On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County.
King, Dreier and Brochin. The opinion of the court was delivered by Dreier, J.A.D.
Defendant, Ronald J. Foti appeals by leave granted from an amended preliminary injunction entered against him in the Chancery Division. The injunction was based upon a restrictive covenant ancillary to an employment agreement signed by Foti in favor of plaintiff, Coskey's Television & Radio Sales and Service, Inc., d/b/a/ Coskey's Electronic Systems (Coskey's). Codefendant, System Sales, Inc., Foti's subsequent employer, has joined in his application. We here determine that the preliminary injunction was overbroad and, considering the apparent extreme hardship worked upon Foti in the months pending this review, fairness dictates that it should be substantially vacated forthwith.
Coskey's sells and services communication systems in New Jersey, with annual sales of between three and four million dollars. Most of its customers are public institutions, but a substantial number of sales are with private companies. Its business is generated through contacts with architects, engineers and other professionals who specify Coskey's products in proposed projects. Furthermore, Coskey's sales personnel often help with the design aspects of the proposed systems in the hope of receiving orders from the contractor, should the contractor win the bid on the pending project. The codefendant, Systems Sales, and most other competitors in the industry operate in the same manner.
Prior to July 1987 Foti was an employee of and a 10% shareholder in High Fidelity Sound Center Corp., then a competitor of Coskey's and System Sales, and similarly operating. Foti at that time had over 25 years of experience in the industry and had built up a network of contacts with most of the architects, engineers and contractors designing structures requiring
substantial sound systems. While the moving papers before the trial Judge did not quantify the precise number of individuals or entities with whom Foti had personal contacts, we were informed at oral argument that the list which was prepared to implement the eventual restraining order enumerated well over 100 prohibited contacts.
The contracts of sale under which Coskey's purchased High Fidelity Sound Center Corp. revealed that the assets of the seller were purchased, and Coskey's retained certain employees of High Fidelity Sound Center Corp. and two principals (Harold Ducore and Bernard Martin) as consultants. The initial agreement of July 1, 1987 was superseded by two agreements of November 16, 1987, which although slightly different in form, have the same effect upon Foti. In the consulting agreement to which Foti was not a signatory, Coskey's as the "Employer," agreed as follows:
10. Employer agrees to make the following payments to the following individuals:
C. $11,250.00 to Ronald J. Foti upon his signing of an employment agreement and waiver of his right to first refusal to purchase High Fidelity Sound Center.
The agreement further provided that Ducore and Martin were each to receive $45,000 upon their signing the principal agreements which contained a covenant not to compete. A fourth principal, Arthur Thompson, was to receive $11,250, to be held in escrow and distributed quarterly during his employment with Coskey's over a five-year period, contingent upon his signing a waiver of his right of first refusal to purchase High Fidelity Sound Center. At the time the purchase and employment agreements were signed to transfer High Fidelity Sound Center Corp., Foti had already on November 12, 1987 signed his waiver of first refusal which stated:
I, Ronald J. Foti, hereby waiver [ sic ] right of first refusal for purchase of High Fidelity Sound Center. In consideration thereof, Coskey's Electronic Systems will pay $11,250.00 to me.
Foti had on October 27, 1987 already signed an employment contract with Coskey's. It covered a five-year period commencing October 1, 1987 and provided for an annual salary of $53,000 plus commissions and benefits. It contained extensive covenants not to compete:
6. During the term of this agreement the Employee shall not, directly or indirectly, either as an employer, employee, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business that ...