Essentials v. Nill
| Decision Date | 02 June 2015 |
| Docket Number | J-A07036-15,No. 1345 WDA 2014,1345 WDA 2014 |
| Parties | FITNESS ESSENTIALS, L.L.C. Appellee v. DAVID NILL Appellant |
| Court | Pennsylvania Superior Court |
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
David Nill appeals from the order, entered in the Court of Common Pleas of Allegheny County, granting a preliminary injunction to Fitness Essentials, L.L.C. ("Fitness"). After careful review, we affirm.
Fitness is in the physical fitness training business. Nill is a fitness trainer who worked as an independent contractor for Fitness at its facility at the Pittsburgh Athletic Club ("PAA").1 Nill began working for Fitness in 1998and continued to do so until early 2014.2 Nill signed independent contractor agreements with Fitness in 1998, 2000, 2002, and 2004, all of which contained restrictive covenants and non-compete language.
The non-compete clause in the 2004 Agreement reads as follows:
5. Non-Competition. Fitness Essentials acknowledges and agrees that Trainer may provide personal training or other fitness related services on its own behalf or to other persons or organizations and does not object to Trainer's affiliations with other persons or organizations. However, in order to adequately protect the interests of Fitness Essentials, it is necessary for Trainer to undertake limited obligations of non-competition. Therefore, during the terms of this Agreement and for a period of two years immediately following the termination of this agreement for any reason, Trainer will not, without Fitness Essentials' written consent, directly or indirectly engage or employ any person who is engaged by Fitness Essentials as a personal trainer during the times this Agreement is in effect or in any manner seek to induce any person to leave his or her engagement with Fitness Essentials, or any client to stop engaging the services of Fitness Essentials, or solicit any corporate client or customer of Fitness Essentials to engage Trainer or a fitness business affiliated with Trainer in place of Fitness Essentials, or otherwise interfere with ay contractual relationship of Fitness Essentials.
Independent Contractor Agreement for Personal Training Services, 2/12/04, at 1-2 (emphasis added).
In 2014, Fitness presented Nill with an independent contractor agreement that included a more restrictive non-compete clause. Nill declined to sign the new agreement and was subsequently terminated fromFitness. Despite the non-compete clause of the 2004 Agreement, Nill continued to train 21 of his former Fitness clients at the PAA.
Thereafter, both parties filed complaints in the Magisterial District Court, which were appealed to the Court of Common Pleas of Allegheny County. The cases were consolidated and assigned to arbitration dockets.
On May 13, 2014, Fitness filed a motion for preliminary injunction, seeking to enforce the non-compete clause of the 2004 Agreement. The court heard argument on Fitness' motion on June 17 and June 23, 2014. On July 17, 2014, the Honorable Timothy O'Reilly issued an order and memorandum, granting the preliminary injunction. On August 12, 2014, Nill filed an emergency motion for reconsideration, which the court denied following oral argument.
Nill then filed this interlocutory appeal as of right3 on August 18, 2014. On September 3, 2014, he applied to the trial court for a stay, either whole or in part, of the preliminary injunction order, pending disposition of this appeal pursuant to Pa.R.A.P. 1732(a). This Court denied the stay by per curiam order on September 30, 2014.
On appeal, Nill presents the following issues for our review:
1. Did the trial court abuse its discretion and/or commit error of law by granting a preliminary injunction based on the enforcement of a non-competition covenant in an independent contractor agreement?
2. Did the trial court abuse its discretion and/or commit error of law by determining that the non-competition covenant was part of the "initial entry into a new contract" even though the 2004 agreement was the third provisional agreement between the parties?
3. Was the non-competition covenant in the 2004 agreement unenforceable due to the insufficiency or lack of consideration?4
4. Did the trial court abuse its discretion and/or commit error of law by issuing a preliminary injunction when Fitness did not establish all of the criteria and, therefore, has unclean hands?
