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United Board & Carton Corp. v. Britting

Decided: August 3, 1959.

UNITED BOARD & CARTON CORPORATION, A CORPORATION OF NEW JERSEY, PLAINTIFF,
v.
WILLIAM J. BRITTING, HOWARD V. BRITTING, ET AL., DEFENDANTS



Kilkenny, J.s.c.

Kilkenny

[63 NJSuper Page 518] Plaintiff sued to restrain the individual defendants, its former employees, and the corporate

defendant created by some of them, from soliciting from and doing business with those old customers of plaintiff, to whom the individual defendants had sold plaintiff's corrugated paper products, while they were in plaintiff's employ. In addition to a demand for an accounting, plaintiff also sought to compel the defendants to return to plaintiff's possession a large number of dies used in stamping customers' names on products manufactured by plaintiff for these customers, which dies the defendants had caused to be removed, without authority, from plaintiff's premises, in violation of its general property rights as owner of some of these dies, or its special property right therein as bailee of its customers.

The basis of the complaint was that the individual defendants, who had been employed for many years in making sales of plaintiff's corrugated paper products, as well as in selling for Densen Banner Company, Inc., from whom plaintiff acquired this corrugated paper business on January 1, 1954, had, while still in plaintiff's employ , and for several months prior to the termination of their employment relation with plaintiff, set up their own rival corporation in September 1958, in competition with the plaintiff, their employer, and had pirated a substantial part of plaintiff's corrugated business. And then, when they had wrongfully and by dishonorable methods enticed away many of plaintiff's best customers and had surreptitiously removed the customers' dies, all in violation of their duty of loyalty to their employer the plaintiff, the individual defendants resigned en masse in March 1959, a "target date" previously agreed upon by them. Thus, the plaintiff, having paid $3,998,000 to Densen Banner Co., as of January 1, 1954, for all the assets of this corrugated paper business -- which price included about $1,700,000 in cash and bonds -- found itself, without forewarning, bereft of its key sales personnel, with many of its principal customers stolen away by its trusted sales representatives while they were still employed by plaintiff, and with the dies of these customers covertly removed

from plaintiff's plant without the permission or knowledge of any officer of the plaintiff.

Based upon the pleadings, depositions, exhibits and testimony taken in open court, including the frank admissions of defendants under oath in their depositions, and in the testimony before the court by the defendant William J. Britting -- the only defendant to testify at the court hearing -- that the defendants had engaged in the double-dealing and divided loyalty charged against them, while still on plaintiff's payroll, a preliminary injunction was ordered.

As indicated in the order allowing the preliminary injunction, the court found from the evidence that the defendants William J. Britting, Howard V. Britting and Alexander A. Gaffney, while in the employ of the plaintiff, secretly incorporated a competing company, Carton Sales, Incorporated, about six months before their leaving the employment of the plaintiff; secretly diverted to the said Carton Sales, Incorporated, a large part of the business of the plaintiff; and lulled the plaintiff, during all this time, by also allowing a flow of some business of the same customers to plaintiff. It was found that they utilized their trusted position wrongfully to remove from the plaintiff's premises customers' dies, in which the plaintiff had general or special property rights. While employed and drawing compensation from the plaintiff, the individual defendants also worked in competition for the defendant Carton Sales, Incorporated. During the same period the main defendants, William J. Britting, Howard V. Britting and Gaffney, induced the other defendants, Morton H. Mass, William J. Keegan and Bruce L. Kirchenheiter, to divert business from the plaintiff to the defendant Carton Sales, Incorporated, while these defendants were also employed by plaintiff. The evidence further established that the said individual defendants, during the said period, conspired to keep their activities secret from plaintiff; that the said activities constituted acts of disloyalty to their employer, the plaintiff herein; that they formed a conspiracy through wrongful and improper

means to divert the plaintiff's customers to the defendant Carton Sales, Incorporated, and injure the plaintiff in its corrugated box business; and that they used confidential information gained by them, while in the employ of the plaintiff, in a wrongful and unfair competition with the plaintiff, all in violation of the duties they owed to the plaintiff. It further appeared to the court that unless a preliminary injunction was granted as prayed for in the complaint, irreparable loss, injury and damage would result to the plaintiff.

Therefore, it was ordered that the defendants, pending a final hearing, be and they are enjoined and restrained from continuing, directly or indirectly, from doing business with any customers of the plaintiff corporation as they appear on a certain list of plaintiff's customers, marked in evidence as Exhibit P-13, and from soliciting, directly or indirectly, any business from such customers, and from continuing in their possession or using any dies which were removed from the plaintiff's premises and for which written permission was not expressly given by former customers of the plaintiff; and that the defendants return forthwith to the plaintiff's premises all dies removed from the plaintiff's premises by the defendants or their agents, for which written permission was not expressly given by the former customers of the plaintiff.

