Jacobson & Co. v. International Environment Corp.

• Citation: 427 Pa. 439,235 A.2d 612
• Parties: JACOBSON & COMPANY, Inc. v. INTERNATIONAL ENVIRONMENT CORP. and Richard H. Kiley, Appellant.
• Decision Date: 14 November 1967
• Court: United States State Supreme Court of Pennsylvania

Page 612

235 A.2d 612

427 Pa. 439

JACOBSON & COMPANY, Inc. v. INTERNATIONAL ENVIRONMENT CORP. and Richard H. Kiley, Appellant.

Supreme Court of Pennsylvania.

Nov. 14, 1967.

Richard W. Hopkins, John Francis Gough, T. R. White Jr., and White & Williams, Philadelphia, for appellants

Theodore R. Mann, Allen J. Levin, Goodis, Greenfield, Narin & Mann, Philadelphia, for appellee.

Before BELL, C.J., and MUSMANNO, JONES, EAGEN, O'BRIEN and ROBERTS, JJ.

OPINION OF THE COURT

O'BRIEN, Justice.

This appeal follows the entry of a final decree in equity against the defendants, Kiley and International Environment Corporation (IEC), his present employer. The decree enforces a restrictive covenant not to compete, and requires an accounting from Kiley of his salary, and from IEC for profits garnered as a result of its participation in the breach.

Plaintiff-appellee, Jacobson & Company, Inc. (Jacobson), is a New York corporation engaged in the selling and installing of building materials in the states of Connecticut, New York, New Jersey, Pennsylvania, and Delaware. Approximately 20% Of appellee's business is the sale and installation of readiant acoustical ceilings, which are competitive with conventional heating and cooling systems.

Appellant, Kiley, was initially employed by Jacobson in 1957 as a salesman, working out of appellee's Philadelphia office, under an oral contract, containing no restrictive covenant, at a salary of $10,000. The Philadelphia office of appellee embraced a territory consisting of the Eastern half of Pennsylvania, Southern half of New Jersey, and New Castle County, Delaware. Prior to his employment with Jacobson, Kiley had had considerable experience in the field of temperature control, and had become acquainted with a number of architects and engineers.

On July 1, 1959, a new agreement, terminable by either party on thirty days' notice, was entered into between Kiley and Jacobson. This agreement provided for a reduction in salary to $9,000 and a profit-sharing arrangement. The Chancellor found further that this agreement of July 1 contained a restrictive covenant:

'Your employment shall be on a month to month basis and terminable either by you or by us, giving the other thirty (30) days' notice. If you should elect to terminate your employment as permitted in this paragraph, you shall not for a period of two years after such termination directly or indirectly within the states of New York, Connecticut, New Jersey, Pennsylvania and Delaware, represent or be employed by or otherwise become associated with any person, firm or corporation which shall engage in the radiant heating or acoustical or any other business engaged in by the company nor otherwise engage in any of such business.'

Although the agreement was not signed until January 29, 1960, the Chancellor found a written contract effective as of July 1.

Under the 1959 contract as a result of the profit-sharing arrangement, Kiley's compensation increased each year through 1963, in which year he received some $24,000. In April, 1964, the terms of Kiley's employment were substantially changed by oral agreement, making Kiley district supervisor for the Philadelphia area in charge of a full range of environmental control products and increasing his salary to $10,000. However, he was removed to a large degree from sales, and thus his earnings were reduced from approximately $24,500 in 1963 to approximately $12,500 in 1964. Moreover, the changeover eliminated higher positions in the radiant ceiling line to which Kiley aspired.

In October of 1964, Richard D. Rothschild, a substantial stockholder and executive of plaintiff in the acoustical ceiling division resigned from plaintiff's employ. The Chancellor further found that in the same month, Rothschild and Kiley met and began discussions which led to the formation of the defendant corporation on December 14, 1964. It was found that at the time of the formation of defendant corporation, Rothschild and defendant Kiley had an understanding that Kiley would become a shareholder of defendant corporation. This he became in early March, 1965, when he purchased 25% Of the stock of defendant corporation for $5,000, became a member of its Board of Directors, and lent it an additional $10,000. Rothschild purchased the balance of the stock of defendant corporation. Kiley did not leave plaintiff's employ until May 7, 1965.

This suit was brought to enforce the restrictive covenant, to compel Kiley to repay his salary taken since the formation of defendant corporation, and to compel defendant corporation to account for profits garnered through Kiley's aid.

