Alliance Metals Inc. v. Hinely Industries, No. 99-13836

• Decision Date: 15 August 2000
• Docket Number: No. 99-13836
• Citation: 222 F.3d 895
• Parties: (11th Cir. 2000) ALLIANCE METALS, INC., OF ATLANTA, Plaintiff-Counter-Defendant-Appellee, v. HINELY INDUSTRIES, INC., Robert F. Hinely, Jr., Defendants-Counter-Claimants-Appellants, Stephen C. Hinely, et al., Defendants Counter-Claimants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 895

222 F.3d 895 (11th Cir. 2000)

ALLIANCE METALS, INC., OF ATLANTA, Plaintiff-Counter-Defendant-Appellee, v. HINELY INDUSTRIES, INC., Robert F. Hinely, Jr., Defendants-Counter-Claimants-Appellants, Stephen C. Hinely, et al., Defendants Counter-Claimants.

No. 99-13836.

United States Court of Appeals,

Eleventh Circuit.

Aug. 15, 2000.

[Copyrighted Material Omitted] Appeal from the United States District Court for the Northern District of Georgia.(No. 96-00268-CV-WBH-1), Willis B. Hunt, Jr., Judge.

Before BIRCH, BARKETT and ALARCON^*, Circuit Judges.

ALARCON, Circuit Judge:

Robert F. Hinely, Jr., ("Hinely") appeals from an order of summary judgment in favor of his former employer, Alliance Metals, Inc., of Atlanta ("Alliance Atlanta"), in an action Alliance Atlanta brought against Hinely for breach of his employment contract and trademark infringement. We have jurisdiction under 28 U.S.C. § 1291. We review the district court's grant of summary judgment de novo, applying the same standards used by the district court and viewing the facts in the light most favorable to the nonmoving party. See Jones v. Bill Heard Chevrolet, Inc., 212 F.3d 1356, 1360 (11th Cir.2000). Because the district court did not err in concluding Hinely was obligated to comply with the non-competition provision of his employment contract or in finding no genuine issue of material fact as to whether Hinely had infringed Alliance Atlanta's right to the trade name Hinely Aluminum, Inc., we affirm.

I

In March 1994, Alliance Atlanta, a wholly owned subsidiary of Alliance Metals, Inc., acquired the assets of Hinely's company, Hinely Aluminum, Inc., for $500,000 in cash. Among the assets acquired were the Hinely Aluminum, Inc., trade name and "all goodwill relating to the Business as a going concern." Pursuant to a contractual condition of the acquisition, Alliance Atlanta and Hinely also entered into a five-year employment contract under which Hinely was to serve as Alliance Atlanta's president. In that position, Hinely reported directly to Bradley Evans ("Evans"), chairman and sole shareholder of both Alliance Atlanta and Alliance Metals, Inc.

Under the terms of the employment contract, Hinely was to receive an annual salary of $138,500. In addition, he was to receive a percentage of Alliance Atlanta's net sales and net profits as incentive compensation. Under the terms of the employment contract, Hinely was entitled to review any information on which the calculation of his incentive compensation was based. The contract further provided that

any dispute about the calculation of Incentive Compensation ..., the amount due the Employee, or any other matter described herein ... shall be promptly referred to a "Big Six" accounting firm that is mutually acceptable to the Employer and the Employee.... Such accounting firm shall be required to render a decision as to the appropriateness of the objections raised by the Employee within thirty (30) days after the submission of the dispute, and any such decision shall be final and binding on both parties.

The employment contract also contained a non-competition provision providing that

the Employee hereby agrees with Employer that while in the Employer's employ and through the period ending two (2) years after the termination of his employment hereunder for any reason, he will not (either for himself directly or in the service of or on behalf of any other person, firm, partnership, association, corporation or other business entity) ... [e]ngage in or render any services to, or be employed by, any business that competes in the Territory with the Business of the Employer, in the capacity of officer, manager or executive employee, director, consultant or shareholder.

The employment contract provided that it would be "governed by, and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania." Although non-competition covenants are generally disfavored under Pennsylvania law, exceptions to this rule exist for covenants such as this one that protect the buyer of the goodwill of a business, see Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500, 351 A.2d 207, 210 (1976), and the goodwill acquired through the efforts of an employee, see Sidco Paper Co. v. Aaron, 465 Pa. 586, 351 A.2d 250, 252-53 (1976).

