PITTSBURGH LOGISTICS SYSTEMS, INC., Appellant v. MICHAEL CERAVOLO, AN ADULT INDIVIDUAL, MARY COLEMAN, AN ADULT INDIVIDUAL, NATALIE HENNINGS, AN ADULT INDIVIDUAL, AND RACQUEL PAKUTZ, AN INDIVIDUAL

 

No. 135 WDA 2017

 

SUPERIOR COURT OF PENNSYLVANIA

 

2017 Pa. Super. Unpub. LEXIS 4184

 

 

November 14, 2017, Decided

November 14, 2017, Filed

 

 

NOTICE:    NON-PRECEDENTIAL DECISION — SEE SUPERIOR COURT I.O.P. 65.37

 

PRIOR HISTORY:     [*1] Appeal from the Order Entered December 22, 2016. In the Court of Common Pleas of Beaver County. Civil Division at No(s): No. 11542-2016.

 

DISPOSITION:    Order affirmed.

 

JUDGES: BEFORE: BOWES, LAZARUS and OTT, JJ. MEMORANDUM BY OTT, J.

 

OPINION BY: OTT

 

OPINION

MEMORANDUM BY OTT, J.:

Pittsburgh Logistics Systems, Inc., (PLS) appeals from the order entered on December 22, 2016, in the Court of Common Pleas of Beaver County, denying PLS’s petition for preliminary injunction, that sought to uphold non-competition agreements in the employment contracts of defendants Michael Ceravolo, Natalie Hennings, and Racquelle Pakutz.1 In this timely appeal, PLS claims the trial court erred in, 1) finding the non-competition agreements were overbroad, and 2) in failing to “blue line” the agreements to make them enforceable. After a thorough review of the submissions by the parties, relevant law, and the certified record, we affirm.

 

1   Pittsburgh Logistics is not appealing from the order as applied to defendant Mary Coleman.

Our standard of review for an order granting or denying a preliminary injunction is as follows:

 

We have emphasized that our review of a trial court’s order granting or denying preliminary injunctive relief is “highly deferential”. Summit Towne Centre, Inc. v. Shoe Show of Rocky Mount Inc., 573 Pa. 637, 828 A.2d 995, 1000 (2003). This “highly deferential” standard of review states that in reviewing the grant or denial of [*2]  a preliminary injunction, an appellate court is directed to “examine the record to determine if there were any apparently reasonable grounds for the action of the court below.” Id. We will find that a trial court had “apparently reasonable grounds” for its denial of injunctive relief where the trial court has properly found “that any one of the following ‘essential prerequisites’ for a preliminary injunction is not satisfied.” Id. at 1002.

There are six “essential prerequisites” that a party must establish prior to obtaining preliminary injunctive relief. The party must show: 1) “that the injunction is necessary to prevent immediate and irreparable harm that cannot be adequately compensated by damages”; 2) “that greater injury would result from refusing an injunction than from granting it, and, concomitantly, that issuance of an injunction will not substantially harm other interested parties in the proceedings”; 3) “that a preliminary injunction will properly restore the parties to their status as it existed immediately prior to the alleged wrongful conduct”; 4) “that the activity it seeks to restrain is actionable, that its right to relief is clear, and that the wrong is manifest, or, in other [*3]  words, must show that it is likely to prevail on the merits”; 5) “that the injunction it seeks is reasonably suited to abate the offending activity”; and, 6) “that a preliminary injunction will not adversely affect the public interest.” Id. at 1002. The burden is on the party who requested preliminary injunctive relief[.]

 

 

Warehime v. Warehime, 580 Pa. 201, 860 A.2d 41, 46-47 (Pa. Super. 2004) (footnotes omitted).

Ceravolo, Hennings and Pakutz all worked for PLS, a logistics firm working with the trucking industry. Because of the proprietary information used by PLS to provide service for its clients, PLS requires its employees to sign employment agreements that include a non-competition clause. Hennings and Pakutz both signed a similar agreement. Ceravolo, on the other hand, had worked for PLS for a longer time and had signed an earlier, less restrictive version. While PLS had Ceravolo also sign the later version, the trial court disallowed that agreement as being unsupported by consideration.

In relevant part, the agreement signed by Hennings and Pakutz states:

 

7. Non-Solicitation. I agree not to directly or indirectly solicit, for the purpose of offering or attempting to offer any service, product or other application which is the same or similar to the services, products [*4] or other applications offered by the Company or in the process of being developed by the Company within the last year prior to termination of my employment with the Company, any of the Company’s customers for a period of two (2) years after termination of my employment with the Company. I further agree, for a period of two (2) years after the termination of my employment with the Company, that I will not directly or indirectly hire or directly or indirectly solicit or attempt to solicit any employee of, or consultant to, the Company at anytime within the six month period immediately preceding the termination of my employment, to leave the employ of, or no longer render service to or for the benefit of, the Company.
8. Non-Competition. During the term of my employment with the Company and for a period of one (1) year thereafter, I shall not become an officer or director of, or consultant to or be employed by, or otherwise render services to or on behalf of, a Competing Business. …2 I acknowledge and agree that the Company is engaged in business throughout the world and that the marketplace for the Company’s products and services is worldwide, and thus, the geographic area, length and [*5] scope of this noncompetition provision are reasonable and necessary to protect the legitimate business interests of the Company. In the event that a court of competent jurisdiction shall determine that one or more of the provisions of Paragraphs 7 or 8 are so broad as to be unenforceable, then such provision shall be deemed to be reduced in scope or length, as the case may be, to the extent required to make such Paragraphs enforceable. If I violate the provisions of Paragraph 7 or 8 of this Agreement, I acknowledge that the periods described therein shall be extended by the number of days which equals the aggregate of all days during which any such violations occurred. I acknowledge that this provision does not prevent me from earning a livelihood after the termination of my employment.

