UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 03-2504
DEUTSCHE POST GLOBAL MAIL, LTD.,
Plaintiff - Appellant,
versus
GERARD CONRAD, a/k/a Jerry; GUY H. GEMMILL,
Defendants - Appellees,
and
POSTAL LOGISTICS INTERNATIONAL, a Maryland
corporation,
Defendant.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. J. Frederick Motz, District Judge. (CA-
03-863-JFM)
Argued: October 1, 2004 Decided: November 19, 2004
Before LUTTIG and MICHAEL, Circuit Judges, and Jackson L. KISER,
Senior United States District Judge for the Western District of
Virginia, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: Andrew Abbott Nicely, MAYER, BROWN, ROWE & MAW, Washington,
D.C., for Appellant. Harriet Ellen Cooperman, SAUL EWING, L.L.P.,
Baltimore, Maryland, for Appellees. ON BRIEF: Gary A. Winters,
MAYER, BROWN, ROWE & MAW, Washington, D.C., for Appellant. Nicole
Pastore-Klein, SAUL EWING, L.L.P., Baltimore, Maryland, for
Appellees.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
2
PER CURIAM:
Deutsche Post Global Mail, Ltd. (DPGM) sued its former
employees, Gerard Conrad and Guy Gemmill, for breaching a
restrictive covenant that prohibited them from competing with DPGM.
The district court concluded that the restrictive covenant was
unenforceable under Maryland law and awarded summary judgment to
Conrad and Gemmill. We affirm, albeit on somewhat different
reasoning.
I.
Conrad and Gemmill were hired as sales managers by
International Postal Consultants (IPC) in June 1997 and January
1999, respectively. IPC, like DPGM, was an international mail
company. Conrad and Gemmill, in their capacities as sales
managers, solicited new customers for IPC and thereafter dealt with
them on behalf of the company. Conrad and Gemmill worked out of
IPC’s Maryland headquarters and solicited customers from the
Maryland, Virginia, and D.C. area. When Conrad and Gemmill started
work for IPC, they executed employment agreements containing
identical restrictive covenants. Section 5(a)(ii) of the contract
contains the following restrictive covenant that is at issue in
this case:
(a) Sales Representative covenants and agrees that
during the term of his/her employment with the Company,
and in the event of and for a period of two (2) years
following the termination of his employment with the
3
Company for any reason, he/she shall not, without the
prior written consent of the Company, directly or
indirectly: . . .
(ii) Engage in any activity which may affect
adversely the interests of the Company or any Related
Corporation and the businesses conducted by either of
them, including, without limitation, directly or
indirectly soliciting or diverting customers and/or
employees of the Company or any related Corporation or
attempting to so solicit or divert such customers and/or
employees . . . .
J.A. 608-09, 621-22.
In July 2000 DPGM purchased all of the stock of IPC, and
for six months thereafter IPC and DPGM continued to operate
independently. When the six-month period ended, IPC was merged
into DPGM, with DPGM assuming control of IPC’s operations and
hiring all of IPC’s employees, including Conrad and Gemmill. By
operation of Maryland’s corporation law, DPGM succeeded to all of
IPC’s rights and obligations under the agreements with Conrad and
Gemmill. Conrad and Gemmill continued in their roles as sales
managers for DPGM, and DPGM did not enter into new employment
agreements with the two men.
In February 2002 Conrad and Gemmill decided to form their
own international mail business and chose the name Postal Logistics
International (PLI). Within hours after quitting DPGM, Conrad and
Gemmill solicited their first DPGM customer; and within days they
were providing services to former DPGM customers. From its
inception through April 7, 2003, PLI earned $1,316,560 in revenues,
$1,165,295 of which was derived from former DPGM customers.
4
Thirty-eight of PLI’s fifty-six customers are former DPGM
customers, and Conrad and Gemmill diverted at least twenty-eight of
their own former DPGM customers from DPGM to PLI. Conrad and
Gemmill do not dispute that they breached the restrictive covenant.
On March 25, 2003, DPGM sued Conrad and Gemmill in the
United States District Court for the District of Maryland. DPGM
sought damages and injunctive relief based on Conrad and Gemmill’s
breach of the restrictive covenant. After discovery Conrad and
Gemmill moved for summary judgment, and DPGM filed a cross-motion
for partial summary judgment on the issue of liability. The
district court held that the restrictive covenant is unenforceable
under Maryland law because (1) it is broader in scope than is
reasonably necessary to protect DPGM’s business interests, and (2)
it would impose undue hardship on Conrad and Gemmill. The court
awarded summary judgment to Conrad and Gemmill and denied DPGM’s
cross-motion. DPGM now appeals.
II.
A.
We review a district court’s summary judgment
determination de novo. Thompson v. Potomac Elec. Power Co., 312
F.3d 645, 649 (4th Cir. 2002). Summary judgment is appropriate
only when there is no dispute as to a material fact and the moving
party is entitled to judgment as a matter of law. Fed. R. Civ. P.
5
56(c). We turn to whether Conrad and Gemmill are entitled to
summary judgment on the ground that the restrictive covenant is
unenforceable.
B.
Under Maryland law a restrictive covenant “will be
sustained if the restraint is confined within limits which are no
wider as to area and duration than are reasonably necessary for the
protection of the business of the employer and do not impose undue
hardship on the employee or disregard the interests of the public.”
Silver v. Goldberger, 188 A.2d 155, 158 (Md. 1963) (citations
omitted). A review of Maryland case law reveals four requirements
that must be met for a restrictive covenant to be enforceable: (1)
the employer must have a legally protected interest, (2) the
restrictive covenant must be no wider in scope and duration than is
reasonably necessary to protect the employer’s interest, (3) the
covenant cannot impose an undue hardship on the employee, and (4)
the covenant cannot violate public policy. Id. at 158-59; Holloway
v. Faw, Casson & Co., 572 A.2d 510, 515-16 (Md. 1990). While DPGM
can establish the first requirement, it cannot establish the
second. We thus do not assess whether the restrictive covenant
would meet the final two requirements.
For a restrictive covenant to be enforceable, an employer
must have a legally protected interest. See Ruhl v. F.A. Bartlett
6
Tree Expert Co., 225 A.2d 288, 291-92 (Md. 1967); Silver, 188 A.2d
at 158-59. Employers have a legally protected interest in
preventing departing employees from taking with them the customer
goodwill they helped to create for the employer. Silver, 188 A.2d
at 158. Restrictive covenants almost always serve a legitimate
employer interest when they restrict former salespersons who
serviced, solicited, and were in constant contact with customers.
Id. Conrad and Gemmill do not dispute that they serviced,
solicited, and were in constant contact with customers of DPGM
while employed there. Accordingly, we conclude DPGM has a legally
protected interest in preventing Conrad and Gemmill from trading on
the goodwill they helped to generate while employed at DPGM.
We next consider whether the scope and duration of the
restrictive covenant is no broader than is reasonably necessary to
protect DPGM’s legally protected interest. In assessing the
reasonableness of scope and duration, “a determination must be made
based on the scope of each particular covenant itself; and, if that
is not too broad on its face, the facts and circumstances of each
case must be examined.” Becker v. Baily, 299 A.2d 835, 838 (Md.
1973) (citation omitted). The restrictive covenant here is much
broader than is reasonably necessary to protect DPGM’s interest in
the goodwill generated by Conrad and Gemmill. The restrictive
covenant prohibits Conrad and Gemmill from engaging “in any
activity which may affect adversely the interests of the Company or
7
any Related Corporation and the businesses conducted by either of
them.” J.A. 609, 622 (emphases added). The breadth of this
covenant is sweeping. In no way is it specifically targeted at
preventing Conrad and Gemmill from trading on the goodwill they
created while serving DPGM customers. Rather, the restrictive
covenant seems designed to prevent any kind of competition by
Conrad and Gemmill, which is not a legally protected interest under
Maryland law. See Silver, 188 A.2d at 158 (“[R]estraint is not
justified if the harm caused by service to another consists merely
in the fact that the former employee becomes a more efficient
competitor just as the former employer did through having a
competent and efficient employee.”) (citation omitted). And yet
stating that this covenant is aimed at stifling competition does
not sufficiently describe its breadth. The covenant does not stop
at preventing Conrad and Gemmill from competing against DPGM, but
rather prohibits them from doing anything that “may affect
adversely” the business interests of DPGM or its related companies.
This language, taken literally, would restrict Conrad and Gemmill
even from using a competitor’s mail service for any purpose,
business or personal.
DPGM cites to no Maryland case, and we have found none,
in which a restrictive covenant similar in scope has been been
deemed reasonable. Indeed, cases such as Holloway, 572 A.2d 510,
suggest that the covenant here is too broad. In Holloway a
8
restrictive covenant that prohibited an accountant from practicing
general accountancy within forty miles of his former firm was held
to be overbroad. Id. at 512, 518-19. The covenant was too broad
because it exposed the accountant to damages “even if [he] never
render[ed] any service for [a firm] client.” Id. at 518. In the
present case the restrictive covenant would allow DPGM to recover
damages against Conrad and Gemmill if they became competitors, yet
never solicited or serviced any DPGM client. Because the covenant
is much broader than is reasonably necessary to protect the
goodwill that Conrad and Gemmill generated for DPGM, we hold that
the covenant is unenforceable as written.
C.
DPGM does not seriously dispute that the restrictive
covenant, as written, is unnecessarily broad and therefore
unenforceable under Maryland law. Instead, DPGM argues that an
excised version of the covenant is enforceable. Again, the
covenant provides that a former employee cannot for two years
“[e]ngage in any activity which may affect adversely the interests
of the Company or any Related Corporation and the businesses
conducted by either of them, including, without limitation,
directly or indirectly soliciting or diverting customers and/or
employees of the Company or any related Corporation or attempting
to so solicit or divert such customers and/or employees.” J.A.
9
609, 622. DPGM argues that section 5(a)(ii) can be saved by “blue
penciling” out the sweeping promise not to engage in adverse
activity. Thus, the covenant, with certain words excised, would
read that for two years a former DPGM employee cannot “[e]ngage in
soliciting or diverting customers of the Company or attempting to
so solicit or divert such customers.” The district court agreed
with DPGM that blue penciling was permissible, but concluded that
the excised version would still be unenforceable. We conclude that
excision is inappropriate in this case.
If a restrictive covenant is unnecessarily broad, a court
may blue pencil or excise language to reduce the covenant’s reach
to reasonable limits. See Tawney v. Mut. System of Maryland, 47
A.2d 372, 379 (Md. 1946). However, under the blue pencil rule, a
court may not rearrange or supplement the language of the
restrictive covenant. Fowler v. Printers II, Inc., 598 A.2d 794,
802 (Md. Ct. Spec. App. 1991). A court can only blue pencil a
restrictive covenant if the offending provision is neatly
severable. According to the Maryland Court of Appeals, the
principle underlying the blue pencil rule is articulated in the
First Restatement of Contracts, which provides: “When a promise in
reasonable restraint of trade in a bargain has added to it a
promise in unreasonable restraint, the former promise is
enforceable unless the entire agreement is part of a plan to obtain
a monopoly; but if full performance of a promise indivisible in
10
terms would involve unreasonable restraint, the promise is illegal
and is not enforceable even for so much of the performance as would
be a reasonable restraint.” Holloway, 572 A.2d at 518 (quoting
Restatement (First) of Contracts § 518). We must decide, then,
whether section 5(a)(ii) of the employment contract constitutes one
promise indivisible in terms (a promise not to engage in adverse
activity) or two separate promises (a promise not to engage in
adverse activity and a promise not to divert DPGM customers). We
conclude that the section constitutes a single indivisible promise
not to engage in adverse activity.
An examination of section 5(a)(ii) reveals that the
promise not to divert DPGM clients is not a separate and distinct
promise; it merely clarifies one of the many obligations imposed by
the overarching promise of section 5(a)(ii). First, we note the
overlapping nature of what is promised. The general promise not to
engage in any adverse activity automatically encompasses a promise
not to divert former customers. Second, the structure of the
restrictive covenant itself indicates that it is really one
promise. The word “including” is used to tie the prohibition
against diverting DPGM customers to the broader promise. This
suggests that the anti-diversion language is not a separate
promise; instead, it is simply an example of adverse activity.
Finally, we have not found any Maryland case in which a court has
done what DPGM suggests here, that is, cross out the dominant
11
language or words from a single-sentence restrictive covenant,
leaving only a narrower example of the original, broader
restriction. Rather, Maryland courts have excised restrictions
that render a covenant overbroad only in circumstances in which the
restrictions are contained in a separate clause or separate
sentence. See, e.g., Holloway, 572 A.2d at 518-19; Tawney, 47 A.2d
at 379. The blue penciling that DPGM urges here would constitute
an impermissible rewriting of the restrictive covenant. Because
section 5(a)(ii) constitutes a single indivisible promise, it is
not severable.
D.
DPGM makes two final arguments as to why the restrictive
covenant should be enforced. Both are without merit.
1.
DPGM argues that Maryland courts have adopted the so-
called flexible approach to enforcing restrictive covenants. The
flexible approach allows a court to rewrite a restrictive covenant
to align the reasonable expectations of the parties. This
approach, DPGM argues, allows us to tailor the restrictive
covenant’s scope by rewriting its terms so that it only prohibits
Conrad and Gemmill from soliciting and diverting DPGM clients with
12
whom they had contact. We are not persuaded that the flexible
approach can be used here.
First, it is not clear that Maryland has adopted the
flexible approach. The flexible approach was used by the Maryland
Court of Special Appeals in Holloway v. Faw, Casson & Co., 552 A.2d
1311 (Md. Ct. Spec. App. 1988). On appeal, however, the Maryland
Court of Appeals decided the case without adopting or endorsing the
flexible approach. The Court of Appeals expressly refused to
consider the “provocative questions” involved in considering the
flexible approach. Holloway, 572 A.2d at 511, 524. And, in the
fifteen years since Holloway was decided, no Maryland court has
endorsed or discussed the flexible approach.
Second, and more importantly, even if the flexible
approach can be used in Maryland, DPGM still cannot prevail. Under
the flexible approach, before a court is permitted to modify the
terms of a restrictive covenant to align the reasonable
expectations of the parties, the court must first inquire into
whether “the restrictive covenant as a whole evidence[s] a
deliberate intent by the employer to place unreasonable and
oppressive restraints on the employee/covenantee.” Holloway, 552
A.2d at 1327. If the covenant exhibits this deliberate intent,
then the entire covenant is unenforceable. Id. As written,
section 5(a)(ii) prohibits Conrad and Gemmill from engaging in any
activity, business or otherwise, that may adversely affect the
13
interests of DPGM. This sweeping prohibition leads us to conclude
that the restrictive covenant exhibits a deliberate attempt to
impose unreasonable and oppressive restraints on Conrad and
Gemmill.
2.
DPGM finally argues that we should allow it to seek
damages on a breach-by-breach basis. DPGM argues that it should be
permitted to recover damages for each breach of the restrictive
covenant in which Conrad and Gemmill solicited DPGM customers with
whom they had contact while at DPGM. It cites to the Maryland
Court of Appeals case, Holloway, 572 A.2d 510, for the proposition
that when a court assesses an employer’s claim for damages under a
restrictive covenant, the court should look only at the
individualized facts of each breach to determine whether it is
reasonable to award damages for each particular breach. DPGM
basically urges us to refrain from engaging in any analysis of the
covenant’s facial validity and instead focus solely on the facts of
each alleged breach to determine whether an award of damages would
be reasonable.
Under DPGM’s interpretation of Holloway, an employer
could draft a covenant that is unreasonably broad in scope, knowing
that it could recover damages for any breach held to violate an
interest that was reasonably deserving of protection. This
14
approach would give employers no incentive to negotiate reasonable
restrictive covenants in the first place; moreover, it is not
consistent with Holloway. In Holloway the restrictive covenant
prohibited an employee-accountant from practicing accountancy
within forty miles of any of his employer’s offices. 572 A.2d at
512. The Maryland Court of Appeals began its analysis of the
reasonableness of the restrictive covenant’s scope by examining the
covenant on its face. Id. at 518. The court concluded that the
covenant, as written, was too broad because the employee would be
liable for damages even if he never rendered services to a client
of the employer. Id. Due to the restrictive covenant’s
overbreadth, the court severed one of the damages provisions, the
effect of which was to transform the restrictive covenant into a
prohibition against servicing the employer’s clients. Id. at 519.
DPGM nevertheless relies on a comment made by the court after it
severed the one provision: the court noted that the covenant might
still be too broad because it would prohibit the employee from
servicing employer clients with whom he had no contact. Id. at
520. The court, however, determined that this was irrelevant
because every breach for which the employer had been awarded
damages involved customers with whom the employee had contact. Id.
at 521. While this reasoning does create some ambiguity, it is
apparent that the Maryland Court of Appeals maintained the general
requirement that a restrictive covenant must meet some threshold of
15
facial reasonableness in order to be enforceable. After all, the
court began its analysis by assessing whether the covenant, as
originally written, was reasonable on its face. Holloway, 572 A.2d
at 518-19; see also Becker, 299 A.2d at 838 (holding that analysis
of restrictive covenant must begin with a determination of whether
it is “too broad on its face”).
Like the restrictive covenant in Holloway, DPGM’s
restrictive covenant is overbroad on its face. Unlike the
restrictive covenant in Holloway, DPGM’s restrictive covenant
cannot be saved by severing its offending provisions. The
restrictive covenant is therefore unenforceable in its entirety,
and DPGM cannot recover damages.
III.
We affirm the district court’s order of November 14,
2003, awarding summary judgment to Conrad and Gemmill and denying
partial summary judgment to DPGM.
AFFIRMED
16