Continental Group, Inc. v. Amoco Chemicals Corp.

• Decision Date: 31 January 1980
• Docket Number: No. 79-1780,79-1781,Nos. 79-1780,79-1780,s. 79-1780
• Parties: The CONTINENTAL GROUP, INC., a corporation, Appellant inv. AMOCO CHEMICALS CORP., a corporation, and Eugene F. Grovijohn. Appeal of AMOCO CONTAINER COMPANY and Eugene F. Grovijohn.
• Court: U.S. Court of Appeals — Third Circuit

Page 351

614 F.2d 351

The CONTINENTAL GROUP, INC., a corporation, Appellant in No. 79-1780 v. AMOCO CHEMICALS CORP., a corporation, and Eugene F. Grovijohn.

Appeal of AMOCO CONTAINER COMPANY and Eugene F. Grovijohn.

Nos. 79-1780, 79-1781.

United States Court of Appeals, Third Circuit.

Argued Dec. 11, 1979.

Decided Jan. 31, 1980.

John J. Francis, Jr., Shanley & Fisher, Newark, N. J., for Amoco Container Co., appellant in 79-1781 and as cross-appellee in 79-1780.

Philip D. Pakula, Townley & Updike, New York City, of counsel, for Eugene F. Grovijohn, appellant in 79-1781 and as cross-appellee in 79-1780; Goodman, Stoldt & Horan, Hackensack, N. J., attys., for Eugene F. Grovijohn.

Michael R. Griffinger, John H. Klock, Crummy, Del Deo, Dolan & Purcell, Newark, N. J., for Continental Group, Inc., appellee in 79-1781 and as cross-appellant in 79-1780.

Before ADAMS, ROSENN and SLOVITER, Circuit Judges.

OPINION OF THE COURT

ADAMS, Circuit Judge.

In this diversity action, ¹ The Continental Group (Continental) sued Amoco Container Company (Amoco) and Eugene Grovijohn to enforce nondisclosure and noncompetition covenants entered into by Continental and Grovijohn. Injunctive relief as well as damages were sought. From an order granting Continental a preliminary injunction as to one covenant, Amoco and Grovijohn appeal. Continental cross-appeals from the denial of a preliminary injunction as to a separate but related covenant. Both appeals are properly before this Court under 28 U.S.C. § 1292(a)(1), and each presents the question whether the requisites for granting preliminary relief were properly met.

I.

Following graduation from college with a degree in business administration, Eugene Grovijohn worked ten years for Continental. He held production supervision and lower level management jobs, but was never employed as an engineer or technician. For the first eight years with Continental, Grovijohn worked in the metal products division. Dissatisfied with the lack of opportunity for advancement in that area, he sought a transfer to the more dynamic plastic beverage bottle division. This latter division was to produce the polyethylene terephthalate ("PET") bottle, a large plastic bottle of 1 or 2 liter size that is in high demand because it is lighter and less breakable than glass bottles.

Before transferring, Grovijohn was required to sign three restrictive covenants, the enforcement of which spawned this dispute. The first was an "Intra-Company Secrecy Covenant" wherein Grovijohn agreed not to disclose confidential information obtained in the plastic beverage bottle division to other personnel in Continental. In the second covenant, Grovijohn agreed not to disclose, "directly or indirectly," "or use outside of the Continental organization during or after (his) employment, any confidential information" without Continental's consent. ² The third was a noncompetition agreement, by which Grovijohn obligated himself for a period of eighteen months after termination of employment with Continental not to "directly or indirectly, for (his) own account or as an employee of another, engage in any competitive enterprise as hereinafter defined. The term 'competitive enterprise' as used herein shall include the development, manufacture, distribution or sale of plastic injection blow molding molds, tools, and machinery and services incidental thereto" in the United States and certain other specified countries.

After the covenants were signed, apparently in New York, ³ Grovijohn was sent to Continental's research facility in Merrimack, New Hampshire, where he was given instruction regarding the machine used by both Continental and Amoco, the RHB-V. ⁴ Fifteen months later, he was assigned to the Hartford, Connecticut, plant, which was apparently the first full-production facility for manufacturing Continental's PET bottle. Although not an engineer, Grovijohn was placed in the Engineering Department, and appears to have been involved primarily in writing and standardizing preventive maintenance manuals and procedures as well as process bulletins. He inspected various other Continental plants, and it is alleged that he became familiar with all stages of production of PET bottles. From Hartford, Grovijohn went to Kentwood, Michigan, to assume the position of superintendent of a plant manufacturing PET bottles. ⁵

In September 1978, Grovijohn, having become dissatisfied with the transfers and seeming lack of opportunity for advancement in Continental to upper-level management jobs, ⁶ sent his resume to the Fortune Agency, a personnel search firm. That agency in turn ascertained that Amoco had openings for plant managers and was looking for people with management backgrounds, preferably having familiarity with plastic injection or blow molding.

