HEARING LAB TECHNOLOGY, LLC v. HEARING INSTRUMENTS, INC.
MEMORANDUM OPINION AND ORDER granting 7 Motion to Dismiss for Lack of Jurisdiction. The case is dismissed without prejudice to the parties' right to fully litigate this matter in state court, and as more fully stated in said Memorandum Opinion and Order. Signed by Judge Kim R. Gibson on 7/27/2017. (dlg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
HEARING LAB TECHNOLOGY, INC.,
a Texas Limited Liability Corporation,
HEARING INSTRUMENTS, INC.,
a Pennsylvania Corporation
CIVIL ACTION NO. 16-221
JUDGE KIM R. GIBSON
Before the Court is a motion to dismiss filed by Defendant Hearing Instruments, Inc.
("Hearing"). The motion seeks to dismiss the complaint filed against it by Plaintiff, Hearing Lab
Technology, Inc. ("HL T"), for failure to join indispensable parties pursuant to Federal Rule of
Civil Procedure 12(b)(7). [ECF No. 7]. The pith of Defendant's argument for dismissal is that the
necessary parties, which Plaintiff failed to name, are the contracting employees subject to the
restrictive covenants upon which Plaintiff seeks relief. [ECF No. 8]. In the alternative, Defendant
asks this Court to decline to exercise its jurisdiction over Plaintiff's sole claim, which seeks a
declaratory judgment. For the reasons that follow, the Court will grant Defendant's motion and
dismiss the complaint.
Plaintiff HLT is a Texas limited liability corporation and its sole member is HL T Holding
Company, LLC.; a Delaware limited liability company. [ECF No. 1] at 1I 1. HLT manufacturers
hearing aids and provides licensed hearing aid services. Ibid. at 1I 28. Defendant Hearing is a
Pennsylvania corporation that provides hearing aid services and products under the Hearing
Instruments and Miracle-Ear® brand. Id. at 1(1[ 2 and 29.
Josh Strickland ("Strickland") is an HL T employee at its Sam's Club Hearing Center
location in Altoona, Pennsylvania where he serves as a District Manager. Id. at 1[ 50. Previously,
Defendant employed Strickland at its Hearing Instruments in Greensburg, Pennsylvania,
approximately seventy-five miles from Altoona, Pennsylvania. Id. at 1[ 40. Strickland also
worked for Defendant at its Monroeville, Pennsylvania and Pittsburgh, Pennsylvania locations,
approximately eighty-six to ninety-seven miles from Altoona. Id. On August 2, 2010, Strickland
signed an Employment Agreement ("Strickland Agreement") with Defendant agreeing that
upon termination of his employment and two years thereafter, he would not
directly or indirectly recruit or hire any employee of the Company, or otherwise
induce such employee to leave the employment of the Company, to become an
employee of or otherwise be associated with me or any company or business
with which I am or may become associated, nor will I directly or indirectly solicit
present or former clients or customers of the Company.
Id. at 1[ 44 (quoting Exhibit D, 1[ 15). On November 15, 2013, Strickland terminated his
employment with Defendant and began employment with Plaintiff. Id. at 1(1[ 41 and 49.
Williams M. Evans ("Evans") is an HLT employee at its Sam's Club Hearing Center
location in Altoona, Pennsylvania. Id. at 1[ 27. Previously, Defendant employed Evans at its
Hearing Instruments location in Bedford, Pennsylvania, approximately forty miles from
Plaintiff's Sam's Club location. Id. at 1(1[ 11-12. On May 16, 2011, Evans signed an Employment
Agreement ("Evans Agreement") with Defendant agreeing that upon termination of his
employment and two years thereafter, he would not
own, maintain, engage in, be employed by, advise, assist, invest in, make loans
to, or have any interest whatsoever in any business which is the same as or
substantially similar to the Company's business, or that of any Company affiliate
or parent, and which is located within the non-exclusive area served by
Employee or within a radius of 20 miles thereof.
Id. at 1[ 20 (quoting [ECF No. 1] Exhibit A, 1[ 15). On February 2, 2016, Evans terminated his
employment with Defendant and began employment with Plaintiff. Id. at 1(1[ 11 and 27.
On March 1, 2016, Defendant sent Strickland, Evans, and Plaintiff a cease and desist
letter. [ECF No. 1] Exhibit Band C. The Evans letter requested confirmation in writing that
(1) [Evans] will immediately stop working at HLT/Sam's Club Altoona, (2)
[Evans] will not work at any HLT/Sam's Club location within a 20 mile radius of
where you worked at Hearing Instruments from February 12, 2016 to February
12, 2018. This includes within a 20 mile radius of Hearing Instruments' Altoona,
Greensburg, Bedford, Indiana, Somerset, Johnstown and Camp Hill locations.
