Joanne Murray, a partner of Antheil Maslow & MacMinn was elected Vice President/President-Elect of the Bucks County Bar Association at their Annual Meeting on December 5th. The Bar Association is dedicated to providing its members, potential members and all persons and organizations connected with the law, support and fellowship for the advancement of the legal profession. The association strives to accomplish these goals through numerous active committees, sections and divisions and community programs as well as many continuing legal education opportunities.
Plan B: Litigating Non-Solicitation Agreements
Written by Patricia Collins
Plan B: Litigating Non-Solicitation Provisions
By Patricia C. Collins, Esquire
Reprinted with permission from December 12, 2013 issue of The Legal Intelligencer. (c)
2013 ALM Media Propeties. Further duplication without permission is prohibited.
Increasingly, employers and their attorneys meet resistance when seeking to enforce covenants not to compete. States such as Georgia and California continue to refuse to honor those restrictions. Even in states that recognize the validity of such agreements, Courts can restrict the geographic or temporal scope of the agreement, refuse to find sufficient irreparable harm to permit the entry of a temporary or preliminary injunction, or find other equitable grounds to refuse to enforce the covenant not to compete. Employers do have a back-up plan, however. Recent cases illustrate that the court will enforce agreements not to solicit customers and clients after termination. These cases also illustrate that courts will look to the nature of the contacts with clients or employees to determine if there is a breach of a non-solicitation provision.
In Corporate Technologies Inc. v. Harnett, the United States Court of Appeals for the First Circuit affirmed the district court’s grant of a preliminary injunction against a former employee of Corporate Technologies Inc. and his new employer. The preliminary injunction restricted the employee from doing business with certain customers of Corporate Technologies with whom he worked during his employment, and required the new employer to withdraw bids which the employee prepared during his employment with the new employer. The First Circuit court noted that the district court was specifically applying the non-solicitation and not the non-compete provisions of the agreement. Accordingly, both courts engaged in a discussion of the applicable requirements for the entry of a preliminary injunction (which are the same under Massachusetts and Pennsylvania law). Notably, the First Circuit did not engage in a discussion of the reasonableness of the geographic or temporal scope of the agreement, or whether the employer had a “protectable interest” served by the non-solicitation provision. The district court found that the employee breached the non-solicitation provisions of the agreement, and the First Circuit affirmed the grant of the preliminary injunction.
Sue Maslow, a partner at Antheil Maslow & MacMinn, LLP and Vice President, Cinema for the Central Bucks Chamber of Commerce, participated in the filmmaker panel discussion at this year’s Bucks Fever Filmfest on October 13th. The FilmFest is an annual, juried festival that identifies worthy short films and scripts. Winning short films submitted by high school, college and emerging filmmakers are screened at the County Theater in Doylestown, Pennsylvania. This year’s Filmmaker Panel Discussion “Great Idea, Now What?” was a discussion of marketing, scripts, crowdfunding, production, distribution and other topics related to the process of filmmaking. In her practice, Sue provides legal advice to creative artists in many disciplines, including film. This year’s discussion was held at the James-Lorah Memorial Home in Doylestown.
Eastern District To Consider De Facto Merger After Fizzano Brothers
Written by Thomas P. Donnelly
By Thomas P. Donnelly, Esquire, Reprinted with permission from October 11, 2013 issue of The Legal Intelligencer. (c)
2013 ALM Media Properties. Further duplication without permission is prohibited.
Senior Judge Anita Brody of the United States District Court for the Eastern District of Pennsylvania recently presided over a non- jury trial in the matter of Lehman Brothers Holdings, Inc. v. Gateway Funding Diversified Mortgage Services, L.P. Judge Brody is expected to render a decision in the coming weeks. Lehman Brothers represents the first occasion for the District Court to consider the legal principal of de facto merger under Pennsylvania law following the Pennsylvania Supreme Court’s landmark decision in Fizzano Brothers Concrete Products, Inc. v. XLN, Inc., 42 A.3d 951 (Pa. 2012). In Fizzano Brothers, the Supreme Court substantially modified the application of the de facto merger doctrine allowing trial courts far greater flexibility in the application of the doctrine to a broader set of facts.