 

 

Hearing Exhibits C and D.

 

2   This omitted section defines “Competing Business.” This definition is not relevant to the arguments of the parties nor to our disposition of this matter. As this definition is somewhat lengthy, we have omitted it for ease of reading.

The original Agreement signed by Ceravolo is similar to the above agreement in all relevant aspects except for the length of the nonsolicitation provisions of paragraph 7. Ceravolo is subject to a one-year non-solicitation restriction rather than a two-year restriction. See Hearing Exhibit E.

Defendants Ceravolo, Hennings, and Pakutz all left PLS’s employ and went to work for [*6]  BeeMac Trucking (BeeMac), a “competing business.”3

 

3   Ceravolo asserts he works for, and possesses an ownership share of, a sales and marketing company called “Hybrid.” See Appellees’ Brief at 12. Although in the brief Ceravolo denies Hybrid is a broker or coordinator for BeeMac or any other trucking company, neither Ceravolo nor the trial court ruled that non-competition clause was unenforceable because Hybrid was not a “competing business.” For purposes of this decision, we will accept that Ceravolo works either directly for BeeMac or for Hybrid as an agent of BeeMac, because the trial court made no specific finding regarding Hybrid.

In seeking the preliminary injunction, PLS sought to enforce paragraphs 7 and 8 as written, thereby preventing the three former employees from working for BeeMac. The current state of the law regarding the enforceability of restrictive covenants in employment contracts is as follows:

 

While generally disfavored, Pennsylvania law, however, has recognized the validity and enforceability of covenants not to compete in an employment agreement, assuming adherence to certain requirements. See Pulse Technologies, Inc. v. Notaro, 620 Pa. 322, 67 A.3d 778 (2013); Morgan’s [Home Equip. Corp. v. Martucci, 390 Pa. 618], 136 A.2d [838] at 844; see generally Kurt H. Decker, Refining Pennsylvania’s Standard for Invalidating a Non-Competition Restrictive Covenant When an Employee’s Termination is Unrelated to the Employer’s Proctectible Business Interest, 104 Dick. L.Rev. 619 (2000). Our Court noted in Morgan’s the evolution of the treatment of restrictive covenants. Such covenants were first found to be absolutely void as against public policy due to a high societal demand for, but low supply of, skilled workers. Later, due to the reality of the new era brought on by the industrial revolution, a more balanced approach was taken by the courts which accepted partial restraints on trade, provided they were [*7]  ancillary to the employment relationship and reasonably limited:

 

Such general covenants not to compete present centuries old legal problems. The earliest cases were decided against the economic background of a chronic shortage of skilled workers in England, the result of the virulent epidemics of the Black Death during the fourteenth century. It was not surprising, then, that all covenants to refrain from practicing a trade were held to be void as against public policy. This policy carried over into the early seventeenth century when the grants of exclusive trading privileges by the Sovereign caused widespread public indignation which broadened into a dislike for all restraints upon the free exercise of trade. However, by the eighteenth century England found itself in the midst of a new commonercial [sic] era, and adjusting to changed economic conditions, the courts upheld at common law contracts in partial restraint of trade provided they were ancillary to a principal transaction, and were reasonably limited both in geographical extent and duration of time.

 

 

Morgan’s, 136 A.2d at 844; see also Hess [Gebhard & Co.Inc., 570 Pa. 148] 808 A.2d [912] at 917-18.

Consistent with this legal background, currently in Pennsylvania, restrictive covenants are enforceable [*8]  only if they are: (1) ancillary to an employment relationship between an employee and an employer; (2) supported by adequate consideration; (3) the restrictions are reasonably limited in duration and geographic extent; and (4) the restrictions are designed to protect the legitimate interests of the employer. Hess, 808 A.2d at 917; Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 351 A.2d 207, 210 (1976); Morgan’s, 136 A.2d at 844-46.

 

 

Socko v. Mid-Atlantic Systems of CPA, Inc., 633 Pa. 555, 126 A.3d 1266, 1274 (Pa. 2015).

Following a three day hearing4 on the merits of the preliminary injunction, the trial court found that the non-competition clause, which forbade Ceravolo, Hennings, and Pakutz from working for a competing business world-wide, was geographically overbroad and accordingly unenforceable. Further, the trial court reasoned PLS knew the covenant was overbroad when it required the employees to sign it, this fact demonstrated PLS had unclean hands and therefore the trial court refused to provide PLS the equitable relief of modifying the contract.

 

4   12/8-9/16 and 12/13/2016.

Specifically, the trial court stated:

 

The agreement provides that “the Company is engaged in business throughout the world and that the marketplace for the Company’s products and services is worldwide, and thus, the geographical area, length and scope of this noncompetition provision are reasonable and necessary to protect the legitimate business [*9]  interests of the Company.” (Exhibit F). It further provides that if the court finds this provision to be too broad, that it shall be deemed to be reduced in scope or length to the extent required to make the paragraph enforceable. PLS argues this extensive coverage of the non-compete clause is necessary because the nature of its business is worldwide. PLS has cited no authority supporting the enforcement of a world-wide noncompetition agreement. We have found no Pennsylvania case that upheld a worldwide non-competition clause. In fact, we found the opposite.

