All Stainless, Inc. v. Colby

• Decision Date: 12 March 1974
• Citation: 364 Mass. 773,308 N.E.2d 481
• Parties: ALL STAINLESS, INC. v. William A. COLBY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 481

308 N.E.2d 481

364 Mass. 773

ALL STAINLESS, INC. v. William A. COLBY.

Supreme Judicial Court of Massachusetts, Middlesex.

Argued Dec. 6, 1973.

Decided March 12, 1974.

Verne W. Vance, Jr., Boston (Allan A. Fishman, Somerville, with him), for plaintiff.

Donald J. Wood, Boston, for defendant.

Before TAURO, C.J., and REARDON, QUIRICO, HENNESSEY and WILKINS, JJ.

WILKINS, Justice.

The plaintiff (All Stainless) appeals from a final decree dismissing its bill in equity which sought injunctive relief against a former employee (Colby) for violation of a covenant not to compete.

The judge made findings from which the following facts are taken. All Stainless made sales to industrial purchasers of stainless steel fasteners, 'including nuts, bolts, screws, as well as stainless steel pipe valves and fittings.' It made distribution in all the New England States and New York. In January, 1961, Colby entered into an employment agreement with All Stainless. That agreement contained a covenant providing generally that on termination of his employment Colby would not compete with All Stainless in New England and New York for a period of two years. That agreement further provided that, following a six months' trial period, the contract of employment would be for a period of two years and thereafter from month to month, terminable then by either party upon thirty days' written notice.

In July, 1966, a new employment agreement was executed between Colby and All Stainless. It contained a restrictive covenant substantially the same as that appearing in the earlier agreement. ¹ The new agreement provided further that the 'contract of employment shall be from month to month and terminable by either party upon thirty day's written notice.' On or about May 30, 1968, Colby left the employment of All Stainless and went to work for a manufacturing company which was not a competitor of All Stainless.

In November, 1969, approximately seventeen months after he left the employ of All Stainless, Colby went to work as an outside salesman for a company in south Boston, Accurate Fasteners, Inc. (Accurate). Accurate was a competitor of All Stainless. When the plaintiff learned of Colby's employment by Accurate, it filed this bill in equity on November 21, 1969, seeking preliminary and permanent injunctions to enforce the covenant not to compete and also seeking damages as a result of Colby's acts. On December 4, 1969, a preliminary injunction was issued generally enjoining Colby from engaging in any business which was in competition with All Stainless within New England and New York. On December 19, 1969, in response to Colby's motion for a bond to cover any lost earnings, attorney's fees and consequential expenses 'in the event that the Bill of Complaint is dismissed,' a judge ordered that the preliminary injunction be dissolved unless by December 24, 1969, a surety company bond should be filed by the plaintiff 'conditioned to indemnify the defendant (Colby) for loss of earnings and or attorneys fees in the event the bill of complaint is dismissed.' Such a bond was seasonably filed.

The case was tried in January, 1970, and on February 10, 1970, the judge filed a document entitled 'Findings, Rulings and Order.' He ruled that the restrictive covenant was unenforceable. Dissolved the preliminary injunction and stated that the bill was dismissed. All stainless appeals from a final decree dismissing the bill of complaint.

Although no report of material facts was requested, the parties have rightly treated the judge's voluntary findings, which appear to be all the facts found by him, as if they were a report of material facts under G.L. c. 214, § 23. See Birnbaum v. Pamoukis, 301 Mass. 559, 561, 17 N.E.2d 885 (1938); Sulmonetti v. Hayes, 347 Mass. 390, 391, 198 N.E.2d 297 (1964); Reed, Equity pleading & Practice § 1104 (1952). Where the evidence is reported, as it is here, and there is a statutory report of material facts, findings of facts made by the judge must stand unless we are satisfied that they are plainly wrong; we can find facts not expressly found by the judge; and we can reverse the judge's conclusion if it is tainted by some error of law. Willett v. Willett, 333 Mass. 323, 324, 130 N.E.2d 582 (1955). Richmond Bros. Inc. v. Westinghouse Bdcst. Co. Inc., 357 Mass. 106, 109, 256 N.E.2d 304 (1970).

For us to determine whether the decree dismissing the bill was appropriate, we have found facts, additional to those found by the judge, concerning the nature of Colby's work for All Stainless and for Accurate, the geographical area of his activities for each and the consequences, if any, of Colby's employment by Accurate on any interest of All Stainless which might be entitled to protection in equity.

