United States District Court, W.D. Pennsylvania
THE YORK GROUP, INC., MILSO INDUSTRIES CORPORATION, and MATTHEWS INTERNATIONAL CORPORATION, Plaintiffs,
SCOTT PONTONE, HARRY PONTONE, BATESVILLE CASKET COMPANY, INC., and PONTONE CASKET COMPANY, LLC, Defendants.
JOY FLOWERS CONTI, Chief District Judge.
The instant action involves alleged breaches of restrictive covenants executed in connection with the sale of a family business consisting of the manufacturing and distribution of caskets. Pending before the court are five motions for summary judgment including thirty-one claims, including counterclaims, filed by the parties pursuant to Federal Rule of Civil Procedure 56. ECF Nos. 462, 463, 467, 472 & 473. All five motions will be addressed in this memorandum opinion. For the reasons that follow, two of the motions will be denied in their entirety ( ECF Nos. 462 & 473 ), and the remaining three motions ( ECF Nos. 463, 467 & 472 ) will be granted in part and denied in part.
Matthews International Corporation ("Matthews") is a Pennsylvania corporation maintaining its principal place of business in Pittsburgh, Pennsylvania. ECF No. 70 ¶ 8. The York Group, Inc. ("York Group"), a subsidiary of Matthews, is incorporated under the laws of Delaware. Id. ¶ 6. Like Matthews, York Group operates out of Pittsburgh. Matthews is the second largest casket company in the United States. ECF No. 587 ¶ 1.
Harry Pontone ("Harry") and his son, Scott Pontone ("Scott"), operated Old Milso and its predecessor, the South Brooklyn Casket Company, for several years. ECF No. 587 ¶ 5. Several members of the Pontone family were involved in the business. Id. Old Milso was engaged in the business of manufacturing and distributing caskets. Non-family individuals also worked in the business, including Josephine Pesce ("Pesce"), who worked as Harry's administrative assistant, id. ¶ 4, and Joseph Redmond ("Redmond"), who served as Old Milso's warehouse manager, ECF No. 70 ¶ 70.
Midnight Acquisition Corporation ("Midnight"), a wholly-owned subsidiary of York Group, acquired Old Milso's assets on May 28, 2005. The acquisition was effectuated by an asset purchase agreement executed by the parties. ECF No. 4-1. The sale closed on July 11, 2005, and Midnight's name was changed to Milso Industries Corporation ("Milso"). Members of the Pontone family were paid a lump sum of $95, 000, 000.00 pursuant to the terms of the agreement. ECF No. 480-1 at 21. The agreement also provided for the payment of contingent consideration under specified circumstances. Id.
In the aftermath of the acquisition, Harry and Scott served respectively as York Group's president and vice president. They both served as members of York Group's board of directors. To effectuate the arrangement, Harry and Scott executed "key employee" employment agreements with York Group. ECF Nos. 470-1 & 480-2. Section 1.01 of those agreements provided that Harry and Scott would perform "duties substantially similar to those performed for the [b]usiness" prior to the acquisition. ECF No. 470-1 at 2; ECF No. 480-2 at 1. As the president, Harry was given "exclusive control" over York Group's operations, including the hiring and firing of employees, employee compensation, product pricing, and the implementation of its business strategy. ECF No. 480-2 at 2. The agreement governing the terms of Harry's employment provided that his service as the president would "continue until the close of business on September 30, 2010." Id. Subject to certain conditions, the agreement governing the terms of Scott's employment provided that he would become York Group's president for the balance of Harry's term in the event that Harry ceased to serve in that capacity "for any reason." ECF No. 470-1 at 3.
Section 4.06 of the employment agreements prohibited Harry and Scott from engaging in a "Competing Business" during their terms of employment and for an additional three years. ECF No. 470-1 at 14; ECF No. 480-2 at 13. The term "Competing Business" was defined broadly enough to include "any person, corporation or other entity" involved in the manufacture, marketing or selling of "caskets, urns, memorials or cremation equipment." Id. Each of the employment agreements also contained the following language:
4.07. Non-Solicitation of Customers and Suppliers. Employee agrees that while employed hereunder he shall not, directly or indirectly, solicit the trade of, or trade with, any customer, prospective customer or supplier of [York Group] with respect to the manufacture or sale of caskets, urns, memorials or cremation products for any business purpose other than for the benefit of the Company. Employee further agrees that following the termination of Employee's employment with [York Group], to the same extent and for the same period (if any) that the Employee continues to be subject to the restrictions of Section 4.06, Employee shall not, directly or indirectly, solicit the trade of, or trade with, any customers or prospective customers or suppliers of [York Group] with respect to the manufacture or sale by [York Group] of caskets, urns, memorials or cremation products, or the supplies necessary to manufacture the same.