Hinely received no incentive compensation for the 1994 fiscal year. According to Alliance Atlanta, Hinely was not entitled to any incentive compensation because the company sustained a net loss that year. Hinely suspected Alliance Atlanta had manipulated its records to hide Alliance Atlanta's net profit and eliminate Hinely's incentive compensation. Between February and May 1995, he repeatedly requested, through his attorney and accountant, information upon which the calculation of his incentive compensation was based. Although Hinely asserts that Alliance Atlanta failed to comply fully with its contractual duty to provide such information, he never pursued arbitration as required by the employment contract.

On February 17, 1995, Hinely came to suspect the formation of a price fixing agreement between Evans and Alliance Atlanta's primary competitor, Wrisco Industries, Inc. On that day, Evans faxed Hinely a new price list with a cover note stating "[n]ew prices for March no exceptions let me know your feelings." Evans later told Hinely that Wrisco Industries, Inc., was charging the same prices.

On advice of his personal counsel, Hinely reported his suspicions to the United States Department of Justice on February 27, 1995. The Department of Justice initiated an investigation of Evans and Alliance Metals, Inc., for violations of the Sherman Act. Hinely continued to work at Alliance Atlanta and cooperated with the Department of Justice throughout the investigation.

On August 14, 1995, John Webb, the executive vice president of Alliance Metals, Inc., hired Jack Barton to be the new sales manager of Alliance Atlanta's Texas office. As sales manager, Barton was to oversee day-to-day operations of that office.

In an affidavit Hinely filed in opposition to Alliance Atlanta's motion for a preliminary injunction, Hinely alleged that he revealed he had been cooperating with the Department of Justice at an August 25, 1995, meeting with Alliance Atlanta's lawyers.

On September 18, 1995, Webb told Hinely he no longer had responsibility for the operations of the Texas office. Webb told employees in the Texas office that Hinely was the cause of the troubles Alliance Atlanta was having with the Department of Justice. Hinely's salary and title were unaffected by what happened in the Texas office.

In a September 28, 1995, letter to all Alliance Atlanta employees, Evans admitted violating the Sherman Act and stated that he and Alliance Metals, Inc., were cooperating with the Department of Justice. On September 29, 1995, the Department of Justice filed a criminal information charging Evans and Alliance Metals, Inc., with violations of Sherman Act, 15 U.S.C. § 1.

In a letter to Evans dated October 2, 1995, Hinely stated that his own "employment with Alliance Metals of Atlanta, Inc. is terminated effective immediately." He asserted in the letter that Alliance Atlanta had breached the employment contract and constructively discharged him. Hinely alleged that he was constructively discharged because (1) Alliance Atlanta had engaged in price fixing; (2) Alliance Atlanta denied him incentive compensation he was due for fiscal year 1994; (3) Alliance Atlanta would not supply him with information regarding the calculation of his incentive compensation; (4) Alliance Atlanta relieved him of his duties at the Texas office; and (5) Alliance Atlanta blamed him for the company's legal troubles.

On October 6, 1995, Hinely incorporated a competing enterprise offering similar products in the same territory serviced by Alliance Atlanta. He called his new venture Hinely Industries, Inc.

On February 2, 1996, Alliance Atlanta filed this action, alleging breach of contract and trademark infringement. On May 28, 1996, the district court granted Alliance Atlanta's motion for a preliminary injunction prohibiting Hinely's new venture from going forward under the name Hinely Industries, Inc. Hinely subsequently renamed his new company Robert & Sons Aluminum, Inc.

On August 22, 1997, after extensive discovery, Alliance Atlanta filed a motion for summary judgment on its breach of contract and trademark infringement claims. On February 19, 1998, the district court granted partial summary judgment in favor of Alliance Atlanta, finding Alliance Atlanta was entitled to summary judgment on the claim that Hinely breached the non-competition provision of his employment contract. The district court also concluded there was no genuine issue of material fact as to Alliance Atlanta's ownership of rights to the Hinely Aluminum, Inc., trade name or as to the likelihood of confusion between that name and Hinely Industries, Inc.

On September 22, 1998, the district court denied Hinely's motion for reconsideration. On July 23, 1999, the parties stipulated to judgment on the remaining issues, including the amount of damages. The district court entered a final judgment in favor of Alliance Atlanta for $291,633, on August 31, 1999. Hinely filed a timely notice of appeal on September 28, 1999.

II

A

Hinely does not dispute that his actions were contrary to the terms of the non-competition provision of his employment contract. Instead, he contends the district court erred in concluding he was obligated to comply with the non-competition provision. Hinely first argues that he was not obligated to comply with the non-competition provision because Alliance Atlanta's price fixing rendered his entire employment contract unenforceable as illegal and contrary to public policy.

For a contract to be deemed unenforceable as illegal or contrary to public policy, its purpose or object must be contrary to a law or policy of the state. See ...