Graham Eng'g Corp. v. Adair

GRAHAM ENGINEERING CORP., Plaintiff v. ERIC ADAIR, DefendantGRAHAM ENGINEERING CORP., Plaintiff v. DOUG JOHNSON, DefendantGRAHAM ENGINEERING CORP., Plaintiff v. WILLIAM KRAMER, DefendantGRAHAM ENGINEERING CORP., Plaintiff v. JEFF LAWTON, DefendantGRAHAM ENGINEERING CORP., Plaintiff v. MICHAEL PERRI, DefendantGRAHAM ENGINEERING CORP., Plaintiff v. DANIEL SCHILKE, DefendantGRAHAM ENGINEERING CORP., Plaintiff v. KEVIN SLUSARZ, Defendant

CIVIL ACTION NO. 1:16-CV-2521

CIVIL ACTION NO. 1:16-CV-2522

CIVIL ACTION NO. 1:16-CV-2523

CIVIL ACTION NO. 1:16-CV-2524

CIVIL ACTION NO. 1:16-CV-2525

CIVIL ACTION NO. 1:16-CV-2526

CIVIL ACTION NO. 1:16-CV-2527

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

February 10, 2021

(Judge Conner)

MEMORANDUM¹

Defendants are seven former employees of Graham Engineering Corporation ("Graham or GEC"), a producer of extruders and extrusion equipment. Defendants left their employment with Graham between December 2015 and April 2016 as the company relocated from Rhode Island to Pennsylvania. Defendants subsequently started US Extruders, a competing company in the extrusion business. As is often the case, the separation has been a bitter one, culminating in this litigation. Before the court are the parties' cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56(a). The court will grant in part and deny in part each motion.

I. Factual Background & Procedural History²

Graham is a Pennsylvania corporation that offers design and development expertise for extruders. (Doc. 186 ¶ 1; Doc. 199 ¶ 1). Extruders are "large pieces of manufacturing equipment that shape solid plastic, often for the production of commercial plastic goods." (See Doc. 186 ¶ 1; Doc. 199 ¶ 1). After acquiring a majority stake in 2012, Graham acquired American Kuhne, Inc. ("American Kuhne"), through a stock transfer on January 1, 2016. (See Doc. 186 ¶¶ 20-21; Doc. 199 ¶¶ 20-21; Doc. 191-12 at 2; Doc. 214-1 at 2-34). American Kuhne had been cofounded by one of the defendants, William Kramer, and employed all defendants. (See Doc. 184 ¶¶ 2, 9-10; Doc. 186 ¶¶ 10-16; Doc. 196 ¶ 2). The pending civil actions arise from defendants' abrupt departure upon Graham's acquisition of American Kuhne, and defendants' formation of a competing entity, US Extruders.

A. The Employment Agreements

In preparation for the 2016 stock transfer, Graham offered employment to American Kuhne employees, including to defendants Eric Adair, Doug Johnson, William Kramer, Jeff Lawton, Michael Perri, Daniel Schilke, and Kevin Slusarz. (See Doc. 184 ¶¶ 8-9; Doc. 186 ¶ 21). Several of the defendants—Adair, Kramer, Perri, and Schilke—accepted short-term employment with Graham. (See Doc. 184 ¶¶ 11-14; Doc. 186 ¶¶ 31, 51, 77, 87). These defendants signed new employment agreements with Graham. (See Doc. 186 ¶¶ 28, 51, 78, 89). Although Johnson, Lawton, and Slusarz did not contract with Graham, they were subject to the terms of employment agreements previously signed with American Kuhne. (See id. ¶¶ 41, 66, 98).

Every employment agreement contains an "assignment of rights" provision allowing Graham to assign its rights to any successor, assign, or purchaser without the employee's consent. (See Doc. 45-1 at 8, 17, 24, 33, 39, 47, 73). All but one of the agreements contain a Pennsylvania choice-of-law provision. (See id. at 8, 17, 24, 33, 40, 47). The outlier is Slusarz, whose agreement is governed by Rhode Island law. (See id. at 73). All employment agreements contain varying dates of expiration.

1. Nonsolicitation and Noncompetition Provisions

The employment agreements for Adair, Johnson, and Lawton contain identical nonsolicitation and noncompetition clauses. (See id. at 5-6, 14-15, 30-31). They prohibit defendants from seeking to do business with any Graham "client, customer, distributor[,] or reseller"; from working with any entity engaged by Graham to "manufacture, assemble, supply[,] or deliver products, goods, materials[,] or services" to Graham; and from inducing Graham's "clients, customers, distributors, resellers, suppliers, associates, consultants, employees[,] or agents" to act in any way that might disadvantage Graham. (See id.) These restrictions are limited to those entities with whom the contracting defendant "had substantial business dealings in the last 12 months" of their employment. (See id. at 6, 15, 31). The agreements also bar defendants from soliciting any employee who they supervised or about whom they received confidential information in their last 12 months with Graham. (See id.) All of these restrictive covenants expire one year after defendants' termination of employment with Graham. (See id. at 5, 14, 30).

