Wolfington v. Bartkowski

1

PATRICK WOLFINGTON, TIMOTHY EARLE AND JOHN GRABOWSKI Appellants v. THADDEUS BARTKOWSKI, III, CATALYST OUTDOOR ADVERTISING, LLC AND CATALYST EXPERIENTIAL, LLC

No. 1564 EDA 2022

No. J-A28037-22

Superior Court of Pennsylvania

June 6, 2023

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT O.P. 65.37

Appeal from the Order Entered April 6, 2022 In the Court of Common Pleas of Chester County Civil Division at No(s) 2021-05143-CT

BEFORE: PANELLA, P.J., LAZARUS, J., and SULLIVAN, J.

MEMORANDUM

SULLIVAN, J.

Patrick Wolfington ("Wolfington"), Timothy Earle ("Earle"), and John Grabowski ("Grabowski") (collectively "Appellants") appeal from the order granting a preliminary injunction in favor of Thaddeus Bartkowski, III ("Bartkowski"), Catalyst Outdoor Advertising, LLC, and Catalyst Experiential, LLC (collectively, "Appellees").^[1] We affirm in part, vacate in part, and remand for a correction to the order.

The trial court set forth the factual background of this appeal as follows:

[Appellants] were employees and members of Catalyst [Outdoor Advertising, LLC and Catalyst Experiential, LLC (collectively, "Catalyst"), of which Bartkowski is the majority owner.^[2] All were parties to the operating agreement as amended for Catalyst. In addition, [Earle and Grabowski] had employment agreements. [Both the operating agreement and employment contracts contained restrictive covenants.^[3] Catalyst's business consisted of various activities [relating to] digital billboards. At one point, Catalyst sold advertising for digital billboards it owned. In addition, and importantly for this litigation, Catalyst's strategy entailed finding locations where digital billboards would create high revenue (and were often not permitted by right) and seeking to acquire an interest in the real estate via lease, easement, or purchase, and obtaining municipal approvals and developing the sites. Catalyst erects monopole billboards, monument billboards (billboards with stone, brick or other surroundings to improve the aesthetics), and experiential billboards (attached to public developments such as dog parks). Catalyst ultimately sells its interest in both the land and the revenue stream from the billboards receiving upfront money as well as a tailing payment (or deduction) depending on performance of the billboard in the two (2) years post-sale.

At times through the history of Catalyst, members and officers were asked to defer salary during periods of low cash reserves or financial difficulty to be repaid after stabilization of [Catalyst]. All [Appellants] testified that there was no specific timeline to be repaid but that the understanding [among] the parties was that repayment would occur when [Catalyst] achieved a financially sound or stable condition. COVID-19 was one such time when the decision was made to defer salary for members and officers following a sale of assets being canceled by a prospective purchaser due to the pandemic. That sale was ultimately renegotiated and consummated at a lower price. [In late 2020, Appellants' salaries were deferred.] In May of 2021, [Appellants'] unhappiness with Bartkowski reached its breaking point when [they] discovered that Bartkowski had withdrawn money during their period of salary deferral. [Appellants] and Bartkowski had a meeting, however, no agreement was reached . . .. Other areas of disagreement remained as well and [Appellants] left [Catalyst] and [Appellees] locked [Appellants] out of [Catalyst's] server and email.

Order and Memorandum, 4/6/22, at 3-4 (footnotes omitted). According to Appellees, Grabowski downloaded confidential information from Catalyst's server and Appellants abruptly left Catalyst, leaving Catalyst's operations in disarray. According to Appellants, Appellees constructively terminated and squeezed them out after they confronted Bartkowski about his personal uses of Catalyst's funds and he refused their demands for payments and other conditions on Catalyst's financial and business operations. There is no dispute that by May 2021, Appellants no longer worked at Catalyst. The parties began negotiations to terminate Appellants' stakes in Catalyst but were unable to come to an agreement.

In July 2021, Appellants sued Appellees for breaches of contract, violations of the Pennsylvania Wage Payment and Collection law,^[4] and breaches of fiduciary duty, alleging that Bartkowski had mismanaged Catalyst and that Catalyst owed them a total of $1.3 million, which included $555,288 in deferred salaries or wages and profit distributions.^[5] Appellees answered and raised counterclaims for breaches of fiduciary duties, conversion, fraud, and breach of contract. Appellees alleged that Appellants had acted against Catalyst's interests during their employment and that their abrupt departure caused additional harms to Catalyst. Appellees also sought injunctive relief to restrain Appellants from competing against Catalyst.

