Alders v. AFA Corporation of Florida, Civ. No. 72-933.

• Court: United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida
• Writing for the Court: ATKINS
• Citation: 353 F. Supp. 654
• Parties: Frederick A. ALDERS, Plaintiff, v. AFA CORPORATION OF FLORIDA, Defendant.
• Docket Number: Civ. No. 72-933.
• Decision Date: 22 January 1973

353 F. Supp. 654

Frederick A. ALDERS, Plaintiff,
v.
AFA CORPORATION OF FLORIDA, Defendant.

Civ. No. 72-933.

United States District Court, S. D. Florida.

January 22, 1973.

353 F. Supp. 655

Edward C. Vining, Jr., and R. M. MacArthur, Miami, Fla., for plaintiff.

William B. Killian, Miami, Fla., for defendant.

MEMORANDUM OPINION

ATKINS, District Judge.

This cause came before the Court for a non-jury trial upon Plaintiff's complaint and Defendant's counterclaim, both seeking a determination as to the validity, under the Sherman Antitrust Act, of a covenant not to compete in an employment agreement entered into between the Defendant and the Plaintiff. Plaintiff seeks a declaratory judgment that the provision is invalid and unenforceable and an injunction against its enforcement. The counterclaimant prays that the Plaintiff be enjoined from violating the covenant not to compete. Both parties have abandoned their damage claims. The Court has carefully considered the evidence adduced and the memoranda submitted.

Jurisdiction of the cause is based upon 28 U.S.C. §§ 1331 and 1337. The relief sought is authorized by 28 U.S.C. § 2201. A genuine dispute exists as to the rights and obligations of the parties under the covenant not to compete.

The Defendant, AFA Corporation of Florida, is a corporation engaged in the manufacture and distribution of liquid spray devices, particularly its trigger sprayers and other manually operated spray devices, and electric foggers. Plaintiff Frederick A. Alders and his father, now deceased, were the sole owners of AFA. During his father's illness, the Plaintiff became president of AFA.

Beginning in 1963, AFA's performance attracted overtures from acquisition-minded companies. The ensuing negotiations are detailed in the amendment to the Pretrial Stipulation. They culminated in the purchase of AFA by Thiokol Chemical Corporation, evidenced by the March 30, 1967, stock purchase agreement. In the stock-for-stock transaction, Plaintiff surrendered his five shares of AFA and the fifteen shares held by his father's estate (with Plaintiff as the executor and sole beneficiary of the estate) in exchange for approximately one hundred fifty thousand (150,000) shares of Thiokol stock.

AFA was sold as a going business. The price was fixed at ten times AFA's earnings. The amount of Thiokol stock to be acquired by Plaintiff was determined by reference to the value of Thiokol stock over a given thirty day trading period. Thiokol paid AFA's "asking price" and, in effect, paid Plaintiff Thiokol stock worth over $2.8 million for the ongoing business of AFA.

On the same day the sale of AFA was consummated, Plaintiff and Defendant entered into the employment agreement (Plaintiff Exhibit 1) which is the subject of this litigation. AFA agreed therein to employ the Plaintiff as its president for a period of five years at an annual salary of $50,000, plus fringe benefits and bonuses. Paragraph 8, the no-compete provision, reads as follows:

ALDERS will not, during the five (5) year period following termination or expiration of this Agreement, act as an officer, director, employee, agent, sole proprietor, partner, or consultant of, or otherwise participate in, any enterprise or organization in the United States, its territories and possessions, Mexico, or Canada, which is engaged,

353 F. Supp. 656

or is actively preparing to engage, in the business of manufacturing and selling liquid spray devices or other products which AFA, or any subsidiary thereof was manufacturing or selling during or prior to ALDERS' employment with AFA or any subsidiary thereof or any other business competitive with that of AFA or any subsidiary thereof where the activities of ALDERS with such enterprise or organization during such period would include services in such field.

The continued employment of Alders as President of AFA was an important part of the Thiokol purchase. Thiokol was interested in retaining the AFA management team. Three other key AFA employees were induced to stay on, although their employment agreements also contained no-compete clauses.

Plaintiff testified that he was unaware of the covenant until the signing of the employment agreement at the closing in New York. Despite his surprise, he signed the agreement and abided by its terms. At the expiration of the five year period. on March 29, 1972, Plaintiff resigned. On June 15, 1972, this suit was instituted.

The defense that the Plaintiff is in pari delicto with the Defendant concerning any antitrust violations in the covenant not to compete must be rejected. This defense is disfavored in private antitrust actions. Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed. 982 (1968). It is inapplicable here, where the Plaintiff had no role in the drafting of the challenged covenant. Accord, Blake, Employee Agreements Not to Compete, 73 Harv.L.Rev. 625, 628, n.8 (1960).

It is clear from the context of the negotiations that the restraint on the Plaintiff must be judged as an ancillary restraint—ancillary to the sale of AFA. Thiokol sought to acquire the business known as AFA Corporation of Florida. To help it realize the full potential of that business, it retained the services of several AFA employees. The no-compete clause was routinely included in the employment agreements. Raymond Weise, a Thiokol executive who negotiated with the Plaintiff, testified that the Defendant always included a similar covenant in employment agreements entered into as part of an acquisition.

The Plaintiff argues that, because the covenant not to compete on its face restrains him from competing with AFA, it is a contract in restraint of trade, and constitutes a per se violation of the Sherman Act, Section 1. This argument is totally without merit. Ever since the decision in United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), modified, 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136 (1899), it has been recognized that the validity of covenants not to compete turns upon the reasonableness of the restraint in each case. See, e. g., Snap-On Tools Corporation v. F. T. C., 321 F.2d 825, 837 (7th Cir. 1963); Graham v. Hudgins, Thompson, Ball and Associates, Inc., 319 F.Supp. 1335, 1337 (N.D.Okl.1970). By adopting this reasonableness test, the court in Addyston Pipe anticipated the subsequent adoption of the rule of reason for most non-ancillary as well as ancillary restraints in Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911).

Judge Taft stated at length the justification for what he termed "covenants in partial restraint of trade":

After a time it became apparent to the people and the courts that it was in the interest of trade that certain covenants in restraint of trade should be enforced. It was of importance, as an incentive to industry and honest dealing in

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