OPINION
Plaintiff Deutsche Post Global Mail, Ltd. (“DPGM”) has brought this suit against Defendants Gerard Conrad and Guy Gem-mill, who are former employees of DPGM, and Postal Logistics International (“PLI”), a corporation formed by Conrad and Gem-mill DPGM claims that Conrad and Gem-mill violated restrictive covenants contained in their employment contracts by forming PLI after their departure from DPGM. 1
I.
Gemmill and Conrad were hired as sales managers by International Postal Consultants (“IPC”), in June 1997 and January 1999, respectively. IPC was an international mail company, engaged in the business of providing shipping services to customers who send a substantial volume of mail, parcels, and other items to destinations outside the United States. As sales managers, Conrad and Gemmill identified and solicited potential customers who may have been in need of international mailing services, sold them IPC’s services, and managed their accounts. Conrad and Gemmill worked out of IPC’s Maryland headquarters, and their sales territory included Maryland, Virginia, and the District of Columbia. However, IPC permitted sales managers to solicit and obtain business outside their assigned territories, as long as they did not encroach on identified prospects or customers of the IPC manager assigned to that area.
When they began their employment with IPC, both Conrad and Gemmill executed employment contracts, each of which contained a section 5 entitled “Restriction and Covenant Not to Compete.” Section 5 provides in pertinent part:
(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 Company for any reason, he/she shall not, without the pri- or 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, or
(iii) Engage in any capacity whatsoever (whether as stockholder, officer, director, employee, agent, consultant, advisory or investor) in any form of business entity seeking to engage or engaging in any activity which is then in competition with the company or any Related Corporation in such geographical or territorial markets as the Company or any Related Corporation then is doing or seeking to do business. It is intended that this prohibition of competitive activity be proscribed only in such geographical area in which the Company then is engaged. Sales Representative agrees that the term, scope,and geographic area of the covenants contained herein are reasonable and necessary; however, if any court of competent jurisdiction shall determine this covenant to be unenforceable as to either the term, scope, or geographic area imposed above, then this covenant nevertheless shall be enforceable by such court as to such shorter term, such lesser scope or within such lesser geographic area as may be determined by the court to be reasonable and enforceable. If such court shall refuse to enforce this covenant as to a particular geographic area, then, in such event, the parties hereto declare and agree that for a period of two (2) years from the date on which employment of Sales Representative terminates for any reason, Sales Representative shall be prohibited from soliciting all persons to whom the Company has sold products or rendered services during the three (3) year period immediately preceding the termination of the Sales Representative.
(Defs.’ Mem. in support of Mot. for Summ. Judg. Ex. A12).
In July 2000, DPGM purchased all of the stock of IPC. DPGM is another international mail company that used to operate under the name “Global Mail, Ltd.” In October 1998, Global Mail was acquired by Deutsche Post World Net (“DPWN”), a multinational company with revenues in 2002 of more than $39 billion. After the acquisition by DPWN, Global Mail changed its name to DPGM.
For the first six months following the stock purchase of IPC by DPGM, IPC continued to operate independently. Thereafter, DPGM assumed control of IPC’s operations and hired all of IPC’s sales employees, including Conrad and Gemmill. DPGM did not enter into new employment agreements with Conrad -or Gemmill, nor did it modify orally or in writing the employment agreements they had signed with IPC. In 2001, DPGM fully integrated all of the companies it had acquired, both within the United States and in twenty-five countries around the world.
As managers for DPGM, Conrad and Gemmill continued to solicit and service customers in Maryland, Virginia, and Washington, D.C. DPGM spends considerable time training its sales managers to ensure success in bringing in new customers and serving the needs of existing customers. As part of this training, and in connection with their field work, DPGM sales managers have access to highly sensitive and proprietary data concerning pricing, volume, customer contacts, and global business strategies for selling DPGM’s services to customers. Managers also have the authority to set rates and determine profit margins. Thus, they have incentive, and are encouraged by DPGM, to develop close business relationships with their customers.
