Apex Pool Equipment Corp. v. Lee, 165
Citation | 419 F.2d 556 |
Decision Date | 16 December 1969 |
Docket Number | Docket 33508.,No. 165,165 |
Parties | APEX POOL EQUIPMENT CORP., Plaintiff-Appellant, v. Stephen C. LEE and The Paramount Corp., Defendants-Appellees. |
Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Leon J. Greenspan, White Plains, N. Y. (Greenspan & Aurnou, Harold M. Miller, White Plains, N. Y., on the brief), for plaintiff-appellant.
Howard T. Owens, Jr., Bridgeport, Conn. (Owens & Schine, Robert J. Nicola, Bridgeport, Conn., on the brief), for defendants-appellees.
Before LUMBARD, Chief Judge, and MEDINA and FEINBERG, Circuit Judges.
Plaintiff Apex Pool Equipment Corp. sued defendants Stephen C. Lee and The Paramount Corp., the former for breach of a covenant not to compete and the latter for interference with contractual relations between Apex and Lee. The covenant not to compete was part of a distributorship contract between Apex and Lee. The United States District Court for the District of Connecticut, Robert C. Zampano, J., after a non-jury trial, found that Lee was obliged to observe the covenant only if plaintiff Apex justifiably "terminated" the distributorship contract. The court held that while Lee had breached that contract in several respects, Apex had waived those breaches by the time it terminated the agreement, and the termination was therefore not justifiable. The court also found that since the covenant not to compete was not enforceable against Lee, there was no basis for Apex's action against Paramount. Apex appeals. We affirm.
Appellant Apex is a manufacturer of above-ground swimming pools.1 On March 15, 1965, John Rains, appellant's president, hired Lee to be Marketing Director and Vice President in charge of sales. Apparently this relationship did not work well, and in a few weeks it was changed. On April 2, 1965, Rains and Lee entered into the contract in suit, pursuant to which Lee became the exclusive distributor for Apex pools and equipment in Fairfield County, Connecticut. Under the contract, the relationship between Apex and "Distributor" Lee was that of "seller and purchaser," not "principal and agent," and Lee was to purchase pool "Paks," the minimum components of an installed pool. The contract further provided, in its most pertinent parts, as follows:
It should be particularly noted that Paragraph 11 allowed Apex to terminate the agreement upon the occurrence of certain events, that Paragraph 15, which contained the covenant not to compete, is conditioned upon "the event of termination," and that the parties stipulated before Judge Zampano that the year 1965 in the schedule of purchases in Paragraph 3 should have been 1966.
Lee then began operations for the 1965 season as Fairfield County pool distributor, leasing space from Paramount. Lee did not meet his quota of 52 pools for the 1965 season, evidently in part because Fairfield County was suffering from drought, making sales difficult. He also bought less than the complete pool Pak from Apex in many of the purchases that he did make, and evidently modified the pools he then sold in various ways.
In March 1966, on the eve of the 1966 season, the contract was modified in several respects not now relevant, except that they did not specifically deal with Lee's commitment to purchase specified numbers of pools.2 As the 1966 pool season continued, "it soon became obvious," in the words of the district judge, that Lee would not fulfill his minimum quotas. While the record is not completely free from doubt on the point, and the district judge did not make any finding thereon, it appears that Lee bought from Apex ten pools in April, five pools in May, 22 pools in June, 17 pools in July and none in August.3 Although relations between Rains and Lee had become somewhat strained, in September 1966 they entered into negotiations for a modification and an extension of the contract. Evidently, Rains felt that Lee should have been buying more equipment from Apex in the pool Paks that he did purchase, and was also somewhat disturbed about Lee's modifications of the pool design.
The negotiations were not fruitful: On September 28, Lee wrote Apex giving notice of non-renewal; subsequently, Apex wrote Lee to the same effect, although apparently negotiations for a possible new contract still continued. Finally, in a letter dated October 19, 1966, Apex said that it had no choice but to "terminate our contract * * * effective immediately, which we hereby do," and called Lee's attention to the obligations of the restrictive covenant. Lee denied that the covenant was effective; he purchased a half interest in Paramount some months later, and thereafter conducted a pool manufacturing and sales operation with Paramount. Apex brought suit in March 1968, seeking both injunctive relief and damages. The former was waived by stipulation, and the case was tried on the issue of liability first. As indicated, Judge Zampano found for defendants on the ground that Apex had waived all of Lee's breaches, so that it had no right in October 1966 to "terminate" the contract under Paragraph 11 thereof; accordingly, the restrictive covenant never came into play.4
The first question before us is whether Apex had an absolute right to invoke Paragraph 15 of the contract, which contains the restrictive covenant. That paragraph begins as follows: "In the event of termination by either party of for any reason, the Distributor covenants * * * not to sell * * *." Appellant argues that this means that any end to the contractual relationship during its term would make the covenant effective and bind the distributor to its provisions. Appellees claim that "any reason" means any reason for which the contract gives Apex the express right to terminate. Judge Zampano stated that the "negative covenant" was enforceable "if the plaintiff terminated the contract for just cause" and saw the issue before him as whether Apex "had cause to terminate the distributorship." This adopted the essence of defendants' position, since it assumed that "termination" for "any reason" in Paragraph 15 meant termination for any "just" reason under the contract.
Appellant's reliance on the literal language of Paragraph 15 is, of course, understandable; "any reason" is broad. But it is the meaning of the entire phrase "termination of for any reason" with which we are concerned. Since Apex is given the right to terminate the contract only for specified reasons, it can be said that its action in bringing the relationship to an end would not be termination at all, as the word is used in the contract, unless it was for one of the enumerated reasons. In other words, the meaning of the entire phrase in Paragraph 15 is colored by use of the concept of termination elsewhere in the contract. Thus, Paragraph 3 emphasizes Apex's right to terminate if Distributor fails to purchase. Similarly, Paragraph 11 defines the scope of Apex's right to terminate generally. The existence of a relationship between Paragraphs 11 and 15 is indicated not only by use of the same term but also by the nature of the events justifying termination in Paragraph 11; they may be described broadly as those situations in which a restrictive covenant would be reasonably...
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