[ECF No. 1] Exhibit Bat 2. The Strickland letter alleged that Strickland's solicitations "to induce
current or former employees of Hearing Instruments to work for HLT in breach of their
Employment Agreements, including Mr. Evans, are actionable as tortious interference with
contract and unfair competition." [ECF No. 1] at 1[ 51. The letter addressed to HLT demanded
"HL T employees  refrain from further soliciting Hearing Instruments' employees and former
employees to work for HLT in violation of their Employment Agreements." [ECF No. 1] Exhibit
On October 20, 2016, HLT filed a complaint for declaratory judgment alleging that the
restrictive covenants in the Strickland Agreement and Evans Agreement are, as a matter of law,
void and unenforceable pursuant to 28 U.S.C. § 2201(a). [ECF No. 1] at 1(1[ 38 and 55. Plaintiff
further alleges the agreements do not prohibit HLT from employing Strickland and Evans. 1 Id.
Plaintiff's declaratory judgment claim is the only claim brought.
On December 19, 2016, over nine months after sending its cease and desist letter,
Defendant filed the following complaints in the Court of Common Pleas of Cumberland
County, Pennsylvania: (1) Breach of Contract against Evans; (2) Violation of the Pennsylvania
Uniform Trade Secrets Act against HLT and Evans; (3) Tortious Interference with Contract
against HLT and Strickland; (4) Tortious Interference with Current and Prospective Business
Relationships against HLT, Evans, Strickland; and (5) Unfair Competition against HLT, Evans,
and Strickland. [ECF No. 8] at 4. Notably, one day after filing its state court claims, Defendant
filed the instant motion to dismiss Plaintiff's declaratory judgment claim on December 20, 2016.
[ECF No. 7]. The parties have fully briefed the issues and this matter is ripe for disposition.
Failure to Join an Indispensable Party
A party may seek to dismiss a complaint for failure to join a required party under
Federal Rule of Civil Procedure 12(b)(7). As with (12)(b)(6) challenges, in analyzing a motion
under Rule 12(b)(7) the court must accept as true all factual allegations in the complaint and
draw all inferences from the facts alleged in the light most favorable to the non-moving
party. See Jurimex Kommerz Transit G.M.B.H. v. Case Corp., 65 Fed.Appx. 803, 805 (3d Cir.
2003). In evaluating a 12(b)(7) motion, the court applies the two-part test found in Federal Rule
of Civil Procedure 19. Rule 19(a) provides that an absent person is a necessary party if he is
subject to service of process and either: (1) in his absence, complete relief cannot be accorded
Notably, Defendant did not allege that Strickland breached his employment agreement presumably
because the two-year time restraint on the covenant not to compete expired November 15, 2015.
among the parties; or (2) the absent person claims an interest in the subject matter of the case
and his absence will, as a practical matter, prejudice his ability to protect that interest or result
in multiple or otherwise inconsistent obligations. Evidence outside the pleadings may be
considered. See Cummings v. Allstate Ins. Co., CIV.A. 11-02691, 2011 WL 6779321, at *3
(ED.Pa. Dec. 27, 2011) (citations omitted).
If a person is necessary under Rule 19(a) but cannot be joined, the court must determine
whether the case should proceed among the existing parties or be dismissed. Fed. R. Civ. P.
19(b). In making this determination, the court must consider the extent to which prejudice will
result to the non-party or the current parties as a result of the non-party's absence, the extent to
which any such prejudice could be lessened, whether a judgment rendered in the non-party's
absence would be adequate, and whether the plaintiff has an adequate remedy if the case were
to be dismissed. Fed. R. Civ. P. 19(b)(l)-(4). If a party is deemed necessary under Rule 19(a)(l),
that party must be joined if feasible. Pittsburgh Logistics Sys., Inc., 669 F.Supp.2d at 617.
Otherwise, if the party is not deemed necessary under Rule 19(a)(l), the court's analysis is
finished. See Id. at 617.