The enforceability of a world-wide non-compete clause was recently addressed in Adhesives Research Inc. v. Newsom, 2015 U.S. Dist. LEXIS 48346, 2015 WL 1638557 (M.D. Pa. 2015). The court observed that “the geographic scope of a non-compete agreement is reasonably limited if it encompasses only such territory ‘as may be reasonably necessary for the protection of the employer without imposing undue hardship on the employee.”‘ 2015 U.S. Dist. LEXIS 48346, [WL] at *6, (quoting Jacobson & Co. v. International Environ. Corp., 427 Pa. 439, 235 A.2d 612, 620 (Pa. 1967). This test is satisfied if the geographic restriction, even if broad in extent, is “roughly consonant with the scope of the employee’s duties.” Victaulic Co. v. Tieman, 499 F. 3d 227, 237 (3rd. Cir. 2007). For example, in the context sales representatives, the Supreme Court of Pennsylvania has held that in order for a non-compete agreement to be reasonably [*10]  limited, the geographic restriction can extend no farther than the employee’s sales territory and customer base. Boldt Mach. & Tools. Inc. v. Wallace, 469 Pa. 504, 366 A.2d 902, 909 (Pa. 1975).

In Adhesives, the court noted that despite the defendant’s sale’s territory consisting of the western half of the United States, the geographic restriction contained in the non-compete agreement extends to anywhere in the world where the plaintiff’s products are sold. Because the breadth of the restriction was much larger than the defendant’s sales territory, the restriction was not “roughly consonant” with the defendant’s duties. 2015 U.S. Dist. LEXIS 48346, [WL] at *6. Therefore, the court found that the geographic scope was not limited to an area reasonably necessary to protect the plaintiff’s interests. Id. See also Boldt, 366 A.2d at 909. Moreover, by prohibiting the defendant from engaging in her profession anywhere in the world where plaintiff’s products are sold, the restriction imposed a severe hardship on defendant. Id. Accordingly, the Adhesives court found that the geographic extent of the agreement was unreasonably broad. Id.

The court’s finding of an overly broad geographic scope did not end its inquiry. Under Pennsylvania law, courts may exercise their equitable power to narrow an overly broad restriction. Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250, 254 (Pa. 1976). In fact, [*11]  the Adhesives court found that if it exercised that power and tailored the geographic scope to a reasonable territory, the plaintiff might have prevailed on the merits. 2015 U.S. Dist. LEXIS 48346, [WL] at *7. However, the court believed that the case fell within the one exception when the use of equitable powers to modify a restrictive covenant is not permitted.

“When a covenant not to compete contains an unlimited geographic scope, although the nature of the business was such that a relevant geographical area could have been specified, the agreement is void, and courts may not use their equitable power to alter the agreement.” Reading Aviation Serv., lnc. v. Bertolet, 454 Pa. 488, 311 A.2d 628 (Pa. 1973) (finding that the noncompetition agreement, which bound the employee not to compete with the employer in the general aviation business without any limitation as to time or area, was void on its face as being in unreasonable restraint of trade, and was therefore unenforceable, either in whole or in part). The Supreme Court of Pennsylvania has instructed that such overbreadth “militates against enforcement because it indicates an intent to oppress the employee and/or to foster a monopoly, either of which is an illegitimate purpose. An employer who extracts a covenant [*12]  in furtherance of such purpose comes to the court … with unclean hands and is … not entitled to equitable enforcement. …” Adhesives, 2015 U.S. Dist. LEXIS 48346, [WL] at* 6. (citing Sidco, 351, A.2d at 257).

At the time the parties entered into the contract, Adhesives Research Inc. knew that the defendant’s sales territory would consist of the western half of the United States. Despite this knowledge, the restrictions in the non-compete agreement were unlimited in geographic scope-they extend to the entire world. Therefore, the court concluded that the non-compete agreement provision was void under Pennsylvania law and not subject to equitable tailoring. Accord Fres-Co Sys. USA Inc. v. Bodell, 2005 U.S. Dist. LEXIS 28140, 2005 WL 3071755 at *8 (E.D. Pa. 2005). Because the geographic extent was unreasonably broad and not susceptible to equitable modification, the Adhesives court found that the plaintiff was not likely to prevail under Pennsylvania law and denied the request for injunctive relief.

Courts in other jurisdictions have likewise refused to modify world-wide noncompetition agreements, finding such agreements void on their face. See Hay Group Inc. v. Bassick, 2005 U.S. Dist. LEXIS 22095, 2005 WL 2420415 (N.D. Ill. 2005); Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, 813 F. Supp. 2d 489 (S.D.N.Y. 2011). Our research revealed that only courts in Michigan and Louisiana were willing to enforce world-wide noncompete clauses. Superior Consulting Co, Inc, v. Walling, 851 F. Supp. 839 (E.D. Mich 1994); Kadant Josnson, Inc. v. D’Amico, 2012 U.S. Dist. LEXIS 64237, 2012 WL 1605458 (E.D. La. 2012).

