Home Gas Corp. of Mass., Inc. v. DeBlois Oil Co.

• Decision Date: 29 July 1987
• Docket Number: Civ. A. No. 86-0195B.
• Citation: 691 F. Supp. 567
• Parties: The HOME GAS CORPORATION OF MASSACHUSETTS, INC., Plaintiff, v. DeBLOIS OIL COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Rhode Island

691 F. Supp. 567

The HOME GAS CORPORATION OF MASSACHUSETTS, INC., Plaintiff, v. DeBLOIS OIL COMPANY, et al., Defendants.

Civ. A. No. 86-0195B.

United States District Court, D. Rhode Island.

July 29, 1987.

COPYRIGHT MATERIAL OMITTED

John H. Blish, William R. Landry, Blish & Cavanagh, Providence, R.I., for plaintiff.

William F. McMahon, McMahon & McMahon, Providence, R.I., for defendant DeBlois Oil Co.

Edward L. Gnys, Gunning, Lafazia & Gnys, Providence, R.I., for defendant C.H. DeBlois Gas Co.

OPINION

FRANCIS J. BOYLE, Chief Judge.

Home Gas Corporation seeks injunctive relief and damages against Defendants DeBlois Oil Company and C.H. DeBlois Gas Company. Home Gas contends that the Defendant companies violated a covenant not to compete for two years included in the Distributorship Agreements between Home Gas and DeBlois Oil. Home Gas seeks to restrain Defendants from engaging in the same business as Plaintiff, from soliciting its customers and also requests damages. The Court finds the Plaintiff is entitled to injunctive relief enjoining Defendants from soliciting its customers and compensatory damages.

Home Gas is a Massachusetts Corporation involved in retail sale of liquid propane gas (hereinafter LPG) under the trade name "Homgas" and the sale of LPG through distributorship arrangements. DeBlois Oil, a Rhode Island Corporation, has done business under such an agreement with Home Gas since 1961.¹ In 1961 the companies entered into a "Distributor Agreement" and a "Distributor Bulk Gas Service Agreement." Home Gas transferred 1186 customer service accounts and about 2400 storage cylinders marked "Homgas" to DeBlois Oil in August, 1961. Home Gas transferred an additional 2027 customer service accounts and approximately 3000 "Homgas" storage cylinders in the early 1970's. By 1976, DeBlois Oil's territory included the areas within 40 miles of DeBlois Oil's offices in East Greenwich and Chepachet, Rhode Island. In 1976 DeBlois Oil and Home Gas entered into a new Distributor Agreement and Distributor Bulk Gas Service Agreement for the East Greenwich and Chepachet territories. These agreements remained effective, subject to periodic price changes, until the twenty-five year business relationship ended in February, 1986. It is these agreements which are the basis of this action.

The Distributor Agreements were for a period of three years and were to continue from year to year unless terminated by either party. Home Gas was to deliver supplies of LPG on consignment to DeBlois Oil. The LPG was to be delivered in cylinders that were to remain the property of Home Gas. DeBlois Oil was responsible for storing the cylinders and seeing that they bore the Home Gas Company's trade name "Homgas" and were used only to carry out the agreement. The distributor, DeBlois Oil, was to solicit customers using written forms furnished by Home Gas. Only an officer of Home Gas could effectively sign the customer contract. DeBlois Oil was to sell to the customer "for the account of the company Home Gas." Home Gas was to set periodically the pricing schedules as well as provide DeBlois Oil with sales, promotional, and technical assistance. The distributor was to maintain all the equipment connected with the distribution of Homgas. It also was to maintain all necessary records and make periodic reports to Home Gas. DeBlois Oil received a commission of 40% of the retail selling price as compensation. Upon termination of the contract, all equipment, cylinders and records were to be returned to the company.

The first of the two key clauses of these agreements is entitled "Use of Company Property." It states that the distributor "shall not deal with or sell any other liquified propane gas than ... Homgas." This restriction includes any filling of company cylinders. The distributor was to notify the company immediately if the equipment was being used for any other purpose.

