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Yost v. Mid-West Hose and Specialty, Inc.

United States District Court, W.D. Pennsylvania

September 25, 2019

COLTON YOST and AAH ACQUISITION, LLC d/b/a ALL-AMERICAN HOSE Plaintiffs,
v.
MID-WEST HOSE AND SPECIALTY, INC., Defendant.

          MEMORANDUM OPINION WITH FINDINGS OF FACT AND CONCLUSIONS OF LAW

          SUSAN PARADISE BAXTER UNITED STATES DISTRICT JUDGE

         I. Procedural History

         Plaintiffs Colton Yost and his present employer AAH Acquisition, LLC (doing business as All-American Hose) (hereinafter, "All-American Hose") initiated this civil action by filing a complaint for declaratory judgment. ECF No. 1. As the sole Defendant to this action, Plaintiffs name Mid-West Hose and Specialty, Inc. ("Mid-West Hose"), Mr. Yost's former employer. This case arises out of the present employment of Mr. Yost as an extruder operator at All-American Hose. The parties do not dispute that Mr. Yost signed a non-competition/nondisclosure agreement with his former employer or that the two corporations are competitors in the manufacture of 10- and 12-inch hose.

         Defendant Mid-West Hose filed an Answer and Counterclaims bringing a breach of contract claim against Mr. Yost and an intentional interference with contractual relations claim against Ail-American Hose. ECF No. 10. As relief, Defendant seeks to enjoin All-American Hose's continuing employment of Yost, as well as monetary damages. Id. at 10.

         Defendant Mid-West Hose also filed a motion for preliminary injunction, seeking:

1) An injunction [...] against Colton Yost for a period of 18 months [...] enjoining Mr. Yost from accepting or continuing employment with Ail-American Hose or any other business or enterprise within the scope of the prohibition set forth in the August 21, 2017 Noncompetition, Nonsolicitation, and Nondisclosure Agreement between Midwest Hose and Mr. Yost; and
2) [...] an injunction [...] against Mr. Yost for a period of 18 months [...] enjoining All-American Hose from continuing employment of Mr. Yost.

ECF No. 11-4, page 1. Defendant argues that because Mr. Yost's new employment violates his noncompetition/nondisclosure agreement, the Court should preliminarily enjoin Mr. Yost's employment during the pendency of this case. ECF No. 11, page 1. Defendant's argument in this regard is limited to the breach of contract claim.

         II. Choice of Laws on the Breach of Contract Claim

         Because this Court exercises diversity jurisdiction over this matter, a choice of laws determination must be made at the outset. The Agreement between Mr. Yost and Mid-West Hose contains a choice of laws clause that provides that the laws of the State of Florida "shall govern this Agreement and the Parties' rights, obligations and/or liabilities under this Agreement and/or that relate to Covenantor's employment with Company at law or in equity." ECF No. 1-1, page 6.

         Where a district court's jurisdiction rests on the diversity of the parties, as it does here, the district court must apply the choice of law rules of the forum state. Collins v. Mary Kay, Inc., 874 F.3d 176, 183 (3d Cir. 2017). See also Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 497 (1941). Under Pennsylvania law, "courts generally honor the intent of the contracting parties and enforce choice of law provisions in contracts executed by them" (Kruzits v. Okuma Mack Tool, 40 F.3d 52, 55 (3d Cir. 1994)) except in situations where either (a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue." Gay v. Creditlnform, 511 F.3d 369, 389 (3d Cir. 2007) citing § 187 of the Restatement (Second) Conflict of Laws.

         Mr. Yost and Ail-American Hose argue that despite the agreement's express language, Pennsylvania law should apply to this dispute because: 1) none of the parties has any relevant connection to Florida and the dispute occurred in Pennsylvania; and 2) there is a fundamental conflict between Florida law and Pennsylvania law (as Pennsylvania law requires a court to balance the protectable interest of the party seeking enforcement against an employee's interest in earning a living, while a Florida statute expressly forbids any such balancing analysis). Conversely, Mid-West Hose argues that the Florida statute should apply because Mid-West Hose has a substantial relationship to Florida and has an interest in the uniform application of its restrictive covenants, "a feat accomplished through Florida's detailed laws on the topic." ECF No. 25, page 7.

         Neither the pleadings nor the record indicates that Mid-West Hose has a substantial relationship to Florida. Mid-West Hose is an Oklahoma corporation with its principal place of business in Oklahoma. ECF No. 1, Complaint, ¶ 3; ECF No. 10, Answer, ¶ 3. At the evidentiary hearing, Mark Lockhart of Mid-West Hose testified that the corporation has twenty-six branches throughout the United States including two branches in the state of Florida. ECF No. 28, page 5. Mid-West Hose suggests that Florida law was specified in the Agreement because "Florida had codified its laws regarding the interpretation of restrictive covenants, leading to a more streamlined and consistent approach to enforceability throughout Mid-West Hose's operations." ECF No. 25, page 7. Maintaining two out of twenty-six branches in a state, without more, does not demonstrate a substantial relationship to that state.

         Even assuming, for the purposes of this motion only, that Mid-West Hose has a substantial relationship to Florida and the choice of Florida is a reasonable one due to the state's detailed statutory structure regarding restrictive covenants, the application of Florida's law would be contrary to a fundamental policy of the Commonwealth of Pennsylvania "which has a materially greater interest" in the determination of the particular issue. While many of the elements of the enforceability of a covenant not to compete are the same between the two states, Florida has codified its approach to the enforceability of restrictive covenants, while under Pennsylvania common law, restrictive covenants are generally disfavored.[1] F.S.A. § 542.335; Victaulic Co. v. Pieman, 499 F.3d 227, 235 (3d Cir. 2007) ("[M]andating compliance with a covenant not to compete is disfavored."); Siemens Medical Solutions Health Services Corp. v. Carmelengo, 167 F.Supp.2d 752, 760 (E.D. Pa. Apr. 12, 2001) ("because they constitute a "restraint on an employee's trade, " restrictive covenants "are strictly construed against the employer" by Pennsylvania courts).

