Award Incentives, Inc. v. Van Rooyen

• Decision Date: 03 February 1959
• Docket Number: No. 12619.,12619.
• Citation: 263 F.2d 173
• Parties: AWARD INCENTIVES, INC., a Corporation of the State of New York, Plaintiff-Respondent, v. Philip A. VAN ROOYEN, Jr., also Known as Philip Van Rooyen, Individually and Trading as The Achievement Company, Defendant-Appellant.
• Court: U.S. Court of Appeals — Third Circuit

263 F.2d 173 (1959)

AWARD INCENTIVES, INC., a Corporation of the State of New York, Plaintiff-Respondent, v. Philip A. VAN ROOYEN, Jr., also Known as Philip Van Rooyen, Individually and Trading as The Achievement Company, Defendant-Appellant.

No. 12619.

United States Court of Appeals Third Circuit.

Argued October 23, 1958.

Decided February 3, 1959.

Richard M. Glassner, Newark, N. J. (Joseph Pierce Lodge, Camden, N. J., and Ira Bernard Dworkin, Flemington, N. J., on the brief), for defendant-appellant.

Samuel H. Nelson, Newark, N. J. (Irving J. Rosenberg, Newark, N. J., on the brief), for plaintiff-respondent.

Before McLAUGHLIN, KALODNER and HASTIE, Circuit Judges.

McLAUGHLIN, Circuit Judge.

The sole problem on this appeal concerns the validity of a restrictive business covenant which was upheld by the district court.

Appellee, a New York corporation, has been a manufacturing jeweler since 1934. As a major part of its business it set up incentive programs¹ in the industrial and institutional fields. No charge was made for these. The company's profit came from the manufacture and sale of emblem type medals, honor awards and the like which were an integral part of the programs. A large portion of the merchandise involved, e. g., pens and pencils, was not manufactured by appellee but purchased. Appellee would thereafter affix particular emblems or engrave the merchandise with various slogans or other language.

It was considered important by appellee that its salesmen become acquainted with its customers, take a personal interest in their affairs and maintain a continuous social business relationship with them. The establishment of customer confidence in the salesmen and competitive pricing, according to the testimony of appellee's president, were the big elements in the success of the company.

Appellant entered into an employment contract as a salesman with Award Incentives, Inc. on December 5, 1947. He worked under that contract, handling the New Jersey and Greater New York City territory, until January 8, 1958, when he voluntarily resigned. The contract contained the following restrictive covenant:

"It is further understood that during the term of this agreement and/or any renewal, extension or modification thereof, and for a period of one year after the termination or cancellation of this agreement or any renewal modification or extension thereof, that you will not directly or indirectly enter the employment or render any services to any firm handling products or rendering services similar to our products and that you will not enter into or become interested in such a business on your own account. It is further understood that during said period you will not communicate or divulge to anyone of the trade secrets, list of customers or secret processes of manufacture used by us."

Immediately following his resignation, appellant organized and from then on conducted a business similar to Award Incentives which he called "The Achievement Company". He sent out letters to this effect to the customers he had formerly serviced. Those customers, appellant stated, were located ninety-five per cent in New Jersey and perhaps five per cent isolated accounts in New York City and states other than New York and New Jersey. Appellant testified that up to trial time he had done about $3,000 worth of business with former Award Incentives customers and had other same type sales pending.

Prior to signing the contract containing the above quoted restrictive covenant, appellant consulted his mother's business advisor, her accountant and the instructor who at the time was teaching him "The Law of Business Contracts", who all assured him that the covenant was illegal. With this in mind he accepted the contract, as he said, "in order to continue my work as sales representative of the company." He also testified that "I continued to work under the contract with the full knowledge that it was illegal."

Award Incentives sued appellant to enjoin him from violating his covenant. On the preliminary application, testimony was taken. The district court held that the parties intended "* * * that the restriction should apply only to the territory in which the defendant served and to which he was limited; in other words, the State of New Jersey and Greater New York in substance." It is from the preliminary injunction covering the territory above mentioned that this appeal is taken.

Jurisdiction is based on diversity. Plaintiff is a New York corporation; defendant, a resident of New Jersey. At the hearing below both sides (the plaintiff affirmatively and the defendant at least tacitly) considered that New Jersey law governed the validity and interpretation of the contract. The case was tried and decided on that theory.² Defendantappellant on this appeal, admittedly, for the first time urges that New York law governs the validity and interpretation of the contract. Appellee argues with great force that the contention comes too late. We are bound to apply the governing law, Klaxon Co. v. Stentor Electric Mfg. Co., 1941, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 and because the particular fact is vital to the proper decision of the case we have examined the record with particular concern as to whether it sufficiently reveals enough facts concerning the contract to enable us to pass upon the question. We find that the letter comprising it was written and signed for the plaintiff corporation by its president at its home office in New York City; that it was addressed to the defendant at the said office where it was signed by him. The testimony, especially that of Van Rooyen, Jr., makes it very clear that his employment was out of the New York office; that he did some telephoning to and with customers as well as correspondence with them from the office and that he also called on those nearby. The contract indicates that he was both reimbursed for his expenses and paid his drawing account at the New York office.³ The company kept strict supervision over defendant, the contract containing the following:

"It is also agreed that you will keep the Home Office of Award Incentives, Inc. promptly informed of all calls made and the results of such calls, in such form and in such manner as we may require.

"The company agrees to work with you to the fullest degree, along good business practice, in giving you promptly, their lowest prices, making up sketches of designs free of cost, supplying samples, literature, cards, reports, leads, when and as received that affects your territory, etc., and in all such matters, the judgment of the company is to be considered controlling.

* * * * * *

"It is further understood and mutually agreed that you will abide by all rules and regulations of Award Incentives, Inc. This applies to working hours, coverage of territory and the registration system of account and all other matters dealing with the procedure of the company."

From all of the above, the contract was not only drawn and executed at plaintiff's home office in New York City, but a great deal of the work in connection therewith was intended to be and was actually performed at said office. Therefore New York law unquestionably is controlling regarding its validity and interpretation. United States Mortgage and Trust Co. v. Ruggles, 258 N.Y. 32, 1932, 179 N.E. 250, 251, 79 A.L.R. 802; F. A. Straus & Co. v. Canadian Pacific R. Co., 254 N.Y. 407, 1930, 173 N.E. 564, 567; Cray, McFawn & Co. v. Hegarty, Conroy & Co., D.C.S.D. N.Y., 1939, 27 F.Supp. 93, 96, affirmed 2 Cir., 1940, 109 F.2d 443.

This brings us to the question of the enforceability of the restriction under the New York decisions. As with most limitation or prohibition of employment covenants whether it will be enforced depends to a large extent upon its own facts. Appellant urges that the case of Murray v. Cooper, 1944, 268 App.Div. 411, 51 N.Y.S.2d 935, 936, affirmed per curiam 294 N.Y. 658, 1945, 60 N.E.2d 387, is dispositive of the restriction, clearly indicating its invalidity. To the contrary we think the restriction is directly within the exception of the Appellate Division opinion which states:

"In the absence of any findings of specific misconduct by the defendant, we are constrained to hold that it is against the public policy of the State of New York to enforce contracts which in the absence of special circumstances prevent a person working at his occupation or entering the same line of business as that of his

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