The second clause, most central to this conflict, is entitled "Post-Contractual Obligations." The agreements state as follows:

In view of the knowledge which may be acquired by the Distributor of the Company's Consumer accounts, its business methods and trade practices, and to induce the Company to enter into this Agreement, the Distributor covenants and agrees that he will not during the term of this Agreement nor for two years after termination hereof directly or indirectly, engage in the business, occupation or trade of selling, marketing, bottling or otherwise dealing in liquefied petroleum gas, which is used, intended or designated for cooking, heating or refrigeration, nor in the selling, distribution, marketing, bottling or servicing of any liquefied petroleum gas tanks, gas cylinders, or gas equipment used or intended to be used in connection with the distribution, marketing, consumption or use of such gas, either as owner, partner, employee, employer, stockholder, director, officer, clerk, principal, agent or in any other relation or capacity whatever, nor shall he perform similar services nor be similarly engaged for himself or for any other person, firm or corporation engaged in a like or competing line of liquefied petroleum gas business in which the Company is now or may during the term of this Agreement be engaged in the territory hereinbefore described. During the aforementioned period, the Distributor shall not furnish or disclose to anyone, other than to the Company, the names of any Customer accounts nor any other information obtained by the Distributor during the term of this Agreement relating to the Company's business or this agency.²

This provision has at least two discreet elements. It prohibits competition by the distributor during the term of the agreement and for two years thereafter. In addition, during the same time period, the distributor may not disclose the names of any customers or other information "obtained by the Distributor during the term of this agreement." As will hereafter be explained, the agreement not to compete is unreasonable and therefore unenforceable. The agreement not to disclose customer names is enforceable, has been violated, and Plaintiff is entitled to an injunction and damages.

In addition to the 1976 Distributor Agreements, DeBlois Oil and Home Gas executed Bulk Gas Service Agreements. These agreements incorporated all terms set forth in the Distributor Agreements. The supplemental agreements of February 27, 1976, also incorporated the terms of the original Distributor Agreements. Both the Distributor and Bulk Service Agreements were later supplemented by updated pricing structures effective September 1, 1984.

In the course of their twenty-five years in the LPG business these two companies were always bound by a written agreement. Over the long span, however, the operating conduct of the parties became more relaxed than the explicit terms outlined in the Distributor and Bulk Agreements. Instead of consignment sales, Home Gas billed DeBlois Oil for bulk purchases for which DeBlois paid from its own funds. DeBlois Oil solicited customers on behalf of Home Gas on its own contract forms without the written consent of an officer of Home Gas as required to effectuate the sale under the contract. Nor was Home Gas furnished with copies of these agreements. DeBlois Oil also extended credit to the customers despite the requirement in the agreements that all sales of Homgas to the customer were to be paid in cash unless authorized by Home Gas. The company did not authorize the extension of credit offered by DeBlois Oil.

In the spring of 1983 DeBlois Oil entered into negotiations with Home Gas to reconsider the arrangement between the parties. The proposal set forth by DeBlois Oil was "to change our historic association with Home Gas from that of an agent to that of a wholesale purchaser of the product." As part of their long-range goal DeBlois Oil had purchased a propane storage facility in Ashton, Rhode Island. The proposal included an offer to purchase tanks, equipment and customer records of Home Gas in an effort to restructure the relationship. Despite strong efforts by Charles DeBlois, Sr. and after his death, by his son Charles, negotiations ceased with no agreement reached.

DeBlois Oil is a family business with only family members as owners of the stock, both voting and non-voting. Three members of the family, Arthur DeBlois, Jr., Charles DeBlois, Sr., and Robert DeBlois ran the business. Charles DeBlois, Jr. joined the business and currently owns 25 of the 75 shares of voting stock in DeBlois Oil. Upon joining the company Charles became interested in expanding DeBlois Oil's LPG operation, something his father strived for and Charles hoped to achieve on behalf of his late father. Charles kept his uncles, Arthur, Jr. and Robert, apprised of his intentions to expand the LPG business. In a memorandum dated October 29, 1984, Arthur DeBlois, Jr. informed Charles of the contract between Home Gas and DeBlois Oil which included the two-year covenant not to compete.

On December 26, 1984, Charles, Jr. was elected Vice-President of LPG Operations by the DeBlois Oil Board of Directors. In this capacity Charles handled the business between DeBlois Oil and Home Gas. He had access to all the records relating to Home Gas including the names of customers, prices they were paying and how much LPG each customer was buying. Charles also attended LPG training seminars conducted by Home Gas.

In January, 1985, Charles incorporated the C.H. DeBlois Gas Company financed with a $10,000 loan from his uncles Arthur, Jr. and Robert DeBlois. Charles employed DeBlois Oil's corporate attorney, accountant and banker through whom a $250,000 line of credit was extended. C.H. DeBlois Gas Company is also insured under DeBlois Oil's insurance policy including general liability, automobile and worker's compensation. This arrangement was necessary since C.H. DeBlois was unable to obtain such insurance on its own. The new company purchased a...