Before Fizzano Brothers, Pennsylvania courts were constrained to a mechanical application of four elements: (1) continuation of the enterprise of the seller corporation; (2) continuity of shareholders; (3) cessation of ordinary business operations on the part of the selling entity; and (4) assumption of those obligations of the seller ordinarily necessary for the uninterrupted continuation of normal business operations. In practical application, the “continuity of shareholders” requirement was nearly impossible to satisfy where sophisticated business people with legal representation structured the transaction as a sale of assets to a new entity. Consequently, mechanical application of the continuity of shareholders element was the stumbling block in the de facto merger analysis.
The Fizzano Brothers court substantially modified the analysis by discarding the mechanical application of continuity of shareholders. Citing public policy and recognizing the sophistication of business transactions in the current climate, the court ruled that “where the underlying cause of action is rooted in a cause of action that invokes important public policy goals, the continuity of ownership prong may be relaxed.” Fizzano Brothers, 42 A.3d at 966. The question of successor liability should first be viewed in light of “whether, for all intents and purposes, a merger has or has not occurred between two or more corporations, although not accomplished under the statutory procedure.” Id. at 969.
The Supreme Court went on to hold that the shareholders of the predecessor company were no longer required to become shareholders of the successor to meet the requirements of de facto merger. The court concluded such a holding would be “incongruous” with provisions of the Pennsylvania Business Corporation Law stating; “because a de facto merger analysis tasks a court with determining whether, for all intents and purposes, a merger or consolidation of corporations has occurred, even though the statutory procedure had not been used, the continuity of ownership prong of the de facto merger analysis certainly may not be more restrictive than the relevant elements of a statutory merger as contemplated by our legislature.” Id. at 968.
The court then adopted a more flexible approach. After Fizzano Brothers, cases rooted in breach of contract and express warranty no longer require strict transfer of ownership. Rather, the de facto merger doctrine now requires “’some sort of’ proof of continuity of ownership or stockholder interest. . . . However, such proof is not restricted to mere evidence of an exchange of assets from one corporation for shares in a successor corporation.” Id. at 969 (internal citations omitted).
The Fizzano Brothers factors are at issue in Lehman Brothers Holdings, Inc. v. Gateway Funding where Lehman Brothers raised claims of successor liability relating to indemnification agreements with Gateway’s alleged predecessor. At trial, evidence was admitted indicating that Gateway had specifically and intentionally purchased all assets that were necessary to the continuation of the mortgage origination business formerly conducted by the predecessor. Such evidence included direct testimony on the part of Gateway’s management team that the acquisition was designed to acquire not only the current “pipeline” of loans in progress, but also the potential for continued loan origination. Contemporaneously, Gateway also undertook to acquire debt obligations owed by the predecessor which were necessary to loan origination including securing warehouse lines of credit utilized to temporarily fund mortgage loans until sold on the secondary market. Finally, documents related to the transaction reflected the intention that the business operations of the predecessor entity were to be “wound down”. In that regard, restrictions against competition imposed upon the former principals of the predecessor, now Gateway employees, were permitted to “compete” only for the purpose of effectuating that wind-down.
While evidence was admitted as to each element of the de facto merger doctrine, continuity of ownership was specifically contested. The transaction at issue was characterized by the buyer and seller as an asset transaction with no stock transfers. However, the four shareholders of the predecessor entity were provided compensation in a variety of ways which Lehman Brothers argued were illustrative of ownership. The four shareholders received employment agreements with Gateway which included substantial severance benefits, a right to share in the profits of the same operations as had been conducted by the predecessor, and cash considerations. One former shareholder indicated the cash component was paid, at least in part, as a result of his equity position in the predecessor.
In contrast, Gateway argued that the four shareholders were valuable and experienced revenue generating employees with corresponding compensation arrangements following the acquisition. Objectively, the four shareholders of the predecessor were not granted stock in the acquiring entity. Further, although certain of the agreements between the four shareholders and Gateway referenced the shareholder’s equity stake in the predecessor, no provision for consideration set forth in the language of the agreements was expressly tied to that equity position.
The Lehman Brothers trial is the first test of the new more relaxed application of the continuity of ownership prong of the de facto merger analysis. Judge Brody’s decision will provide guidance to both transactional practitioners in structuring transactions where liabilities may remain post-closing, and to litigators when faced with claims against a defunct entity where assets were transferred leaving a hollow shell.
The author served as local trial counsel to Lehman Brothers Holdings, Inc.
Antheil Maslow & MacMinn has named Alan G. Wandalowski as a Partner to the Firm. Alan has been with AMM’s Estates and Trusts and Tax Practice Groups since 2007.
