American Institute of Chemical Engineers v. Reber-Friel Co.

• Decision Date: 28 June 1982
• Docket Number: REBER-FRIEL,D,No. 928,928
• Citation: 682 F.2d 382
• Parties: AMERICAN INSTITUTE OF CHEMICAL ENGINEERS, Plaintiff-Appellant, v.COMPANY, Defendant-Appellee. ocket 81-7695.
• Court: U.S. Court of Appeals — Second Circuit

Page 382

682 F.2d 382

AMERICAN INSTITUTE OF CHEMICAL ENGINEERS, Plaintiff-Appellant, v. REBER-FRIEL COMPANY, Defendant-Appellee.

No. 928, Docket 81-7695.

United States Court of Appeals Second Circuit.

Argued March 31, 1982.

Decided June 28, 1982.

William F. Sondericker, New York City (Jeffrey H. Sheetz, Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, of counsel), for plaintiff-appellant.

Leon P. Gold, New York City (Mark E. Davidson, Ronald D. Lefton, Shea & Gould, New York City, of counsel), for defendant-appellee.

Before FEINBERG, Chief Judge, MANSFIELD, Circuit Judge, and MISHLER, District Judge. ^*

MISHLER, District Judge.

Plaintiff American Institute of Chemical Engineers ("AIChE"), a New York corporation, is the sponsor of two chemical industry trade expositions. Defendant Reber-Friel Company ("Reber-Friel"), a Pennsylvania exposition management corporation, managed AIChE's trade shows from 1961 until April 1981 pursuant to a series of written agreements between the parties. As of April 1981 Reber-Friel was terminated as managing agent. On August 21, 1981 AIChE commenced this action seeking, inter alia, to enjoin Reber-Friel from conducting its own chemical processing exposition, the conduct of which is claimed to be in breach of a covenant not to compete contained in their agreement. A hearing on a motion by AIChE for a preliminary injunction was held before Judge Pierce on September 22 through 24. Five days prior to the hearing Reber-Friel cross-moved for summary judgment and for an order dismissing the complaint for lack of subject matter jurisdiction.

After plaintiff's presentation at the hearing, Judge Pierce, in an oral opinion, denied the motion for an injunction ¹ and dismissed as moot AIChE's claim for return of documents accumulated by Reber-Friel in connection with the management of its shows. The court also denied Reber-Friel's motion to dismiss for lack of subject matter jurisdiction but reserved decision on the motion for summary judgment. On November 24, 1981, Judge Pierce issued a Memorandum Opinion and Order granting Reber-Friel's summary judgment motion and judgment was entered thereon. This appeal followed. ²

FACTS

The undisputed facts are as follows:

AIChE is a not-for-profit educational and scientific corporation organized under New York law for the purpose of the advancement of chemical engineering. AIChE grants funds to universities for research and advancement in the field of chemical engineering, sponsors committees to do research and write technical articles and papers, sponsors conferences and seminars, issues various publications and conducts educational programs. In furtherance of its efforts to raise funds to support such programs AIChE sponsors two major chemical expositions commonly known as the Petrochemical and Refining Exposition ("Petro Expo") and the Chemical Plant and Equipment Exposition ("CPE"). Petro Expo has been held every other year since 1961 and has an established reputation, the most recent show in April 1981 drawing about 700 exhibitors and producing a gross profit of over one million dollars. CPE is a relatively new show; the first show took place in 1978 and a second in 1980.

Reber-Friel has been actively engaged in the management and servicing of industry trade shows since 1939. Over the course of its history in business Reber-Friel consistently has managed and serviced trade shows for at least ten industry associations. From 1961 until 1981 Reber-Friel was the managing agent for AIChE's trade shows. It served as AIChE's managing agent pursuant to successive agreements containing substantially similar conditions. The agreement which is the subject of this litigation was for a term of three years, beginning September 1978, terminable prior thereto by either party upon proper notice. Under the agreements Reber-Friel had total responsibility over the planning and conduct of the shows "subject to the direction and control" of AIChE. Reber's duties included developing for AIChE a mailing list of prospective exhibitors, renting exhibit space developing and distributing promotional material, developing a floor plan and rules and regulations, handling registration, servicing exhibitors, et cetera. ³ All correspondence pertaining to the expositions was required to be on AIChE stationery and all contracts for leasing exhibit space were required to be made in the name of AIChE or Reber-Friel as agent for AIChE. Reber-Friel was responsible for all expenses incurred in performing its duties under the contract. AIChE was responsible for leasing suitable exposition space after consulting with Reber-Friel as to its physical space requirements.