4.08. Non-Solicitation of Employees. Employee agrees that following termination of Employee's employment with [York Group], and to the same extent and for the same period (if any) that the Employee continues to be subject to the restrictions of Section 4.06, Employee shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company to leave [York Group] for any reason whatsoever, or hire any such employee. This Section 4.08 will not prohibit Employee from engaging in general advertising or solicitation not specifically targeted at any one or more employees of [York Group] and shall not prohibit Employee from hiring any employee of [York Group] that contacts Employee as a result of such general advertising or solicitation.
ECF No. 470-1 at 14-15; ECF No. 480-2 at 13-14. Section 4.01 of the employment agreements prohibited Harry and Scott from misappropriating or disclosing confidential information without York Group's written consent. ECF No. 470-1 at 12-13; ECF No. 480-2 at 11-12. Under Section 1.07 of the agreements, Harry and Scott were not permitted to "appropriate" York Group's "business opportunities" for their "own benefit." ECF No. 470-1 at 9; ECF No. 480-2 at 8. Choice-of-law clauses provided that the agreements were to "be governed by and construed in accordance with the laws of the State of New York." ECF No. 470-1 at 16; ECF No. 480-2 at 15.
At some point, York Group apparently started to exercise some control over Milso's operations. On March 30, 2007, Harry and Scott sued York Group in the Supreme Court of the State of New York, County of New York, contending that York Group personnel had breached Section 1.01 of the employment agreement with Harry by undermining his authority and encroaching on his responsibilities as the president. ECF No. 191-2. The case was settled in May 2007. ECF No. 587 ¶ 27. Harry resigned from his position as York Group's president and became the chairman of its board of directors, a member of Milso's board of directors, and a member of the executive committees of both York Group and Milso. ECF No. 70 ¶ 51. Scott voluntarily resigned from his positions with York Group. ECF No. 28-3 at 2. York Group, Matthews and Milso agreed to pay him "severance compensation" in the amount of $300, 000.00 per year for a period of three years. Id. The contractual provisions prohibiting Scott from soliciting customers and suppliers were to remain effective through May 30, 2010. ECF No. 587 ¶ 30. The provision prohibiting him from soliciting employees of York Group or Milso was to remain in effect through May 30, 2011. Id. ¶ 31. These terms were expressed in an amendment to Scott's employment contract executed in connection with the settlement agreement. ECF No. 28-3 at 2-5.
In January 2008, Scott became engaged in the business of selling insurance to operators of funeral homes. Civil Action No. 08-6314 (S.D.N.Y.), ECF No. 1 ¶ 39. He employed eight individuals to market his insurance products. Id. Seven of Scott's eight employees had never been employed by York Group. Id. The other employee had apparently left York Group to work for a different employer before joining Scott's sales force. Id.
Several manufacturers and distributors of caskets spoke to Scott about utilizing his sales force to market and sell caskets. Civil Action No. 08-6314 (S.D.N.Y.), ECF No. 1 ¶ 40. Scott responded to those communications by informing his prospective business partners about the non-competition and non-solicitation provisions of his amended contract with York Group. Id. ¶ 41. The prospective business partners expressed a willingness to proceed with their proposed ventures only if they could be assured that such conduct would not contravene the restrictive covenants. Id.
On July 14, 2008, Scott commenced an action against Matthews, York Group and Milso in the United States District Court for the Southern District of New York, seeking a declaration that the non-competition and non-solicitation provisions of his amended employment contract were invalid under New York law. Civil Action No. 08-6314 (S.D.N.Y.), ECF No. 1 ¶¶ 47-53. Four days later, he moved for the entry of a preliminary injunction prohibiting the enforcement of the restrictive covenants or the termination of his severance payments in retaliation for his proposed business activities. Civil Action No. 08-6314 (S.D.N.Y.), ECF No. 9. The district court denied Scott's motion in a memorandum opinion and order dated October 10, 2008. Pontone v. York Group, Inc., Civil Action No. 08-6314, 2008 U.S. Dist. LEXIS 80372 (S.D.N.Y. Oct. 10, 2008). Two days after the rendering of the district court's decision, Scott voluntarily dismissed the action pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). Civil Action No. 08-6314 (SDNY), ECF No. 34.
In January 2010, Scott incorporated the Pontone Casket Company, LLC ("PCC"), under the laws of New York. ECF No. 587 at 79, ¶ xxvii. On June 22, 2010, Pesce and Redmond left their positions with Matthews and started to work for Batesville Casket Company, Inc. ("Batesville"). Id. at 82, ¶ xxxvii. Batesville is the plaintiffs' main competitor. Id. at 38, ¶ 70. Two days later, Scott became a consultant for Batesville. Id. at 34, ¶¶ 65, 82, ¶ xxxvii. The sales consulting agreement was executed through PCC. Id. at 35, ¶ 66. Pesce and Redmond were provided with American Express credit cards issued in PCC's name. Id. at 91, ¶ li.
