Basicomputer Corp. v. Scott, No. 91 CV 2178.

• Decision Date: 26 December 1991
• Docket Number: No. 91 CV 2178.
• Parties: BASICOMPUTER CORPORATION, Plaintiff, v. Frank SCOTT, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

791 F. Supp. 1280

BASICOMPUTER CORPORATION, Plaintiff, v. Frank SCOTT, et al., Defendants.

No. 91 CV 2178.

United States District Court, N.D. Ohio, E.D.

December 26, 1991.

Richard S. Mitchell, Steven J. Miller, Robert A. Goodman, Daniel D. Domozick, Goodman, Weiss & Freedman, Cleveland, Ohio, for plaintiff.

Carter R. Dodge, Keith A. Savidge, Seeley, Savidge & Aussem, Cleveland, Ohio, for defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

SAM H. BELL, District Judge.

INTRODUCTION

Currently before the court is plaintiff Basicomputer Corporation's motion for preliminary injunction. In its motion, plaintiff seeks an order enforcing covenants not to compete, and other contractual provisions which restrict the defendants' removal, retention or misuse of confidential business information. Following this court's issuance of a stipulated temporary restraining order on the 30th of October, 1991, a two day hearing was held on November 8 and 12, 1991, during which the parties submitted evidence and testimony in support of their respective positions. The following order is the product of that hearing.

I. FINDINGS OF FACT

1. Basicomputer Corporation hereinafter "Basic" is an Akron, Ohio based corporation which integrates microcomputer products and services for sale to corporate and government accounts in the Midwest, Dallas, and, particularly, from a White Plains, New York office which it purchased as a going concern from two of the defendants.

2. As a matter of course, Basic requires all employees to sign an employment agreement which contain covenants not to compete and which restrict the disclosure or removal of confidential business information or trade secrets.

3. Prior to Basic's White Plains purchase, defendants James Noble, Thomas Schlotter, and Susan Westburg, then employees of the office Basic was on the verge of purchasing, attended an employment orientation meeting in Akron, Ohio at which time they were informed of the terms of employment with Basic, including covenants not to compete.

4. On August 22, 1989, Basic purchased its White Plains, New York office as a going concern through an asset purchase of Scott Electronics (which did business as a DOS computer center) from its majority shareholders, defendants Frank Scott and Lydia Prokop. The purchase price was approximately $2,000,000.00.

5. On the date of sale, August 22, 1989, defendants Scott and Prokop signed employment contracts with Basic containing covenants not to compete and other restrictive covenants. On that same day, defendants Noble, Schlotter and Westburg effectively began their employment with Basicomputer.

6. On the first of September, 1989, defendants Schlotter, Noble and Westburg signed employment agreements with Basicomputer because they were told they would not be paid unless they signed these documents.

7. Apart from establishing various terms of employment, all the defendants' employment contracts contained identical restrictive covenants which provided for the following:

4. Employee acknowledges and agrees that his employment under this Agreement necessarily involves his/ her understanding of an access to certain trade secrets and confidential information pertaining to the business of the Corporation. Accordingly, Employee agrees that at all times after the date hereof, Employee shall not at any time or in any manner divulge, disclose or communicate to any person, firm or corporation in any manner whatsoever any proprietary information, confidential information or trade secrets concerning or relating to the business of the Corporation, including without limiting the generality of the foregoing, the identity of any of its customers, the prices at which the Corporation sells or has sold its products and services, or any other information concerning the business of the Corporation. Employee shall not remove or retain, except in the normal conduct of his duties under this Agreement, any figures, calculations, letters, papers, documents, instruments, drawings, designs, or copies thereof, or any other confidential information of any type or description. Any breach of the terms of this Paragraph 4 shall be deemed to be a material breach of this Agreement.

5. Employee shall not during his/her employment accept employment or receive any compensation of any kind whatsoever from any of the Corporation's prospects, customers, suppliers, competitors, or their agents, representatives, etc., nor for a period of one (1) year thereafter sell or work with anyone who sells microcomputer equipment, software, accessories, etc., within fifty (50) miles of any of the Corporation's stores or sales offices or work for or with any of the Corporation's suppliers. For purposes of this Paragraph 5, a "customer" shall mean a person or entity who has purchased at least $100.00 worth of products from the corporation, and a "prospect" shall mean a person or entity who has been solicited for the purchase of at least $100.00 worth of products from the Corporation.