After the merger of IPC and DPGM, Conrad and Gemmill felt that their employment conditions and working environment deteriorated. The number of sales representatives in Maryland, Virginia, and Washington, D.C. increased from three under IPC to eight under DPGM, decreasing the number of potential customers for each representative. Moreover, unlike IPC, DPGM did not allow its representatives to solicit customers outside their assigned territory without a special exception. In 2001, DPWN acquired DHL Worldwide. While DPGM and DHL operated separately, DHL representatives sold international mail services under the DPGM brand, and DPGM prohibited its own representatives from soliciting customers of DHL. Another consequence of the DHL purchase was that five additional sales representatives began to work in the Maryland, Virginia, and Washington, D.C. territory.
Concerned with the perceived negative changes, Conrad and Gemmill began to consider leaving DPGM in early 2002. In February 2002, they decided to form their own international mail business. Conrad chose the name Postal Logistics International and reserved a domain on the internet for it. However, in order to conceal PLI from DPGM, Conrad and Gemmill created a corporation called “Benson Mill Communication” and registered it in Maryland. The corporate name was later changed to PLI. At no point during their employment with DPGM did Conrad or Gemmill solicit any customers of DPGM for PLI.
In March 2002, Conrad and Gemmill met with the president and CEO of DPGM, Harry Geller, and told him they were resigning and setting up their own international mail business that would compete with DPGM. Geller said that soliciting any DPGM customers would violate the restrictive covenants in their employment contracts, but Gemmill claimed those agreements were unenforceable. Gemmill then made a proposal whereby PLI would only solicit six to eight of DPGM’s biggest customers and would stay away from DPGM’s other customers for six months if DPGM would forego enforcing the employment agreements. Geller declined this proposal. Conrad and Gemmill then returned all DPGM documents and officially resigned.
Within hours of resigning, Conrad and Gemmill had its first contact with a DPGM customer, and within days PLI was providing services to DPGM customers. From PLI’s inception through April 7, 2003, PLI generated $1,316,560 in revenue, of which $1,165,295 was derived from former DPGM customers. (Defs.’ Mem. in support of Motion for Summ. Judg., at 14, Ex. B6). In fact, 38 of PLI’s 56 customers, and nearly all of its large customers, are former DPGM customers. (Pl.’s Mem. in support of Cross-Motion for Summ. Judg., at 5-7). Conrad admits that he solicited nearly all of his former DPGM customers on behalf of PLI. (Conrad Dep., at 138-49). During this time, DPGM repeatedly warned Conrad and Gemmill that it would take steps to enforce the restrictive covenants. Notwithstanding these warmings, PLI continued to solicit DPGM customers, and Conrad and Gemmill have stated that they will continue to do so unless and until this court enjoins them from doing so. (Conrad Dep., at 205-05; Gemmill Dep., at 223). DPGM finally instituted suit against Defendants in March 2003, a year after Conrad and Gemmill resigned and began soliciting DPGM customers.
DPGM is currently the largest international mail business in the United States and possesses roughly 30% of the international mail market share. (Geller Dep., at 159). In the Maryland, Virginia, and
II.
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, admissions, and affidavits demonstrate that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The materiality requirement means that only those factual disputes that might affect the outcome of the suit preclude the entry of summary judgment.
Anderson v. Liberty Lobby, Inc.,
The material facts in this case are entirely undisputed. Conrad and Gemmill do not attempt to argue that they did not agree to their employment contracts or that they did not breach those contracts by forming PLI and soliciting customers of DPGM. Rather, they claim that the restrictive covenants are unenforceable. 2 Thus, the issues are ripe for consideration on summary judgment.
III.
