Impactoffice, LLC v. Siniavsky

IMPACTOFFICE, LLC, Plaintiff, v. SAMUEL SINIAVSKY, Defendant.

DENNIS CHAPMAN and ERICA KNOTT, Plaintiffs, v. IMPACTOFFICE LLC, Defendant.

Civil Action No. TDC-15-3481

Civil Action No. TDC-16-1851

UNITED STATES DISTRICT COURT DISTRICT OF MARYLAND

November 18, 2016

MEMORANDUM OPINION

On October 23, 2015, ImpactOffice, LLC ("Impact" or "the Company") filed a civil action against its former employee, Samuel Siniavsky, alleging breach of contract arising from violations of an employment agreement between Impact and Siniavsky. On December 9, 2015, Siniavsky filed an Amended Answer and Counterclaim alleging, inter alia, that the customer non-solicitation covenant in the agreement is unenforceable. In a separate but related civil action filed on June 3, 2016, former Impact employees Dennis Chapman and Erica Knott filed suit against Impact seeking a declaratory judgment that the restrictive covenants in any employment agreements they have with Impact are unenforceable as a matter of public policy. Pending before the Court are Siniavsky's Motion for Judgment on the Pleadings and Chapman's Motion for Judgment on the Pleadings. The Court has reviewed the pleadings and briefs and held a joint hearing on October 24, 2016. For the following reasons, Siniavsky's Motion is granted, and Chapman's Motion is granted in part and denied in part.

BACKGROUND

Impact is a national supplier of office products, office furniture, printing services, and related goods and services that delivers its products directly to customers. Impact alleges that its business is dependent in large part on its sales representatives' personal relationships with customers and potential customers. Siniavsky worked as a sales representative for Impact in New Jersey and the Philadelphia metropolitan area between August 2010 and April 2015, when he voluntarily resigned. Chapman was an Impact sales representative between 2012 and May 2016, at which time he voluntarily resigned.

While working at Impact, Siniavsky and Chapman signed individual Proprietary and Nonsolicitation Agreements ("the Agreements") that include post-employment restrictions relating to potential competition with Impact or its "Affiliates." Under the Siniavsky Agreement, Impact's Affiliates consist of: Impact Office Products, LLC; George W. Allen Co.; DeskMate; N.B.A.; and Councell Computer Products. Under the Chapman Agreement, Impact's Affiliates consist of: ImpactOffice Group, LLC; Impact Office Products, LLC; George W. Allen Co.; N.B.A.; and Councell Computer Products. Both Agreements contain a customer non-solicitation provision, under which the employee not permitted to:

Solicit or accept, directly or indirectly, the business of any customer or prospective customer of the Company or its Affiliates for the purpose of selling or distributing office products or services sold by the Company or its Affiliates within 12 months of the date of the cessation of the Employee's employment with the Company.

Siniavsky Agreement ¶ 2.2, Impact Compl. Ex. 1, ECF No. 2-1; Chapman Agreement ¶ 2.2, Chapman Compl. Ex. A, ECF No. 1-1, Mot. J. Pleadings Ex. A, ECF No. 26-2. "Customer" is defined as "any person or business to whom the Company or its Affiliates sold products or rendered services during the last 12 months Employee was employed by the Company." Siniavsky Agreement ¶ 2.2; Chapman Agreement ¶ 2.2.

The Chapman Agreement also includes a non-competition provision, which applies only if the employee voluntarily leaves Impact. The provision states that a former employee may not:

Become employed by a competitor . . . of the Company or its Affiliates located within a radius of ninety miles from any location of the Company or its Affiliates, within 6 months of the date of the cessation of the Employee's employment with the Company.

Chapman Agreement ¶ 2.3. "Competitor" is defined as companies that "sell office supplies, coffee & breakroom supplies, computer supplies, office furniture, printer maintenance repair and service, and any other products and services sold by the Company or its Affiliates." Id.

Both Agreements contain two other provisions relevant to the resolution of the Motions: a choice-of-law clause and a severability clause. The former states that the Agreement "shall be governed by and construed and enforced in accordance with the laws of the State of Maryland." Siniavsky Agreement ¶ 5.4; Chapman Agreement ¶ 5.4. The latter provides that:

The Employee agrees that to the extent that any provision or portion of this Agreement shall be held, found or deemed to be unlawful or unenforceable by a court of competent jurisdiction, then any such provision or portion shall be deemed to be modified to the extent necessary in order that any such provision or portion shall be legally enforceable to the fullest extent permitted by applicable law; and the Employee does further agree that any court of competent jurisdiction shall, and the Employee does hereby expressly authorize, request and empower any court of competent jurisdiction to, enforce any such provision or portion in order that any such provision or portion shall be enforced by such court to the fullest extent permitted by applicable law.