After their departure from Catalyst, Appellants took steps to create their own company. In their first attempt, they attempted to form a company, MMD Development ("MMD"). Appellants used Catalyst's "deal deck" or "pitch deck," which included materials they took from Catalyst in their pitches for MMD, including Catalyst's business models, examples of completed projects, photographs, and financial analyses of deals, when seeking investors and members. See Order and Memorandum, 4/6/22, at 3-4; see also N.T., 3/14/22, at 189-90. Additionally, they approached a business contact of Catalyst to fund or participate in MMD, but that company never formed. See N.T., 3/14/22, at 189-90. Appellants, however, later formed Wolfgate Devco, LLC ("Wolfgate"), to develop real estate by (1) identifying properties zoned for billboards, (2) obtaining permits, and (3) either selling the permits or developing the site and selling or leasing the billboards. Wolfgate obtained leases or other interest in seven properties in southeastern Pennsylvania.

Upon learning of Appellants' new business ventures, Appellees filed petitions for preliminary injunctive relief.^[6] The Honorable Bret M. Binder conducted hearings at which Bartkowski, Joe Weinlick ("Weinlick"), Catalyst's new Chief Operating Officer, and Appellants testified. On April 6, 2022, the trial court granted Catalyst a preliminary injunction and, in relevant part, prohibited Appellants from competing against Catalyst in "the Greater Philadelphia Area . . . and New Jersey in leasing, developing, buying, selling, or otherwise participating in real estate transactions and/or development for the purposes of use by a digital billboard[.]" See Order and Memorandum, 4/6/22, at 1. The trial court also required Appellants to "destroy any duplicate copies" of digital or physical property of Catalyst. See id. Appellants timely appealed and complied with the trial court's order to submit a Pa.R.A.P. 1925(b) statement. The trial court adopted its order and memorandum granting the preliminary injunction as its Rule 1925(a) opinion.

Appellants raise the following issues for our review:

1. Did the trial court err by failing to strictly construe the pertinent restrictive covenants and in interpreting them expansively so as to conclude that [Appellants] violated their terms notwithstanding the evidence that [Appellants] are not engaged in the outdoor advertising business and/or in the out of home media industry?

2. Did the trial court err by granting injunctive relief that is not narrowly tailored, but instead, imposes restrictions in excess of those set forth in the subject agreements?

3. Did the trial court err in concluding [Appellees] proved the existence of immediate and irreparable harm where [Appellees] were unable to identify any actual harm and could only speculate about possible future harm that cannot occur, if at all, until after the expiration of the term of the restrictive covenants and all of which can be fully compensated in monetary damages?

4. Did the trial court abuse its discretion and commit an error of law by failing to conclude that [Appellees] have unclean hands in failing to pay [Appellants] in excess of $1.3 million in salary and profit distributions, in squeezing [Appellants] out of [Catalyst], and by concluding that [s]ection 9(d) of the [a]mended [o]perating [a]greement precludes [Appellants] from asserting unclean hands as a defense?

5. Did the trial court err in ordering mandatory preliminary injunctive relief requiring the destruction of property during the pendency of the action?

Appellants' Brief at 3-5.^[7]

This Court reviews an order granting preliminary injunctive relief for an abuse of discretion. See Synthes USA Sales, LLC v. Harrison, 83 A.3d 242, 248-49 (Pa. Super. 2013). Our review is "highly deferential." Id. at 248 (internal citations and quotation omitted). An appellate court must examine the record to determine if there were any apparently reasonable grounds for the action of the court below. See id. at 248-49. This Court will not inquire into the merits of the underlying controversy. See id. at 249. We will only disturb the trial court's decision if it is plain that no grounds existed to support the order or that the trial court relied upon a rule of law that was palpably erroneous or misapplied. See id.

It is well settled that "[a] preliminary injunction's purpose is to preserve the status quo and to prevent imminent and irreparable harm that might occur before the merits of a case can be heard and determined." Ambrogi v. Reber, 932 A.2d 969, 976 (Pa. Super. 2007). A preliminary injunction is an "extraordinary remedy," and the party seeking the injunction bears a heavy burden of establishing:

1) that the injunction is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by

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