Steiner v. Am. Friends of Lubavitch, s. 14–CV–1427 & 15–CV–1203

• Docket Nº: Nos. 14–CV–1427 & 15–CV–1203
• Citation: 177 A.3d 1246
• Case Date: February 01, 2018
• Court: Court of Appeals of Columbia District

177 A.3d 1246

Yehuda STEINER, et al., Appellants,
v.
AMERICAN FRIENDS OF LUBAVITCH (CHABAD), et al., Appellees.

Nos. 14–CV–1427 & 15–CV–1203

District of Columbia Court of Appeals.

Argued October 27, 2016
Decided February 1, 2018

Nicolle Kownacki, with whom Kathryn J. Mims and Chauncey A. Bratt were on the brief, for appellants.

Andrew M. Grossman, with whom Paul M. Levine was on the brief, for appellees.

Before Beckwith and Easterly, Associate Judges, and Farrell, Senior Judge.

Beckwith, Associate Judge:

This case raises the question whether a noncompete and noninterference clause in a religious minister's employment contract may be enforced by a preliminary injunction

177 A.3d 1249

after the employment is terminated. Appellant Rabbi Yehuda Steiner was hired by American Friends of Lubavitch (AFL), a nonprofit affiliated with "the Chabad–Lubavitch movement," to run AFL's campus outreach at George Washington University (GW). The noncompete and noninterference clauses at issue in this case appear in an employment contract Rabbi Steiner signed—on behalf of himself and his wife, Rivky Steiner—with one of the organization's representatives, appellee Rabbi Levi Shemtov. When the Steiners' employment ended under contested circumstances, Rabbi Shemtov and appellee AFL filed a complaint alleging a breach of contract and successfully sought a preliminary injunction that required the Steiners to refrain from competing or interfering with AFL's involvement at GW. A subsequently amended version of that injunction is now the subject of this appeal.

The Steiners challenge the injunction on five separate grounds, arguing that the trial court lacked subject-matter jurisdiction, that it abused its discretion by issuing the injunction, that it erred in applying the doctrine of equitable reformation to the noncompete clause, that the injunction violated the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act, and that Rabbi Steiner's wife, Rivky Steiner, was not a party to the contract and was therefore improperly enjoined.

We conclude that the trial court had subject matter jurisdiction to issue the injunction. We also formally adopt the doctrine of equitable reformation to modify contract provisions, but hold that the trial court's equitable revision of the noncompete clause in this case exceeded the bounds of that doctrine by describing the activities the Steiners were precluded from engaging in using broader language than the terms of the employment contract itself and thus effectively expanding the scope of the restrictions contained in the noncompete clause. We therefore vacate the injunction and remand for a determination of what, if any, provisions of the modified preliminary injunction remain enforceable, consistent with this opinion. We also remand for a determination as to whether Rivky Steiner could be properly enjoined, should any provisions remain enforceable.

I. Background

The appellants, Rabbi Yehuda Steiner and his wife Rivky Steiner, belong to Chabad–Lubavitch, an Orthodox Jewish movement centered in Brooklyn, New York. They moved to the District of Columbia in 2008 when Rabbi Steiner was hired by American Friends of Lubavitch—a nonprofit that describes itself as "the Chabad–Lubavitch movement's mandated representative entity in Washington"—to be a campus rabbi at George Washington University. Within a year, Rabbi Steiner's relationship with Rabbi Levi Shemtov, the head of AFL's Washington office, deteriorated, and in November 2011, Rabbi Shemtov purported to fire Rabbi Steiner. Rabbi Steiner challenged the termination before a rabbinical court and won, after which he and Rabbi Shemtov entered into a new employment contract.

The new contract stated that Rabbi Shemtov had "ultimate rabbinic and executive authority over Chabad–Lubavitch activities in Washington, DC—governmental, communal and local, including the universities" and indicated that he was employing Rabbi and Rivky Steiner in that capacity. Rabbi Steiner's responsibilities under the contract included organizing Friday night Shabbos dinners, classes, social events, and annual trips to Israel "to enable Jewish students to interact with each other as much as possible[.]"