When employed as an outside salesman by All Stainless, Colby covered southern Maine, southeastern New Hampshire and northeastern Massachusetts. He acted as a salesman making personal contact with old and potential customers of All stainless. He started working for Accurate in October, 1969, and first became an outside salesman for it on November 12, 1969. The sales territory assigned to Colby by Accurate included that portion of New Hampshire which he had not covered during his latter years at All Stainless, a portion of eastern Massachusetts lying westerly of the area he had covered for All Stainless and five towns (Billerica, Burlington, Belmont, Watertown and Arlington) which he had covered for All Stainless. The inference is clear that, with the exception of those five towns, the territory assigned to Colby by Accurate was carefully selected so as to avoid the territory served by Colby while he was selling for All Stainless. During the three weeks prior to the issuance of the preliminary injunction Colby called on some accounts within the five town area which he had covered for All Stainless and made some sales in that five town area. It is not clear on the record whether any such sale was of a product competitive with a product also sold by All Stainless.

Colby's work for All Stainless and Accurate involved gaining and maintaining the good will of his employer's customers in a competitive sales environment. He was not assigned any managerial functions. There was no evidence that in November, 1969, Colby had any business secrets or confidential information acquired while employed by All Stainless which would have aided him in making sales outside his former sales area or would have aided Accurate in competing generally with All Stainless. It is clear, however, that All Stainless and Accurate were competitors and that because All Stainless's principal contact with customers was through its outside salesmen, the good will of All Stainless could be harmed by a former salesman's calling on an All Stainless customer, with whom he had previously dealt, to solicit purchases on behalf of a new employer.

The judge concluded that the restrictive covenant was 'entirely too broad and unreasonable as to time and space in that it encompasses the New England states and part of the State of New York, and it provides for a two-year restriction, whereas the contract was a month-to-month agreement.' He then ruled '(f)or these reasons' that the covenant was unenforceable and therefore void.

We hold that the geographical area covered by the covenant was too broad; that the two year limitation was not unreasonable; that, especially in these circumstances, the fact that the employee's employment was terminable from month to month was not an adequate ground to deny the plaintiff relief; that the restrictive covenant should have been enforced to the extent it was reasonable; that, because the period of the two year restriction has expired, All Stainless is left to the recovery of any damages arising from Colby's solicitation of customers within the sales territory covered by him immediately prior to cessation of his employment by All Stainless; and that, as an offset to any such damages, Colby is entitled to prove his finacial losses attributable to the preliminary injunction restraining him (from December 4, 1969, to February 10, 1970) from selling in areas outside of his last area of sales activity for All Stainless.

A covenant not to compete contained in a contract for personal services will be enforced if it is reasonable, based on all the circumstances. Sherman v. Pfefferkorn, 241 Mass. 468, 474, 135 N.E. 568 (1922). Becker College of Business Admn. & Secretarial Science v. Gross, 281 Mass. 355, 358, 183 N.E. 765 (1933). New England Tree Expert Co. Inc. v. Russell, 306 Mass. 504, 510, 28 N.E.2d 997 (1940). See Saltman v. Smith, 313 Mass. 135, 142--143, 46 N.E.2d 550 (1943), and cases cited; Williston, Contracts (3d ed.) § 1638 (1972). In determining whether a covenant will be enforced, in whole or in part, the reasonable needs of the former employer for protection against harmful conduct of the former employee must be weighed against both the reasonableness of the restraint imposed on the former employee and the public interest. Walker Coal & Ice Co. v. Westerman, 263 Mass. 235, 238, 160 N.E. 801 (1928). Economy Grocery Stores Corp. v. McMenamy, 290 Mass. 549, 553, 195 N.E. 747 (1935). Cedric G. Chase Photographic Labs, Inc. v. Hennessey, 327 Mass. 137, 139, 97 N.E.2d 397 (1951). Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 716, 175 N.E.2d 374 (1961). Richmond Bros. Inc. v. Westinghouse Bdcst. Co. Inc., 357 Mass. 106, 110, 256 N.E.2d 304 (1970). See Restatement; Contracts, §§ 515, 516 (1932); Corbin, Contracts, § 1394 (1962); annotation, 43 A.L.R.2d 94, 116 (1955). If the covenant is too broad in time, in space or in any other respect, it will be enforced only to the extent that is reasonable and to the extent that it is severable for the purposes of enforcement. Edgecomb v. Edmonston, 257 Mass. 12, 19--21, 153 N.E. 99 (1926). New England Tree Expert Co. Inc. v. Russell, 306 Mass. 504, 509, 28 N.E.2d 997 (1940). Cedric G....