In his original adjudication, the Chancellor found that Kiley had entered into a new contract with Jacobson in July, 1959, containing a valid restrictive covenant, i.e., one which was ancillary to the employment relationship and supported by consideration, but concluded that the covenant was not enforceable, since enforcement was not reasonably necessary to protection of Jacobson's legitimate business interests, would impose an unreasonable hardship on Kiley, and would otherwise offend public policy. The Chancellor found that IEC's purpose in hiring Kiley was not primarily to damage Jacobson. This finding was, he said, a natural concomitant to his finding of no enforceable covenant. However, the Chancellor found that Kiley made use of certain confidential information with regard to two jobs on which Jacobson had did, and which IEC later bid in April and May, 1965. The Chancellor thus found a violation of Kiley's duty of loyalty, and directed him to return his salary for March-May, 1965.

Exceptions were filed by both sides to the Chancellor's findings of fact and conclusions of law and to the decree nisi. These exceptions were heard by the Chancellor alone, sitting as the court en banc, who made no change in his Findings of Fact, but modified three of his Conclusions of Law. He reaffirmed his conclusion that Kiley's restrictive covenant was ancillary to his employment, supported by consideration, and therefore valid, but, feeling that he had applied an incorrect standard to determine whether the covenant was enforceable, reversed himself on that issue and concluded that enforcement of the restrictive covenant Was reasonably necessary to the protection of plaintiff's legitimate business interests and would Not impose undue hardship upon Kiley. He therefore felt that 'a conclusion that IEC induced the breach of Kiley's contract was required'.

Before reaching the merits of the case, we should like to consider one preliminary matter, the scope of review. It is quite clear that our duty compels us to give the findings the same careful scrutiny which we would give in any other case, and no more. In passing upon the questions raised on this appeal, we must adhere to the well-established rule that a Chancellor's findings of fact, approved by a court en banc, have all the force and effect of a jury's verdict if they are supported by adequate evidence and ordinarily will not be disturbed on appeal. Hayes v. Altman, 424 Pa. 23, 26, 225 A.2d 670 (1967); Keyser v. Margolis, 422 Pa. 553, 223 A.2d 13 (1966), and cases cited therein. Appellant urges that we should give extraordinary scrutiny to the Chancellor's findings where they are approved by a court en banc consisting of the Chancellor alone. Although it is true that a court en banc ordinarily has three judges, the instant procedure is expressly authorized by Philadelphia Local Rule C.P.* 256(a) which provides that: 'Exceptions to adjudications in equity * * * shall be heard by the trial judge who shall designate the time and place of such hearing or argument.' This local rule was adopted in 1963, pursuant to the general authority conferred on the several courts of common pleas by the Act of June 21, 1937, P.L. 1982, No. 392, § 2, as amended, 17 P.S. § 62: 'Each of the courts of common pleas * * * may adopt additional local rules for the conduct of its business, which shall not be inconsistent with or in conflict with said general rules prescribed by the Supreme Court of Pennsylvania.' Having acquiesced in the procedure below, the appellants cannot now be heard to challenge it on the basis of an alleged inconsistency between Philadelphia Rule 256 and the general Pennsylvania Rule of Civil Procedure 1519(b), 12 P.S. Appendix.

On the merits, appellants make a number of contentions. Several of their arguments cluster around the view that the restrictive covenant was not a part of Kiley's contract. Even if it were a part, they claim, the court should have refused enforcement of such covenant as inequitable and unreasonable and contrary to the public policy of the Commonwealth. Finally, the corporate defendant, IEC, contends that the Chancellor's conclusion that IEC wrongfully induced the breach of Kiley's contract is wholly inconsistent with the findings and the record below.

It is appellants' belief that the restrictive covenant was not a part of Kiley's contract at the termination of his employment. They claim first that the restrictive covenant lacks consideration, basing their claim on their belief that not one, but two contracts were created in 1959--60. It is their view that an oral contract lacking a restrictive covenant was entered into in July, and a written contract containing a restrictive covenant entered into in January. Since Kiley gained no additioal benefit in January, and Jacobson suffered no detriment, it is hornbook law, say appellants, that no consideration exists in this unilateral detriment (to Kiley) situation. The court below, however, concluded that there existed only one contract which was entered into in July, 1959. Appellants attack that conclusion on several grounds. They allege that the findings are both inconsistent and arbitrary. Appellant apparently feel that the finding that Kiley's new employment agreement was written cannot be reconciled with the conclusion of the...