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Fenner Precision, Inc v. Mearthane Products Corp. and Philip J. Garrod

February 4, 2013

FENNER PRECISION, INC.,
v.
MEARTHANE PRODUCTS CORP. AND PHILIP J. GARROD, DEFENDANTS



The opinion of the court was delivered by: Charles J. Siragusa United States District Judge

DECISION AND ORDER

INTRODUCTION

This is an action to enforce restrictive covenants between a manufacturing company and its former employee. Before the Court is the employer-plaintiff's motion for preliminary injunctive relief. The application is denied.

BACKGROUND

In 1983 Defendant Phillip Garrod ("Garrod") began working as a salesman in the field of elastomeric precision products ("EPP"). Since then, Garrod has worked exclusively in the EPP field, primarily selling products to original equipment manufacturers ("OEMs"). In 2000, after having worked as a salesman in the EPP field for seventeen years, Garrod was hired by Winfield Industries ("Winfield"), a manufacturer of EPP products. Winfield hired Garrod primarily because he already had an established sales relationship with Xerox Corporation, and Winfield hoped to begin selling EPP products to Xerox. Winfield's hopes in that regard were realized, as Garrod subsequently built up a significant sales relationship between Winfield and Xerox. As part of his employment with Winfield, Garrod was subject to a non-compete agreement containing various restrictive covenants.

Plaintiff Fenner Precision, Inc. ("Fenner") is another manufacturer of EPP parts. On March 3, 2008, Fenner purchased Winfield and hired Winfield's staff, including Garrod. On that same day, Fenner's human resources staff met with the Winfield employees and had them sign various documents in connection with the transfer of their employment from Winfield to Fenner. Fenner contends that at that time it had all the former Winfield employees, including Garrod, sign non-compete agreements.*fn1 However, Garrod maintains that he was not asked to execute any restrictive covenants during that initial meeting. Instead, Garrod contends that he specifically recalls signing the Agreement either later that day or during the following two days. Consequently, there is some dispute as to the exact moment that Garrod signed the agreement, but the parties agree that he signed it within the first two days of his employment with Fenner. Garrod maintains that Fenner representatives told him that he had to sign the non-compete agreement, but they did not specifically say that it was a condition of his employment that he do so.

The non-compete agreement that Garrod signed is entitled "Fenner Precision Associate Confidential Information, Invention & Non-Compete Agreement" ("the Agreement"). The Agreement essentially contains three restrictive covenants: 1) a confidentiality provision; 2) a non-compete provision; and 3) a non-solicitation provision. The confidentiality provision forbids Garrod from using any Confidential Information, except in connection with his employment by Fenner.*fn2 The non-compete provision states that for a period of one year after ending his employment with Fenner, Garrod will not render services to a competitor.*fn3 Finally, the non-solicitation provision indicates that for a period of one year after ending his employment with Fenner, Garrod will not solicit business from any of Fenner's "current, past or prospective customers," "in any manner," or "interfere with any of the Company's accounts or business with any Customer." The Agreement contains a Pennsylvania choice-of-law provision.

Garrod worked for Fenner for four years, from March 2008 until May 2012. Garrod's title was "Business Development Manager," and in that regard his duties included promoting Plaintiff's products and working with customers to develop new products. Garrod spent approximately two weeks each month traveling to meet with Fenner's customers. Garrod maintains, though, that he was already familiar with all of the potential buyers of Fenner's products from having worked in the EPP industry for over twenty years. During his tenure at Fenner, Garrod made approximately 90% of his sales to four major OEMs which purchased rollers for digital imaging and health imaging printers. Garrod already had established sales relationships with those companies prior to working for Fenner.

In October 2011, Fenner hired a new sales employee and gave him the title "Digital Imaging Sales Manager," while changing Garrod's title to "EPP Sales Manager." Garrod viewed this change as a demotion, since Fenner directed him to transfer all of the commercial printing accounts, which accounted for approximately 90% of Fenner's sales, to the new employee. During the next several months, at Fenner's direction, Garrod took the new employee along on sales calls, and introduced him to Fenner's customers.

In May 2012, Plaintiff terminated Garrod's employment. Fenner has not offered any reason for terminating Garrod's employment. At that time Garrod was approximately 58 years of age. Fenner offered Garrod a severance package in exchange for him signing a "Severance Agreement and General Release" ("the Severance Agreement"). The Severance Agreement included non-compete, non-disclosure and non-solicitation covenants, lasting a term of one year, which purported to impose obligations in addition to those imposed by the Agreement. Specifically, in pertinent part, the Severance Agreement would have barred Garrod from doing the following: 1) working in any business relating to the manufacture or sale of competing products; 2) contacting or soliciting any current or past Winfield or Fenner customers, including, but not limited to, forty-three (43) specifically-named customers; and 3) disclosing Fenner's confidential and/or proprietary information. Garrod declined to sign the Severance Agreement, purportedly because he believed that it would preclude him from working in the EPP industry, and would make it "almost impossible" for him to find a job outside of the EPP industry.