Alan’s practice concentrates in Estate Planning, Business Succession Planning, Taxation, Asset Protection and Wealth Transfer Planning, planning for Retirement and Life Insurance benefits, Probate and Trust Administration, Estate and Trust Litigation, and Elder Law.
Alan works closely with high net worth individuals, business owners, and their families, helping them implement their estate plans. Beyond preparing core planning documents such as Wills, Revocable Trusts, Powers of Attorney and Living Wills, Alan has extensive experience in developing more advanced planning techniques, including Irrevocable Life Insurance Trusts, Generation Skipping Trusts, Family Limited Partnerships, Limited Liability Companies, Intentionally Defective Grantor Trusts, Grantor Retained Annuity Trusts, Qualified Domestic Trusts, Charitable Remainder/Lead Trusts, and Private Foundations.
AMM Partner Sue Maslow attended the Inaugural Celebration of First Savings Charitable Foundation, hosted by the Heritage Conservancy at Aldie Mansion on October 3rd . Sue is Vice Chair, and a Director of the Foundation. The Foundation is a public charity dedicated to serving the donor and nonprofit communities through charitable planning. The event spotlighted “The Power of Planned Giving” and was presented to an audience of many of the area’s professional advisors and non-profits to announce the establishment and offered services of the Foundation and to highlight the power of charitable planning initiatives.
AMM Partner Tom Donnelly participated in the MS 150 City to Shore bike tour September 28 and 29, 2013. As a member of team VCI Mobility, Tom helped raise over $16,000 for the National MS Society. The event raised more than 5 million dollars and was attended by nearly eight thousand riders. To learn more about this great event, or to contribute to help those with Multiple Sclerosis, click here
Partners Susan Maslow and Thomas Donnelly presented the seminar “New Technologies, New Worries” to the medical professionals employed as family practice and emergency care residents within the Aria Health Care system. The seminar focused on the implementation of electronic medical records systems in the health care industry and the impact of electronic medical records on the litigation process as well as the statutory ramifications of improper billing. As to traditional negligence litigation, topics included the electronic audit trail which now follows every medical record, the uses of metadata to authenticate records and data entry and communications among medical professionals and with the patient. Statutory issues focused on the application of the False Claims Act to upcoding and unbundling of services billed to Medicare, whistleblowers and the allocation of responsibility for statutory breaches in employment agreements.
Antheil Maslow & MacMinn is pleased to welcome Emma M. Kline as an Associate to the Firm, joining AMM’s litigation practice group.
Emma’s practice focuses on litigation, including commercial litigation, personal injury, estate and employment law. She represents clients regarding business disputes such as contract and employment issues, real estate litigation and fraud claims. Emma also represents fiduciaries and beneficiaries in contested estates.
Prior to joining the firm, Emma served as a law clerk for the Family Court of Delaware where she assisted two judges in drafting Orders and in trial and hearing preparations. Prior to her clerkship, Emma was an intern at the Equal Employment Opportunity Commission in Washington, D.C. where she dealt with federal employee appeals on discrimination claims, and researched and drafted memoranda regarding federal employment statutes.
While attending Dickinson School of Law, Emma served as a Certified Legal Intern at the Penn State Law - Family Law Clinic, and volunteered at Grace Cottage, a residential treatment program for adolescents. Emma was a summer intern with a Doylestown firm for two years, and worked to support attorneys in land use, zoning, labor and employment civil litigation and personal injury issues. She served as Research Editor on Dickinson Law School’s Yearbook on Arbitration and Mediation, and was a Constitutional Law Tutor. Emma received the School’s George F. Douglas, Jr. Memorial Award for Highest Grade in Advocacy.
By William T. MacMinn, Esquire Reprinted with permission from August 13, 2013 issue of The Legal Intelligencer. (c)
2013 ALM Media Properties. Further duplication without permission is prohibited.
But He Asked Me First!
Is that a good defense to an alleged breach of a non-solicitation agreement? In a recent decision a Pennsylvania trial court said that it was.
