Tuesday, January 27, 2009

Pennsylania Court Enforces Non-Compete Agreement Against Pyrotechnics Designer (Zambelli Fireworks v. Wood)

Cases with interesting facts usually produce interesting results, and a recent decision out of Pennsylvania demonstrates this. The case of Zambelli Fireworks v. Wood involved the defection of a pyrotechnics designer from his long-time employer to a direct competitor. At issue in the case was the reasonableness of a nationwide covenant not to compete that barred Matt Wood from working in the pyrotechnics business in any capacity for a total of two years.
The court's findings of fact were extensive, and I'll try and summarize the most critical of those here:

(1) Wood worked in several job capacities for Zambelli, primarily involving choreography and design of high-profile fireworks shows. However, he also had customer contacts and was responsible for preparing business proposals.

(2) Wood had customer responsibility throughout the United States and was not assigned a specific geographic territory.

(3) In 2007, after Wood signed his second non-compete with Zambelli, the family-owned business went through a major restructuring, whereby an outside investor group bought 50 percent of the stock from the family. Two daughters in the family business were pushed out in favor of Doug Taylor, who had no experience in the fireworks business.

(4) Wood was contacted by Pyrotechnico, a close (and apparently friendly) competitor with Zambelli, in late 2007. He negotiated with them through the beginning of 2008, eventually resigning in February. Wood prepared a list of items that he returned to Zambelli on his departure and received a verification from Zambelli that key documents were returned or deleted.

(5) After he began working at Pyrotechnico, Wood refrained from customer contact and tried to minimize competitive activity that would constitute a breach of his Zambelli agreement.

There were several issues discussed by the court in granting an injunction in favor of Zambelli. By way of background, Pennsylvania appears to have a pro-employer bent, due in large part to two factors: (1) the range of protectable interests that a non-compete can support; and (2) its willingness to modify or rewrite covenants to make them reasonable. Both issues were on display in the court's ruling.

First, the court noted that Pennsylvania will recognize a protectable interest in an employee's "specialized training or skills." This is an increasingly popular interest courts deem worthy of protection, notable in New York for its widespread use. Still, it is unavailable for employers to assert in many jurisdictions. In this case, Wood clearly had been trained and had a unique skill in a very narrow, specialized industry - pyrotechnics choreography.

Second, the court found that the lack of geographic restriction on Wood's non-compete was not fatal to the reasonableness inquiry. It was patently clear from the testimony Wood had customer contact throughout the United States, and that he could choreograph shows from his home computer for any customer wherever it may be situated.

Third, the court found the total ban on any competitive activity far too broad, stating that it "would literally prevent [Wood] from engaging in his chosen profession." Accordingly, the court modified and rewrote the contract to make it reasonable. The injunction contained two key components. First, Wood could not contact those customers with whom he developed a business relationship during his employment with Zambelli. Second, Wood's activity restriction was modified so that he could not design or choreograph aerial pyrotechnic dsiplays - the specific expertise he developed at Zambelli.

Finally, the court rejected a novel defense raised by Wood, although it appeared to be a close call. In essence, Wood claimed that the change in job conditions following the stock sale resulted in a new Zambelli and that this was an unauthorized assignment of a non-compete. Though the court called Wood's argument "weighty", it ultimately was not able to rely on any authority for the defense.

Because the company's stock was sold, Wood's non-compete was never assigned. Had Zambelli sold its assets without an express assignment provision in Wood's non-compete, the result may have been different.


Court: United States District Court for the Western District of Pennsylvania
Opinion Date: 1/21/09
Cite: Zambelli Fireworks Mfg. Co., Inc. v. Wood, 2009 U.S. Dist. LEXIS 3974 (W.D. Pa. Jan. 21, 2009)
Favors: Employer
Law: Pennsylvania

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