While the defendants' attorney has petitioned the Appellate Division for leave to appeal the order granting the preliminary injunction, and has obtained until August 10, 1959 an ex parte ad interim stay of this injunction from a single judge temporarily assigned to the Appellate Division, both sides have, in writing, stipulated that the trial court shall render final judgment as to the injunctive phase of this case on the basis of the present proofs, and have waived further evidence or testimony, except as to the reserved issues of the accounting and other incidental relief, and the counterclaim, to be brought on for hearing in due course.

Accordingly, I have reviewed the entire matter and conclude that the proofs require the same findings as those set forth above, which furnished the basis for the preliminary injunction. I am, therefore, granting a final judgment in favor of the plaintiff and against all the defendants, enjoining them in the same manner and to the same extent as set forth in the preliminary injunction. However, where that order provided a temporary injunction pending final hearing, the injunctive order in the final judgment will be made effective for a period of two years from the date of the final judgment. Any time during which this injunctive order may be stayed, as the result of any appeal therefrom, shall not be counted as part of this two-year period. I have decided upon this limited time of two years, as against the contention of plaintiff's attorney that the defendants ought to be enjoined permanently, or for a longer period than two years. Likewise, for the reasons hereinafter set forth, and against the contention of defense counsel, I feel that there is no adequate remedy at law by a mere award of money damages for the obvious acts of disloyalty by the defendants while they were still in plaintiff's employ, so that some measure of injunctive relief is necessary to give the plaintiff a fair and equal opportunity in the competition between it and its disloyal former employees to obtain the business involved.

At the outset, we should make clear that no restrictive covenant is involved. Cases such as Abalene Exterminating Co., Inc. v. Oser , 125 N.J. Eq. 329 (Ch. 1939); Arthur Murray Dance Studios of Cleveland v. Witter , 105 N.E. 2 d 685, 62 Ohio Law Abst. 17 (Ohio C.P. 1952); Mandeville v. Harman , 42 N.J. Eq. 185 (Ch. 1886); and Golden Cruller & Doughnut Co. v. Manasher , 95 N.J. Eq. 537 (Ch. 1924), dealing with the validity and enforceability of restrictive covenants made by employees as part of their contract of hiring, are not applicable herein. There were no written contracts of employment between these parties. The hiring was oral and without any fixed term of employment.

The individual defendants had the right to terminate their employment, or the plaintiff could have legally ended their employment, at any time. But there was an employer-employee relationship on a full-time, exclusive basis between the plaintiff and each of the individual defendants, with a minor indulgence as to the defendant Gaffney. The defendant William J. Britting, an employee of many years standing, who acted in a supervisory capacity without special title and who sold and serviced some customers, received a salary of $19,000 per year, without commissions. The other employees were generally on a commission basis, with drawing accounts, working only for the plaintiff and for no competitor of plaintiff, so far as it knew. Gaffney was specially permitted to sell and service his own one isolated account in Illinois, because it was beyond the area of plaintiff's operations. But Gaffney's employment by plaintiff yielded him about $25,000 per annum. His tolerated other effort brought him a relatively small sum per year. Though some of the defendants worked as salesmen on a commission basis only, they were clearly employees obligated to sell for plaintiff only, and not free-lance salesmen or independent contractors, except in the one instance where Gaffney was given special dispensation.

Likewise, we are not concerned here with the established rule of law which allows a former employee, not bound by a restrictive covenant and not guilty of any breach of trust, after the termination of his employment , to compete honestly with his former employer, even to the extent of soliciting the customers of his former employer with whom he became acquainted in the course of his employment. For a clear statement of this legal principle and the reasons underlying it, see Haut v. Rossbach , 128 N.J. Eq. 77 (Ch. 1940); National Tile Board Corp. v. Panelboard Mfg. Co. , 27 N.J. Super. 348 (Ch. Div. 1953); Abalene Exterminating Company of New Jersey, Inc. v. Elges , 137 N.J. Eq. 1 (Ch. 1945); 23 A.L.R. 423; 126 A.L.R. 758; 35 Am. Jur., Master and Servant , § 100, p. 529; Restatement, Agency ,

§ 396 (a) and (b), and comments thereunder; Boost Co. v. Faunce , 17 N.J. Super. 458 (App. Div. 1952); Newark Cleaning & Dye Works v. Gross , 97 N.J. Eq. 406 (Ch. 1925).

In each of these cases the former employees entered into competition with their old employer, in an honest and legitimate manner, after severance of the employment relation. In the instant case the former employees acted in a disloyal and dishonorable competition with their employer, while they were still employed by it.

Also, an employee not bound by covenant, and absent any breach of trust, may anticipate the future termination of his employment and, while still employed, make arrangements for some new employment by a competitor, or the establishment of his own business in competition with his employer. However, he may not solicit his employer's customers for his own benefit before he has terminated his employment. This would constitute a breach of the undivided loyalty which the employee owes to his employer while he is still employed.

In section 393 of the Restatement, Agency the rule is thus stated:

"Unless otherwise agreed, an agent is subject to a duty not to compete with the principal concerning the ...


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