8. In addition to the above language and after discussion among the parties, a rider was appended to the contracts of defendants Schlotter, Noble and Westburg to allay their concerns over the noncompetition clause. This rider provided as follows:

Employee acknowledges that prior to the commencement of his employment with the Corporation, Employee was given a copy of the foregoing Employment Agreement and understood that Employee's entry into said Employment Agreement was a condition of Employee's employment with the Corporation. Employee and the Corporation acknowledge and agree that, pursuant to the request of the Employee, the Corporation has agreed to modify the provisions of Paragraph 5 of the Employment Agreement as follows:

In the event that Employee's employment with the Corporation shall terminate on or before November 19, 1989, the provisions of Paragraph 5 shall not thereafter apply to Employee.

The parties further acknowledge and agree that the foregoing modification shall not in any manner be construed to limit the application or operation of, or otherwise modify, any other provisions of the Employment Agreement, including, without limitation, the confidentiality undertakings made in Paragraph 4, and that the Employment Agreement, as modified hereby, shall be effective as of the commencement of Employee's employment with the Corporation.

9. The defendants, Frank Scott, Lydia Prokop, James Noble, Thomas Schlotter and Susan Westburg, all parties to the noncompetition and confidentiality covenants above, were all employees of Basic's White Plains, New York office.

10. The defendants accounted for 50 to 60% of Basic's New York area sales. Tr. at 138.

11. The computer re-selling business provided each of the defendants with a lucrative income which is well above the national average.

12. Basicomputer's White Plains, New York office services a geographic area covering Connecticut west of Hartford, metropolitan New York, including Manhattan, and northern New Jersey. Tr. at 199.

13. In late summer and early fall of 1991, all the defendants voluntarily ended their employment relationship with Basicomputer.

14. All defendants are now employed at Sears Business Center in Norwalk, Connecticut; Sears Norwalk is a direct competitor of Basicomputer's White Plains, New York office, servicing a portion of Basic's sales area, Fairfield County, Connecticut. TR. at 30.

15. Sear's Norwalk office is well within a 50 mile radius of Basic's White Plains office.

16. Sears' Norwalk location is new, opening after Sears closed its White Plains, New York office.

17. Computer resellers such as Sears and Basic deal with very narrow profit margins.

18. Scott, as Sear's marketing manager, is head of the Norwalk, Connecticut office. Prokop is immediately subordinate to Scott. Defendants Schlotter, Noble and Westburg are subordinates of Prokop. Tr. at 72. This arrangement roughly parallels Basic's management structure at its White Plains office.

19. Since the defendant's departure, Basic's White Plains sales have declined by roughly $500,000 per month. Tr. at 134.

20. Prokop left Basicomputer on the 30th of August, 1991 taking with her commission statements, profit and loss statements for Basicomputer's White Plains office, daytimers (daily calendars), and a filing cabinet which, unknown to Prokop, contained her most recent proposal to one client. Transcript at 24, 25, 26

21. Prokop has had contact with her former clients while at Sears and has solicited at least three former Basic client's business, successfully obtaining a sale to one client. Tr. at 28, 29.

22. Prokop is currently marketing manager for Sears, which involves limited client contact and the development of new accounts as well as review of Sears' sales representative's job performance. Tr. at 371.

23. Schlotter has contacted several former Basic clients while at Sears.

24. Schlotter took with him his rolodex, copies of sales order made while at Basic. These sales order contained the customer name, a `ship to' name, a Basicomputer configuration number, a date, line item prices, quantity, the markup percentages and the tax. Information which would be valuable to competitors. Tr. at 58.

25. Schlotter left Basic on September 16, 1991.

26. Scott voluntarily resigned his position with Basic on August 30, 1991.

27. Scott took with him business cards, his rolodex, daytimers, and and a document identifying new target accounts for Basic.

28. Noble left Basic on September 30, 1991, Tr. at 95. Taking with him commission statements and a business diary containing names and telephone numbers of Basic clients. Tr. at 109.

29. Noble has since solicited former Basic clients for Sears, and has made sales to at least one former Basic client. Tr. at 109.

30. Westburg informed her former Basic clients by mail that she was now at Sears. She has made sales calls upon these clients, and has sold product to them in the amount of some 12,000.00. Tr. ...