Defendant Ceravolo argues that PLS’s non-compete clause is [*13]  “overreaching” with respect to the restrictive covenants and this invalidates his employment agreement. He maintains that the agreement’s restrictive covenants are so broad and restrictive that they reflect “an intent to oppress the employee [or] to foster a monopoly, either of which is an illegitimate purpose.” Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250, 254 (Pa. 1976). We agree.

The testimony indicated that the scope of PLS’s work in the Energy Sector, where Mr. Ceravolo worked, was mostly national, or, at best, included Canada and Mexico. Trucking routes between Chicago and Philadelphia were discussed, as were routes in Texas. There was also testimony that PLS has an office in Jacksonville, Florida. Exhibits T and U indicate shipments to throughout the United States, with one shipment in Ontario, Canada. A map produced by PLS for its Energy Services, Exhibit B, showed PLS had a shipment network that stretched throughout the United States, Canada and Mexico. No testimony indicated that Mr. Ceravolo did freight brokering or transportation logistics on an international level (aside from his attendance at a convention in Calgary, Canada), such that a non-competition clause of world-wide magnitude would be necessary to protect the interests [*14]  of PLS.

We agree with the analysis in Adhesives, and similarly find that this case falls within the one exception when the use of equitable powers to modify a restrictive covenant is not permitted. We decline to modify the non-competition clause to a different geographic area. We believe PLS is not likely to succeed on the merits of the case with respect to the non-competition agreement, and for this reason, we will vacate the injunction prohibiting Mr. Ceravolo from working for BeeMac Trucking or Hybrid Global Logistics.

 

 

Trial Court Opinion, 12/22/2106, at 4-9 (emphasis in original).

Although this quote from the trial court opinion is specifically directed to Ceravolo’s contract, the trial court applied the same logic to both Hennings and Pakutz. The trial court found no evidence that either Hennings’ or Pakutz’s employment with PLS encompassed worldwide responsibilities. Therefore, just as with Ceravolo, the worldwide ban on similar employment was unenforceable and demonstrated an improper intent to oppress the employee.

Our review of the certified record convinces us that the reasoning and application of case law is supported by the factual record. Our task in reviewing this matter, [*15]  as explained above, is to determine if the trial court’s ruling is supported by “apparently reasonable grounds.” It is. Accordingly, we affirm the trial court’s order regarding non-competition clauses in the contracts of Ceravolo, Hennings and Pakutz.5

 

5   The trial court’s order also upheld the restrictive covenant regarding nonsolicitation. That aspect of the order has not been appealed. Ceravolo’s contract contained a one-year non-solicitation restriction; Hennings’ and Pakutz’s contracts contained two-year non-solicitation restrictions. Therefore, those restrictions against contacting PLS clients remain in place and are enforcable.

PLS’s second claim is that the trial court erred in failing to amend the non-competition clause to an enforceable geographic area as contemplated by the employment agreements. See Paragraph 8, Exhibits C, D, and E. Essentially, PLS argues the trial court should have simply shrunk the geographic limitation found in the employment agreement to fit the instant circumstance.

 

[T]he scope of the Appellees’ non-competition covenants are self-narrowing. To the extent that the court finds that the scope is too broad, the contractual language itself requires it to be deemed narrowed to the extent necessary for it to be enforced.

 

 

PLS Brief at 34-35.

PLS has argued that no matter the worldwide geographic scope found in the employment contract, because PLS operates in a worldwide fashion, the actual scope will self-limit to whatever size is legally needed to prevent the employee from gaining employment. PLS asserts that this self-limiting feature is easily [*16]  enforced in the instant matter as BeeMac operates within miles of PLS.

Nevertheless, the trial court determined that such amendment was improper and unavailable to PLS given the nature of the geographic limitation. The trial court reasoned, as quoted above, pursuant to Adhesives Research Inc. v. Newson, 2015 U.S. Dist. LEXIS 4834, 2015 WL 1638557 (M.D. Pa. 2015),6 Reading Aviation Serv., Inc. v. Bertolet, 454 Pa. 488, 311 A.2d 628 (Pa. 1973), and Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250 (Pa. 1976), that the worldwide scope of the covenant, where the relevant geographic could have been originally specified, was gratuitously overbroad and as such militated against enforcement because that indicates an intent to oppress the employee or to foster a monopoly. See Trial Court Opinion at 9. Either of these intents are improper and so the employer who imposed such a restriction has unclean hands and is not entitled to the equitable amendment of the agreement.

 

6   The trial court recognized the Federal Rules of Appellate Procedure allow for the unrestricted use of unpublished decisions, and therefore accepted Adhesives Research as persuasive authority. Given that Adhesives Research relies heavily on Sidco and Reading Aviation, two Pennsylvania Supreme Court cases the trial court also cited, we also recognize Adhesives Research as merely persuasive.

We agree with this assessment. Not only was the original worldwide scope of the covenant facially overbroad, but if we accept PLS’s interpretation, the self-limiting clause essentially renders the limitation unchallengeable. As related above, Paragraph 8 of the Contract contains mandatory language that if a court determines any provision to be overbroad then the employee agrees that [*17]  said term “shall be deemed to be reduced in the scope or length, as the case may be, to the extent required to make such Paragraphs enforceable.”7 However, the power to amend a contract in such a manner is equitable, and we know of no authority that mandates a court modify the contract. We find that the mandatory language merely directs the employee to accept the trial court’s authority to make such determinations as are necessary and proper regarding the enforceability of such provisions.