Appellate review of a trial court order granting or denying preliminary injunctive relief is highly deferential. Warehime v. Warehime, 860 A.2d 41, 46 (Pa. 2004). As such, an appellate court "will not inquire into the merits of the controversy, but instead will examine the record only to determine if there were any apparently reasonable grounds for the action of the court below." Lutz Appellate Printers, Inc. v. Department of Property and Supplies, 370 A.2d 1210, 1212-13 (Pa. 1977). Only if it is plain that no grounds exist to support the decree or that the rule of law relied upon was palpably erroneous or misapplied will an appellate courtinterfere with the decision of the trial court. Blair Design & Constr. Co. v. Kalimon, 530 A.2d 1357, 1359 (Pa. Super. 1987).
[I]n order to be enforceable a restrictive covenant must satisfy three requirements: (1) the covenant must relate to either a contract for the sale of goodwill or other subject property or to a contract for employment; (2) the covenant must be supported by adequate consideration; and (3) the application of the covenant must be reasonably limited in both time and territory.
Piercing Pagoda, Inc. v. Hoffner, 351 A.2d 207, 210 (Pa. 1976).
In his first issue, Nill argues that a non-compete clause cannot be enforced with respect to an independent contractor relationship. Fitness argues to the contrary and relies on Quaker City Engine Rebuilders, Inc. v. Toscano, 535 A.2d 1083 (Pa. Super. 1987), in support of its argument.
We begin by noting that Nill voluntarily and repeatedly entered into agreements with Fitness that explicitly classified him as an independent contractor. Nill was aware of the restrictive language included in the agreements from the beginning, and knew that in the event of termination, a non-compete covenant would be triggered.
In Quaker City, this Court held that a restrictive covenant can apply to situations beyond the traditional employer-employee relationship. Id. at 1088. There, appellee was a company that sold and distributed auto and truck engines. Appellant entered into an agreement with appellee to become a sales representative in the capacity of an independent contractor. The independent contractor agreement in Quaker City also contained a restrictive covenant not to engage in the manufacturing, buying, selling, ordealing in automotive products for a competitor for a period of two (2) years after termination or expiration of the independent contractor agreement. Id. at 1084-85. Appellant ceased performing sales work for appellee, and soon thereafter commenced advertising to potential customers to purchase and rebuild engines. Id. As in the case sub judice, appellant in Quaker City ceased working as an independent contractor for appellee and attempted to go into the same business on his own.
Citing Piercing Pagoda,5 Bryant Co. v. Sling Testing and Repair, Inc., 369 A.2d 1164 (Pa. 1977),6 and § 516 of the Restatement (1st) of Contracts,7 we concluded that the independent contractor relationship inQuaker City was "sufficiently analogous to that of an employment relationship that the same equitable principles should apply." Id. at 1087. Accordingly, we will extend the validity of restrictive covenants beyond the pure employment setting "if the rationale behind the covenant can be analogized to that which exists in the employer/employee relationship." Id. at 1088.
Here, the impetus for the restrictive covenant was to prevent independent contractors from exploiting Fitness' existing infrastructure of clients and facilities for their own pecuniary benefit. The restrictive covenant also served to prevent independent contractors from conducting their ownbusiness in direct competition with Fitness. In other words, the rationale for the restrictive covenant was to protect Fitness, its business model and practices, and its viability as a company. This is the same rationale present in any traditional employer/employee relationship. Thus, applying the same analysis in Quaker City, the non-compete clause of the 2004 Agreement is valid and enforceable against Nill because it is sufficiently related to a "contract for employment" to create a legitimate, protectable business interest. See id. at 1083.
In his second issue, Nill argues that the trial court committed an error of law when it determined that the 2004 Agreement constituted "initial entry into a new contract" and, therefore, the job itself was adequate consideration to enforce the non-compete clause. Although we disagree with the trial court's reasoning, we still find that Nill received actual valuable consideration sufficient to enforce the non-compete clause contained in the 2004 Agreement.
In Socko v. Mid-Atlantic Systems of CPA, Inc., 99 A.3d 928, 931-32 (Pa. Super. 2014), appeal granted, 105 A.3d 659, 2014 WL 6991669 (Pa. 2014), this court determined:
For a restrictive covenant to be enforceable, the employee must receive actual valuable consideration in exchange for signing an employment agreement containing one. When the restrictive covenant is contained in the initial contract of employment, the consideration is the job itself. But when the restrictive covenant is added to an existing employment relationship, however, to restrict himself the employee must receive a corresponding benefit or a change in job status.
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