Matthews, York Group and Milso commenced this action against Scott and Batesville on August 16, 2010, asserting claims grounded in alleged breaches of the amended employment contract. ECF No. 1. Harry retired from his positions with York Group and Milso in September 2010. ECF No. 587 at 39-41, ¶¶ 72, 90-91, ¶ l. In an amended complaint filed on February 28, 2011, Matthews, York Group and Milso added Harry and PCC as defendants. ECF No. 70. Batesville, Scott, Harry and PCC subsequently filed a series of counterclaims against Matthews, York Group and Milso. ECF Nos. 236, 308 & 333.
On December 15, 2011, Scott, Harry and PCC moved for the dismissal of this action pursuant to Federal Rule of Civil Procedure 12(b)(1). ECF No. 182. The motion to dismiss was denied in a memorandum opinion and order dated July 31, 2012. York Group, Inc. v. Pontone, Civil Action No. 10-1078, 2012 U.S. Dist. LEXIS 106695 (W.D.Pa. July 31, 2012). The parties collectively filed five motions for summary judgment on March 8, 2013. ECF Nos. 462, 463, 467, 472 & 473. All five motions will be addressed in this memorandum opinion.
III. Standard of Review
Summary judgment may only be granted where the moving party shows that there is no genuine dispute about any material fact, and that a judgment as a matter of law is warranted. FED. R. CIV. P. 56(a). Pursuant to Federal Rule of Civil Procedure 56, the court must enter summary judgment against a party who fails to make a showing sufficient to establish an element essential to his or her case, and on which he or she will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In evaluating the evidence, the court must interpret the facts in the light most favorable to the nonmoving party, drawing all reasonable inferences in his or her favor. Watson v. Abington Twp., 478 F.3d 144, 147 (3d Cir. 2007).
The burden is initially on the moving party to demonstrate that the evidence contained in the record does not create a genuine issue of material fact. Conoshenti v. Pub. Serv. Elec. & Gas Co., 364 F.3d 135, 140 (3d Cir. 2004). A dispute is "genuine" if the evidence is such that a reasonable trier of fact could render a finding in favor of the nonmoving party. McGreevy v. Stroup, 413 F.3d 359, 363 (3d Cir. 2005). Where the nonmoving party will bear the burden of proof at trial, the moving party may meet its burden by showing that the admissible evidence contained in the record would be insufficient to carry the nonmoving party's burden of proof. Celotex Corp., 477 U.S. at 322. Once the moving party satisfies its burden, the burden shifts to the nonmoving party, who must go beyond his or her pleadings and designate specific facts by the use of affidavits, depositions, admissions or answers to interrogatories showing that there is a genuine issue of material fact for trial. Id. at 324. The nonmoving party cannot defeat a well-supported motion for summary judgment by simply reasserting unsupported factual allegations contained in his or her pleadings. Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989).
IV. Jurisdiction and Venue
The court has jurisdiction in this case pursuant to 28 U.S.C. § 1332(a)(1). Venue is proper under 28 U.S.C. § 1391(b).
In the amended complaint, Matthews, York Group and Milso purported to assert claims under § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), against Scott and PCC. ECF No. 70 ¶¶ 174-184. Those claims were dismissed on August 24, 2011. ECF No. 141 at 21. The pending motions for summary judgment implicate the claims remaining in the amended complaint. Those claims include breach-of-contract claims against Scott and Harry, a breach-of-fiduciary-duty claim against Harry, tortious interference with contractual relations claims against Scott, Harry and Batesville, and unfair competition and unjust enrichment claims against Scott, Harry, PCC and Batesville. ECF No. 70 ¶¶ 123-73, 185-96. Batesville and the remaining defendants separately move for summary judgment with respect to all claims asserted against them in the amended complaint. ECF Nos. 462 & 472.
On April 25, 2012, Batesville filed counterclaims against Matthews, York Group and Milso for tortious interference with prospective economic advantage, abuse of process, malicious prosecution, unjust enrichment, and breach of a restrictive covenant involving former Batesville sales representative Kathy Brooks ("Brooks"). ECF No. 236 ¶¶ 68-113. The court dismissed without prejudice the abuse of process and malicious prosecution claims on August 14, 2012. Matthews, York Group and Milso move for summary judgment with respect to Batesville's remaining counterclaims. ECF No. 463.