It soon was decided that Grovijohn would become manager of Amoco's Seymour, Indiana, plant, which produces PET bottles with RHB-V machines. Amoco, informed of the protective covenants entered into by Grovijohn, agreed to pay the cost of defending him against any lawsuit brought by Continental, provided Amoco could choose legal counsel. Additionally, if any injunction were issued prohibiting Grovijohn from acting as plant manager, Amoco agreed to place him in a position which would not violate the injunction for a period not to exceed one year or, at Amoco's option, to pay the difference between the time worked to that date and one year's salary.

Continental immediately filed a complaint in the District Court of New Jersey seeking to enjoin Grovijohn from disclosing any of Continental's confidential information received while in its employ, to prevent him from breaching the covenant of noncompetition, to enjoin Amoco from employing Grovijohn, and to prohibit Amoco from engaging in unfair competition (a charge of "raiding").

II.

A hearing was scheduled on the motion for a preliminary injunction for March 28, 1979. Upon learning that Grovijohn was to begin work at the Indiana plant on March 20, Continental sought and was granted a hearing for a temporary restraining order on March 20, at which time the court entered an order restraining Grovijohn from rendering any services as an employee of Amoco and from disclosing any confidential information. The district judge also scheduled a hearing on the preliminary injunction for approximately a week later, appointed his own independent expert, and directed the parties to allow the expert to inspect their plants and to submit in sealed boxes their processes so that the expert could compare and ascertain whether Continental knew anything about injection blow molding that Amoco did not know.

The injection blow molding process to which the contract refers comprises two steps: the plastic is first shaped by injection into a preform, which is quickly cooled to prevent crystallization, and the preform is later reheated to be blown into the actual bottle. The RHB-V executes only the second step. Because the RHB-V is part of the process of injection blow molding, the trial judge found that its operation came within the coverage of the noncompetition covenant. Accord Continental Group, Inc. v. Kinsley, 422 F.Supp. 838, 841 (D.Conn.1976) (construing identical terms).

Holding, nevertheless, that the activity to be engaged in by Grovijohn was not covered by the covenant, the district judge concluded that Grovijohn could not be preliminarily enjoined from working as Amoco's plant manager. He declared:

Amoco's principal activity is bottle production, not machine design. To the extent that Amoco or affiliated companies do now or may hereafter engage in the development, manufacture, distribution or sale (in the disjunctive) of molds, tools and machinery and incidental services connected with the process of injection/stretch/blow molding of plastic, then the covenant bars Grovijohn from engaging in that activity, but does not otherwise bar him from managing a plant to manufacture PET bottles.

The court sees no reason why Grovijohn may not undertake his duties as plant manager of the Seymour, Indiana plant of Amoco so long as his functions and activity have nothing to do with what is within the scope of the covenant.

Although Grovijohn's employment in the plant of a competitor manufacturing PET bottles was not considered by the district judge to constitute by itself a breach of the noncompetition covenant, such employment was found to pose a risk that confidential information might be inadvertently disclosed. Grovijohn was therefore prohibited from disclosing or using a wide variety of information gained in Continental's employ and alleged to be confidential. ⁷ Additionally, Amoco was preliminarily prohibited from using Grovijohn in any position that would violate his agreement with Continental and from using or disclosing any information that he had been enjoined from disclosing. ⁸

Both sides maintain that the district court's order is inconsistent. Amoco appeals from the order prohibiting disclosure of information on the ground, inter alia, that it cannot be reconciled with the finding that Grovijohn's employment as a plant manager poses no danger. Continental moved to broaden the preliminary injunction to forbid Grovijohn from working at the Indiana plant on the basis that if the court believes that a danger of disclosure, intentional or not, exists, Grovijohn should not be permitted to continue in a position in which the likelihood of disclosure is increased. In appealing the district court's denial of a preliminary injunction against Grovijohn's employment at Amoco's Indiana plant, Continental argues that in order to perform his job to the best of his ability, Grovijohn will be under almost irresistible pressure to use or to convey confidential knowledge previously obtained from Continental.

III.

In challenging the preliminary injunction that forbids Grovijohn's disclosure or use of any information in a large number of areas acquired while in...