Hughes Associates, Inc. v. Printed Circuit Corp., Civ. No. 84-HM-5287-NE.

• Decision Date: 21 February 1986
• Docket Number: Civ. No. 84-HM-5287-NE.
• Citation: 631 F. Supp. 851
• Parties: HUGHES ASSOCIATES, INC., Plaintiff and Counterdefendant, v. PRINTED CIRCUIT CORPORATION, Defendant and Counterplaintiff.
• Court: U.S. District Court — Northern District of Alabama

631 F. Supp. 851

HUGHES ASSOCIATES, INC., Plaintiff and Counterdefendant, v. PRINTED CIRCUIT CORPORATION, Defendant and Counterplaintiff.

Civ. No. 84-HM-5287-NE.

United States District Court, N.D. Alabama, Northeastern Division.

February 21, 1986.

John Wyly Harrison, John P. Smith, Huntsville, Ala., for plaintiff and counterdefendant.

N. Lee Cooper, Maibeth J. Porter, Maynard, Cooper, Frierson and Gale, Birmingham, Ala., for defendant and counterplaintiff.

MEMORANDUM OF DECISION

HALTOM, District Judge.

The above entitled civil action is before the Court on cross motions for partial summary judgment. The plaintiff and counterdefendant, Hughes Associates, Inc. (Hughes), has moved to strike the defendant's answer and counterclaim because the defendant is a foreign corporation and not qualified to do business in Alabama and to declare a restrictive noncompetition clause in the contract between the parties void as a matter of law. The defendant and counterplaintiff, Printed Circuit Corporation (PCC), has moved that the laws of Massachusetts should govern this action as per a clause in the contract, that the noncompetitive clause in the contract is valid and enforceable, and that the nonqualifying foreign corporation statute does not apply to this defendant as it engages in interstate commerce. Presently there are several pending motions dealing with discovery that has taken place between the parties since the commencement of this lawsuit. The Court is of the opinion that in the interest of judicial economy it will be more expedient to resolve the issues before the Court on summary judgment first, as some discovery motions will be affected by this decision.

Hughes is a manufacturer's representative corporation domiciled in Madison County, Alabama. This line of work requires Hughes to sell products on behalf of a number of clients in a certain area. Hughes therefore acts as a middleman between a manufacturer and its buyers, earning a commission from the sales. PCC is a Massachusetts corporation engaged in the manufacture of printed circuit boards and is not qualified to do business in Alabama. Hughes and PCC entered into a contract on April 14, 1980 whereby Hughes would act as PCC's manufacturer's representative in several states including Alabama, Georgia, Mississippi, Tennessee, North Carolina, and South Carolina. From the evidence thus far submitted it appears that the major position of this business came from Alabama and Georgia.

Before the contract was executed, Charles Hughes, President of Hughes Associates, Inc. traveled to Massachusetts to discuss the possibility of a contract between Hughes and PCC. He met with Peter Sarmanian (Sarmanian), chief executive officer of PCC. Later after successful negotiations, Sarmanian forwarded a contract to Alabama for Hughes to sign. Charles Hughes apparently signed and accepted this offer at his office in Alabama, returning it through the mail. Thereafter Hughes acted as PCC's representative in the southeast until the contract was terminated in late 1983 or early 1984. The contract by its terms was due to expire on March 17, 1981; however, the parties continued performance thereunder until either late 1983 or early 1984.

After the sales representative's agreement was consummated between Hughes and PCC, Hughes procurred a contract with Accutronics Corporation (Accutronics). Accutronics is also a manufacturer of printed circuit boards and Hughes agreed to act as manufacturer's representative and sell printed circuit boards on behalf of Accutronics.

PCC terminated the contract with Hughes after learning of the relationship between Hughes and Accutronics. Plaintiff Hughes has filed suit alleging that PCC has failed and refused to pay commissions due under the contract on sales made before termination of the agreement. PCC filed an answer and counterclaim denying owing commissions to Hughes and alleging that the termination of the contract was not wrongful in light of Hughes' breach of a noncompetition clause in the contract. Moreover, PCC asserts that the withholding of commissions is justified and counterclaims against Hughes seeking damages allegedly suffered as a result of Hughes' alleged breach of the noncompetition clause. Both parties have moved for partial summary judgment in their favor.