         To Plaintiffs' point, Florida law expressly prohibits a court from considering any "individualized economic harm or other hardship that might be caused to the person against whom enforcement is sought" F.S.A. § 542.335(g)(1), while Pennsylvania law provides that a court is required to balance the protectable interest of the party seeking enforcement against a former employee's interest in earning a living. Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102, 119 (3d Cir. 2010) ("[A] court should not impose lightly" a preliminary injunction "prohibiting someone from pursuing his livelihood in the manner he chooses" as such is "a severe restriction on him."). See also PharMethod, Inc. v. Caserta, 382 F.App'x 214, 220 (3d Cir. 2010) ("A court must make an in-depth inquiry before entering a preliminary injunction that may have an impact on a person's livelihood."). This presents a fundamental conflict between the laws of the two states as to the law on the breach of contract claim.

         In another important distinction, Florida law does not require the execution of a noncompetition agreement contemporaneous with the start of the employment relationship, while Pennsylvania requires restrictive covenants to be included in the initial employment agreement or if agreed upon later, to be supported by new consideration. See F.S.A. § 542.335; Pulse Technologies, Inc. v. Notaro & MK Precision LLC, 620 Pa. 322, 328 (2013) quoting Maintenance Specialties Inc. v. Gottus, 455 Pa. 327, 331 (1974) ("While a restrictive covenant, in order to be valid need not appear in the initial contract, if it is agreed upon at some later time it must be supported by new consideration.").

         For all of these reasons, we find there is a conflict between the Florida and Pennsylvania law on the breach of contract claim. Here, the parties entered into an agreement in Pennsylvania, Mr. Yost is a resident in Pennsylvania, both corporations have manufacturing facilities and employ others in Pennsylvania. Because Pennsylvania has a materially greater interest in the application and enforcement of restrictive covenants entered into in its Commonwealth, we will apply Pennsylvania law.

         III. The Evidentiary Hearing and Standard of Review

         This Court held an evidentiary hearing on November 29, 2018 at which the following people testified: Mark Lockhart, Technical Director at Mid-West Hose; Kyle Stine, Extrusion and Finishing Manager at Mid-West Hose; Colton Yost, Plaintiff; and Robert Maleski, Manager of Engineering and Strategic Purchasing at All-American Hose. Following the hearing, the parties were encouraged to supplement their briefing, specifically with regard to irreparable injury, which they did. See ECF No. 28, page 43.

         A preliminary injunction is "an extraordinary remedy granted only in limited circumstances." Issa v. School District of Lancaster, 847 F.3d 121, 131 (3d Cir. 2017) citing Ferring Pharm., Inc. v. Watson Pharrn., Inc., 765 F.3d 205, 210 (3d Cir. 2014). There are four factors a court must consider when evaluating a motion for preliminary injunctive relief:

1) Has the moving party established a reasonable likelihood of success on the merits (which need not be more likely than not); 2) Is the movant more likely than not to suffer irreparable harm in the absence of preliminary relief; 3) Does the balance of equities tip in its favor; and 4) is an injunction in the public interest?

LFw/tow v. City of Philadelphia, 922 F.3d 140, 152 (3d Cir. Apr. 22, 2019) citing Reilly v. City of Harrisburg, 858 F.3d 173, 179 (3d Cir. 2017). After the movant meets the first two "gateway factors, " the court then determines whether all four factors, taken together, balance in favor of granting the relief sought. Id.

         With this standard of review in mind, having now considered the testimony of the witnesses and the evidence admitted at the evidentiary hearing, as well as the submissions of the parties, the Court makes Findings of Fact and Conclusions of Law denying the motion for preliminary injunction. See Federal Rule of Civil Procedure 52.

         IV. Findings of Fact

         The Parties

         1. Plaintiff Colton Yost is a resident of Pennsylvania.

         2. AAH is a Delaware limited liability corporation with its principal place of business in Pennsylvania doing business as "All- American Hose."

         3. Defendant Mid-West Hose is an Oklahoma corporation doing business in Pennsylvania. ECF No. 1, Complaint, ¶ 3; ECF No. 10, Answer, ¶ 3. Mid-West Hose has twenty-six branches around the United States, including two branches in the state of Florida. ECF No. 28, Transcript, page 5.

         4. All-American Hose's Union City facility is located less than 14 miles from Mid-West Hose's Corry facility. ECF No. 34, Stipulated Findings of Fact.

         Hose Manufacturing Generally

         5. All-American Hose and Mid-West Hose are competitors in the hose manufacturing business[2]. ECF No. 28, page 30.

         6. The manufacturing process for any TPU hose begins by weaving a polyester jacket in a weaving loom. The jacket is moved to an extruder where the jacket enters an extruder head and is surrounded with TPU and heated and dried to create a water- tight seal. Following completion, a coupling is applied and the hose is tested for leaks or defects. Once the hose passes testing, it is ready for transport. ECF No. 34, Stipulated Findings of Fact.

         7. Large diameter TPU hoses, those with a 10- or 12-inch diameter, are more difficult to make than smaller hoses. ...


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