Defendant moves to dismiss the complaint under Federal Rule of Civil Procedure
12(b)(7) for failure to join necessary and indispensable parties. [ECF No. 7]. The Court must
decide whether it can accord meaningful relief to the parties absent joinder of Strickland and
Evans. After review, the Court answers the question in the negative. Defendant argues, "Evans
and Strickland are the employees subject to the restrictive covenants upon which [Plaintiff]
bases its request for declaratory judgment." [ECF No. 8] at 7. Plaintiff responds that it merely
"seeks a judicial declaration regarding its right [to] employ individuals as it chooses." The
judicial declaration, however, involves construing the restrictive covenants of Defendant's
employment contracts. [ECF No. 16] at 11.
Defendant asserts that the employment relationship between the nonparties and
Plaintiff will be directly affected by the outcome of Plaintiff's claim. [ECF No. 8] at 9. Defendant
attached the Evans agreement and Evans cease and desist letter to the HLT cease and desist
letter. Plaintiff presented these documents, and included the Strickland agreement, praying that
this court construe them in its favor. Specifically, Plaintiff seeks a declaration that the "two-year
restriction" and "purported designated territory" in the covenants are "far greater than
necessary." [ECF No. 1] at 'Il'Il 22 and 23. Defendant, Evans, and Strickland are the only parties
to the contracts at issue. [ECF No. 1] at Exhibit A and D. Parties to a contract at the heart of a
dispute are considered necessary parties. See PNC Fin. Servs. Grp., Inc. v. Daly, No. 14CV0335,
2014 WL 2154968, at *4 (W.D. Pa. May 22, 2014) (holding the nonparty was not necessary
because, inter alia, it was a non-signatory to employment agreement). Although Plaintiff cites
authority to support its assertion that restrictive covenants can be construed without joining the
employees at issue, the cases cited are generally not applicable. [ECF No. 16] at 6. 2
Construing the employment agreements may necessarily affect the rights of the
contracting parties because Evans and Strickland have a "substantial interest in the subject
matter of this action". Glades Pharm., LLC v. Call, Inc., 2005 WL 563726, at *3 (E.D. Pa. Mar. 9,
Plaintiff offers Marchionda v. Precision Kidd Steel Co. to support this theory but the court in that case
held that Defendant did not show the nonparty was indispensible because, inter alia, the nonparty was a
party to an irrelevant agreement. Marchionda v. Precision Kidd Steel Co., 2015 WL 3825420, at *2 (W.D.
Pa. June 19, 2015). Thus, this case is not on point here, where Strickland and Evans are parties to
agreements that are very much relevant.
2005). The interests of both Evans and Strickland will be affected if this court adjudicates their
rights under their employment agreements as Plaintiff is praying the time, geographical
restraints, and non-solicitation provisions are deemed unreasonable. The result would
potentially allow the nonparties to remain employed and protect them from claims of tortious
interference. Alternatively, were Plaintiff to ultimately lose, the employment of Strickland and
Evans would potentially be jeopardized.
The Court exercises diversity jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)
because the amount in controversy exceeds $75,000, exclusive of interests and costs, and the suit
is between citizens of different states. [ECF No. 1] at 'II 3. Both Evans and Strickland are citizens
of Pennsylvania, the state in which the Defendant is incorporated. [ECF No. 1] at 'II 2, Exhibit C,
Exhibit E. Joining Evans and Strickland as Plaintiffs is not feasible under Rule 19(a) inasmuch as
it would defeat diversity citizenship. Gen. Refractories Co. v. First State Ins. Co., 500 F.3d 306,
312 (3d Cir. 2007).
Rule 19(b) Factors
The court must now determine if the complaint should be dismissed or continued under
the four Rule 19(b) factors. As stated above, once a court concludes that a nonparty is necessary,
it then must weigh the following factors to determine if the case can proceed without the
nonparty: (1) the extent to which prejudice will result to the non-party or the current parties as a
result of the non-party's absence, (2) the extent to which any such prejudice could be lessened,
(3) whether a judgment rendered in the non-party's absence would be adequate, and (4)
whether the Plaintiff has an adequate remedy if the case were to be dismissed. Fed. R. Civ. P.
Under the first factor, the outcome of this proceeding may prejudice Evans and
Strickland because the "adjudication of [their] rights ... may impair or impede [their] ability to"
remain employed. Glades Pharm., LLC, 2005 WL 563726 at 4. Under the second factor, the court
cannot lessen the prejudice because Evans and Strickland are parties to the contracts at issue. Id.
Although Plaintiff claims it "did not bring this action to determine whether it needs to
terminate either employee," its prayer for relief, nonetheless, asks the court to declare their
employment covenants "void and unenforceable". [ECF No. 16] at 8; [ECF No.1] at
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