Siniavsky Agreement ¶ 4.1; Chapman Agreement ¶ 4.1.

Siniavsky and Chapman are now employed by W.B. Mason Company, Inc., which also sells office supplies, office furniture, printing services, and related goods and services. Impact alleges that W.B. Mason is its direct competitor in the Philadelphia metropolitan area. Impact also claims that Siniavsky has "solicited business and accepted business from multiple Impact customers." Impact Am. Compl. ¶ 21.

DISCUSSION

Siniavsky and Chapman both argue that the restrictive covenants within their employment agreements with Impact are unenforceable because they are facially overbroad, such that they are entitled to a judgment as a matter of law. Chapman asserts that the non-competition provision as written is overbroad because the term "competitor" is defined too broadly and the geographic restriction and scope of proscribed activity are both unreasonable. Siniavsky and Chapman both assert that the customer non-solicitation provision's prohibition on soliciting or even merely accepting business from any customers or prospective customers of Impact or its Affiliates, including those with whom they had no contact while employed by Impact, renders that covenant overbroad. Moreover, Siniavsky and Chapman argue that the Court cannot make these provisions enforceable by narrowing their scope through the use of "blue penciling" or the application of the severability provision in the Agreements.

I. Legal Standard

Federal Rule of Civil Procedure 12(c) provides that "a party may move for judgment on the pleadings" after the pleadings have been filed. Fed. R. Civ. P. 12(c). On a motion for judgment on the pleadings, the court considers the pleadings, which consist of the complaint, the answer, and any written instruments attached to those filings, as well as any documents that are "integral to the complaint and authentic." Occupy Columbia v. Haley, 738 F.3d 107, 116 (4thCir. 2013) (quoting Phillips v. Pitt Cty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009)). In resolving a Rule 12(c) motion on the basis of the underlying merits, the court assumes the facts alleged by the nonmoving party to be true and draws all reasonable factual inferences in its favor, and judgment is appropriate only if the moving party establishes that no genuine issue of material fact remains to be resolved and that the party is entitled to judgment as a matter of law. See, e.g., Sanders v. Mountain America Fed. Credit Union, 689 F.3d 1138, 1141 (10th Cir. 2012); United States v. Any & All Radio Station Transmission Equip., 207 F.3d 458, 462 (8th Cir. 2000); Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir. 1993); Bell Atlantic-Maryland, Inc. v. Prince George's Cty., 155 F. Supp. 2d 465, 473 (D. Md. 2001). Such a motion can be used to obtain a declaratory judgment where the only dispute is the proper interpretation of contractual terms. See Hous. Auth. Risk Retention Grp., Inc. v. Chi. Hous. Auth., 378 F.3d 596, 598 (7th Cir. 2004); A. S. Abell Co. v. Balt. Typographical Union No. 12, 338 F.2d 190, 193-95 (4th Cir. 1964).

II. Choice of Law

A federal court exercising diversity jurisdiction applies the choice-of-law rules of the state in which it sits. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Maryland law recognizes the "ability of contracting parties to specify in their contract that the laws of a particular State apply in any dispute over the validity, construction, or enforceability of the contract," with limited exceptions that do not apply here. See Jackson v. Pasadena Receivables, Inc., 921 A.2d 799, 803-04 (Md. 2007). Because the Agreements both include choice-of-law provisions selecting Maryland law, and neither party advocates for the application of a different state's law, the Court applies Maryland law in resolving the Motions.

III. Enforceability of the Restrictive Covenants

Under Maryland law:

[F]or a restrictive covenant to be enforceable (1) the employer must have a legally protected interest, (2) the restrictive covenant must be no wider in scope and duration than is reasonably necessary to protect the employer's interest, (3) the covenant cannot impose an undue hardship on the employee, and (4) the covenant cannot violate public policy.

Deutsche Post Glob. Mail, Ltd. v. Conrad, 116 F. App'x 435, 438 (4th Cir. 2004) (citing Silver v. Goldberger, 188 A.2d 155, 158-59 (Md. 1963); Holloway v. Faw, Casson & Co., 572 A.2d 510, 515-16 (Md. 1990)). The "determination of enforceability should be made based on the scope of each particular covenant itself, and, if that, on its face, is not too broad, the facts and circumstances of each case must be examined." Millward v. Gerstung Int'l Sport Educ., Inc., 302 A.2d 14, 16 (Md. 1973).

Maryland courts have recognized an employer's...