Under Maryland law, a restrictive covenant will be upheld “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,
DPGM is now only seeking to enforce a very narrow portion of the restrictive covenants — specifically, that part of section 5(a)(ii) prohibiting the direct or indirect solicitation or diversion of DPGM customers, as well as attempted solicitation or diversion. (Pl.’s Mem. in support of Cross-Motion for Summ. Judg., at 19). Defendants argue that even this single restriction is unreasonable in scope (as to activities, duration, and geography), that it is unnecessary to protect DPGM’s business, that it imposes an undue hardship on Conrad and Gemmill, and that it is contrary to the public interest. DPGM claims that the covenants are not unreasonable as written, but that even if they are, the court can edit them to make them reasonable.
Before determining if the restriction on solicitation of customers is reasonable, I must address the preliminary question of a court’s ability to limit a covenant to only one of its sections. Maryland law does permit courts to “blue pencil,” or excise language from restrictive covenants that is unnecessarily broad.
See, e.g., Tawney v. Mutual System of Maryland, Inc.,
Here, in order to enforce the non-solicitation of customers provision in Conrad and Gemmill’s restrictive covenants, I would only have to make two modifications: strike out section 5(a)(iii) completely and strike out a substantial portion of section 5(a)(ii). The latter section, which prohibits engaging in any activity that may adversely affect DPGM, would be eliminated, as well as the references in that section to “any Related Corporation.” It currently reads:
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.
Were I to blue pencil this language, the edited version of section 5(a)(ii) would simply read, “Engage in soliciting or diverting customers of the Company or attempting to so . solicit or divert such customers.”
Although I have substantial doubts about the wisdom of any blue pencil rule,
3
removing section 5(a)(iii) and the offending language from 5(a)(ii) would not involve any rewriting or reorganizing of the remaining language. Therefore, it would be in line with what Maryland courts have traditionally done under the blue pencil rule.
See Tawney,
A.
Having found that it is permissible for DPGM to seek enforcement of only the non-solicitation of customers provision of the restrictive covenants, the next question for me to decide is whether the selected portion of the covenants is reasonable. Unquestionably, DPGM’s narrowing of the covenants appears to make them more reasonable. The other portions of the covenants from which DPGM is now backing away are vague and far broader than reasonably necessary to protect DPGM’s interests. A mere prohibition on solicitation of customers, however, is commonly found in restrictive covenants and is not inherently unreasonable.
Intelus Corp. v. Barton,
Still, the question remains whether the prohibition of solicitation on all of DPGM’s clients is reasonable, given DPGM’s size and presence in the international mail market. Because DPGM has 30% of the market share, the restriction encompasses a very significant number of potential clients for PLI and, if enforced, would impose great hardship on PLI. Moreover, given PLI’s small size and market share compared to DPGM’s, prohibiting PLI from soliciting any of DPGM’s clients is not reasonably necessary to protect DPGM’s interests.
It is true that Maryland courts have enforced some restrictive covenants that contained prohibitions on solicitation of all the employer’s clients.
See, e.g., Gill,
Moreover, Maryland courts have recently expressed concerns about the imposition of such blanket restrictions on client solicitation. In
PADCO Advisors, Inc. v. Omdahl,
The situation in
Holloway
is amplified even more in this case, where DPGM’s customer base is immense and expands across the globe, and Conrad and Gemmill developed comparatively few customer relationships in the limited area of Maryland, Virginia, and Washington, D.C. While Conrad and Gemmill may have learned DPGM’s strategic and pricing information and at one point had access to the master customer list, DPGM does not dispute the fact that they made no copies of any DPGM documents and returned all the
B.
Defendants also challenge the duration and geographical scope of the covenants. Defendants’ restrictive covenants last for two years, and their durational challenge is weakened by the fact that two-year prohibitions on competition and solicitation have routinely been upheld by courts applying Maryland law.
See PADCO Advisors,
As for the geographical area, the covenants do not contain any restriction in the portion devoted to solicitation and diversion of customers. Maryland courts have not specifically addressed whether restrictive covenants with no geographical limitations are unenforceable per se. However, federal district courts applying Maryland law have held that in situations where the plaintiff competes for clients on a global basis, a restriction limited to a narrow geographic area would be meaningless; therefore, the absence of such a restriction is reasonable.
