GMS Indus. Supply, Inc. v. G&S Supply, LLC

441 F.Supp.3d 221

GMS INDUSTRIAL SUPPLY, INC. Plaintiff,

v.G & S SUPPLY, LLC, et al., Defendants.

CIVIL NO. 2:19cv324

United States District Court, E.D. Virginia, Norfolk Division.

Signed February 28, 2020

William A. Lascara, Jeffrey Dennis Wilson, Thomas Saunders Berkley, Pender & Coward PC, Virginia Beach, VA, for Plaintiff.

Robert William McFarland, Jeanne Elizabeth Noonan, McGuireWoods LLP, Norfolk, VA, for Defendants.

MEMORANDUM OPINION AND ORDER

REBECCA BEACH SMITH, SENIOR UNITED STATES DISTRICT JUDGE

This matter comes before the court on the Defendants' Motion to Dismiss ("Motion") and Memorandum in Support, filed on August 8, 2019. ECF Nos. 60, 61. Plaintiff GMS Industrial Supply, Inc. ("GMS") filed a Memorandum in Opposition on August 20, 2019. ECF No. 67. The Defendants filed a Reply on August 26, 2019. ECF No. 69. The Defendants requested a hearing on the Motion. ECF No. 71.

I. Procedural History

On June 20, 2019, Plaintiff filed a thirteen-count Complaint against ten (10) Defendants. ECF No. 1. Defendant Wayne Side filed a Motion to Dismiss for lack of personal jurisdiction on August 6, 2019. ECF No. 58. The court granted that Motion on January 16, 2020. ECF No. 98. Accordingly, Wayne Side was dismissed from this suit.¹ Id.

The Defendants filed the instant Motion to Dismiss on August 6, 2019. ECF No. 60. The Motion to Dismiss seeks to dismiss Counts II, III, VIII, IX, X, and XI of the Complaint, and all claims against Sky Spires, for failure to state a claim. ECF No. 60 at 1.

On September 12, 2019, this court referred the Motion to United States Magistrate Judge Robert J. Krask, pursuant to the provisions of 28 U.S.C. § 636(b)(1)(B) and Federal Rule of Civil Procedure 72(b), to conduct hearings, including evidentiary hearings, if necessary, and to submit to the undersigned district judge proposed findings of fact, if applicable, and recommendations for the disposition of the Motion. ECF No. 73.

The Magistrate Judge filed the Report and Recommendation ("R & R") on December 18, 2019. ECF No. 93. By copy of the R & R, the parties were advised of their right to file written objections to the findings and recommendations made by the Magistrate Judge. See id. at 55. The parties each filed Objections to the R & R, ECF Nos. 96, 97, and Responses to the Objections, ECF Nos. 100, 101.

II. Legal Standard

Pursuant to Rule 72 (b) of the Federal Rules of Civil Procedure, the court, having reviewed the record in its entirety, shall make a de novo determination of those portions of the R & R to which a party has objected. Fed. R. Civ. P. 72(b)(3). The court may accept, reject, or modify, in whole or in part, the recommendation of the Magistrate Judge, or recommit the matter to him with instructions. 28 U.S.C. § 636(b) (1). The court is not required to hold a hearing on the Motion. See Fed. R. Civ. P. 78(b) ; E.D. Va. Civ. R. 7(J).

III. Discussion

A. Plaintiff's Objections

GMS makes six objections to the R & R. Pl.'s Objs. at 2. The court addresses each in turn.

a. Employee non-solicitation clause in Westly's 2019 agreement (Count II)

First, GMS objects to the R & R's conclusion that the employee non-solicitation clause in Westly's² 2019 agreement with GMS is unenforceable. Id. at 2-6; see R & R at 17-19. The court agrees with GMS's objection.

The provision in Westly's 2019 agreement provides in relevant part as follows:

Non-Solicitation. During the term of this Agreement, and for a period of one year thereafter, Agent

[1] may not ... entice, solicit or encourage any Company employee to leave the employ of the Company or any independent contractor to sever its engagement with the Company; and

[2] may not ... directly or indirectly, entice, solicit or encourage any client or customer or known prospective client or customer of the Company to cease doing business with the Company, reduce its relationship with the Company or refrain from establishing or expanding a relationship with the Company.

[3] Agent will not reveal the identity of any supplier to any competitor of Company.

ECF No. 3-1 at 6, ¶ 14 (bracketed numbers added). In sum, this provision prohibits Westly from (1) soliciting employees or independent contractors to leave or sever their relationship with the company ("employee non-solicitation clause"); (2) soliciting customers to stop doing business with GMS ("customer non-solicitation clause"); and (3) revealing the identity of any supplier to GMS's competitors ("supplier non-disclosure clause").

The R & R correctly held that the customer non-solicitation clause and supplier non-disclosure clause are unenforceable. See R & R at 10-17. The R & R then held that the employee non-solicitation clause is unenforceable because it is in the same paragraph as the unenforceable clauses, and under Virginia law a court may not "blue pencil" a contract. R & R at 17-18.

