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Raven v. Klein

Decided: July 20, 1984.

SAMUEL RAVEN, ARTHUR ROSENFIELD, MORRIS SCHMELL AND S.A.M., INC., A NEW JERSEY CORPORATION, PLAINTIFFS-RESPONDENTS,
v.
A. KLEIN & CO., INC., DEFENDANT-APPELLANT



On appeal from Superior Court of New Jersey, Chancery Division, Essex County.

King, Dreier and Bilder. The opinion of the court was delivered by Dreier, J.A.D.

Dreier

Defendant has appealed from a Chancery Division judgment limiting the enforcement of restrictive covenants in plaintiffs Raven's and Schmell's employment agreements. These agreements provided trade secret protection "during or after the course of employment," and provided further for noncompetition with defendant "for a period of ten years." Plaintiffs have cross-appealed, contending that even the limited enforcement of the agreement was unwarranted under the facts of this case and, as to plaintiff Rosenfield, whose employment with defendant terminated in 1974, there should be no enforcement since the only agreements he had signed have long since expired.

The trial judge found that the choice of law provisions in the contracts presented no problems since there was "no significant difference between the law of New York and the law of New Jersey." We concur with that analysis. See Solari Industries, Inc. v. Malady, 55 N.J. 571, 585 (1970) and A.H. Emery Co. v. Marcan Products Corp., 268 F. Supp. 289, 299 (S.D.N.Y.1967), aff'd, 389 F.2d 11 (2nd Cir.1968), cert. den. 393 U.S. 835, 89 S. Ct. 109, 21 L. Ed. 2d 106 (1968). Under the law in both states restrictive covenants will be enforced to the extent that they are reasonable as to time, area and scope of activity, necessary to protect a legitimate interest of the employer, not unduly burdensome upon the employee, and not injurious to the public interest. Solari, 55 N.J. at 585, Gelder Medical Group v. Webber, 41 N.Y. 2d 680, 394 N.Y.S. 2d 867, 870, 363 N.E. 2d 573, 576 (1977).

Our analysis of this case must start with the premise that defendant is not entitled to enforce a restrictive covenant principally directed at lessening competition. N.J.S.A. 56:9-4; Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25, 33-36 (1971). Rather, the covenant must be directed at protecting the employer's legitimate interests, here urged to be its trade secrets. No other use is evident from defendant's argument. Such trade secrets or confidential information cannot merely be the facility,

skill or experience learned or developed during an employee's tenure with an employer. Whitmyer Bros., Inc. v. Doyle, 58 N.J. at 25, 37. This standard was correctly employed by the trial judge when he determined that the sole interest of the employer that needed protection was its trade secrets, and that defendant needed protection for a period far less than the 10 years set forth in the employment agreements.

In this case these trade secrets were found by the trial judge to be (1) "the knowledge of the identity of Klein's past and present suppliers of adhesives, wallboard and other paper products"; (2) "the composition and the method of fabricating the paper products and adhesive used in the manufacture of the rolled-edge heart shaped box"; (3) "the application of paper to paper and adhesive to paper"; (4) "fabrication of raw and partially finished materials into the box"; (5) "the machinery used by Klein in the fabrication of the side wall of the box. . . . The strip making machine . . . whose specific design and method of operation is known to Klein"; (6) "the grover machine is in the same category; and (7) "some of the dyes which Klein uses are secret in the protectable sense." In all, these secrets constitute "a manufacturing technique, a processing technique which is unique to Klein and which is not generally known throughout the industry." Such trade secrets are protectable under both the employment agreements and the common-law protection afforded to such trade secrets. Sun Dial Corp. v. Rideout, 16 N.J. 252, 259 (1954).

At oral argument of this appeal defendant's counsel acknowledged that defendant can claim protection for these trade secrets only as they have been developed since 1974, when plaintiff Rosenfield left defendant's employ. He had independently developed a process for making the heart-shaped rolled-edge boxes through his former company, Miro Container Corporation, and defendant acknowledged that Rosenfield was not subject to restraints as to this ten-year-old technology. Defendant urged, however, that the technology was in a constant

state of flux and improvement, and that there is a necessity to protect defendant from plaintiffs' use of the post-1974 technology for which defendant had paid as it developed, and which now could easily be appropriated by plaintiffs through Raven's and Schmell's divulging the improvements to Rosenfield and their newly-formed company. In A. Hollander & Son, Inc. v. Imperial Fur Blending Corp., 2 N.J. 235, 250 (1949) the court said:

The validity of the covenants and the breaches being established, it necessarily follows that Imperial Corporation, Caruba and Villani, by participating in the undercover activities, were properly joined in these proceedings. The protection afforded an employer through the enforcement of the covenants not to compete nor to divulge trade methods or secrets extends against third persons who, knowing of the employee's obligation, may profit from his disclosure. This is true although the third party might have reached the same result independently by his own experiments or efforts. Stone v. Grasselli Chemical Co., 65 N.J. Eq. 756 (E. & A. 1903).

See also, A.H. Emery Co. v. Marcan Products Corp., 268 F. Supp. at 299; Harry R. Defler v. Kleeman, 19 A.D. 2d 396, 243 N.Y.S. 2d 930, 935-936 (N.Y.App.Div.1963), aff'd, 19 N.Y. 2d 694, 278 N.Y.S. 2d 883 (1967). The trial judge had the opportunity to see and hear the witnesses and appraise their credibility, and we see no reason to overturn the determination he made concerning the existence of ...


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