Den-Tal-Ez, Inc. v. Siemens Capital Corp.

• Decision Date: 28 November 1989
• Docket Number: DEN-TAL-E,INC
• Citation: 389 Pa.Super. 219,566 A.2d 1214
• Parties: and Star Dental Manufacturing Co., Inc. v. SIEMENS CAPITAL CORPORATION, Siemens AG, and Pelton & Crane Company, Appellants. 02312 PHILA. 1987
• Court: Pennsylvania Superior Court

Page 1214

566 A.2d 1214

389 Pa.Super. 219

DEN-TAL-EZ, INC. and Star Dental Manufacturing Co., Inc. v. SIEMENS CAPITAL CORPORATION, Siemens AG, and Pelton & Crane Company, Appellants.

02312 PHILA. 1987

Superior Court of Pennsylvania.

Argued June 5, 1989.

Filed Nov. 28, 1989.

Stewart Dalzell, Philadelphia, for Siemens Capital and Siemens AG, appellants.

Arlin M. Adams, Philadelphia, for appellees.

Before CIRILLO, President Judge, and BROSKY, ROWLEY, McEWEN, OLSZEWSKI, TAMILIA, POPOVICH, JOHNSON and MELINSON, JJ.

BROSKY, Judge.

This is an appeal from an order in equity entered on the docket August 26, 1987, which denied post-trial exceptions to a decree nisi and entered the decree nisi as a final decree. The final decree upholds the decree nisi's grant of a permanent injunction, barring appellants from acquiring a competitor of appellees for a period of three (3) years. ¹ The purpose of the injunction is to prevent the disclosure or other use by appellants of allegedly confidential information regarding appellees' business. This information was obtained by appellants during ultimately unsuccessful negotiations between appellants and appellees regarding the sale of appellees' business to appellants.

Appellants now raise the following questions for our consideration:

1. Where sophisticated parties, in merger and acquisition negotiations, enter into comprehensive written agreements governing their relationship and the confidentiality of information exchanged during the negotiations, may the trial court disregard those written agreements and impose other obligations of "confidentiality" unsupported by law or the evidence?;

2. Did the trial court err in granting appellees' requests for injunctive relief, in refusing to limit such relief to the minimum restraint necessary to address any legitimate concerns of appellees, and in thus enjoining appellants from acquiring a competitor of appellees for a period of three years?;

3. Did the trial court err in excluding evidence of appellants' statements, actions, and state of mind during the negotiations offered to show that, contrary to appellees' claims, appellants acted without wrongful intent and in good faith?; and

4. Did the trial court err in admitting in evidence and relying upon (a) testimony as to legal conclusions, and (b) unqualified and unsubstantiated guesses as to the effect of disclosure of unspecified items of "information" to appellees' competitors?

Upon review of the record and the briefs of counsel, we now affirm.

Our scope of review on an appeal from a final decree in equity, including a decree upholding the grant of a permanent injunction, is very limited. We are bound to accept the chancellor's findings of fact, and accord them the weight of a jury verdict where supported by competent evidence. As for the chancellor's factual and legal conclusions, we are not bound by the court's reasoning, and may reverse for an abuse of discretion or error of law. ² See Walley v. Iraca, 360 Pa.Super. 436, 520 A.2d 886, 889 (1987); also see Jones v. Bonner, 107 Pa.Cmwlth. 283, 523 A.2d 849, 851 n. 2 (1987).

As a starting point, our review of the record reveals that the chancellor's findings of fact are clearly supported by competent evidence. Thus, we accept those findings as adequately representing the facts of this case and provide the following summary thereof.

Plaintiffs-appellees are Den-Tal-Ez, Inc. and its subsidiary, Star Dental Manufacturing Company, both of which are American companies (hereinafter collectively referred to as "Star"). Syntex Corporation is the parent of Den-Tal-Ez. Defendants-appellants are Siemens AG (a German company), its subsidiary, Siemens Capital Corporation, and Pelton & Crane Company, an indirect subsidiary of Siemens Capital (hereinafter collectively referred to as "Siemens"). Siemens Capital and Pelton & Crane are both American companies.

Star Dental manufactures and distributes small dental instruments called dental handpieces in the United States. Siemens AG also manufactures dental handpieces and larger dental apparatus, which are largely distributed in the European market. Pelton & Crane manufactures and distributes large dental apparatus in the United States, but does not manufacture or distribute dental handpieces. In addition to the foregoing parties, several other entities and persons play prominent roles in this matter. They are:

1. Sybron Corporation, an American company with a division called the Midwest Dental Division ("Midwest") which manufactures and distributes dental handpieces in direct competition with Star.