177 A.3d 1250

The contract included a noncompete clause stating that if the Steiners were terminated, they would not "enter into employment or arrangement—of whatever scope or duration—with any Chabad–Lubavitch entity or any other institution, performing similar work, anywhere in DC, or suburban MD or VA." This noncompete clause was followed by a noninterference clause stating that, after the end of the employment, the Steiners agreed "to conclude their operations at GWU peacefully within 30 days of notification" and to do so "without causing any damage or discomfort" to Rabbi Shemtov or AFL and without "interfering with any arrangement or subsequent decision made by [Rabbi Shemtov] in connection with GW or any other activities over which [Rabbi Shemtov] has authority." The contract concluded with a statement that the parties agreed to the specified terms and conditions "in conformance with the laws of, under the jurisdiction of, and enforceable in the District of Columbia." Rabbi Steiner signed the contract on behalf of himself and his wife, and Rabbi Shemtov signed it on behalf of himself, his wife, and AFL.

The parties performed pursuant to the terms of the contract for two years, until the relationship between Rabbi Steiner and Rabbi Shemtov broke down again, and Rabbi Shemtov for the second time fired Rabbi Steiner. While contesting the termination before religious and civil courts, Rabbi Steiner continued his religious outreach activities at GW, including his use of the "Chabad @ GW" name and of property belonging to AFL. He later switched to using the name "Jewish Colonials" or "Jewish GW."

AFL and Rabbi Shemtov brought this breach of contract action and simultaneously moved for a preliminary injunction ordering the Steiners to "cease their operations at GWU immediately," not perform similar work "at, around, or related to GWU," and cease using the Chabad name and Chabad property. In response, the Steiners asserted several affirmative defenses and counterclaims and sought a declaratory judgment that the noncompete clause was unenforceable.

The trial court granted a preliminary injunction, but applied the doctrine of equitable reformation to narrow the scope of the restrictions, noting that AFL and Rabbi Shemtov "d[id] not seriously dispute" that the noncompete clause was "an overbroad and thus unenforceable restraint on trade."

The resulting order required the Steiners to cease their operations at GW and stop using "ChabadGW" branding, return property and a leased "Chabad Lounge" to the plaintiffs, and refrain for two years from conducting any of the activities the Steiners were hired to do, as directly specified in their employment contract, within one mile of the GW campus. The trial court found that two years was "a reasonable period of time necessary to enable the plaintiffs to regain control of the Chabad program at GW without unreasonable interference and competition from defendants," and that the activities that the Steiners were to organize with GW students as laid out in the contract were the "core of what the plaintiffs bargained for."

The trial court found that AFL and Rabbi Shemtov had clearly demonstrated all four prerequisites of a preliminary injunction. AFL and Rabbi Shemtov were likely to succeed on the merits, the court found, because the Steiners were "clearly not in compliance with the noncompete clause of the contract ... whether as written or as equitably revised." AFL and Rabbi Shemtov had likewise demonstrated that they would suffer irreparable harm without the injunction, that they would suffer greater harm from the denial of the

177 A.3d 1251

injunction than the Steiners would, and that the injunction would be consistent with the public interest because the "short-term ... disruption for a handful of students"¹ was less of a concern than the "strong public interest in the enforcement of contracts."

The Steiners appealed and asked this court to stay the preliminary injunction. This court held oral argument on the stay request and then issued an order—instructing the trial court to clarify the scope of the injunction and to explain how the injunction was "compatible with the requirements of the First Amendment." After further briefing from both parties, the trial court ruled that the preliminary injunction had no constitutional or statutory infirmities. The court nonetheless modified the injunction to reflect the parties' understanding that the prohibition on organizing the types of programs normally associated with Rabbi Steiner's religious duties under his contract with AFL—such as Shabbos dinners, classes, and social events for Jewish students—only applied to activities with GW students near the GW campus. The court also adjusted and widened the geographic area around the GW campus to which the injunction applied and attached a corresponding new map.

The Steiners filed an appeal from this modified injunction order, which was consolidated with the earlier appeal. Before this court the Steiners now...