In Marino, Robinson & Associates, Inc. v. Robinson, 2013 Pa. Dist. & Cnty. Dec LEXIS 18 (Jan 2013) Judge Wettick of the Allegheny County Court of Common Pleas entered summary judgment dismissing the case against Defendant who allegedly violated a non-solicitation clause. Plaintiff acquired Defendant’s accounting practice. The contract signed by the parties included clauses prohibiting Defendant from competing with the Plaintiff or soliciting any of her former clients. The non-compete was not implicated in the case because, while the Defendant provided competing accounting services, she did so outside of the geographic limits imposed by the covenant. However, she provided those services to several of her former clients, each of whom unilaterally approached her and asked her to continue on as their accountant. Plaintiff alleged that by providing services to these former clients, the Defendant violated the non-solicitation clause of the contract which prohibited Defendant from “Solicit(ing) in any manner any past clients … for a period of ten (10) years from closing”. The Court, following cases decided in other states, agreed with the Defendant that she was not required to turn away former clients who, unsolicited, approached her to request that she provide services. The Court held that solicitation required conduct on the part of the Defendant designed to awaken or incite the desired action in the former client. Where, as in this case, the former client approached the Defendant unilaterally, the Defendant did not violate the non-solicitation clause.
A similar result obtained in Meyer-Chatfield v. Century Bus. Servicing, Inc., 732 F. Supp. 2d 514, 517-518 (E.D. Pa. 2010) where the Court decided that the meaning of the word “solicit” was not ambiguous and applied the parole evidence rule to bar evidence regarding the meaning of the term. In Meyer-Chatfield, Plaintiff’s Vice-President of Sales and Marketing left his employment with Plaintiff and accepted a similar position with Defendant. An agreement, which included non-solicitation provisions, was negotiated between the parties. Shortly thereafter the parties engaged in negotiations for the acquisition of Plaintiff by Defendant. Those negotiations failed. Subsequently (and after he was terminated by Plaintiff) one of Plaintiff’s sales persons accepted employment with Defendant and took with him other employees (who were part of his sales team) with the result that several significant customers of the Plaintiff eventually began doing business with Defendant. Plaintiff brought suit alleging violation of the non-solicit provisions in the solicitation of both the employees and the customers.
The language at issue prohibited the direct or indirect “…solicit(ation) of any of Plaintiff's employees, agents, representatives, strategic partnerships, [or] affiliations.” The contract did not define the word “solicit.” The Court looked to the common meaning of the term, citing the Black's Law Dictionary definition:
"To appeal for something; to apply to for obtaining something; to ask earnestly; to ask for the purpose of receiving; to endeavor to obtain by asking or pleading; to entreat, implore, or importune; to make petition to; to plead for; to try to obtain; and though the word implies a serious request, it requires no particular degree of importunity, entreaty, imploration, or supplication. To awake or incite to action by acts or conduct intended to and calculated to incite the act of giving. The term implies personal petition and importunity addressed to a particular individual to do some particular thing."
The Court also cited the Webster’s definition of the word: “to entreat, importune . . . to endeavor to obtain by asking or pleading . . . to urge.”
The issue before the Court was whether the word “solicit” was ambiguous permitting parole evidence of its meaning. In holding that it was not, the Court reviewed Akron Pest Control v. Radar Exterminating Co., Inc. 216 Ga. App. 495, 455 S.E.2d 601 (Ga. App. 1995), in which the Court held that an agreement “not to solicit, either directly or indirectly, any current or past customers” requires more than “[m]erely accepting business [to] constitute a solicitation of that business.” A party is not required to turn away uninvited contacts of former customers. The Court also cited Maintenance Co. v. West, 39 Cal. 2d 198, 246 P.2d 11 (Cal. 1952) in which it was held that neither the act of informing former customers of one’s change of employment, nor the discussion of business upon the invitation of the former customer constitutes solicitation. Finding no ambiguity, the Court prohibited testimony regarding the parties’ understanding of the term.
It seems clear that the Court will apply the ordinary meaning of the word “solicit” which has been repeatedly found to require some overt act of entreaty on the part of the former employee designed to induce the former customer to action. Responding to an uninvited inquiry from a former customer, even where that inquiry is for the purpose of discussing business, and where that inquiry ultimately results in doing business with that former customer, will not be sufficient to support a finding of a breach of a non-solicitation agreement. Of course, doing business with a former customer may well violate the provisions of a non-compete clause and, in such cases, the Courts have not been reluctant to enforce such provisions. Although research has found no cases directly on point, the reasoning of the cases suggests that advertisements or social media posts informing the general public or one’s social media circle of new employment circumstances would also not constitute the type of targeted action required to support a finding that a non-solicitation agreement has been breached.