Maryland Undercoating Co., Inc. v. Payne

• Decision Date: 20 July 1979
• Docket Number: No. 78-1648,78-1648
• Citation: 603 F.2d 477
• Parties: MARYLAND UNDERCOATING COMPANY, INC., Appellee, v. George D. PAYNE, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 477

603 F.2d 477

MARYLAND UNDERCOATING COMPANY, INC., Appellee, v. George D. PAYNE, Appellant.

No. 78-1648.

United States Court of Appeals Fourth Circuit.

Argued Dec. 5, 1978.

Decided July 20, 1979.

Geoffrey F. Birkhead, Norfolk, Va. (Crenshaw, Ware & Johnson, Norfolk, Va., on brief), for appellant.

Leland S. Van Koten, Baltimore, Md. (John A. Scaldara, Wright & Parks, Baltimore, Md., on brief), for appellee.

Before WINTER, RUSSELL and WIDENER, Circuit Judges.

WIDENER, Circuit Judge:

George D. Payne appeals from the district court's issuance of a preliminary injunction. For reasons to be stated, we vacate the order granting Maryland Undercoating's motion for a preliminary injunction which prevented Payne's employment by Predelivery Service Corporation (PSC). ¹

In June 1973, Payne began his employment with Maryland Undercoating as its manager of operations at its Portsmouth, Virginia facility. Maryland Undercoating, a Maryland corporation with its principal place of business in Baltimore, Maryland, is involved in the processing of motor vehicles for importers, distributors and dealers. Its principal business is the decosmolining of (removal of the protective coating from) imported vehicles, undercoating, pierside servicing, storage and pierside handling of imported motor vehicles. Payne's duties as manager of operations consisted of supervising the production personnel and running the Portsmouth operation on a day-to-day basis. In the capacity of manager of operations, Payne did not have extensive administrative duties and was not involved in the pricing of jobs or the negotiation of contracts.

In December 1974, Payne was made general manager of Maryland Undercoating's Portsmouth operation. As a condition to his further employment as general manager of Maryland Undercoating's Portsmouth operation, Payne was required to execute an employment contract. The contract, signed by Payne on December 26, 1974, contained, Inter alia, the provisions preventing Payne from at any time disclosing Maryland Undercoating's business methods or any confidential information learned in the course of his employment and for a period of two years after employment of engaging in a similar line of business in competition with Maryland Undercoating within thirty miles of Portsmouth Marine Terminal or Dundalk, Maryland Marine Terminal. James G. Robinson, President of Maryland Undercoating, testified that Payne, as general manager, was privy to such confidential information as employee records, salaries of employees, pricing information, cost information, profit margins, and the hours of work required for the performance of services on various accounts. ²

During the time Payne was employed with Maryland Undercoating at its Portsmouth Facility, Maryland Undercoating serviced the following makes of vehicles: Ford Fiesta; Ford domestic trucks; BMW; Renault; Peugeot; and Volvo. The Ford Fiesta account constituted approximately sixty to seventy percent of Maryland Undercoating's business.

In early March 1978, Maryland Undercoating received a letter dated March 7, 1978 from Ford informing it that Ford was terminating the service agreement for the Fiesta account, effective May 7, 1978. The letter stated that the termination was in no way related "to performance criteria on the part of Maryland Undercoating," but was due to the expansion of Predelivery Service Corporation to the port of Portsmouth. PSC is a wholly owned subsidiary of Ford Motor Company that operates at various ports around the country. Presently, PSC performs decosmolining, pierside and storage services for Ford Fiestas in Portsmouth, services previously performed by Maryland Undercoating.

Robinson testified that soon after receiving Ford's letter of March 7th, he informed Payne that Ford was terminating its service agreement for Fiestas with Maryland Undercoating. Payne testified that after he learned of Ford's termination of the Fiesta account, he applied to PSC for a job. ³ In a letter dated March 17, 1978, Payne received an offer of employment as plant operations manager from PSC. On April 19th, Payne informed Robinson that he was resigning from Maryland Undercoating and accepting employment with PSC. In a letter sent to Robinson dated April 20, 1978, Payne confirmed the fact that he was resigning, effective May 5, 1978. ⁴ Payne commenced his employment as plant operations manager at PSC's Portsmouth facility on May 8th.

PSC began actively operating in May, after Payne's arrival. Within several weeks of the start of PSC's operations, twelve to fourteen employees of Maryland Undercoating went to work for PSC. ⁵ Richard V. Petro, operations manager of PSC's Portsmouth facility, testified that whenever an application indicated that an applicant worked at Maryland Undercoating and that Payne was the last supervisor, he would ask Payne for his evaluation of the employee and Payne would give his evaluation. ⁶ Payne corroborated Petro's testimony on this point.

