Continental Group, Inc. v. Kinsley, Civ. No. B-76-224.

• Decision Date: 08 October 1976
• Docket Number: Civ. No. B-76-224.
• Citation: 422 F. Supp. 838
• Court: U.S. District Court — District of Connecticut
• Parties: The CONTINENTAL GROUP, INC. v. John P. KINSLEY et al.

422 F. Supp. 838

The CONTINENTAL GROUP, INC. v. John P. KINSLEY et al.

Civ. No. B-76-224.

United States District Court, D. Connecticut.

October 8, 1976.

COPYRIGHT MATERIAL OMITTED

Bernard S. Peck, George J. Markley, Goldstein & Peck, Bridgeport, Conn., for plaintiff.

Peter L. Costas, Melvin S. Katz, and Stuart M. Roth, Schatz & Schatz, Hartford, Conn., for defendants.

MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

NEWMAN, District Judge.

Plaintiff, the Continental Group, Inc. ("Continental"), seeks to enforce a post-employment non-competition covenant by obtaining a preliminary injunction to prevent its former employee, defendant John P. Kinsley ("Kinsley") from continuing in the employ of defendant TPT Machinery Corporation ("TPT") for the remainder of the 18-month period of the covenant. Jurisdiction is properly grounded on diversity of citizenship. While the injunction request was heard very shortly after the complaint was filed, the hearing consumed all or portions of five days, and, though acting on short notice, the parties extensively developed the pertinent facts.

Kinsley is, by his own description, a development engineer with expertise in the field of "plastic container process development." Though lacking a formal education degree, he has, at age 47, acquired extensive experience with companies in England, Canada, and the United States in the development of plastic containers, with recent emphasis on development of machinery and tooling for their production. His experience includes all three principal manufacturing methods for plastic containers — extrusion molding, extrusion blow-molding, and injection blow-molding — with expertise in the two blow-molding techniques.

Kinsley entered the employ of Continental in 1969 as a production engineer and, with a brief interruption, continued his work there until May 31, 1976. In 1975, he expressed interest in transferring to Continental's plastic beverage bottle division, a small unit of 65 employees, working principally at Merrimack, New Hampshire. This division is working to develop the capability to manufacture plastic containers for beverages bottled under pressure, such as beer and soft drinks. This is a relatively new field. The first significant entrant, Monsanto, has only recently put into commercial use its 32-ounce plastic bottle for Coca-Cola. Continental hopes to be among the first to develop a commercially successful plastic bottle for carbonated beverages and toward that end has invested approximately $20 million to develop the requisite technology. Continental anticipates that it will bring its product to market soon and that the product will enjoy sales of more than $100 million by 1980. Continental is endeavoring to manufacture its product by use of the injection blow-molding technique, the insertion, into a mold, of plastic into which air is blown to shape the plastic to the mold. Apparently the trick in this business is to develop a bottle strong enough to contain beverages under pressure, light enough to use a minimum of plastic material, sturdy enough to resist breakage or distortion, and stable enough to resist tipping over.

Prior to transferring to the plastic beverage bottle division, Kinsley was required by Continental, in anticipation of his transfer, to sign the covenant on which the pending claim for relief is based. The covenant, set out in the margin,¹ obligates Kinsley, after his employment with Continental, not to "engage in any competitive enterprise" for himself or as employee for 18 months. "Competitive enterprise" is defined to include "the development, manufacture, distribution or sale of plastic injection blow-molding molds, tools, and machinery, and services incidental thereto" in the United States, Canada, Western Europe, and Japan. Continental requires all employees of its plastic beverage bottle division to sign this covenant. Other than these 65 employees, Continental requires only 25 to 30 of its other 55,000 employees to sign any form of non-competition post-employment agreement. In addition to requiring this covenant of employees at the plastic beverage bottle division, Continental also endeavors to protect the secrecy of the work at Merrimack by taking elaborate precautions limiting access to the plant, maintaining strict security, and requiring secrecy agreements of customers.

Kinsley was officially transferred to the plastic beverage bottle division on December 15, 1975. At Merrimack Continental was experimenting with an injection blow-molding machine, and working to perfect the bottle this machine could produce. Kinsley was given the assignment of developing a second-generation machine that would use the injection blow-molding process to make an improved product. To carry out this assignment, Kinsley was given access to all data at the Merrimack plant, including results of all test runs on experimental products and all details concerning the production process, including the types of resin used, the bottle designs, the machinery and tooling designs, and the critical temperatures at various stages of the production process. Kinsley thus learned exactly how Continental was making the bottle it hopes to market commercially, what refinements in the injection blow-molding process were producing improvements and failures, and how near to success were its development efforts.