On August 17, 2012, Scott, Harry and PCC filed eighteen separate counterclaims against Matthews, York Group and Milso. ECF No. 308. Amended counterclaims, including a new claim for defamation and previously-asserted claims for abuse of process, were filed on October 2, 2012. ECF No. 333. On May 22, 2013, the court filed a memorandum opinion and order dismissing without prejudice the abuse of process claims. ECF No. 579. Scott, Harry and PCC continue to assert counterclaims for breach of contract, breach of the implied covenant of good faith and fair dealing, tortious interference with prospective business advantage, unjust enrichment, unfair competition, misappropriation of Harry's name, image and likeness, defamation, intrusion on seclusion, and false and misleading advertising. ECF No. 333 ¶¶ 165-266, 279-99. Scott and Harry also seek declaratory and injunctive relief in relation to their contractual obligations under their respective employment agreements with York Group. Id. ¶¶ 300-20. Matthews, York Group and Milso seek summary judgment with respect to the remaining seventeen counterclaims asserted by Scott, Harry and PCC. ECF No. 467. Scott and Harry move for partial summary judgment with respect to their counterclaims seeking declaratory and injunctive relief. ECF No. 473.
A. The Validity of the Restrictive Covenants
Among the thirty-one claims currently pending in this case, only two are subject to cross-motions for summary judgment. Those claims are the counterclaims seeking declarations that certain restrictive covenants found in the employment agreements are invalid. ECF No. 333 ¶¶ 300-20; ECF Nos. 467 & 473. Since many of the other claims asserted in this action center on the disputed contractual provisions, the court will consider the validity of the restrictive covenants before addressing the remaining issues.
1. Collateral Estoppel Asserted by Matthews, York Group and Milso
Matthews, York Group and Milso raise the affirmative defense of collateral estoppel in defense of the challenges brought to the restrictive covenants. ECF No. 468 at 35-38. This defense is based on the October 10, 2008, decision denying Scott's motion for a preliminary injunction. Pontone, 2008 U.S. Dist. LEXIS 80372. The preclusive effect of a decision rendered by a federal court is governed by federal common law. Smith v. Bayer Corp., 131 S.Ct. 2368, 2376 n.6 (2011). Uniform federal rules of preclusion apply to judgments entered in federal-question cases. Taylor v. Sturgell, 553 U.S. 880, 891 (2008). When a federal-court judgment in a diversity case is at issue, federal common law incorporates the applicable state rules of preclusion to the extent that those rules are not "incompatible with federal interests." Semtek International, Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508-09 (2001). Like most jurisdictions, New York applies the doctrine of collateral estoppel only where "the identical issue was necessarily decided in the prior action or proceeding and is decisive of the present action." Howard v. Stature Electric, Inc., 986 N.E.2d 911, 913-14 (N.Y. 2013). The prior action concerned only the validity of the provisions in Scott's amended employment agreement prohibiting him from engaging in competitive conduct and soliciting former customers and suppliers for a period of three years. Pontone, 2008 U.S. Dist. LEXIS 80372, at *4-5. Those provisions are not being challenged in this action. ECF No. 333 ¶ 300-20. Under these circumstances, the counterclaims asserted in this action are not precluded by the decision rendered in the earlier action. Hawksbill Sea Turtle v. Federal Emergency Management Agency, 126 F.3d 461, 474-77 (3d Cir. 1997); PG Publishing Co. v. Aichele, 902 F.Supp.2d 724, 742-44 (W.D.Pa. 2012).
2. Choice-of-Law Rules
A federal court sitting in diversity normally applies the choice-of-law rules applicable in the state in which it sits. Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 496-97 (1941). Choice-of-law clauses contained in the relevant employment agreements provided that they were to "be governed by and construed in accordance with the laws of the State of New York." ECF No. 470-1 at 16; ECF No. 480-2 at 15. Contractual provisions of this kind are generally enforceable under Pennsylvania law. Kruzits v. Okuma Machine Tool, Inc., 40 F.3d 52, 55-56 (3d Cir. 1994). In light of the choice-of-law clauses, the parties have stipulated that New York law governs the terms of the employment agreements. ECF No. 159 at 2. Consequently, the court will consider the validity of the challenged contractual provisions in accordance with the law of New York.
3. Non-disclosure/Confidentiality Provisions
When Scott and Harry executed their respective employment agreements with York Group, they agreed to the following terms:
4.01. Non-Disclosure of Confidential Information. Employee agrees to hold and safeguard the Confidential Information in trust for the Company, its successors and assigns and agrees that he or she shall not, without the prior written consent of the Company, misappropriate or disclose or make available to anyone for use outside the Company's organization at any time, either during his employment with the Company or subsequent to the termination of his employment with the Company for any reason, including without limitation termination by the Company for Cause or without Cause, any of the Confidential Information, whether or not developed by Employee, except as required in the performance of Employee's duties to the Company. Without limitation, Employee shall not be permitted to remove Confidential Information from Company computer servers to use for any personal purpose.