 

7   Exhibits C, D, and E, Paragraphs 8.

In addition to Paragraph 8, we also note that all of the employment agreements contain a “unique nature of agreement” clause that states, in relevant part, “Should any court find any part of this Agreement to be invalid, unenforceable, or overly broad to any extent, the Company and I intend that such court enforce this Agreement in such less broad or other manner as the court finds appropriate.” See Paragraph 12, Exhibits C, D and E. We believe this clause recognizes the equitable powers of the court to amend the terms of a contract as appropriate which would include the option not to enforce, as provided by law. This interpretation of Paragraph 12 supports our interpretation of Paragraph 8 — the power [*18]  to amend the Contract is equitable and the employee agrees that a court has the power to amend the Contract as it deems proper. Here, as demonstrated above, the trial court found the offending clause to be indicative of an improper motive to oppress its employees. The trial court determined the proper manner of enforcing such an oppressive contractual term was to render it void.

In light of the foregoing, we find the trial court has provided apparently reasonable grounds determining that Ceravolo, Hennings and Pakutz will prevail on the merits. Therefore, we affirm the order of December 22, 2016.

Order affirmed.

Judgment Entered.

Date: 11/14/2017

WATKINS AND SHEPARD TRUCKING, INC., Plaintiff, v. JOFRAN SALES, INC., d/b/a JOFRAN INC., a Massachusetts corporation, Defendant.

 

Cause No. CDV-2016-46

 

FIRST JUDICIAL DISTRICT COURT OF MONTANA, LEWIS AND CLARK COUNTY

 

2017 Mont. Dist. LEXIS 20

 

 

August 10, 2017, Decided

August 10, 2017, Filed

 

 

PRIOR HISTORY: Jofran Sales, Inc. v. Watkins & Shepard Trucking, Inc., 2016 U.S. Dist. LEXIS 88123 (D. Mass., July 7, 2016)

 

JUDGES:  [*1] KATHY SEELEY, District Court Judge.

 

OPINION BY: KATHY SEELEY

 

OPINION

 

ORDER ON MOTION FOR SUMMARY JUDGMENT

This matter arises out of a dispute between a trucking and freight management company, Watkins and Shephard Trucking, Inc., a Montana corporation (Watkins), and a wholesale furniture supplier, Jofran Sales, Inc., a Massachusetts corporation (Jofran). On January 19, 2016, Watkins filed a complaint against Jofran alleging Jofran breached contractual obligations to Watkins for transportation services and storage of Jofran’s furniture, and asking for a declaratory judgment that two contracts between the companies be rescinded and for restitution of amounts owed. On March 9, 2016, Jofran filed a motion to dismiss for lack of personal jurisdiction. The issue was briefed and oral argument held. On October 26, 2016, this Court ordered the motion to dismiss be converted to a motion for summary judgment, allowing for submission of supplemental materials. After a voluntary 90-day stay of the proceedings, Jofran filed a motion for summary judgment on February 15, 2017. Additional materials were filed, oral argument was heard on the motions for summary judgment, and the matter was deemed submitted on May 31, 2017. [*2]

This Court takes judicial notice of the proceedings in the United States District Court for the state of Massachusetts. On June 21, 2016, Jofran filed an action in Massachusetts alleging claims against Watkins for breach of contract, violation of implied covenant of good faith and fair dealing, negligence, tortious interference with prospective business relationship, and violations of consumer protection statutes under Massachusetts, Montana and California law. On July 7, 2016, Jofran obtained a trustee process attachment on Watkins’ bank account in the amount of $658,301. Watkins filed a motion to dismiss the action in Massachusetts on the basis of forum non conveniens, which was denied by the Massachusetts court on November 2, 2016.

 

STANDARD OF REVIEW

Summary judgment is appropriate when “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Mont. R. Civ. P. 56(c)(3).

The party moving for summary judgment must establish the absence of any genuine issue of material fact and entitlement to judgment as a matter of law. Tin Cup County Water and/or Sewer Dist, v. Garden City Plumbing & Heating, Inc., 2008 MT 434, ¶ 22, 347 Mont. 468, 200 P.3d 60. Once the moving party has met its burden, [*3]  the party opposing summary judgment must present affidavits or other testimony containing material facts that raise a genuine issue as to one or more elements of its case. Id. (citing Fielder v. Bd. of Cnty Comm’rs, 2007 MT 118, ¶ 12, 337 Mont. 256, 162 P.3d 67).

 

DISCUSSION

Watkins is a trucking company with its principal place of business in Montana. Jofran is a furniture wholesaler incorporated in Massachusetts. The parties have had a contractual relationship for years which included Watkins transporting and providing storage for Jofran’s goods. Watkins’ complaint alleges Jofran owes significant arrearages on payment owed for storage and freight, thus breaching its contracts with Watkins. Jofran counters that Montana lacks personal jurisdiction of Jofran under Montana Rule of Civil Procedure 4(b) and the federal Due Process Clause. Watkins disagrees, alleging waiver of jurisdiction by Jofran and, in the alternative, specific jurisdiction due to Jofran’s contact with the forum state — Montana. The issues to be resolved by this Court are whether Jofran waived objection to jurisdiction; whether the LTL Transportation Service Agreement is incorporated by reference into the Storage Pricing Agreement; whether there is long-arm jurisdiction of Jofran pursuant to Montana Rule of Civil Procedure 4(b); and whether the federal Due Process Clause contraindicates personal jurisdiction. [*4]

 

Did Jofran Waive Objection to Personal Jurisdiction Pursuant to the LTL Transportation Services Agreement?

