Barnes Group, Inc. v. C & C Products, Inc., 82-1636

Citation716 F.2d 1023
Decision Date31 August 1983
Docket NumberNo. 82-1636,82-1636
PartiesBARNES GROUP, INC., Appellee, v. C & C PRODUCTS, INC., Appellant, and Roy E. McGuire, Defendant.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

Leslie W. Jacobs, Cleveland, Ohio (Thompson, Hine & Flory, Cleveland, Ohio, on brief), and Harold W. Jacobs, Columbia, S.C. (Nexsen, Pruet, Jacobs & Pollard, Columbia, S.C., on brief), for appellant.

Robert W. Dibble, Jr., Columbia, S.C. (McNair, Glenn, Konduros, Corley, Singletary, Porter & Dibble, Columbia, S.C., Arthur J. Schwab, Craig W. Jones, Reed, Smith, Shaw & McClay, Pittsburgh, Pa., John E. Besser, Gen. Counsel, Barnes Group, Inc., on brief), for appellee.

Before HALL, PHILLIPS and MURNAGHAN, Circuit Judges.


The court's judgment is by split decision of the panel. The court's majority decisions respecting the several claims at issue are here summarized.

1. The district court's determination that C & C Products, Inc. (C & C) tortiously interfered with the contracts of George Maria (Maryland contract) and Roy McGuire (South Carolina contract) is affirmed. Judge Hall dissents.

2. The district court's determination that C & C tortiously interfered with the contracts of Craig Berry, James Floyd, Cy Flinchum (Alabama contracts) and S.D. Richardson (Louisiana contract) is reversed. Judge Murnaghan dissents.

3. The district court's award of compensatory and punitive damages is vacated and remanded for further proceedings limited to the fixing of damages on the claims affirmed as to liability.

4. The district court's injunctive decree is vacated and remanded for modification limiting its scope to the territorial bounds of Maryland and South Carolina. Judge Hall dissents to the extent the injunctive decree is not wholly reversed. Judge Murnaghan dissents to the extent the decree is not wholly affirmed, but concurs to the extent it is affirmed in its application to the Maryland and South Carolina territories.

The several views of the panel are set out in the opinions that follow.

Judge Phillips has written the lead opinion which states the decision of a majority of the panel on each issue; Judge Hall and Judge Murnaghan have each written separate opinions concurring in part and dissenting in part from the lead opinion.


This diversity action was instituted against C & C Products, Inc. (C & C) by Barnes Group, Inc., Bowman Distribution division (Bowman), which alleged that C & C had tortiously interfered with the contracts of six Bowman sales agents. C & C appeals from a final judgment of the district court, entered after a bench trial, finding it liable in tort and awarding Bowman injunctive and compensatory and punitive damages. Because the district court erred in its analysis of dispositive choice-of-law issues we reverse the judgment in part and remand for further proceedings.


Bowman operates out of its headquarters in Ohio 1 a nationwide business in the selling of washers, nuts, bolts, and other fungible parts used in the production and repair of vehicles and machinery. Given the nature of the business, see generally Barnes Group, Inc. v. Harper, 653 F.2d 175, 176 (5th Cir.1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1278, 71 L.Ed.2d 462 (1982), Bowman's sales force is central to its competitive success; Bowman apparently relies almost exclusively upon its salesmen for development and maintenance of its customer base. These salesmen, who the parties concede are independent contractors and not employees, are under contract, terminable at will by either party, to develop clients for Bowman in non-exclusive geographic areas. The standard contract includes a restrictive covenant, centrally in issue on this appeal, whereby the salesman agrees, for a two-year period after severing relations with Bowman, not to sell Bowman-like products to any customer with whom he had dealt over the final two years he was under contract with Bowman. 2 As well, the contract provides that it "shall be construed in accordance with the laws of the State of Ohio."

It is undisputed that between 1977 and 1979 six Bowman salesmen signed contracts with C & C, a Bowman competitor, and commenced selling to former Bowman customers in violation of the contractual covenant not to compete. Three of these salesmen--Craig Berry, James Floyd, and Cy Flinchum--were Alabama residents who had sold for Bowman exclusively in Alabama; all three were assigned by C & C to new territories in Alabama. Another salesman, George Maria, haled from Maryland, and had serviced Bowman clients in Maryland and the District of Columbia; C & C reassigned him to cover portions of Maryland, Virginia, and the District of Columbia. S.D. Richardson, a Louisiana resident, was assigned by C & C a territory in Louisiana overlapping much of the area he had previously covered for Bowman. Finally, Roy McGuire, a resident of South Carolina who had previously sold for Bowman there, was hired by C & C to manage salesmen throughout South Carolina and to make customer calls as well.