ECF No. 470-1 at 12-13; ECF No. 480-2 at 11-12. The agreements define the term "Confidential Information" to mean
information concerning the Company's sales, sales volume, sales methods, sales proposals, customers and prospective customers, identity of customers and prospective customers, identity of key purchasing personnel in the employ of customers and prospective customers, amount or kind of customers' purchases from the Company, the Company's sources of supply, the Company's computer programs, system documentation, special hardware, product hardware, related software development, the Company's manuals, formulae, processes, methods, machines, compositions, ideas, improvements, inventions or other confidential or proprietary information belonging to the Company or relating to the Company's affairs.
ECF No. 470-1 at 12; ECF No. 480-2 at 11.
Scott and Harry maintain that these terms are "unreasonable and unnecessary to protect [the] legitimate business interests" of Matthews, York Group and Milso. ECF No. 333 ¶ 304, 312. According to Scott and Harry, they would effectively "be barred for life from competing in the casket industry" if the terms of their employment agreements were to be given full effect. Id. ¶¶ 306, 313. This assertion is based on the idea that the non-disclosure provisions were crafted "to achieve the same effect" as "express non-compete provision[s]." ECF No. 479 at 2. Matthews, York Group and Milso deny that the non-disclosure provisions should be construed broadly enough to constitute de facto non-compete provisions. ECF No. 507 at 16. They contend that the non-disclosure provisions, which remain effective for the duration of the lives of Scott and Harry, can be enforced without depriving those individuals of opportunities to work in the casket industry. Id. at 16-17.
Joseph C. Bartolacci ("Bartolacci"), the president and chief executive officer ("CEO") of Matthews, testified that, in his view, Scott and Harry could not effectively compete with Matthews in the New York market without breaching the non-disclosure provisions. ECF No. 348-1 at 94-102. Scott and Harry rely on Bartolacci's testimony for the proposition that Matthews, York Group and Milso are attempting to use the non-disclosure provisions as a pretext to force them out of the casket business. ECF No. 578 at 2-8. In the present context, however, the court must consider the provisions as drafted without conflating them with "the theory of inevitable disclosure." Earthweb, Inc. v. Schlack, 71 F.Supp.2d 299, 311-12 (S.D.N.Y. 1999).
Under New York law, a restrictive covenant is ordinarily "subject to specific enforcement [only] to the extent that it is reasonable in time and area, necessary to protect the employer's legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee." Reed, Roberts Associates, Inc. v. Strauman, 353 N.E.2d 590, 593 (N.Y. 1976)(emphasis added). The requirement of durational reasonableness, however, does not apply in cases involving "only the so-called implied covenant' to refrain from soliciting former customers following the sale of the good will' of a business." Mohawk Maintenance Co., Inc. v. Kessler, 419 N.E.2d 324, 328 (N.Y. 1981). This principle derives from Von Bremen v. MacMonnies, 93 N.E. 186 (N.Y. 1910), in which the New York Court of Appeals explained:
The good will, which the former owner thereof parts with in invitum, as in bankruptcy proceedings or by operation of law, as in the liquidation of a partnership by the lapse of time or its termination pursuant to the articles of copartnership, is a lesser property than the good will which is the subject of a voluntary sale and transfer by the owner for a valuable consideration. In the first class of cases the former owner remains under no legal obligation restricting competition on his part in the slightest degree; in the second class of cases the former owner, by his voluntary act of sale, has excluded himself from competing with the purchaser of the good will to the extent of having impliedly agreed that he will not solicit trade from customers of the old business. To this extent this good will is a more valuable property than the good will of a business which goes to a trustee in bankruptcy or a receiver or survivor of a partnership in liquidation. The good will which is the subject of a voluntary sale is, therefore, a different thing from the good will which the owner parts with perforce or under compulsion.
Von Bremen, 93 N.E. at 189. In this vein, "[a] seller's implied covenant' not to solicit his [or her] former customers is a permanent one that is not subject to divestiture upon the passage of a reasonable period of time.'" Bessemer Trust Co., N.A. v. Branin, 949 N.E.2d 462, 468 (N.Y. 2011) (quoting Mohawk, 419 N.E.2d at 329). This implied covenant is based on the idea that a transaction facilitating the sale of a business essentially constitutes "an attempt to transfer the loyalties of the business' customers from the seller, who cultivated and created them, to the new proprietor." Bessemer, 419 N.E.2d at 329. When the seller of a business actively solicits his or her former customers in connection with a competing business, he or she violates the law of New York even in the absence of a contractual covenant restricting his or her ability to engage in competitive conduct. Mohawk, 419 N.E.2d at 329, n.6.