Jofran’s initial argument for lack of personal jurisdiction centers on the premise that there are two distinct contracts at issue — the Storage Pricing Agreement (Storage Agreement); and the LTL (less than load) Transportation Service Agreement (Transportation Agreement). Watkins argues the Storage Agreement is incorporated into the Transportation Agreement in which Jofran waived objection to personal jurisdiction in Montana. Jofran argues the versions of the Transportation Agreement submitted by Watkins through employee affidavits cannot be verified as “true and accurate.”

Although there are discrepancies with the versions of the Transportation Agreement submitted by Watkins, the critical language has remained the same. Jofran did not submit any version of the Transportation Agreement which contradicts language waiving objection to personal jurisdiction. Further, in considering a motion for summary judgment based on written materials rather than an evidentiary hearing, as in a motion to dismiss, “[c]onflicts between parties over statements contained in affidavits must be resolved [*5]  in the plaintiff’s favor.” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9th Cir. 2004) (citations omitted).

The Transportation Agreement contains the clause:

 

This agreement shall be construed and governed in accordance with the laws of the State of Montana to the extent such laws do not conflict with the law set forth in Title 49 of the United States Code and Part 49 of the Code of Federal Regulations, in which case the latter shall prevail. Shipper waives any objection to the jurisdiction of the Courts of Montana.

 

 

Jofran asserts that “shipper” means this agreement applies only when goods are shipped, not stored, and therefore the term “shipper” used in the waiver clause supports Jofran’s contention that any waiver of jurisdiction, if found, could only apply to shipping a product, not storage of inventory. Watkins counters that “shipper” refers to Jofran, regardless of the exact service being provided to Jofran. Clearly, “shipper” refers to the company securing services through the agreement, which is Jofran. And also clearly, the services contemplated by the Transportation Agreement are shipping. The language is also clear that Jofran, as the “shipper” contemplated by this clause, has waived objection to jurisdiction of the “Courts of Montana.” [*6]

 

Does the Storage Pricing Agreement Incorporate the Transportation Agreement?

Watkins argues that Montana has personal jurisdiction of Jofran for claims brought pursuant to the Storage Agreement because Jofran waived any objection to jurisdiction in the Transportation Agreement. Watkins further asserts the Storage Agreement incorporates the language of the Transportation Agreement. The Storage Agreement states:

 

I acknowledge I have received a copy of and agree to the terms outlined in the following documents:

– Watkins and Shephard Zone Guide

– Watkins and Shephard Fuel Surcharge Schedule

– Watkins and Shephard Accessorial Guide

– Watkins and Shephard LTL Freight Agreement

– Watkins and Shephard Claims Policy

Current copies of these documents can be retrieved from our website at www.wksh.com

 

 

Acknowledging receipt of a document and agreeing to the terms of the documents does not clearly incorporate that document by reference. If Watkins intended Jofran to be bound by a clause in the Transportation Agreement for legal disputes arising under the Storage Agreement, Watkins could have clearly so stated. The Transportation Agreement signed by the parties delineates that several of the documents listed [*7]  above are specifically incorporated by reference.

The Transportation Agreement states:

 

3. Rates, Rules and Accessorial Charges. As compensation for services provided by WST, Shipper shall pay WST the rates set forth in the attached Rate Schedule. . . . In addition, all shipments made by WST at the request of Shipper are subject to the rules and accessorial charges applicable to the shipment as set forth in the attached Applicable Rules and Accessorial Charges. In addition, all shipments made by WST at the request of the Shipper are subject to the applicable Fuel Surcharge as set forth in the Fuel Surcharge Matrix attached hereto. All rates and other applicable charges and fuel surcharges are payable by Shipper in U.S Funds not later than twenty (20) days from . . . . The Rate Schedule and Applicable Rules and Accessorial Charges and Fuel Surcharge Matrix are incorporated herein and made a part of this Agreement.

 

 

(Emphasis added.)

The Transportation Agreement was entered into before the Storage Agreement and makes clear Watkins is familiar with when and how to specify which extrinsic documents are specifically incorporated by precise reference into an agreement.1

 

1   The executed Transportation Agreement submitted by Watkins includes signed “appendices” entitled “Applicable Notes and Accessorial Charges — Furniture” and “Cargo Claims Policy and Procedures Bulletin.” Watkins does not explain whether these are documents also claimed to be incorporated in the Storage Agreement as identified on that Agreement as “Accessorial Guide” and “Claims Policy.”

The Storage Agreement does [*8]  not specifically or clearly state the extrinsic documents listed, including the Transportation Agreement, are incorporated by reference. Although there is no “magic” language necessary to incorporate documents by reference, there must be some language expressing the parties’ intent to be bound by the terms of the incorporated document. In the context of government contracts, the US Court of Appeals for the Federal Circuit summarized the requirement for specificity of language when incorporating documents by reference.

 

[T]he language used in a contract to incorporate extrinsic material by reference must explicitly, or at least precisely, identify the written material being incorporated and must clearly communicate that the purpose of the reference is to incorporate the referenced material into the contract (rather than merely to acknowledge that the referenced material relevant to the contract, e.g., as background law or negotiating history).