Garrod maintains, and it is undisputed at present, that he did not take any of Fenner's confidential materials with him when he left Fenner's employ. Garrod further maintains that he has no independent recollection of Fenner's product pricing, since most of the parts were custom-made and had differing prices. Garrod also denies having any technical knowledge, since he is not an engineer or scientist, and was not involved in the actual manufacturing of Fenner's products. In that regard, Garrod states that when making sales calls, he would often have to take one of Fenner's "technical person[s]" with him. Garrod Aff. [#8] at ¶ 68; see also, id. at ¶ 58 ("While I have general knowledge of elastomeric precision products, I know nothing about the formulations of the specific materials that are used to make the items.").

In attempting to locate new employment after being terminated by Fenner, Garrod sent out approximately sixty resumes for "general sales positions," which the Court understands to mean positions outside of the EPP industry, and received only four responses, all of which were rejections. Garrod also sent out eight resumes to EPP companies, and received three interviews. Eventually, in or about May 2012, Garrod accepted a sales position with defendant Mearthane Products Corp., an EPP manufacturer that competes with Fenner. Upon commencing employment with Mearthane, Garrod sent out emails to the various customers that he knew from his entire career, and informed them that he was working for Mearthane. One such email was to a Fenner customer that used EPP rollers in the manufacture of cigarettes.

Garrod also began making sales calls to his former EPP customers, and particularly focused his attention on commercial printing manufacturers. In that regard, Garrod states: "I have been in this business for over 25 years and I am aware of all of the digital printer manufacturers in the world and I have known the people in charge of buying for those companies for many years. That number of customers is very small and I had sold products to each and every one of those customers prior to becoming employed by Fenner." Garrod Aff. [#8] at ¶ 48. Garrod also made a sales call to BASF/Watson Bowman Acme ("BASF"), whose purchasing manager, Robert Kostran ("Kostran"), Garrod had known for over ten years. Garrod asked Kostran if he was interested in purchasing any products from Mearthane, and Kostran asked Garrod to provide a quote for an elastomer bridge expansion joint, which BASF was currently buying from Fenner. Garrod eventually provided such a quote, though BASF did not purchase the item from Mearthane. In fact, Garrod indicates that he has not closed a single sale to any of Fenner's customers since he began working for Mearthane.

Garrod indicates, contrary to what Fenner suggests, that the identities of all of the potential EPP customers are not secret, and are readily available to anyone. For example, he states that he recently attended a trade show where all attendees were given contact information for EPP companies in the printing industry. In any event, Garrod reiterates that he was already familiar with the various EPP customers before he began working for Fenner. Garrod further states that the products that those customers buy, as well as the products that Fenner sells, are not secret, but instead, are readily discernible from those companies' websites. Garrod also states that pricing is not confidential, since EPP customers are happy to tell salesmen what they are currently paying for products, in the hopes of obtaining a better price.

In or about August 2012, some of Fenner's employees attended a trade show, where they encountered Garrod, and learned that he was working for Mearthane. On October 9, 2012, Fenner's attorneys wrote to Garrod, and declared that he was violating the agreement's non-compete provision by working for Mearthane. See, Ryan Decl., Ex.

A. ("By accepting employment with Mearthane, you are in clear violation of the Agreement as Mearthane is a Conflicting Organization selling Conflicting Products."). Fenner further demanded that Garrod terminate his employment with Mearthane. Id. ("Fenner Precision demands that you terminate your current relationship with Mearthane."). Garrod's attorney responded that Garrod was not disclosing confidential information, and that the agreement was unenforceable.

On November 13, 2012, Fenner filed the subject action, along with an application for preliminary injunctive relief. Contrary to its former "cease and desist" letter, in this action Fenner is not presently attempting to enforce the non-compete covenant. That is, Fenner is not objecting to Garrod's employment with Mearthane in general, even though Mearthane is clearly a competitor.*fn4 Fenner is, however, seeking enforcement of the confidentiality provision and the non-solicitation provision.

Fenner contends that Garrod has violated the non-solicitation clause. Fenner contends that Garrod may also be violating the non-disclosure clause, though they have no proof of that as yet. On that point, Fenner contends that Garrod is actively attempting to make sales to its customers, and that in doing so, he is in a position to utilize confidential information that he obtained during his employment with Fenner. With regard to his solicitation of Fenner's customers, Fenner alleges that Garrod is violating the non-solicitation covenant, since in soliciting Fenner's customers, he is exploiting "goodwill" that he personally built up with the customers at Fenner's expense. See, Complaint [#1] ¶ 1 ("[Fenner] seeks an injunction prohibiting [Garrod] from using the information and goodwill he obtained in the course of his employment at [Fenner] to solicit [Fenner's] customers[.]"); id. at ¶ 27 ("[Garrod] enjoyed considerable good will as a result of [Fenner's] continuing and substantial expenditures to assure that he maintained such good will for Fenner Precision.").

Fenner relies on several specific instances in which it believes that Garrod has violated the non-solicitation provision. First, Fenner cites Garrod's contact with BASF, discussed earlier. Fenner argues that this is a clear violation of the non-solicitation clause, and that is could also implicate the non-disclosure clause, since Garrod knows that Fenner sells bridge expansion joints to BASF, and Mearthane has never previously sold bridge expansion joints. Fenner contends that Garrod's contact with BASF was harmful to Fenner, even though BASF did not buy any product from Mearthane, because BASF later used the threat of switching to Mearthane to extract a concession from Fenner. Garrod, though, denies that ...


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