Matthews, York Group and Milso argue that the confidentiality provisions contained in the employment agreements merely codify an employee's common-law duty to refrain from disclosing proprietary information maintained by his or her employer. ECF No. 468 at 39-40. To the extent that those provisions prohibit the disclosure of "customers, " it can certainly be said that they prophylactically safeguard certain interests independently protected under the "implied covenant" recognized in New York. Bessemer, 949 N.E.2d at 469 (explaining that "[t]he implied covenant' not to solicit former customers bars a seller from taking affirmative steps to directly communicate with them"). Scott and Harry attempt to distinguish this case from the cases involving the "implied covenant" by pointing out that their respective employment agreements were separate and distinct from the asset purchase agreement. ECF No. 578 at 9. That attempted distinction is unavailing. The employment agreements were executed on the same date as the asset purchase agreement. ECF No. 470-1 at 2; ECF No. 480-2 at 1. They became effective on the closing date specified therein. Id. Like other members of the Pontone family, Scott and Harry received significant sums of money in connection with the sale. ECF No. 4 ¶ 10. The mere fact that separate agreements were executed does not mean that the overall context of the transaction can be ignored. Since New York law independently precluded Scott and Harry from competitively soliciting Milso's former customers for the duration of their lives, the confidentiality provisions appear to be enforceable to the extent that they prohibit the disclosure of those customers. Reed, Roberts Associates, 353 N.E.2d at 593 (declaring that "restrictive covenants will be enforceable to the extent necessary to prevent the disclosure or use of trade secrets or confidential customer information").
The purchasing habits of particular customers are not inevitably "confidential." Earthweb, 71 F.Supp.2d at 315. In this case, however, Scott and Harry are more limited in their dealings with former customers because they sold their family business. Bessemer, 949 N.E.2d at 468-470. Matthews, York Group and Milso were permitted to negotiate employment contracts providing more protection than that independently provided under New York's common law. Mohawk, 419 N.E.2d at 329 n.6. The court acknowledges that the employment agreements expressly permitted Scott and Harry to solicit former customers of York Group and Milso after the passage of three years. ECF No. 28-3 at 4; ECF No. 470-1 at 14-15; ECF No. 480-2 at 13-14. For this reason, Scott and Harry are not amenable to suit on the theory that they breached the implied covenant not to solicit former customers. MGM Court Reporting Service, Inc. v. Greenberg, 541 N.E.2d 405, 406 (N.Y. 1989). This court previously recognized that New York law permits parties to waive the implied covenant by agreement. ECF No. 72 at 9-10. It does not follow, however, that the existence of the implied covenant under New York law has no bearing whatsoever on the reasonableness of the employment contracts. Since New York law (in the absence of the agreements) would prohibit Scott and Harry from soliciting their former customers for the duration of their lives, it follows a fortiori that the parties were free to prohibit contractually the disclosure of those customers for an indefinite period of time. Mohawk, 419 N.E.2d at 329, n.6.
On the other hand, a confidentiality agreement utilized as a de facto restrictive covenant "can be a powerful weapon in the hands of an employer, " especially since "the risk of litigation alone may have a chilling effect on the employee." Earthweb, 71 F.Supp.2d at 310. Bartolacci's testimony suggests that Matthews, York Group and Milso view any attempts by Scott and Harry to compete with them in the New York market as necessarily encompassing violations of the non-disclosure provisions. ECF No. 348-1 at 94-102. Some applications of the those provisions could restrain the activities of Scott and Harry in a manner that is inconsistent with the law of New York. Neither confidentiality clause has to be enforced or invalidated as an undifferentiated whole, since the New York Court of Appeals has found restrictive covenants to be severable. BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1226-1227 (N.Y. 1999). Given that the public policy implications of the non-disclosure provisions are not apparent from the record, the invalidity of those provisions in some contexts will be determined after the remaining factual issues in this case are tried. Barbagallo v. Marcum LLP, 820 F.Supp.2d 429, 449-50 (E.D.N.Y. 2011). In the meantime, the motion for partial summary judgment filed by Scott and Harry will be denied. ECF No. 473. The motion for summary judgment filed by Matthews, York Group and Milso will be denied with respect to the counterclaims seeking declaratory and injunctive relief from the application of the non-disclosure provisions. ECF No. 463.
