Restrictive Covenant Did Not Bar Outright Ownership Of Competing Business

In the restrictive covenant, business litigation case of Boyds, LP v. To, PICS Case No. 15-1387 (Pa. Super. Aug. 28, 2015) the Honorable Susan Peikes Gantman, writing on behalf of the Pennsylvania Superior Court, ruled that the trial court did not abuse its discretion in sustaining in part defendant’s preliminary objections to plaintiff’s breach of contract complaint where the covenant not to compete at issue barred defendant from certain activities, but did not preclude outright ownership of his own business.

In 2009, defendant entered into an employment agreement to work as a floor manager and buyer for the footwear department of Boyds, the clothing store. The agreement contained a nondisclosure, confidentiality, noninterference and covenant not to compete clause.

On Sept. 16, 2013, defendant ended his employment with Boyds. That same day, Boyds learned that defendant was planning to open his own men’s footwear store in Philadelphia and that he had taken a confidential list of Boyds clients. Defendant allegedly returned the client list in late October 2013 and opened his own store on Oct. 31, 2013.

Boyds later filed this lawsuit against defendant and related parties, alleging breach of contract, misappropriation of trade secrets and confidential information, unfair competition and breach of duty of loyalty. The parties settled all claims except Boyd’s allegations of breach of the non-compete covenant.

Here, Boyds appealed from a trial court order that deemed as final an order sustaining in part and overruling in part defendant’s preliminary objections and an order denying Boyd’s petition for a preliminary injunction. Boyds argued that the facts alleged in its complaint were sufficient to overcome defendant’s preliminary objections to its claims for breach of a non-compete covenant.

According to Boyds, the covenant was executed incident to defendant’s employment, the restrictions imposed were reasonably necessary for Boyds’ protection because defendant was privy to confidential information relating to customers and suppliers and the restrictions imposed were reasonably limited in geographic scope and duration.

Boyds argued that defendant violated the covenant by opening a store in Philadelphia and that the covenant was not so limited in scope so as to prohibit defendant from only soliciting or accepting a job from an unrelated third party. According to Boyds, the plain language of the covenant implicated all forms of work for a Boyds competitor.

Here, the Superior Court accepted the trial court’s interpretation of the covenant, which barred defendant form certain activities, but did not preclude outright ownership of his own business. As such, the trial court did not abuse its discretion in sustaining in part and overruling in part defendant’s preliminary objections.

Moreover, Boyds failed to establish the prerequisites for a preliminary injunction, as it failed to provide any support for how it had suffered or would continue to suffer irreparable harm, or how its customer and supplier relationships would be more adversely affected, absent a preliminary injunction, or how Boyds’ status quo had been disturbed following the opening of defendant’s store.

Reference: Digest of Recent Opinions, Pennsylvania Law Weekly; 38 PLW 864 (September 15, 2015)

Filed Under: Restrictive Covenants; Covenant Not to Compete; Business Ownership

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