Bradley Tirpack, Former Board Member Accused of Code of Business Conduct and Ethics Violations, Trying to Gain Control with Zero Premium to Shareholders."*fn5 SAVE countered one week later, posting a press release on its website. The press release contains several statements about the performance of USAT's Board and some of its members. USAT contends that the following statements in the press release violate the Second Settlement Agreement's non-disparagement provision:
Since Stephen Herbert became President and COO in August 1999, the Company has accumulated net losses each fiscal year, totaling more than $175 million. During that time, the Company's stock price has declined over 99%. . . . .
The Board approved four securities offerings from March 2010 to March 2011, and shareholders have been diluted by over 43% in the past two years.
One long-standing Board member, Douglas Lurio, has billed the Company over $2,300,000 through his small law firm during the past five fiscal years while collecting an additional $100,000 in Board fees during that time. . . . .
Eliminate Wasteful Spending . . . Mr. Lurio's small law firm has billed the Company over $2,300,000 during the past five fiscal years . . . .*fn6
Prior to the hearing, SAVE issued a preliminary proxy statement on behalf of its slate of candidates. Under the heading "Reasons for the Solicitation," SAVE states:
Over the past one-, five- and ten-year periods, ended [sic] May 1, 2012, the Company's share price declined approximately 45.0%, 84.7% and 95.2%, respectively. . . . .
In the last three fiscal years ended [sic] June 30, 2011, the Company has reported operating losses and overall net losses, each totaling in excess of $30 million.
In the fiscal years ended [sic] June 30, 2011, June 30, 2010 and June 30, 2009, net cash used in operating activities was approximately $5.2 million, $12.3 million and $8.5 million.
USAT argues these statements also violate the non-disparagement provision.
In determining whether preliminary injunctive relief is available, we weigh four factors: (1) the likelihood that USAT will succeed on the merits; (2) the threat of irreparable harm to USAT if an injunction is not granted; (3) whether granting an injunction will result in greater harm to the defendants than USAT; and (4) whether injunctive relief will be in the public interest. Winter v. Nat. Res. Def. Council, 555 U.S. 7, 20 (2008); N.J. Retail Merchants Ass'n v. Sidamon-Eristoff, 669 F.3d 374, 385-86 (3d Cir. 2012). The moving party bears the burden of persuasion. Mazurek v. Armstrong, 520 U.S. 968, 972 (1997). Failure to establish that any element weighs in its favor will result in the denial of a preliminary injunction. Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 109 (3d Cir. 2010). Although USAT's underlying action is a state law breach of contract claim, we apply a federal standard in examining the motion for a preliminary injunction. Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 799 (3d Cir. 1989).
Likelihood of Success on the Merits
Initially, we determine the likelihood that USAT will succeed on the merits. ACLU v. Black Horse Pike Regional Bd. of Educ., 84 F.3d 1471, 1477 (3d Cir. 1996). The test is not whether it has succeeded on the merits, entitling it to permanent relief. Id.
At the core of this action is the non-disparagement provision in the Second Settlement Agreement. The parties disagree on the meaning of the provision. Thus, ...