 

 

Northrop Grumman Info. Tech., Inc. v. United States, 535 F.3d 1339, 1345, 2008 U.S. App. LEXIS 16493, *14-15 (Fed. Cir. 2008). “I . . . agree to the terms outlined in the following documents” does not clearly communicate intent to incorporate.

The imprecise language in the Storage Agreement, combined with the inconsistent labeling of the various extrinsic documents, and [*9]  the fact that Watkins’ clearly incorporated documents into the Transportation Agreement and submitted evidence that there are signed appendices to the Transportation Agreement, support the conclusion that Watkins did not clearly convey intent to incorporate the Transportation Agreement into the Storage Agreement.

The facts presented, collectively, support a finding that the Storage Pricing Agreement does not expressly and clearly incorporate by reference the terms of the LTL Transportation Service Agreement, and the Court finds the Storage Agreement does not incorporate the Transportation Agreement.

 

Is There Personal Jurisdiction of Jofran Based on Montana Rule of Civil Procedure 4(b)?

Montana applies a two-part test to determine whether a court may exercise personal jurisdiction over a nonresident defendant. First, the court determines whether personal jurisdiction exists pursuant to Montana Rule of Civil Procedure 4(b)(1), and then, if personal jurisdiction is found, “whether exercising personal jurisdiction comports with traditional notions of fair play and substantial justice embodied in the due process clause.” Threlkeld v. Colo., 2000 MT 369, ¶ 9, 303 Mont. 432, 16 P.3d 359 (citations omitted).

Personal jurisdiction can be either general or specific. General jurisdiction exists over “all persons found within the state of Montana. . . [*10]  .” Mont. R. Civ. P. 4(b)(1). A nonresident defendant is “found within” Montana for general jurisdiction purposes if its activities in the state are either “substantial” or “continuous and systematic.” Simmons Oil Corp v. Holly Corp., 244 Mont. 75, 83, 796 P.2d 189, 194 (1990). Although there is evidence of some business activity and affiliations in Montana by Jofran, the parties apparently agree there is inadequate contact with Montana to extend general jurisdiction over Jofran and that there is not sufficient evidence that Jofran’s limited affiliation with Montana renders Jofran “at home” in Montana.2

 

Absent general jurisdiction, Montana courts may exercise specific jurisdiction over any person “as to any claim for relief arising from the doing personally, or through an employee or agent, of any of the . . . acts” listed in the state’s “long-arm statute” adopted in Montana through this Court’s Rules of Civil Procedure. M. R. Civ. P. 4(b)(1) (A)-(G).

 

 

Milky Whey, Inc. v. Dairy Partners, LLC, 2015 MT 18, ¶ 21, 378 Mont. 75, 342 P.3d 13. Specifically, “long-arm” jurisdiction exists over a nonresident defendant when the plaintiff’s cause of action arises from the specific circumstances set forth in Montana Rule of Civil Procedure 4(b)(1), which states:

Additionally, any person is subject to the jurisdiction of Montana courts as to any claim for relief arising from the doing personally, or through an employee or agent, of any of the following [*11]  acts:

(A) the transaction of any business within Montana;

(B) the commission of any act resulting in accrual within Montana of a tort action;

(C) the ownership, use, or possession of any property, or of any interest therein, situated within Montana;

(D) contracting to insure any person, property, or risk located within Montana at the time of contracting;

(E) entering into a contract for services to be rendered or for materials to be furnished in Montana by such person;

(F) acting as director, manager, trustee, or other officer of a corporation organized under the laws of, or having its principal place of business within, Montana; or

(G) acting as personal representative of any estate within Montana.

 

 

Mont. R. Civ P. 4(b)(1)(A)-(G).

Specific jurisdiction . . . depends on an affiliation between the forum and the underlying controversy, principally, activity or an occurrence that takes place in the forum state and is therefore subject to the state’s regulation. Thus, . . . in contrast to general, all-purpose jurisdiction, specific jurisdiction is confined to adjudication of issues deriving from, or connected with, the very controversy that establishes jurisdiction.

 

 

Senne v. Kan. City Royals Baseball Corp., 105 F. Supp. 3d 981, 1015, (N.D. Cal. 2015) (citing International Shoe Co. v. Washington, 326 U.S. 310, 317, 66 S. Ct. 154, 90 L. Ed. 95 (1945)).

 

2   Initial briefing by Watkins raised the possibility of general jurisdiction of Jofran, but in subsequent briefing opposing the motion for summary judgment and responding to Jofran’s notice of supplemental authority, Watkins stated: “While both of these recent opinions primarily deal with general jurisdiction, which is not at issue here. . . .” (Emphasis added.)