Under the "blue pencil rule," courts can "modify an otherwise unenforceable restrictive covenant to make its restriction reasonable." Lasership Inc. v. Watson, 79 Va. Cir. 205, 2009 WL 7388870 at *9 (2009). Virginia, however, does not follow the blue pencil rule, meaning courts applying Virginia law refuse to modify restrictive covenants to make them enforceable. See id. (collecting cases). Virginia courts do sever unenforceable provisions if the contract contains an enforceable severability clause, and Virginia courts "recognize[ ] the difference between severing a clause ... and rewriting or ‘blue penciling’ a contract." Pitchford v. Oakwood Mobile Homes, Inc., 124 F. Supp. 2d 958, 965 (W.D. Va. 2000). "The difference between ‘blue penciling’ and severing is a matter of focus. The former emphasizes deleting, and in some jurisdictions adding words in a particular clause. The latter emphasizes construing independent clauses independently." Id. at 966 (citation omitted). The Fourth Circuit has described the test under Virginia law as follows: "[W]hen a contract covers several subjects, some of whose provisions are valid and some void, those which are valid will be upheld if they are not so interwoven with those illegal as to make divisibility impossible." Alston Studios, Inc. v. Lloyd V. Gress & Assocs., 492 F.2d 279, 285 (4th Cir. 1974).

The court agrees with GMS that the employee non-solicitation clause is enforceable here. Specifically, in this GMS contract, the employee non-solicitation clause is divisible from the customer non-solicitation clause and the supplier non-disclosure clause, because they are separate clauses that impose distinct duties on Westly. Thus, they can be construed independently. See Alston Studios, Inc., 492 F.2d at 285. Blue penciling requires a court to "redraft ... the covenant into an enforceable one." Job v. Simply Wireless, Inc., 160 F. Supp. 3d 891, 898 (E.D. Va. 2015) (Ellis, J.). Examples of blue penciling a clause include "limit[ing] ... its application concerning its geographical area, its period of enforceability, [or] its scope of activity." W. Indus.-N., LLC v. Lessard, No. 1:12CV177 JCC/TRJ, 2012 WL 966028 at *3 (E.D. Va. Mar. 21, 2012) (Cacheris, J.) (citations omitted). None of that is required here. Thus, enforcing the employee non-solicitation clause does not violate Virginia's prohibition on blue penciling.

The Defendants' arguments to the contrary are unavailing. They focus on the fact that the clauses are not "divided into separate subparagraphs" and are "linked together with the conjunctive ‘and.’ " Defs.' Resp. at 5. The relevant inquiry, however, is not whether the clauses are grammatically linked together, but whether the clauses are "so interwoven with those illegal as to make divisibility impossible." Alston Studios, Inc. 492 F.2d at 285. As discussed above, the clauses are divisible because they each impose unique requirements on Westly. Their placement in the same paragraph does not alter that conclusion. In Roto-Die Co. v. Lesser, 899 F. Supp. 1515 (W.D. Va. 1995), for example, the court held that certain non-compete clauses in a paragraph were unenforceable, but severed and enforced other clauses in the same paragraph that "address[ed] different concerns." Id. at 1522.

Finally, Westly's 2019 agreement contains a severability provision. It provides that "[i]f any part or parts of this Agreement shall be held unenforceable for any reason, the remainder of this Agreement shall continue in full force and effect." ECF No. 3-1 at 7, ¶ 16. Severability clauses are enforceable under Virginia law. See Pitchford, 124 F. Supp. 2d at 965. Accordingly, because enforcing the employee non-solicitation clause does not require the court to rewrite the contract, and because the parties agreed that the remainder of the contract would continue in force even if some clauses are held unenforceable, the employee non-solicitation clause is enforceable. GMS's objection is SUSTAINED.

b. Employee handbook provision in Westly's 2012 agreement (Count II)

GMS objects to the R & R's conclusion that Count II fails to state a claim against Westly for breach of GMS's employee handbook. Pl.'s Objs. at 6-10; see R & R at 25-28. This objection lacks merit.

The relevant provision in Westly's 2012 agreement provides as follows:

[I] have received the GMS Industrial Supply employee handbook, and agree to comply with its provisions and any other rules. Neither the handbook, practices, nor any communications create an employment contract or term.

ECF No. 3-1 at 2, § 2. The R & R held that this provision is ambiguous, and therefore must be construed against GMS because GMS drafted the agreement. R & R at 25-28. GMS argues that this provision is not ambiguous, and contractually requires Westly to comply with the terms of GMS's employee handbook. Pl.'s Objs. at 6-8. The correct interpretation of this provision, GMS argues, is that Westly was required to comply with the GMS employee handbook, but "at the same time acknowledg[es] that the provisions of the Employee Handbook standing alone do not create a contract." Pl.'s Objs. at 7-8.

GMS's interpretation is one...