2. Raymond Perelman, President of Star and Den-Tal-Ez beginning October 20, 1986, when he acquired both companies.

3. Goldman, Sachs & Co. ("G & S"), a New York investment banking firm representing Sybron in its efforts to sell its Midwest division to Siemens.

4. Arnhold & S. Bleichroeder, Inc. ("A & B"), a New York investment banking firm representing Siemens in connection with its purchase of Pelton & Crane and its efforts to acquire a dental handpiece manufacturer in the United States.

5. Stanford Warshawsky, Managing Director of A & B.

Simply stated, this saga began when Siemens decided to enter the dental apparatus business in the United States. It first purchased Pelton & Crane in 1985. Since Pelton & Crane did not manufacture dental handpieces, however, Siemens was still intent on acquiring a "stand alone" American facility that was in the dental handpieces business. The two targets of Siemens' interest were Star and Midwest. Midwest was the larger of the two manufacturers. It approached Siemens about a possible acquisition of Midwest in April, 1986. Several meetings among the parties' representatives occurred through the spring and summer of 1986. The individuals involved included high level executives and other representatives of Siemens, Pelton & Crane and G & S.

Siemens detected difficulties with Midwest's operations and found their asking price of $20-21 million too high. Thus, in late summer of 1986, Siemens backed away from the Midwest deal. It then initiated discussions with Star through Warshawsky. The discussions were actually initially held with Perelman who was about to purchase Star. Perelman stated that he would not be interested in discussions with Siemens if it was still interested in Midwest. Warshawsky stated that Siemens was no longer interested in Midwest and Perelman relied on that representation in commencing negotiations with Siemens.

On October 3, 1986, Perelman sent an offering memorandum, describing Star's operations and certain consolidation and other plans for the improvement of Star's operations, to Warshawsky, who forwarded it to Siemens. At an October 19th meeting of the parties, including several of the representatives of Siemens who had participated in the Midwest negotiations, they agreed that Siemens people would visit Star in the near future. On the same day, and at the same location (a dental convention in Miami), representatives of Siemens also met with the President of Midwest. Midwest's President informed Siemens that he was trying to correct Midwest's problems. Star did not know of the Midwest meeting; Midwest did not know of the Star meeting.

The next day, Perelman closed on his acquisition of Star. Four days later, representatives from Siemens visited Star and were favorably impressed. Mr. Behne, Executive Director of the Dental Division of Siemens, attempted to get Perelman to drop the price of Star by stating that there was still a possibility that Siemens would purchase Midwest. Perelman repeated that he would not continue to negotiate if Midwest was still in the picture. Behne represented that the Midwest deal was "dead" because of various labor, production and profitability problems Midwest had. He did not mention the October 19th meeting between Siemens and Midwest's President.

Siemens then asked to do a financial and operations "due diligence" review of Star. Perelman agreed, but required that Siemens first execute a letter of intent, regarding the acquisition, and a confidentiality agreement, obligating them not to use or disclose any confidential information they obtained regarding Star during the review. Such agreements were executed on December 5, 1986. They were prepared by Siemens' counsel.

There are two highly pertinent sections of these agreements. The Letter of Intent, expressly governed by Pennsylvania law, does not contain a "no-shop" clause preventing Siemens from negotiating with other companies with an eye to acquiring them. The Mutual Non-Disclosure Agreement, expressly governed by New York law, pertinently provides as follows:

1. For the purpose of this Agreement Confidential Information shall mean any information and date of a confidential nature, including but not limited to propriety, developmental, technical, marketing, sales, operating, performance, cost, know-how, business and process information, computer programming techniques, and all record bearing media containing or disclosing such information and techniques which is disclosed pursuant to this Agreement.

* * *

3. All confidential Information exchanged between the parties pursuant to this Agreement:

(a) shall, if in written form, be marked 'Confidential' or similarly legended by the disclosing party before being turning over to the receiving party. All oral disclosures of Confidential Information will be summarized, in writing, by the disclosing party and said summary will be given the receiving party within 30 days of the subject oral disclosure. The receiving party must make any objections to the contents of the summary, in writing, within 30 days of receipt;

The Agreement further provides that all confidential information exchanged pursuant to the Agreement will not be used by the receiving party for its own purposes.

Despite the fact that the Agreement was executed on December 5, 1986, Siemens wished to proceed in haste with...