The agreements for Kramer, Perri, and Schilke contain slightly different language and expiration dates. (See id. at 22, 38, 45). Their agreements expand the prohibitions to third parties with whom defendants "had contact" during their last 24 months of employment. (See id.) Kramer, Perri, and Schilke may not "contact, solicit, divert, or attempt to contact, solicit, or divert, any client of GEC or any potential client of GEC"—Kramer and Schilke for 12 months, and Perri for six. (See id.) All three agreements also include employee nonsolicitation clauses effective for a period of 24 months. (See id.) Finally, the agreements bar defendants from accepting employment with a competitor anywhere in North America—again, Kramer and Schilke for 12 months, Perri for six. (See id.) Kramer's agreement includes an extra restriction barring him from acting on behalf of several named competitors to contact any client or potential client to divert business from Graham. (See id. at 22). This restriction lasts 24 months. (See id.)

Slusarz signed a similar iteration of the employment agreement in 2012, and also joined the Equity Appreciation Rights Plan ("EARP"). The employment agreement states Slusarz cannot work in any competing business or in a business "related to Davis-Standard, LLC." (See id. at 71-72). The length of Slusarz's noncompetition period depends on whether he receives severance. The noncompetition clause sets a default period of 24 months, but if Slusarz's employment ends under circumstances in which he is eligible for severance, the period is shortened to just six months. (See id. at 71, 72). Slusarz's nonsolicitation provision prohibits actions to "induce or attempt to induce" or "hire" any employee, as well as any action to "induce any customer, supplier, licensee, or other business relationship . . . to cease doing business with" or "interfere with the relationship" with Graham. (See id. at 72). The length of Slusarz's nonsolicitation period also depends on whether he receives severance: six months if he receives one, and two years if he does not. (See id.) Slusarz's EARP also notes his noncompete obligations, but defers to the period established in Slusarz's "employment or service agreement." (See id. at 61).

2. Confidentiality Provisions

The employment agreements for Adair, Johnson, and Lawton contain identical confidentiality provisions. (See id. at 5, 14, 30). Section (a) acknowledges the employee's "duty of confidentiality" and notes defendants' agreement not to do any of the following either during employment or within two years of termination of such employment:

directly or indirectly, use, divulge, furnish or make accessible to any person or entity, without the express written consent of the Company, any trade secret or private, proprietary or confidential information or knowledge (including, without limitation, any pricing, pricing methodology and costed bills of materials, any trade secret, information or knowledge respecting inventions, products, designs, methods, know-how, techniques, systems, processes, software programs, works of authorship, customer lists, projects, plans and proposals) of the Company . . . .

(See id.) Section (b) states that the employee will not "duplicate, remove from the Company's possession or premises or make use of" any of the information listed, and promises to return any such information that was in the employee's possession upon termination from Graham. (Id.)

Kramer's, Schilke's, and Perri's agreements include slightly different confidentiality clauses. (See id. at 20-21, 36-37, 43-44). These clauses prohibit Kramer, Schilke, and Perri from disclosing "any GEC Confidential Information" to anyone without Graham's permission and from using any such confidential information "for [their] own purpose or for the benefit of any person, firm, corporation, association, or other entity other than for GEC." (See id. at 21, 37, 44). The clause also includes a longer list of information that Graham considers "confidential information" or "trade secrets" compared to the other defendants' contracts. (See id.)

Slusarz's employment agreement references a "Confidentiality Policy (HR 402)" that Slusarz should have signed as part of his employment agreement, (see id. at 70), but this document was not included in either party's submissions. Slusarz's EARP agreement, however, also contains a "nondisclosure" provision. (See id. at 61-62). This provision bars Slusarz from disclosing any "knowledge, information or materials" about the company's proprietary information. (See id. at 62).

3. Slusarz's Severance Provision

Slusarz's employment agreement entitles him to severance "equal to six months base salary and then-existing health benefits for the same six month period." (See id. at 69).³ The agreement entitles him to severance only if he terminates his at-will employment for "good reason." (See id.) The agreement defines "good reason" to include, inter alia, "relocation of the Corporation to a place that is more than fifty miles from Ashaway, Rhode Island and increases the Employee's commute by more than fifty miles." (See id. at 70).

When Graham announced the York relocation, Slusarz was one of the employees offered a new position. (See Doc. 203-12 at 5-9). Slusarz received an...