B. The Breach-of-Contract Claims
The asset purchase agreement provides:
12.1 Confidentiality. Sellers and Shareholders hereby covenant and agree that, except as may be required by law, rule or regulation or court order, or as permitted by this Agreement, unless this Agreement is terminated, they will not at any time reveal, divulge or make known to any Person (other than Buyer or its agents and Affiliates) any information that relates to this Agreement, the transactions contemplated hereby or the Business (whether now possessed by Sellers or furnished by Buyer after the Closing Date), including, but not limited to, customer lists or other customer information, trade secrets or formulae, marketing plans or proposals, financial information or any data, written material, records or documents used by or relating to the Business that are of a confidential nature (collectively, the "Confidential Information").
ECF No. 4-1 at 47. Matthews, York Group and Milso allege that Scott and Harry breached Section 12.1 of the asset purchase agreement by disclosing their "customer lists and customer information, trade secrets and other proprietary information" to Batesville. ECF No. 70 ¶¶ 128, 146. The breach-of-contract claims asserted against Scott and Harry are also based on allegations that they violated their respective employment agreements by inducing Pesce and Redmond to leave their prior positions and start working for Batesville. Id. ¶¶ 129, 147. Scott and Harry move for summary judgment with respect to those claims. ECF No. 472.
The asset purchase agreement contains a choice-of-law clause declaring that it "shall be governed by and construed in accordance with the laws of the State of Delaware." ECF No. 4-1 at 56. In accordance with that clause, the parties have stipulated that Delaware law governs the breach-of-contract claims stemming from the asset purchase agreement. ECF No. 159 at 2. The asset purchase agreement also has a forum-selection provision stating that "any suit, action or proceeding arising [thereunder] shall be brought solely in the state or federal courts of Delaware." ECF No. 4-1 at 56. Scott and Harry maintain that Matthews, York Group and Milso breached the asset purchase agreement by bringing their claims in this court, thereby rendering those claims infirm. ECF No. 477 at 31-32. Matthews, York Group and Milso offer no coherent argument relating to the forum-selection clause. ECF No. 510 at 27, n. 14.
In Atlantic Marine Construction Co., Inc. v. U.S. District Court for the Western District of Texas, 134 S.Ct. 568, 577-78 (2013), the United States Supreme Court held that a contractual forum-selection clause agreed to by the parties had no impact on the propriety of venue under 28 U.S.C. § 1391. The Supreme Court explained that the proper method for enforcing the forum-selection clause was either a transfer pursuant to 28 U.S.C. § 1404(a) or the application of the doctrine of forum non conveniens. Atlantic Marine, 134 S.Ct. at 579-80. No opinion was expressed about whether the defendant in a breach-of-contract action could obtain a merits-based dismissal on the ground that the suit was commenced in violation of a forum-selection clause, since that issue had not been briefed by the parties. Id. at 580.
Scott and Harry do not move for a transfer. Instead, they merely contend that the apparent violation of the forum-selection clause justifies the dismissal of the breach-of-contract claims for merits-based reasons. ECF No. 477 at 31-32. The propriety of such a dismissal can only be considered in relation to Delaware law. The Delaware Supreme Court has held that the doctrine of "unclean hands" should be applied to prelude a breach-of-contract claim only where the plaintiff's independent breach is "repugnant." Smithkline Beecham Pharmaceuticals Co. v. Merck & Co., Inc., 766 A.2d 442, 449-50 (Del. 2000). Although the claims based on the asset purchase agreement were filed in violation of the forum-selection clause, they are accompanied by virtually identical claims arising under the employment agreements. ECF No. 70 ¶¶ 128, 147. Unlike the asset purchase agreement, the employment agreements are governed by New York law. ECF No. 159. They contain forum-selection clauses requiring "any suit, action or proceeding arising [thereunder to] be brought solely in the state or federal courts of Pittsburgh, Pennsylvania or New York, New York." ECF No. 470-1 at 16; ECF No. 480-2 at 15. Matthews, York Group and Milso could have strictly complied with all applicable forum-selection clauses only by commencing two separate actions. They adhered to the forum-selection clauses contained in the employment agreements by filing suit in this court. Given that only a small subset of the claims asserted in this action are subject to the forum-selection clause in the asset purchase agreement, the court cannot conclude that the "breach" attributable to the choice of this forum was sufficiently "repugnant" to justify the dismissal of those claims under the law of Delaware. Smithkline Beecham, 766 A.2d at 449-50.
Under New York law, a plaintiff proceeding with a breach-of-contract claim must demonstrate the existence of an agreement, adequate performance on his or her part, a breach by the defendant, and resulting damages. Fischer & Mandell LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir. 2011). The elements of a breach-of-contract claim under Delaware law are not materially different. VLIW Technology, LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003). Scott and Harry contend that the record fails to establish that they breached their respective contractual obligations, or that any damages resulted from the alleged breaches. ECF No. 477 at 14.