The agreements in effect before 1978 provided that as full compensation for its management services Reber-Friel would receive 40% of the "rental fees actually paid by commercial exhibitors at each exposition." In 1978 Reber-Friel, at the request of the new management of AIChE, agreed to accept 25% of the rental fees as full compensation for its services and the 1978 contract so provided. Over the past six years, management of AIChE's trade shows has accounted for 30% of Reber-Friel's gross profit. Of that approximately one-third was derived from commissions on rental income from exhibitors and two-thirds from service contracts with exhibitors. ⁴

By letter dated October 30, 1980 to Mr. H. Grebe, president of Reber-Friel, AIChE's executive director notified Reber-Friel that after the next Petro Expo, scheduled to run through April 9, 1981, AIChE would terminate its agreement with Reber-Friel, stating that the termination was not related to Reber-Friel's performance but because the shows had achieved a level of maturity which made in-house management more profitable. The AIChE director suggested a future meeting with Grebe to set a schedule for the new manager to work with Grebe on the upcoming show in order to meet many of the exhibitors and "learn your procedures from sales to service, etc.," and hoped during the interim period to arrange for the "orderly transition and transfer of customer lists, promotional lists and other necessary records." Thereafter, Grebe tried without success to negotiate a continued relationship with AIChE by suggesting first in November and December 1980 that Reber-Friel serve as the general contractor for exhibitor services and finally by letter dated January 21, 1981, by offering its management services for only 20% of the rental income with a maximum of $115,000 per exposition.

In June 1981 Reber-Friel notified potential exhibitors of its sponsorship of a new chemical processing trade show, the Chem Pro Show, to be held on September 28-30, 1982 in the Convention Center in Pittsburgh, Pennsylvania (A.135), and a mailing of the Chem Pro Show brochure followed in July 1981. In May, Grebe had visited Pittsburgh and rented exhibition space and secured hotel rooms. Grebe had previously surveyed and recommended the Pittsburgh area as a possible location for AIChE's CPE shows which had been rejected.

AIChE seeks to enjoin Reber-Friel from conducting the September 1982 Chem Pro Show through enforcement of a covenant not to compete contained in the 1978 agreement which provides in pertinent part as follows:

4. Ownership. The Institute shall (insofar as Reber-Friel or any person, firm or corporation claiming through it or one of its officers is concerned) be, and remain during the term of this Agreement and thereafter, the sole owner of any and all AIChE Expositions and the terminology "Petrochemical and Refining Expositions" and "Chemical Plant and Equipment Expositions", and for a period of three years after the end of the term of this Agreement Reber-Friel agrees that (unless the Institute otherwise agrees in writing) neither it nor any of its officers will manage or have any connection with any exposition or show the principal subject matter of which is chemical plant equipment, petrochemicals and/or the refining of petroleum products. (Emphasis added).

AIChE asserts that during the term of the restrictive covenant Reber's Chem Pro Show in Pittsburgh in 1982 will compete for exhibitors with AIChE's CPE show scheduled for June 1982 in Anaheim, California and its Petro Expo in April 1983 in Houston, Texas. To justify enforcement of the covenant, AIChE claims that in securing exhibitors for its show Reber-Friel has and continues to use information about exhibitors gathered and relationships with exhibitors established during its twenty years as AIChE's agent to unfairly compete with AIChE. AIChE also asserts separate claims for breach of fiduciary duty, conversion and unfair competition based on Reber-Friel's failure promptly to supply to AIChE all information and documents relating to its expositions and Reber-Friel's use of that information to promote its competing Chem Pro Show.

I. The Restrictive Covenant

New York courts ⁵ adhere to a strict approach to enforcement of restrictive covenants because their enforcement conflicts with "the general public policy favoring robust and uninhibited competition," and "powerful considerations of public policy which militate against sanctioning the loss of a man's livelihood." ⁶ American Broadcasting Companies, Inc. v. Wolf, 52 N.Y.2d 394, 404, 438 N.Y.S.2d 482, 487, 420 N.E.2d 363, 368 (1981) (quoting Purchasing Assocs., Inc. v. Weitz, 13 N.Y.2d 267, 272, 246 N.Y.S.2d 600, 604, 196 N.E.2d 245, 247 (1963)). Thus, a restrictive covenant will be "rigorously examined", American Broadcasting Companies, supra, 52 N.Y.2d at 403, 438 N.Y.S.2d at 486, 420 N.E.2d 363, 367, and enforced "only to the extent necessary to protect the employer from unfair competition which stems from the employee's use or disclosure of trade secrets or confidential customer lists," Columbia Ribbon & Carbon Mfg. v. A-1-A Corp., 42 N.Y.2d 496, 499, 398 N.Y.S.2d 1004, 1006, 369 N.E.2d 4, 6 (1977), or "confidential customer information", Reed, Roberts Assocs., Inc....