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JOHNSTOWN -- Federal District Judge Kim R. Gibson has begun hearing testimony from the present owners of Power House Subs, who contend that the founder of the local sub chain violated a non-compete clause after selling the business in late 2018.
Hollidaysburg businessman Michael McDonnell and several members of his family who worked for Power House, and who, it is contended, helped McDonnell start a competing business after the sale, are being sued by Ryan DelBaggio, Brice Mertiff, and William and John Russell from the Tyrone area, who had an interest in the sub shop after the sale.
The attorney for the present owners, Briar Siljander of Highland, Michigan, outlined the corporate history for Gibson in a pretrial statement.
McDonnell, he stated, started Power House Subs in 2017 and grew the business, which now has sub shops in Altoona, Tyrone and Duncansville.
In late 2018, McDonnell agreed to an Asset Purchase Agreement of his businesses to PHS Corp.
The new owners included a 15% interest for McDonnell, 15% for DelBaggio, 65% for a company called Elevation Holdings, and 5% to the owner of another sub shop, who is not part of the PHS lawsuit.
In 2019, Elevation sold its ownership interest to a company called REVZIP LLC, owned by Mertiff.
According to the pretrial statement by Siljander, McDonnell, who was working for the new company, eventually terminated his relationship and began to compete against it by founding a new firm, Subpreme Fundraising and Catering.
That firm eventually became known as Supreme Fundraising and Catering LLC, after McDonnell received a notice that he was in violation of the noncompete agreement.
Siljander asserted that McDonnell convinced other members of his family, including a brother, Christopher McDonnell, a sister, Dana Bearer, and her son, Jacob Bearer, "to help him circumvent his non-competition covenants by pretending Supreme was actually the brainchild of (Jacob) and was owned and operated by Jake and Chris."
Power House Subs Corp. and REVZIP are asking for compensation for the business lost to Supreme.
The money damages being sought are less than $60,000, according to the pretrial statement presented by Siljander, but the plaintiffs are also asking the court to forfeit McDonnell's interest in PHS Corp., and that customer lists and other confidential information accessed by McDonnell be destroyed.
McDonnell, in his opening statement, said that DelBaggio, who initially was supplying McDonnell's new businesses with apple dumplings, in June 2018 introduced him to John Russell of Tyrone.
DelBaggio indicated Russell, a Tyrone businessman, allegedly was interested in investing in the new sub business.
McDonnell indicated in his pretrial statement that he was interested in a proposal to franchise Power House Subs nationwide, and Russell, a successful businessman, had the resources to make the plan a reality.
He also received a compensation deal from the new owners.
Looking back, McDonnell reported he and his family members fell victim to a plan under which the new owners did not want to "partner in good-faith for mutually beneficial purposes, but rather to obtain (Mike's signature) and then proceed to leverage both him and his family out."
The new owners contend that McDonnell revealed the "trade secrets" of Power House's success, including "sophisticated" sub-making methods, a "secret sauce" that made the subs popular and a customer list.
McDonnell in his opening statement said he "never had any trade secrets."
He charged in his pretrial statement that REVZIP siphoned money out of PHS "in order to pay REVZIPS's financial commitment to its former business partners, the Russells and their firm, known as EMG Brands, an affiliate of Elevation Holdings LLC."
The lawsuit against McDonnell includes violations of both federal and state law.
He is charged civilly with breach of contract, breach of the asset purchase agreement, failure to safeguard the business's trade secrets and violation of the non-compete laws, both federal and state.
Both sides selected a trial by court with Gibson presiding.
The judge set aside this entire week for testimony, telling the parties, "Now is the time to present what you want to present."
After hearing the testimony, the judge must review multiple depositions, text messages, phone calls and financial statements before making his decision whether McDonnell unfairly competed against his former business.
The federal trial could be the first of two trials involving the bitter dispute between the two sides.
McDonald has filed a lawsuit stating his side of the story in the Blair County Court of Common Pleas, asking that his sale to the new owners be nullified.
Blair County Judge Jackie Bernard earlier this year refused a request to dismiss McDonnell's state lawsuit.
The new owners have appealed her decision and last week the issue was argued before a panel of the Pennsylvania Superior Court.