York Grp., Inc. v. Pontone

• Decision Date: 06 March 2014
• Docket Number: Civil Action No. 10-1078
• Court: U.S. District Court — Western District of Pennsylvania
• Parties: THE YORK GROUP, INC., MILSO INDUSTRIES CORPORATION, and MATTHEWS INTERNATIONAL CORPORATION, Plaintiffs, v. SCOTT PONTONE, HARRY PONTONE, BATESVILLE CASKET COMPANY, INC., and PONTONE CASKET COMPANY, LLC, Defendants.

THE YORK GROUP, INC., MILSO INDUSTRIES CORPORATION,and MATTHEWS INTERNATIONAL CORPORATION, Plaintiffs, v. SCOTT PONTONE, HARRY PONTONE, BATESVILLE CASKET COMPANY, INC.,and PONTONE CASKET COMPANY, LLC, Defendants.

Civil Action No. 10-1078

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

Dated: March 6, 2014

MEMORANDUM OPINION

Conti, Chief District Judge

I.Introduction

The instant action involves alleged breaches of restrictive covenants executed in connection with the sale of a family business consisting of the manufacturing and distribution of caskets.Pending before the court are five motions for summary judgment including thirty-one claims, including counterclaims, filed by the parties pursuant to Federal Rule of Civil Procedure 56.ECF Nos. 462, 463, 467, 472 & 473.All five motions will be addressed in this memorandum opinion.For the reasons that follow, two of the motions will be denied in their entirety (ECF Nos. 462 & 473), and the remaining three motions (ECF Nos. 463, 467 & 472) will be granted in part and denied in part.

II.Background¹

Matthews International Corporation("Matthews") is a Pennsylvania corporation maintaining its principal place of business in Pittsburgh, Pennsylvania.ECF No. 70 ¶ 8.The York Group, Inc.("York Group"), a subsidiary of Matthews, is incorporated under the laws of Delaware.Id.¶ 6.Like Matthews, York Group operates out of Pittsburgh.Matthews is the second largest casket company in the United States.ECF No. 587 ¶ 1.

Harry Pontone("Harry") and his son, Scott Pontone("Scott"), operated Old Milso and its predecessor, the South Brooklyn Casket Company, for several years.ECF No. 587 ¶ 5.Several members of the Pontone family were involved in the business.Id.Old Milso was engaged in the business of manufacturing and distributing caskets.Non-family individuals also worked in the business, including Josephine Pesce("Pesce"), who worked as Harry's administrative assistant, id.¶ 4, and Joseph Redmond("Redmond"), who served as Old Milso's warehouse manager, ECF No. 70 ¶ 70.

Midnight Acquisition Corporation("Midnight"), a wholly-owned subsidiary of York Group, acquired Old Milso's assets on May 28, 2005.The acquisition was effectuated by an asset purchase agreement executed by the parties.ECF No. 4-1.The sale closed on July 11, 2005, and Midnight's name was changed to Milso Industries Corporation("Milso").Members of the Pontone family were paid a lump sum of $95,000,000.00 pursuant to the terms of the agreement.ECF No. 480-1at 21.The agreement also provided for the payment of contingent consideration under specified circumstances.Id.

In the aftermath of the acquisition, Harry and Scott served respectively as York Group's president and vice president.They both served as members of York Group's board of directors.To effectuate the arrangement, Harry and Scott executed "key employee" employment agreements with York Group.ECF Nos. 470-1 & 480-2.Section 1.01 of those agreementsprovided that Harry and Scott would perform "duties substantially similar to those performed for the [b]usiness" prior to the acquisition.ECF No. 470-1at 2;ECF No. 480-2at 1.As the president, Harry was given "exclusive control" over York Group's operations, including the hiring and firing of employees, employee compensation, product pricing, and the implementation of its business strategy.ECF No. 480-2at 2.The agreement governing the terms of Harry's employment provided that his service as the president would "continue until the close of business on September 30, 2010."Id.Subject to certain conditions, the agreement governing the terms of Scott's employment provided that he would become York Group's president for the balance of Harry's term in the event that Harry ceased to serve in that capacity "for any reason."ECF No. 470-1at 3.