I. CONTINUED PERFORMANCE BEYOND THE DATE OF EXPIRATION OF THE CONTRACT.

The Court notes at the outset that although the contract by its terms was to expire on March 17, 1981 and the parties continued performance thereunder until late 1983 or shortly thereafter, the express terms of the contract will continue to govern the parties' performance beyond the expiration date. The general rule is that where parties who have entered into a contract continue their respective performance thereunder beyond the expiration date of the contract, the parties are deemed to have mutually agreed to a new implied contract encompassing the same terms. Blalock v. Perfect Subscription Co., 458 F.Supp. 123, 126 (S.D.Ala.1978), quoting A. Corbin, Contracts § 684; W. Williston, Contracts § 90. Alabama decisions follow this rule, See, e.g., Sims v. Etowah County Board of Education, 337 So.2d 1310 (Ala. 1976); Montgomery Water Works and Sanitary Board v. Norman, 282 Ala. 41, 208 So.2d 788 (1968); Broyles v. Brown Engineering Company, 275 Ala. 35, 151 So.2d 767 (1963). As such the contract consummated between the parties in April of 1980, including the noncompetition clause, remained in effect until the defendant terminated the contract.

II. THE CHOICE OF LAWS PROVISION IN THE CONTRACT BETWEEN THE PARTIES.

The contract that existed between Hughes and PCC contained a provision stating:

This agreement should be interpreted in accordance and abide by the laws and regulations of the State of Massachusetts.

It is plaintiff's contention that this clause should not be enforced and that the laws of Alabama should apply. Plaintiff's central argument for this proposition comes from Blalock v. Perfect Subscription Co., 458 F.Supp. 123 (S.D.Ala.1978), 599 F.2d 743 (5th Cir.1979).¹ Defendant PCC argues that the contract should be enforced according to its terms and the laws of Massachusetts should apply. Under Massachusetts law a noncompetition provision is not prohibited, as it is in Alabama under certain circumstances, and Massachusetts law also provides for double or treble damages for unfair or deceptive business action. Mass.Gen.Laws c. 93A. Accordingly plaintiff asserts that Alabama law should apply because covenants restricting competition are generally disfavored and there is no provision for double or treble damages for breach of such an agreement in Alabama. Stated simply, the laws of Alabama will be more advantageous for the plaintiff and the laws of Massachusetts will be more advantageous for the defendant.

The issue thus becomes which law should this Court properly apply. The contract was formed after negotiations between Charles Hughes and Peter Sarmanian. The contract was later consummated when Sarmanian executed a sales agency agreement and mailed it to Hughes in Alabama, who apparently accepted it there. Immediately thereafter the plaintiff commenced to represent the defendant in the southeast region. From the pleadings and briefs filed herein it appears that Hughes, on behalf of the plaintiff, initiated the discussions and negotiations which eventually led to the contract by traveling to Massachusetts to meet with the officers of the defendant. Plaintiff now seeks to escape from a provision of the contract which resulted.

Plaintiff relies heavily upon Blalock v. Perfect Subscription Co., supra. In Blalock, the plaintiff was an Alabama citizen who had entered into a contract with a Pennsylvania corporation whereby the plaintiff would sell magazines in South Alabama and part of Northwest Florida for the defendant. The contract in Blalock recited that the laws of Pennsylvania would govern the contract and the agreement also contained a noncompetition clause which forbade the plaintiff from selling the magazines of a competitor during the term of the agreement and for 120 days thereafter. Blalock at 125. The district court, J. Hand, ruled that the choice of law provision was not controlling. Because of no Alabama decision on point, the court looked to the Second Restatement of Conflict of Laws, Section 187, which provides:

§ 187. Law of the State Chosen by the Parties

(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.

(2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or

(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

(3) In the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.

Judge Hand turned to § 187(2)(b) and found that the noncompetition clause in the plaintiff's contract "flies in the face of the public policy of Alabama" and thus the law of Pennsylvania would not govern the agreement. Judge Hand further found that Alabama had a greater material interest in the determination of the issue and that Alabama law would have applied "but for the contractual choice of...