Bowman filed suit in October 1979 against C & C 3 in the United States District Court for the Northern District of Ohio, alleging that C & C's dealings with these six salesmen constituted tortious interference with the restrictive covenant contained in the standard Bowman contract. 4 Pursuant to 28 U.S.C. Sec. 1404(a), the case was transferred in December 1979 to the District Court for the District of South Carolina, where it proceeded to a bench trial on the merits. Applying Ohio law, as stipulated in the choice-of-law provision of the Bowman contract, the district court determined that the restrictive covenants were a reasonable means for protecting Bowman's legitimate business interests. Accordingly, it adjudged C & C liable for tortious interference with those covenants, awarded Bowman $243,000 in compensatory and $250,000 in punitive damages, and entered a decree enjoining C & C from further interference with Bowman contracts.


This case presents two difficult and interrelated choice-of-law questions that we find were resolved erroneously, at least in part, by the district court. We address first the question of the law that properly should govern a threshold determination of whether the restrictive covenants at issue are enforceable between the parties, and then turn to consider the law that should govern questions of tort liability for interference with the contracts found enforceable.


As the parties concede, a necessary element of the tort of intentional interference with contract is that the contract at issue be valid and enforceable as between the parties to it. See Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., 614 F.2d 832, 837 (2d Cir.1980); Advance Industrial Security, Inc. v. William J. Burns International Detective Agency, Inc., 377 F.2d 236, 238 (5th Cir.1967). In this case particularly, C & C's liability for tortious interference hinges almost entirely upon whether the Bowman restrictive covenants are enforceable, because the facts clearly establish all other elements of the tort. 5 On appeal, C & C's principal assignment of error is that the trial court erred, as a matter of law, in applying Ohio law to determine the enforceability of the restrictive covenants with which C & C allegedly interfered. 6 The district court's application of Ohio law was based entirely upon the stipulation in the standard Bowman contract that it "shall be construed in accordance with" Ohio law. The first potentially dispositive question on appeal therefore is whether, as a matter of law, the contractual choice-of-law provision is controlling.

As dictated by Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964), the district court was bound, as are we, to apply here the prevailing law of the transferor forum, the District Court for the Northern District of Ohio, which in turn would apply Ohio choice-of-law principles in this diversity action, Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).

Seeking the applicable Ohio choice-of-law rule, we have looked first to the possibility that there might be directly controlling Ohio precedent for the specific rule of decision. Finding none, we have turned, therefore, to general choice-of-law doctrine and principles, as currently applied by the Ohio courts, for guidance to the applicable rule. That inquiry has persuaded us that the Ohio courts currently apply contemporary choice-of-law doctrine based upon interest analysis, the most significant relationship, and the Restatement (Second) of Conflicts. See Bonkowsky v. Bonkowsky, 19 Ohio Op.3d 113, 114 (Ct.App.1980) (torts), aff'd, 69 Ohio St.2d 152, 431 N.E.2d 998, cert. denied, 457 U.S. 1135, 102 S.Ct. 2963, 73 L.Ed.2d 1352 (1982); S & S Chopper Service v. Scripter, 59 Ohio App.2d 311, 312-13, 394 N.E.2d 1011, 1012-13 (1977) (contracts). 7 We therefore look to that general body of doctrine as a guide to the specific rule of decision that Ohio would presumably apply to the choice-of-law issues before us here.

A basic principle under contemporary choice-of-law doctrine is that parties cannot by contract override public policy limitations on contractual power applicable in a state with materially greater interests in the transaction than the state whose law is contractually chosen. See Restatement (Second) of Conflicts Sec. 187(2)(b) (1971). While contemporary doctrine recognizes a sphere of party autonomy within which contractual choice-of-law provisions will be given effect, 8 it also limits the extent to which deft draftsmanship will be allowed to bypass legislative judgments as to basic enforceability or validity. 9 This is implicit in the Restatement (Second) of Conflicts Sec. 187(2)(b), which provides that a contractual choice-of-law clause will not be given effect on matters such as "capacity, formalities and substantial validity," ...

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