Watkins argues that the [*12]  facts in this matter are most similar to those in Bitterroot Int’l Systems v. W. Star Trucks, Inc., 2007 MT 48, 336 Mont. 145, 153 P.3d 627. In Bitterroot Int’l the Supreme Court upheld the exercise of personal jurisdiction wherein an out-of-state corporation transacted business in Montana with a Montana based company and a dispute arose out of those business transactions. Bitterroot is distinguishable from the facts of this case. The business transactions in the Bitterroot case related to an informal agreement for transportation logistics to be developed and performed by Bitterroot. The services implemented by Bitterroot in Montana were more extensive, and there were daily communications with Montana employees. Further, Bitterroot employees “performed a significant portion of the obligations required” pursuant to the informal agreement at issue in Montana. Id., ¶¶ 8-10

Here, as in Milky Whey, the claim arises out of transactions, or performance of services pursuant to a contract, that took place outside of Montana. “[E]xercise of personal jurisdiction is proper under M. R. Civ. P. 4(b)(1)(A) where substantial interactions occur within Montana.” Milky Whey, ¶ 27 (citations omitted). “Even extensive interstate communications, however, do not give rise to jurisdiction where the contract is to be [*13]  performed in another state.” Id., ¶ 27 (citing Edsall Constr. Co. v. Robinson, 246 Mont. 378, 382, 804 P.2d 1039, 1042 (1991)).

The complaint filed by Watkins is for recission of the contracts between Watkins and Jofran and restitution of the amounts allegedly owed, or in the alternative, breach of contract for breach of both the storage and transportation contracts. The amount allegedly owed by Jofran to Watkins is a combination of arrearages for accounts receivable based on Watkins’ transportation and storage of Jofran’s furniture. Watkins contends the contracts were entered into via negotiation and communication via phone and email with Watkins’ Montana employees, invoices were generated in and mailed from the Montana offices, Jofran had made payments under the contracts to Watkins in Montana, Watkins’ accounting staff were located in Montana, and payments were processed in Montana. The evidence also shows that the dispute at issue is primarily related to storage of Jofran’s inventory provided by Watkins at a warehouse in Fontana, California. Watkins does not claim any storage or transportation of Jofran’s inventory occurs in Montana.

Entering into a contract and doing business with a Montana entity does not by itself command jurisdiction of the out-of-state [*14]  party.

 

[A] non-resident does not subject himself to the jurisdiction of Montana by merely entering into a contract with a resident of Montana. Moreover, interstate communication is an almost inevitable accompaniment to doing business in the modern world, and cannot by itself be considered a “contact” for justifying the exercise of personal jurisdiction. Personal jurisdiction is not acquired through interstate communications made pursuant to a contract that is to be performed in another state.

 

 

Tackett v. Duncan, 2014 MT 253, ¶ 30, 376 Mont. 348, 334 P.3d 920 (citations omitted).

There is insufficient evidence that any of the conditions of Montana Rule of Civil Procedure 4(b)(1)(A) through (G) were met regarding the services provided pursuant to either the Storage Agreement or the Transportation Agreement. This Court finds it does not have personal jurisdiction pursuant to Rule 4(b)(1) over Jofran for the claims at issue.

 

Does Exercise of Long-Arm Jurisdiction of Jofran Regarding Actions Arising from the Transportation Agreement Violate Due Process?

Jofran waived objection to jurisdiction in the Transportation Services Agreement. Even with such waiver, the Court will consider the due process concerns of fair play and substantial justice raised by exercising jurisdiction over Jofran for only the part of the complaint [*15]  dealing with allegations of amounts owed pursuant to the Transportation Agreement.

“The reasonableness of asserting jurisdiction over a nonresident defendant must be assessed in the context of our federal system of government. The Due Process Clause of the Fourteenth Amendment constrains a state’s authority to bind a nonresident defendant to a judgment of its courts.” Tackett v. Duncan, 2014 MT 253, ¶ 18, 376 Mont. 348, 334 P.3d 920 (citations omitted). Although it is not up to this Court to decide whether jurisdiction is appropriate in Massachusetts, it is relevant to consider the pending litigation in Massachusetts arising out of the same transaction as the claims in the Montana complaint when determining whether the exercise of jurisdiction would offend traditional notions of fair play and substantial justice. In denying Watkins’ motion to dismiss based on a forum non conveniens (inconvenient forum), the Massachusetts court carefully considered all arguments raised, including the possibility that Montana could also have jurisdiction. The Massachusetts court concluded, however, that Watkins “has not made a strong showing that the balance of factors strongly weighs in favor of litigating this action in Montana.” The denial of Watkins’ motion to dismiss in Massachusetts is not dispositive of [*16]  the case before this Court.3 However, allegations by both parties for breach of contract directly related to the amounts owed to Watkins by Jofran pursuant to the Transportation and Storage Agreements are raised in both lawsuits in both jurisdictions. Although there could be simultaneous legal action in more than one jurisdiction related to the same matters, this Court has found it lacks personal jurisdiction over Jofran, except for the waiver contained in the Transportation Agreement. Keeping jurisdiction of only Watkins’ action for declaratory judgment for rescission and equitable restitution of the amounts due under the Transportation Agreement, or breach of the Transportation Agreement, would carve up or bifurcate the proceedings between two jurisdictions in a manner which does not comport with traditional due process notions of fair play and substantial justice. Competing or conflicting orders would be a likely outcome. It offends the notions of fair play and substantial justice to intentionally set up that possible scenario. In this particular situation, due process demands dismissal of the matter for lack of personal jurisdiction.

 

3   Watkins argues that Jofran’s claim in the Massachusetts lawsuit alleging violation of the Montana Consumer Protection Act shows that Jofran considers itself to have transacted business in Montana, thereby giving rise to jurisdiction of Montana courts. This is not dispositive of the matter.

Based on the foregoing, Jofran’s motion for summary [*17]  judgment is GRANTED.

DATED this 10 day of August 2017.

/s/ Kathy Seeley

KATHY SEELEY

District Court Judge