On June 27, 1978, Maryland Undercoating filed this suit alleging that Payne had breached his contract with Maryland Undercoating by accepting employment with PSC, a corporation engaged in a similar line of business in competition with Maryland Undercoating within the requisite geographic area delineated in Payne's employment contract. It sought to enforce its employment contract with Payne by means of a permanent injunction. As a stop gap measure, Maryland Undercoating sought a preliminary injunction pursuant to FRCP 65(a), which was granted by the district court. ⁷

In passing on Maryland Undercoating's motion for a preliminary injunction, the district court correctly stated that the standard for determining whether interlocutory injunctive relief should issue is the balance-of-hardship test under Blackwelder Furniture Co. v. Seilig Manufacturing Co., 550 F.2d 189 (4th Cir. 1977). See also North Carolina State Ports Authority v. Dart Containerline Co., 592 F.2d 749 (4th Cir. 1979); Johnson v. Bergland, 586 F.2d 993 (4th Cir. 1978); United States v. Commonwealth of Virginia, 569 F.2d 1300 (4th Cir. 1978); Fort Sumter Tours, Inc. v. Andrus, 564 F.2d 1119 (4th Cir. 1977). The balance-of-hardship test can be summarized as follows. The decision of the district court to grant or deny interlocutory injunctive relief should be based upon a "flexible interplay" among all the factors to be considered, i. e., likelihood of irreparable harm to the plaintiff without an injunction; likelihood of harm to the defendant with an injunction; plaintiff's likelihood of success on the merits; and the public interest. The first step in determining whether interlocutory injunctive relief should issue is for the court to balance the likelihood of irreparable harm to the plaintiff without an injunction against the likelihood of harm to the defendant with an injunction. If a decided imbalance of hardship should appear in plaintiff's favor, it is enough that grave or serious questions are presented; plaintiff need not show a likelihood of success on the merits. The need for plaintiff to show likelihood of success on the merits increases as the probability of irreparable injury to plaintiff without an injunction decreases. ⁸ Finally, the court should consider wherein lies the public interest, sometimes described as preserving the Status quo ante litem until the merits of a serious controversy can be fully considered by a trial court. ⁹ See Blackwelder, 550 F.2d at 195-97.

In the instant case, the district court determined that preserving the opportunity to grant effective relief argued for temporary relief; that Maryland Undercoating would suffer irreparable harm if a preliminary injunction did not issue since Payne could convey confidential information, such as Maryland Undercoating's costs, prices, and information concerning employees to PSC; that Maryland Undercoating was likely to succeed on the merits of the case since the parties conceded that the non-competition provisions of Payne's employment contract were valid and the court had determined that PSC was in competition with Maryland Undercoating in Portsmouth; and that the public interest would be served by maintaining the Status quo as it existed prior to the time Payne left the employment of Maryland Undercoating and sought and accepted employment with PSC. ¹⁰ Based on these determinations, the court granted the motion for a preliminary injunction. ¹¹

At no point in its oral opinion or in its order did the district court discuss what, if any, harm was likely to be caused Payne by the issuance of a preliminary injunction. ¹² Consequently, the court did not balance the likelihood of irreparable harm to Maryland Undercoating without an injunction against the likelihood of harm to Payne with an injunction, the first step in determining whether a preliminary injunction should issue. In terms of hardship, the court focused solely on the likelihood of irreparable harm to Maryland Undercoating if an injunction did not issue.

As we said in Blackwelder, "(t)he decision to grant preliminary relief cannot be intelligently made unless the trial court knows how much the precaution will cost the defendant." 550 F.2d at 196. The district court's failure to consider what, if any, harm was likely to be caused to Payne and the issuance of a preliminary injunction without balancing the hardships, as required, when determining whether to grant or deny Maryland Undercoating's request for interlocutory injunctive relief, supports our conclusion to vacate the order. ¹³

We also think the district court erred in concluding that PSC is in competition with Maryland Undercoating in the port of Portsmouth. The court relied on the cases of First National Bank v. Hartford, 273 U.S. 548, 47 S.Ct. 462, 71 L.Ed. 767 (1926), and Schill v. Remington Putnam Book Co., 179 Md. 83, 17 A.2d 175 (1941), as establishing an applicable definition of competition. In First National Bank, a case in which the...