Coskey's Television & Radio Sales and Service, Inc. v. Foti

• Decision Date: 19 February 1992
• Citation: 602 A.2d 789,253 N.J.Super. 626
• Parties: COSKEY'S TELEVISION & RADIO SALES AND SERVICE, INC., d/b/a Coskey's Electronic Systems, Plaintiff-Respondent, v. Ronald J. FOTI and Systems Sales, Inc., Defendant-Appellants.
• Court: New Jersey Superior Court — Appellate Division

Page 626

253 N.J.Super. 626

602 A.2d 789

COSKEY'S TELEVISION & RADIO SALES AND SERVICE, INC., d/b/a

Coskey's Electronic Systems, Plaintiff-Respondent, v. Ronald J. FOTI and Systems Sales, Inc., Defendant-Appellants.

Superior Court of New Jersey,

Appellate Division.

Argued Jan. 29, 1992.

Decided Feb. 19, 1992.

Alan J. Karcher, Edison, for defendant-appellant Ronald J. Foti (Donington, Karcher, Leroe, Salmond, Luongo, Ronan, & Connell, attorneys; John C. Castellano, of counsel, and on the brief).

Guy P. Ryan, Middletown, for defendant-appellant Systems Sales, Inc. (Giordano, Halleran & Ciesla, attorneys; Guy P. Ryan, on the brief).

Ronald Reich, New Brunswick, for plaintiff-respondent (Miller & Littman, attorneys; Arthur H. Miller, on the brief).

Before Judges KING, DREIER and BROCHIN.

The opinion of the court was delivered by

DREIER, J.A.D.

Defendant, Ronald J. Foti appeals by leave granted from an amended preliminary injunction entered against him in the Chancery Division. The injunction was based upon a restrictive covenant ancillary to an employment agreement signed by Foti in favor of plaintiff, Coskey's Television & Radio Sales and Service, Inc., d/b/a/ Coskey's Electronic Systems (Coskey's). Codefendant, System Sales, Inc., Foti's subsequent employer, has joined in his application. We here determine that the preliminary injunction was overbroad and, considering the apparent extreme hardship worked upon Foti in the months pending this review, fairness dictates that it should be substantially vacated forthwith.

Coskey's sells and services communication systems in New Jersey, with annual sales of between three and four million dollars. Most of its customers are public institutions, but a substantial number of sales are with private companies. Its business is generated through contacts with architects, engineers and other professionals who specify Coskey's products in proposed projects. Furthermore, Coskey's sales personnel often help with the design aspects of the proposed systems in the hope of receiving orders from the contractor, should the contractor win the bid on the pending project. The codefendant, Systems Sales, and most other competitors in the industry operate in the same manner.

Prior to July 1987 Foti was an employee of and a 10% shareholder in High Fidelity Sound Center Corp., then a competitor of Coskey's and System Sales, and similarly operating. Foti at that time had over 25 years of experience in the industry and had built up a network of contacts with most of the architects, engineers and contractors designing structures requiring substantial sound systems. While the moving papers before the trial judge did not quantify the precise number of individuals or entities with whom Foti had personal contacts, we were informed at oral argument that the list which was prepared to implement the eventual restraining order enumerated well over 100 prohibited contacts.

The contracts of sale under which Coskey's purchased High Fidelity Sound Center Corp. revealed that the assets of the seller were purchased, and Coskey's retained certain employees of High Fidelity Sound Center Corp. and two principals (Harold Ducore and Bernard Martin) as consultants. The initial agreement of July 1, 1987 was superseded by two agreements of November 16, 1987, which although slightly different in form, have the same effect upon Foti. In the consulting agreement to which Foti was not a signatory, Coskey's as the "Employer," agreed as follows:

10. Employer agrees to make the following payments to the following individuals:

* * * * * *

C. $11,250.00 to Ronald J. Foti upon his signing of an employment agreement and waiver of his right to first refusal to purchase High Fidelity Sound Center.

The agreement further provided that Ducore and Martin were each to receive $45,000 upon their signing the principal agreements which contained a covenant not to compete. A fourth principal, Arthur Thompson, was to receive $11,250, to be held in escrow and distributed quarterly during his employment with Coskey's over a five-year period, contingent upon his signing a waiver of his right of first refusal to purchase High Fidelity Sound Center. At the time the purchase and employment agreements were signed to transfer High Fidelity Sound Center Corp., Foti had already on November 12, 1987 signed his waiver of first refusal which stated:

I, Ronald J. Foti, hereby waiver [sic ] right of first refusal for purchase of High Fidelity Sound Center. In consideration thereof, Coskey's Electronic Systems will pay $11,250.00 to me.

