419 F.2d 556 (2nd Cir. 1969), 165, Apex Pool Equipment Corp. v. Lee

Docket Nº:165, 33508.
Citation:419 F.2d 556
Party Name:APEX POOL EQUIPMENT CORP., Plaintiff-Appellant, v. Stephen C. LEE and The Paramount Corp., Defendants-Appellees.
Case Date:December 16, 1969
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 556

419 F.2d 556 (2nd Cir. 1969)

APEX POOL EQUIPMENT CORP., Plaintiff-Appellant,

v.

Stephen C. LEE and The Paramount Corp., Defendants-Appellees.

No. 165, 33508.

United States Court of Appeals, Second Circuit.

December 16, 1969

Argued Oct. 28, 1969.

Page 557

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.

FEINBERG, Circuit Judge:

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.

I.

Appellant Apex is a manufacturer of above-ground swimming pools. 1 On

Page 558

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:

3. Distributor agrees to purchase (but shall not be liable for failure to purchase except to the extent of termination of this agreement at the option of Apex) pool equipment from Apex in Pak amounts in accordance with the following schedule:

Year Feb Mar Apr May June July Aug Sept Total
52
1965 5 10 25 25 10 75
4. The term of this agreement is from the date of acceptance by Apex to October 31, 1966. 5. This agreement shall be automatically renewed for a period of two years for the same quantity and type of pool and pool equipment agreed to be ordered by Distributor during the second year of this contract unless either party shall notify the other to the contrary in writing not less than 30 days prior to the expiration of this contract. 10. This agreement may be terminated by Distributor by written notice to Apex. * * * 11. Apex may terminate this agreement at any time by written notice upon the occurrence of any of the following: A. (Transfer of control over Distributor) B. (Distributor's insolvency) C. Upon the failure by the Distributor to meet its obligations under this agreement including, but not limited to, the performance schedule herein. D. Upon the establishment of any branch office, sales telephone number, or display pool outside the distribution area set forth in this agreement. E. Inadequate, improper or defective service of installation. F. Failure of receipt by Apex of the deposit required by Paragraph 3 hereof on or before the date specified therein. G. Failure of receipt by Apex of full payment for pools or pool equipment when due. In addition to the specific reasons of termination set forth Apex shall have the right to terminate this agreement for any other reason which Apex may have as a matter of law arising out of any breach of this agreement or any default by the Distributor in performing any of the covenants in this agreement, and the Distributor irrevocably Page 559 consents to accept service of process by mail concerning any matter or claim arising hereunder. 13. This agreement shall be construed and enforced in accordance with the laws of the State of New York, and represents the entire agreement between the parties and may not be modified except by a writing executed by properly authorized officers of Apex and Distributor. 15. In the event of termination by either party of any reason, the Distributor covenants and agrees not to sell, advertise, install or otherwise promote any above ground wood frame pool or pool equipment other than that manufactured by Apex in the distributionship territory set forth in Paragraph 2 herein (Fairfield County) for a period of two years from such termination. The Distributor further agrees to return all Apex advertising and promotional materials within 10 days after termination. 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....

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