Section 4.06 of the employment agreements prohibited Harry and Scott from engaging in a "Competing Business" during their terms of employment and for an additional three years.ECF No. 470-1at 14;ECF No. 480-2at 13.The term "Competing Business" was defined broadly enough to include "any person, corporation or other entity" involved in the manufacture, marketing or selling of "caskets, urns, memorials or cremation equipment."Id.Each of the employment agreements also contained the following language:

4.07.Non-Solicitation of Customers and Suppliers.Employee agrees that while employed hereunder he shall not, directly or indirectly, solicit the trade of, or trade with, any customer, prospective customer or supplier of [York Group] with respect to the manufacture or sale of caskets, urns, memorials or cremation products for any business purpose other than for the benefit of the Company.Employee further agrees that following the termination of Employee's employment with [York Group], to the same extent and for the same period (if any) that the Employee continues to be subject to the restrictions of Section 4.06, Employee shall not, directly or indirectly, solicit the trade of, or trade with, any customers or prospective customers or suppliers of [York Group] with respect to the manufacture or sale by [York Group] of caskets, urns, memorials or cremation products, or the supplies necessary to manufacture the same.

4.08.Non-Solicitation of Employees.Employee agrees that following termination of Employee's employment with [York Group], and to the same extent and for the same period (if any) that the Employee continues to be subject to the restrictions of Section 4.06, Employee shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the Company to leave [York Group] for any reason whatsoever, or hire any such employee.This Section 4.08 will not prohibit Employee from engaging in general advertising or solicitation not specifically targeted at any one or more employees of [York Group] and shall not prohibit Employee from hiring any employee of [York Group] that contacts Employee as a result of such general advertising or solicitation.

ECF No. 470-1at 14-15;ECF No. 480-2at 13-14.Section 4.01 of the employment agreements prohibited Harry and Scott from misappropriating or disclosing confidential information without York Group's written consent.ECF No. 470-1at 12-13;ECF No. 480-2at 11-12.Under Section 1.07 of the agreements, Harry and Scott were not permitted to "appropriate" York Group's "business opportunities" for their "own benefit."ECF No. 470-1at 9;ECF No. 480-2at 8.Choice-of-law clauses provided that the agreements were to "be governed by and construed in accordance with the laws of the State of New York."ECF No. 470-1at 16;ECF No. 480-2at 15.

At some point, York Group apparently started to exercise some control over Milso's operations.On March 30, 2007, Harry and Scott sued York Group in the Supreme Court of the State of New York, County of New York, contending that York Group personnel had breached Section 1.01 of the employment agreement with Harry by undermining his authority and encroaching on his responsibilities as the president.ECF No. 191-2.The case was settled in May 2007.ECF No. 587 ¶ 27.Harry resigned from his position as York Group's president and became the chairman of its board of directors, a member of Milso's board of directors, and a member of the executive committees of both York Group and Milso.ECF No. 70 ¶ 51.Scott voluntarily resigned from his positions with York Group.ECFNo. 28-3at 2.York Group,Matthews and Milso agreed to pay him "severance compensation" in the amount of $300,000.00 per year for a period of three years.Id.The contractual provisions prohibiting Scott from soliciting customers and suppliers were to remain effective through May 30, 2010.ECF No. 587 ¶ 30.The provision prohibiting him from soliciting employees of York Group or Milso was to remain in effect through May 30, 2011.Id.¶ 31.These terms were expressed in an amendment to Scott's employment contract executed in connection with the settlement agreement.ECFNo. 28-3at 2-5.

In January 2008, Scott became engaged in the business of selling insurance to operators of funeral homes.Civil ActionNo. 08-6314(S.D.N.Y.), ECF No. 1 ¶ 39.He employed eight individuals to market his insurance products.Id.Seven of Scott's eight employees had never been employed by York Group.Id.The other employee had apparently left York Group to work for a different employer before joining Scott's sales force.Id.

Several manufacturers and distributors of caskets spoke to Scott about utilizing his sales force to market and sell caskets.Civil ActionNo. 08-6314(S.D.N.Y.), ECF No. 1 ¶ 40.Scott responded to those communications by informing his prospective business partners about the non-competition and non-solicitation provisions of his amended contract with York Group.Id.¶ 41.The prospective business partners expressed a willingness to proceed with their proposed ventures only if they could be assured that such conduct would not contravene the restrictive covenants.Id.

On July 14, 2008, Scott commenced an action against Matthews, York Group and Milso in the United States District Court for the Southern District of New York, seeking a declaration that the non-competition and non-solicitation provisions of his amended employment contract were invalid under New York law.Civil ActionNo. 08-6314(S.D.N.Y.), ECF No. 1 ¶¶ 47-53.Four days later, he moved for the entry of a preliminary injunction prohibiting the enforcement of the restrictive covenants or the termination of his severance payments in retaliation for his proposed business activities.Civil ActionNo. 08-6314(S.D.N.Y.), ECF No. 9.The district court denied Scott's motion in a memorandum opinion and order dated October 10, 2008.Pontone v. York Group, Inc., Civil ActionNo. 08-6314, 2008 U.S. Dist. LEXIS 80372(S.D.N.Y.Oct. 10, 2008).Two days after the rendering of the district court's decision, Scott...