Foti had on October 27, 1987 already signed an employment contract with Coskey's. It covered a five-year period commencing October 1, 1987 and provided for an annual salary of $53,000 plus commissions and benefits. It contained extensive covenants not to compete:

6. During the term of this agreement the Employee shall not, directly or indirectly, either as an employer, employee, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business that is in competition in any manner whatsoever with the business of the Employer.

7. The Employee covenants and agrees as follows:

On the termination of employment, whether by termination of this agreement, by wrongful discharge, or otherwise, the Employee shall not directly or indirectly within the existing marketing area of the Employer, or any future marketing area of the Employer begun during the employment under the terms of this agreement, enter into or engage generally in direct competition with the Employer either as an individual on his own, or as a partner or joint venturer, or an employee or agent for any person, or as officer, director or shareholder or otherwise, for a period of three (3) years after the date of termination of his employment under this agreement. This covenant on the part of the Employee shall be construed as an agreement independent of any other provision of this agreement; and the existence of any claim or cause of action of the Employee against the Employer, whether predicated on this agreement or otherwise, shall not constitute a defense to the enforcement by the Employer of this covenant.

8. This agreement shall be construed to allow Employee, after termination of employment with Employer, to act as a consultant in the sound engineering field provided any consulting services performed by Employee shall not be for persons who are competitors of Employer and provided further Employees consulting services are not in competition with the consulting services performed and or provided by Employer.

On January 4, 1991, after dissatisfaction with his treatment at Coskey's, Foti asserted by letter that Coskey's had breached its agreement with him, and resigned. Five days later Coskey's replied, contending that there had been no breach on its part. It informed Foti that it would enforce its covenant not to compete, and demanded that Foti comply with the provisions of the employment agreement. On February 1, 1991, Coskey's attorneys applied for and received an order to show cause incorporating a preliminary injunction prohibiting Foti:

(a). from directly or indirectly either on his own behalf or on behalf of any other person or firm contacting for business purposes any of the architects, engineers, contractors, or customers with whom he dealt with [sic ] on behalf of Plaintiff between October 27, 1987 and January 4, 1991 in the State of New Jersey.

By order dated October 22, 1991 the preliminary injunction was amended so that Foti was

restrained from and hereby forbidden to have, directly or indirectly, either on his own behalf or on behalf of any other person or firm, any contact, including but not limited to, contact by telephone, telefax, in person, mail, telegraph, video or radio transmission, or by any other means of communication, regardless of who initiates or requests said contact, with all or any architects, engineers, designers, contractors, subcontractors, customers, clients, or other business persons or companies with whom Foti had "meaningful contact" (as hereinafter defined in paragraphs 2, 3 and 4 of the within Order), during the period of October 27, 1987 through January 4, 1991 when Foti was employed by plaintiff.

The term "meaningful contact" was defined in the order as contacts "which at a bare minimum led to the submission of bids to those business entities or consummation of contracts with those business entities." The term excluded mass mailings, telephone or mail solicitations, meetings at trade shows or conventions or like incidental contacts. The October order further specifically noted that Foti could participate in competitive public bidding by preparing specifications or supporting documents provided that Foti did not have personal contact with individuals at the public entities. As to nonpublic entities, he was also permitted to prepare specifications, bids and supporting documents without personal contact. The scope of the order was limited to the State of New Jersey.

At the time of the enforcement proceedings, Foti had 31 years of experience in the field. While not a graduate engineer, Foti had built up a personal reputation for working with customers to design the components of commercial sound systems. Plaintiff claims that Foti has not been deprived of his livelihood by this injunction, since it permits him to work as a "inside man." He could draft specifications and prepare bidding documents. Foti was not trained by experience nor inclined to do this type of work, and during the period of the injunction it yielded nowhere near the remuneration of his regular employment. The issue before us, therefore, is whether, given the background of the parties to this transaction, Foti should have been deprived by a preliminary injunction of his principal livelihood pending the resolution of this...