See Intelus,
That said,
Intelus
and
Hekimian Labs,
are both distinguishable from the present case because the plaintiffs there did not dominate the markets in which they competed. In contrast, DPGM has a roughly 30% share of the international mail market. The next closest competitor is the United States Postal Service, with 19% of the market share. PLI possesses a mere .2% market share. (Defs.’ Mem. in support of Mot. for Summ. Judg., at Ibid). This distinction is important in two respects. First, as a matter of broad public policy, restrictive covenants should not be permitted to stifle healthy competition in a market dominated by a single firm. Second, under Maryland law restraints in restrictive covenants must be viewed in the context of the hardship imposed on the employees and the necessity of the restraint to protect the employer’s interests.
See Silver,
V.
DPGM argues that even if I find the restrictive covenants unenforceable as written, I can edit them to make them reasonable. As discussed above, Maryland law permits courts to remove unnecessari
DPGM suggests that the addition of the words “with whom Conrad and Gemmill had contact” after the words “customers of the Company” in the non-solicitation provision would not be an impermissible rewriting of the contract. (Pl.’s Mem. in support of Cross-Motion for Summ. Judg., at 26). DPGM cites the decision of the Court of Special Appeals in
Holloway,
The second is a more liberal approach in which strict divisibility is not required. Rather a restraint is enforced “to the extent that it is reasonable and lawful, the test being whether partial enforcement is possible without injury to the public and without injustice to the parties.”
Id.
at 235,
No Maryland case since
Holloway
has applied the flexible approach endorsed by that court. When
Holloway
was appealed, the Maryland Court of Appeals affirmed in part and reversed in part on other grounds, but expressly refused to address whether the flexible approach applied by the Court of Special Appeals was part of Maryland law.
Holloway,
In the present case, the strict divisibility approach permits me to strike section 5(a)(iii) of Conrad and Gemmill’s restrictive covenants and the overbroad portions of section 5(a)(ii), as described in Section III supra. However, it does not allow me to add words limiting the solicitation provision so as to apply only to those customers that Conrad and Gemmill had contact with, or alternatively, to customers within the United States. Accordingly, Defendants are entitled to the summary judgment they seek.
A separate order is being entered therewith.
ORDER
For the reasons stated in the accompanying opinion, it is, this 14th day of November 2003
ORDERED
1. Plaintiffs motion for partial summary judgment is denied;
2. Defendants’ motion for summary judgment is granted; and
3. Judgment is entered in favor of defendants against plaintiff.
Notes
. DPGM originally asserted claims for (1) breach of contract, (2) breach of fiduciary duty, (3) misappropriation of trade secrets and confidential information, (4) tortious interference with existing and prospective con
. Defendants also contend that because of the significant impact that IPC’s merger with DPGM had upon the restrictive covenants, e.g., substantially increasing the customers whom they were prohibited from soliciting in the event that they left DPGM’s employ, the merger constituted a modification of their employment agreement that voided their obligation under the restrictive covenants. They further contend that the restrictive covenants were not effectively assigned from IPC to DPGM. I need not decide the issues raised by these contentions in light of my holding that the restrictive covenants are overly broad in scope and cannot be saved by "blue penciling.”
I note, however, that even if Defendants’ modification argument is without merit, the fact that Defendants signed their employment agreements with IPC, a much smaller company than DPGM, is pertinent both as to the hardship imposed upon Defendants and the alleged need to protect DPGM's interests. A similar situation existed in
Wallace Butts Insurance Agency, Inc. v. Runge,
[
. In my view to permit blue penciling encourages an employer to impose an overly broad restrictive covenant, knowing that if the covenant is challenged by an employee the only consequence suffered by the employer will be to have a court write a narrower restriction for it. This appears to me to be extremely unfair and contrary to sound public policy.
Cf. Trailer Leasing Co. v. Associates Commercial Corp.,
. Of course, if X did find that two-year provision to be unreasonable, I would also have to decide whether a shorter provision would be reasonable and if so, whether the Court of Special Appeals decision in
Holloway,