Under the amended employment agreement, Scott was not permitted to "directly or indirectly solicit or induce any employee of York Group, Inc. or Milso to leave either company or hire any such employee." ECF No. 28-3 at 4. It is undisputed that this prohibition, which remained effective for four years following Scott's departure, was in effect when Pesce and Redmond left their positions and started to work for Batesville. Id. Attempting to refute any assertion that he violated his contractual obligations, Scott asserts that Pesce and Redmond were employed only by Matthews and, therefore, not within the categories of York Group and Milso employees falling within the scope of the non-solicitation provision. ECF No. 477 at 40. Scott also argues that he did not "solicit or induce" Pesce or Redmond to leave Matthews in any event. Id. at 41-44.
The record contains conflicting evidence concerning the employment status of Pesce and Redmond. Pesce and Redmond submitted statements declaring that they had been employed by Matthews. ECF No. 484-25 at 1-2, ¶¶ 3-8; ECF No. 485-8 at 1-2, ¶¶ 3-10. Both individuals received their paychecks from Matthews. ECF No. 511 at 27, ¶ 12, 31, ¶ 24. Jennifer Ciccone ("Ciccone"), Matthews' vice president of Human Resources, responded in the affirmative when asked whether Pesce and Redmond were subject to a handbook describing certain policies pertaining to Matthews' employees. ECF No. 485-6 at 26. Nonetheless, the documentary record contains evidence suggesting that those individuals were employed by York Group and Milso. On September 21, 2006, Redmond received a memorandum stating that Matthews "w[ould] be handling the payroll for Milso effective 10/01/2006." ECF No. 518-107 at 2. The memorandum instructed Redmond to complete a "special payroll check request form" in order to "expedite payroll changes." Id. An "employee status change notice" form contained in the record indicates that Pesce "transfer[ed] from Milso to York" on December 29, 2007. ECF No. 518-97 at 2. In a declaration dated April 1, 2013, Ciccone stated that Pesce and Redmond had both become employees of Milso after the 2005 acquisition. ECF No. 518-94 at 3, ¶ 3. She confirmed that Pesce had later become a York Group employee in December 2007. Id. Ciccone declared that Redmond had remained a Milso employee until his resignation on June 22, 2010. Id. According to Ciccone, the fact that Pesce and Redmond had been paid by Matthews was attributable to the centralization of human resources and payroll records among employees of Matthews, York Group and Milso. Id. at 3, ¶ 5. Pesce and Redmond were listed on the payroll registers respectively for York Group and Milso. Id. at 3, ¶ 4. On the basis of the existing record, a reasonable trier of fact could conclude that Pesce and Redmond were within the categories of York Group and Milso employees falling within the non-solicitation provision found in Scott's amended employment agreement. ECF No. 28-3 at 4.
Pesce and Redmond started to work for Batesville on June 22, 2010. ECF No. 587 at 82-83, ¶ xxxvii. Scott became a Batesville consultant two days later. Id. Matthews, York Group and Milso allege that Scott breached the non-solicitation provision of his amended contract by inducing Pesce and Redmond to leave their positions with York Group and Milso in order to work for Batesville. ECF No. 70 ¶ 129. Scott denies that allegation. ECF No. 477 at 41-44.
In declarations signed in March 2013, Pesce and Redmond both denied that Scott or Harry had influenced their decisions to accept positions at Batesville. ECF No. 484-25 at 6, ¶ 30; ECF No. 485-8 at 4, ¶ 16. Pesce stated that she had approached Dave Bowers ("Bowers"), Batesville's director of sales for the Metropolitan Region, about a position at Batesville during the Metropolitan Funeral Directors Golf Outing conducted in May 2010. ECF No. 484-25 at 6, ¶ 28. This conversation evidently led to Pesce's hiring a few weeks later. Redmond asserted that he had gone to Batesville in search of better work hours, a greater potential for advancement, and more job security. ECF No. 485-8 at 2-3, ¶¶ 11-15. He stated that his employment with Batesville had resulted from an inquiry initiated by him in May 2010. Id. at 3, ¶ 15.
Pesce declared that she had feared losing her job at Matthews because her mother, a seamstress, had been terminated by Matthews roughly four months after the settlement that had resolved the 2007 lawsuit brought by Scott and Harry against York Group. ECF No. 484-25 at 2-3, ¶¶ 9-14. She explained that a letter to Harry from James P. Doyle ("Doyle"), a Matthews official, had caused her to question her job security. Id. at 4-5, ¶¶ 19-25. The letter, which was dated March 22, 2010, contained the following language:
As you might expect, I was very disappointed with both the tone and content of your recent correspondence addressing the various proposals Matthews has communicated over the past year to extend your employment with the Casket Division. Simply stated, I do not understand your alleged outrage or the manner in which you are now mischaracterizing Matthews' repeated good ...