In May, 1976, Kinsley informed his superiors at Merrimack that he was dissatisfied with the level of responsibility he had been given and therefore wanted to leave Continental. The company offered to explore a reassignment to other divisions, but Kinsley elected to terminate his employment and submitted his resignation May 10, 1976. He resigned effective May 31, 1976, but Continental, apprised of his intention to leave, instructed him to depart on May 12, 1976, which he did. On May 14, Kinsley contacted Dr. Emery I. Valyi, president of defendant TPT, whom Kinsley had known from earlier contacts. In 1974 Valyi had asked Kinsley whether he would be interested in working for TPT, and Kinsley declined. In 1976, prior to leaving Continental, Kinsley had three conversations with Valyi. According to Kinsley and Valyi these conversations concerned only the prospect of Continental's purchasing the injection blow-molding machine that TPT is developing. The last conversation occurred only two or three weeks before Kinsley left Continental. While both participants in these conversations deny that they included any discussion of Kinsley's leaving Continental to work for TPT, the circumstances of the 1974 offer by Valyi, the timing of Kinsley's departure from Continental and subsequent contact with Valyi concerning employment, the suddenness of Kinsley's decision to leave Continental, and the insubstantiality of Kinsley's expressed reason for leaving are all circumstances that point in the direction of some pre-termination discussions between Kinsley and Valyi concerning employment with TPT. In any event, after making slight efforts to ascertain employment prospects elsewhere, principally within an area that would not require moving his residence, Kinsley accepted employment with TPT beginning June 1, 1976, at its Norwalk, Connecticut, facilities. His salary approximated his salary at Continental and has since risen only slightly. He did not replace anyone at TPT.

TPT is a small company engaged in the design, manufacture, and sale of injection blow-molding machinery. Its current principal objective is development of machinery to produce a plastic bottle for beverages under pressure. Its personnel are engaged in development work and promoting opportunities for the sale of its machinery. Kinsley's work for TPT is that of a development engineer. Manufacturing of the machinery is done by a German company. Dr. Valyi organized TPT, of which he and his family are sole stockholders, to carry out development work in injection blow-molding machinery after licensing technology, which he had developed, to National Can Corporation, which in turn sublicensed to TPT.

Prior to accepting TPT's offer, Kinsley's attention was specifically called to the non-competition covenant by Continental officials, and Valyi also became aware of it. Both Kinsley and Valyi decided, apparently with advice of counsel, that the covenant would not be judicially enforced.

This suit was filed August 5, 1976, seeking an injunction to bar Kinsley from competitive employment for the balance of the 18-month period of the Continental covenant and an injunction to prevent Kinsley from disclosing trade secrets of Continental. On the hearing of the application for a preliminary injunction, only enforcement of the covenant is sought.

Plaintiff has the burden of establishing both a likelihood of success on the merits and a substantial risk of irreparable injury. The parties appear to agree that the applicable law is that of New York, the place where the non-competition covenant was accepted. New York, like most jurisdictions, approaches non-competition covenants cautiously, recognizing that their enforcement interferes to some extent with an individual's freedom to pursue his calling and with the mobility of talent within the economy. Nevertheless New York has recognized that in appropriate circumstances such covenants are enforceable, see Reed, Roberts Associates, Inc. v. Strauman, 40 N.Y.2d 303, 386 N.Y.S.2d 677, 353 N.E.2d, 590 (1976); Purchasing Associates, Inc. v. Weitz, 13 N.Y.2d 267, 246 N.Y.S.2d 600, 196 N.E.2d 245 (1963); McCall Co. v. Wright, 198 N.Y. 143, 91 N.E. 516 (1910), and both New York courts, and federal courts applying New York law, have enforced such covenants by preliminary injunction. Eastman Kodak Co. v. Powers Film Products, 189 App.Div. 556, 179 N.Y.S. 325 (1919); Mixing Equipment Co. v. Philadelphia Gear, Inc., 436 F.2d 1308 (3d Cir. 1971). The covenant must be reasonable both in scope and duration, and even then is enforced only...