International Election Systems Corp. v. Shoup

• Decision Date: 24 April 1978
• Docket Number: Civ. A. No. 73-756.
• Parties: INTERNATIONAL ELECTION SYSTEMS CORPORATION, Plaintiff, v. Ransom F. SHOUP, Ransom F. Shoup, II, Ransom F. Shoup & Co., Inc., and Election Services and Supplies, Inc.
• Court: U.S. District Court — Eastern District of Pennsylvania

452 F. Supp. 684

INTERNATIONAL ELECTION SYSTEMS CORPORATION, Plaintiff, v. Ransom F. SHOUP, Ransom F. Shoup, II, Ransom F. Shoup & Co., Inc., and Election Services and Supplies, Inc.

Civ. A. No. 73-756.

United States District Court, E. D. Pennsylvania.

April 24, 1978.

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James A. Drobile, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., Edward A. Meilman, Sidney G. Faber, Ostrolenk, Faber, Gerb & Soffen, New York City, for plaintiff.

Stephen R. Bolden, Fell, Spalding, Goff & Rubin, Philadelphia, Pa., Richard E. Kurtz, Philadelphia, Pa., for defendants.

MEMORANDUM AND ORDER

FULLAM, District Judge.

Plaintiff and defendants are competitors engaged in the business of selling and servicing voting machines and accessory parts therefor. On March 30, 1973, plaintiff, International Election Systems Corporation (IES), instituted this action alleging that defendant Ransom F. Shoup had fraudulently entered into a contract with Computer Election Systems, Inc., an exclusive sales agent for IES, with the intent to defraud plaintiff and with the intent to compete with plaintiff; and that defendants had infringed United States Letters Patent Nos. 2,953,296, 3,170,623, 3,312,390, and 3,436,011; had engaged in unfair competition by, among other things, taking and unlawfully using trade secrets owned by plaintiff, by falsely representing themselves to be associated with the Shoup Voting Machine Corporation, a wholly owned subsidiary of the parent corporation of IES, and by use of identical trade dress; had unlawfully converted plaintiff's property to their own use; and had infringed plaintiff's trademark by use of the name "Shoup." Defendants filed an answer denying each of these assertions and counterclaiming for damages for royalties pursuant to the agreement of September 22, 1975, between Ransom F. Shoup and the plaintiff's predecessor, The Shoup Voting Machine Corporation of New York; for failure to pay commissions; for trade libel and defamation; for antitrust violations; and for interference with contractual relationships. The defendants have dropped their counterclaim concerning the payment of commissions.

On November 12, 1973, I heard testimony and argument on the defendants' Motion for a Preliminary Injunction and Motion to Dismiss for Failure to Join an Indispensable Party or in the Alternative for Compulsory Joinder. I denied the request for a preliminary injunction because there was no showing that the acts complained of were in fact occurring or were likely to continue in the future. The Motion to Dismiss or for Compulsory Joinder was also denied in view of the concession by plaintiff's counsel that the plaintiff is the record owner of the patents in question and is bound by whatever royalty agreements there might be.

The issues surrounding the execution, continued force, effect, and meaning of the employment contract of September 22, 1955, were severed from the other issues, and that phase of the case was heard by me without a jury on July 1, 2 and 3, 1975. The remaining issues were tried before me on August 4, 5, 6, 7 and 8, 1975.

On July 3, 1975, after completion of the evidence on the employment contract issues, I stated on the record my Findings of Fact and Conclusions of Law concerning those issues. I hereby expressly adopt those Findings of Fact and Conclusions of Law, and will repeat them here only insofar as it is necessary to lay a basis for the discussion of related issues.

In order to expedite the trial of all issues, counsel were directed to file a pretrial order in which all undisputed facts were set forth and stipulated to. The parties were able to stipulate to the issues relating to the general background of the case; the written employment agreement dated September 22, 1955; the alleged breach by Ransom F. Shoup of his contract with Computer Election Systems, Inc.; the patent infringement issues; the unfair competition issues relating to the taking of proprietary information; the conversion issue; and the use of the name and trademark "Shoup." Stipulations were also reached concerning the counterclaims for royalties and for commissions. Counsel were unable to agree on a joint statement of uncontested facts for the counterclaims alleging defamation and trade libel, anti-trust violations, and interferences with contractual relationships.

All evidence on damages was to be presented at the trial on liability, with the exception that no evidence would be presented at that time on the damages from the alleged patent infringement.

The Final Pretrial Order was filed with the Court on May 14, 1975.¹ I hereby expressly adopt the stipulated facts set forth therein, and where they are relevant to the issues determined herein, I will set them forth as Findings of Fact.

I make the following Findings of Fact and Conclusions of Law.

BACKGROUND

1. Samuel R. Shoup, the father of defendant Ransom F. Shoup, organized the Shoup Voting Machine Corporation of New Jersey circa 1905. The defendant Ransom F. Shoup joined him in that voting machine business in 1925. That New Jersey company issued a manufacturing license to a firm which, in June 1954, incorporated as the Shoup Voting Machine Corporation of New York.

2. Ransom F. Shoup was an employee of the Shoup Voting Machine Corporation of New York; he was discharged from his employment with that corporation in May 1955.

3. The voting machines being sold at that time were called "2.5" machines. The "2.5" designation represented the width in inches between the centers of the vertical voting machine columns.

4. The primary activities of the defendant throughout the entire period in issue related to the development and perfection of voting machines and to receiving adequate compensation for his efforts and ingenuity in that regard.

5. Prior to his discharge, