PINNACLE CONTROL SYSTEMS, LLC v. LARRY HERMAN (C-000031-21, MERCER COUNTY AND STATEWIDE)

• Court: New Jersey Superior Court Appellate Division
• Decided: September 6, 2022
• Docket: A-3643-20
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-3643-20

PINNACLE CONTROL SYSTEMS, LLC, a New Jersey Limited Liability Company,

Plaintiff-Respondent,

v.

LARRY HERMAN, and REDLINE CONTROL DESIGN, LLC, a New Jersey Limited Liability Company,

Defendants-Appellants. _________________________

Argued August 30, 2022 – Decided September 6, 2022

Before Judges Mawla and Mitterhoff.

On appeal from the Superior Court of New Jersey, Chancery Division, Mercer County, Docket No. C-000031-21.

Eugene Song argued the cause for appellants. Jill R. Cohen argued the cause for respondent (Eckert Seamans Cherin & Mellott, LLC, attorneys; Robert P. Avolio and Jill R. Cohen, of counsel and on the brief).

PER CURIAM

Defendants Larry Herman and Redline Control Design, LLC (Redline) appeal

from an August 12, 2021 order of the Chancery Division finding them in contempt

for violating non-competition restraints in the March 25, 2021 and April 28, 2021

orders. We affirm.

Plaintiff Pinnacle Control Systems, LLC (Pinnacle) is a provider of energy

services for buildings of all types and sizes "with a focus on comprehensive

control of equipment and reducing total building energy consumption, including

refrigeration, heating, ventilating, air-conditioning, lighting and all energy

consuming systems found in commercial, industrial, and educational facilities."

Plaintiff's services include: "[c]omplete [e]nergy [m]anagement for all facility

types; fully licensed and insured electrical contractor for installation and

service; [c]omprehensive certified level [one], [two], [and three] energy audits;

[e]ngineering and [d]esign for customer building needs; [twenty-four-hour]

control system monitoring; and [photovoltaic] [s]olar and installation service."

The firm participates in a competitive market comprised of a small number of

providers.

A-3643-20 2 Defendant Herman is a highly skilled technician in this field who

specializes in starting and installing energy control systems (EMS),

programming, and functional testing. He was hired by plaintiff on May 1, 2017

for the senior-level position of Operations Manager. Defendant's annual salary

was $245,924 plus a bonus. Prior to working for plaintiff, defendant worked in

the supermarket and construction industries as an EMS contractor and consultant

for over thirty-six years. During that time, he developed a wide range of

contacts consisting of contractors, vendors, and suppliers in the supermarket

industry. Some of defendant's clients followed him to Pinnacle. While at

Pinnacle, defendant's job responsibilities included: overseeing sales,

installation, services and administration; bidding and project management for

incoming work; overseeing and scheduling all field work; assisting with

technical and design issues; communicating with customers; overseeing office

administration; working and technical interfacing with third-party vendors;

providing IT support and direction; working with owners on new company

technology; purchasing materials and maintaining inventory; and reviewing

sales, profits, and losses.

After defendant allegedly "failed to meet his essential job functions,"

plaintiff terminated him on December 30, 2020. Prior to the termination,

A-3643-20 3 plaintiff learned that defendant was converting company property for his

personal use and making improper personal charges on his company credit card

that included flowers for his wife's birthday and anniversary, the rehearsal

dinner for his son's wedding, and expensive personal dining charges that were

not business related.

On December 30, 2020, plaintiff offered defendant a Separation

Agreement and General Release (the agreement). Relevant to this appeal, the

agreement contained a twelve month non-compete provision, prohibiting

defendant in paragraph (a) from contributing his "knowledge, directly or

indirectly, in whole or part, as an employee, employer, owner, operator . . . or

any other similar capacity to an entity engaged in the same or similar business

as [plaintiff,]" and in paragraph (c) from engaging in any activity "whether

directly or indirectly to solicit, contact, or attempt to solicit or contact, using

any other form of oral, written, or electronic communication, . . . or meet with

[plaintiff]'s current, former, or prospective customers for purposes of offering

or accepting goods or services similar to or competitive with those offered by

[plaintiff.]"

Pursuant to the Age Discrimination in Employment Act of 1967, 29 U.S.C.

§ 626(f)(1)(F)-(G), defendant was advised that he had up to twenty-one days to

A-3643-20 4 consider the agreement and that he could revoke it for a period of seven days

after signing. Revocation instructions were included on pages six and seven of

the agreement. Defendant elected to waive the twenty-one-day period and

signed the agreement on December 30, 2020.

On December 31, 2020, defendant sent a letter to plaintiff in an effort to

alter the terms of the agreement and narrow the scope of the post-employment

restrictive covenants. Notably, this letter was not drafted in the manner

designated to revoke the agreement. Instead, defendant explained that he wanted

"to have an amicable separation and therefore request[ed] modification to

[s]ection [eight] in general, and in specific paragraphs 'a' and 'c' which are quite

draconian and overly broad." He also proposed substitution of certain language

and said that he would "leave it to [plaintiff] to correct the language[.]" In a

follow-up email, defendant stated "we need to discuss the changes I proposed.

I believe that they are not so overly broad as to restrict me from anything (like

is currently written) but will still alleviate your concerns about me getting a job

where I would be competing directly with Pinnacle."

Between January 7, 2021 and March 4, 2021, the parties communicated

through counsel to negotiate revised terms. During this time, plaintiff's counsel

held defendant's severance money in escrow. The parties could not come to

A-3643-20 5 revised terms for the agreement and therefore plaintiff has not released the

severance.

Since 2013, prior to his employment with plaintiff, defendant maintained

a close business relationship with R3 Retail Development (R3) which is an

"[e]ngineering and [i]ntegrating company that develops the design of HVAC and

lighting controls at various construction project sites." The firm also "prepare[s]

the installation plans and specifications, purchase[s] and [starts up] the HVAC

and lighting controls equipment, and also program[s] and commission[s] them

for operation."

Defendant previously worked with R3 as a subcontractor at a series of

Trader Joe's sites performing EMS commissioning and programming work. R3

would directly contract with defendant "by way of purchase order . . . to perform

commissioning and programming work" for the firm. The owner of R3

explained that it is not a customer of plaintiff's and noted that "Pinnacle does

not have the capacity to perform the work that only Larry Herman can do and

that I trust." He further explained that "[t]here are only [three] fully vetted and

specially trained persons throughout the country that perform EMS start ups,

programming and functional testing; and Larry is the only one residing in the

A-3643-20 6 Northeast that I use. If Pinnacle did not have Larry Herman, I would have

looked elsewhere for the job."

On or about April 30, 2020, R3 issued purchase order #5177i to plaintiff.

The purchase order was for plaintiff to perform EMS work at a Trader Joe 's in

Long Island City, New York. R3 also issued a second purchase order to plaintiff

for EMS work at a Trader Joe's in Christiana, Delaware. The onset of the

pandemic delayed this work until 2021, and work for these purchase orders was

not completed prior to defendant's termination.

In January 2021, Pinnacle contacted R3 about the status of the two

purchase orders. Once R3 learned that defendant was no longer employed by

plaintiff, R3 informed plaintiff that the purchase orders had expired due to

delays and stated that it would perform the contracted work "in-house."

Between January and February 2021, R3 contacted defendant to confirm that he

no longer worked for plaintiff. After defendant confirmed that he had been

terminated, R3 asked if he would be able to commission both jobs. Defendant

agreed to do the commissioning in February 2021.

After being terminated by plaintiff, defendant created Redline. He

incorporated the firm on January 27, 2021, less than one month after signing the

agreement. Plaintiff concedes that neither the agreement nor the subsequent

A-3643-20 7 negotiations regarding potential modifications to the agreement stopped

defendant from forming Redline. Defendant proceeded to advertise his new

venture on LinkedIn. Additionally, he reportedly visited and contacted two of

plaintiff's customers—LiDL grocery stores in Lawrenceville and Garwood, New

Jersey—to introduce and discuss his new company in violation of the agreement.

Defendant also reportedly did not return a company laptop that belonged to

plaintiff.

Based on these violations, on March 24, 2021, plaintiff filed its verified

complaint and order to show cause seeking temporary restraints because of

defendant's violation of the post-employment restrictive covenants and refusal

to return company property. The next day, the Chancery Division entered an

order imposing temporary restraints, and scheduled the show cause hearing for

April 28, 2021.

On April 9, 2021, defendant was observed performing EMS work at the

Trader Joe's location in Christiana, Delaware. As a result of this newly

discovered violation, plaintiff filed its first motion for contempt on April 27,

2021.

On April 28, 2021, the parties appeared for the show cause hearing. At

the conclusion of the show cause hearing, the court continued the temporary

A-3643-20 8 restraints entered in the March 25, 2021 order pending full and final disposition

of the matter by order dated April 29, 2021. The judge ordered that defendant

was restrained from "doing business with any supermarket, box store or other

customer or client for which Pinnacle has done business or developed a

prospective business relationship with at any time through . . . December 30 [],

2020."

On May 14, 2021, the court conducted the hearing on the first contempt

motion and reserved its ruling. On or about May 17, 2021, plaintiff

inadvertently received emails intended for defendant that were sent to his old

Pinnacle email address. Plaintiff owns its own email server which includes

defendant's former work email account. When defendant was terminated,

plaintiff asked its employee Steve Green "to periodically monitor [defendant's]

email in-box . . . to ensure continuity of service to Pinnacle's customers who

may not know that [defendant]'s employment had been terminated." The context

of the email chain made it "evident that [defendant] was performing work that

was the subject of . . . the [R3] [p]urchase [o]rder" for the Trader Joe's in Long

Island City, New York in violation of the Chancery Division's restraints.

A-3643-20 9 In light of this discovery, plaintiff returned to court and filed its second

motion for contempt on May 21, 2021. The hearing on the motion occurred on

July 14, 2021, and the court once again reserved its ruling.

On August 12, 2021, the court granted both of plaintiff's contempt motions

and ordered defendant to produce certain discovery and appear for deposition.

On August 16, 2021, defendant filed a notice of appeal of the contempt order

and moved to stay the case pending appeal. By order dated September 13, 2021,

the court denied defendant's motion to stay the case pending appeal. We denied

defendant's emergent motion to stay on September 27, 2021. Defendant now

appeals the August 12, 2021 order finding him in contempt of the restraints

imposed in the Chancery Division's March 25 and April 29 orders.

On appeal, plaintiff presents the following arguments for our

consideration:

POINT I

THE COURT ABUSED ITS DISCRETION BY IGNORING CASELAW PRECEDENT AND EXPANDED THE SCOPE OF PINNACLE'S LEGITIMATE BUSINESS INTERESTS IN ITS CLIENT/CUSTOMERS, BASED ONLY UPON PINNACLE'S IPSE D[I]XIT STATEMENTS OF HAVING A "BUSINESS RELATIONSHIP" WITH TRADER JOE'S.

A-3643-20 10 A. Pinnacle Does Not Have A Legitimate Business Interest In R3 Because Herman Developed His Relationship with R3 Prior to Joining Pinnacle.

1. Pinnacle Does Not Have a Legitimate Business Interest in R3 Because R3 Is The Customer In Question, Not Trader Joe's.

B. The Court's Rulings Ignored The Policies Against Anti-Competition and Restraints On Trade In Restrictive Covenants Of An Employment Agreement.

POINT II

PINNACLE IS IN BREACH FOR NOT PAYING HERMAN HIS SEVERANCE MONEY, AND PINNACLE IS ESTOPPED FROM ENFORCING THE SEPARATION AGREEMENT.

A. Pinnacle Is Estopped From Enforcing the Separation Agreement Because The Parties Were Negotiating New Terms of the Agreement Accord, As Evidenced by Pinnacle's Non- Payment to Herman.

POINT III

PINNACLE USED INTERCEPTED EMAILS AS AN EXHIBIT IN PINNACLE'S SECOND MOTION FOR CONTEMPT IN VIOLATION OF THE DOCTRINE OF UNCLEAN HANDS.

A. Pinnacle Obtained The Intercepted Emails By Misappropriating Herman's Name Through Pinnacle's Website for Commercial and Exploitative Purposes.

A-3643-20 11 B. Pinnacle Has Violated The Electronic Communications Privacy Act by Intercepting Emails That Were Intended For . . . Herman By Misappropriating Herman's Name In Its Website for Commercial and Exploitative Purposes.

We "review a trial court's order enforcing litigant's rights pursuant to Rule

1:10-3 under an abuse of discretion standard." Wear v. Selective Ins. Co., 455

N.J. Super. 440, 458 (App. Div. 2018). An abuse of discretion "only arises on

demonstration of 'manifest error or injustice[,]'" Hisenaj v. Kuehner, 194 N.J. 6,

20 (2008) (quoting State v. Torres, 183 N.J. 554, 572 (2005)), and occurs when

the trial judge's "decision is 'made without a rational explanation, inexplicably

departed from established policies, or rested on an impermissible basis.'" Milne

v. Goldenberg, 428 N.J. Super. 184, 197 (App. Div. 2012) (quoting Flagg v.

Essex Cnty. Prosecutor, 171 N.J. 561, 571 (2002)).

We first observe that defendant is primarily challenging the substantive

enforceability of the anti-competition agreement and the legitimacy of the trade

restraints imposed by the Chancery Division's March 25, 2021 and April 29,

2021 orders. Defendant did not appeal those orders and the issues must await

the final adjudication of the matter below. See State v. Robinson, 200 N.J. 1,

19 (2009). The only issue before us is whether the court abused its discretion

by entering the August 12, 2021 contempt order.

A-3643-20 12 The record amply supports the judge's conclusion that defendant violated

the existing restraints by performing work at Trader Joe's stores in Christiana,

Delaware and Long Island City, New York. Defendant was restrained from

"doing business with any supermarket, box store or other customer or client for

which Pinnacle has done business or developed a prospective business

relationship with at any time through . . . December 30 [], 2020." As a result,

we discern no abuse of discretion in the judge's finding of contempt.

Defendant's remaining arguments are without merit. Defendant argues,

first, that plaintiff failed to fulfill its obligation to pay severance under the

agreement. This argument was properly rejected by the Chancery Division.

Plaintiff's alleged failure to perform has no bearing on whether defendant

violated the Chancery Division's March 25 and April 29, 2021 orders imposing

restraints.

Next, defendant argues that plaintiff improperly intercepted his email and

relied on those emails as an exhibit in its second motion for contempt.

Employers may monitor and regulate the use of workplace computers because

they have a legitimate interest to protect their assets, reputation, and business

productivity. Stengart v. Loving Care Agency, Inc., 201 N.J. 300, 324–25

(2010). Plaintiff's viewing of emails sent to defendant's former Pinnacle email

A-3643-20 13 address for the purpose of business continuity after he left the firm does not

violate any identified law. To the extent the judge relied on emails sent to

defendant's former work email address, we perceive no abuse of discretion or

reversible error.

To the extent we have not addressed defendant's remaining arguments, we

find they lack sufficient merit to warrant discussion in a written opinion. See

R. 2:11-3(e)(1)(E).

Affirmed.

A-3643-20 14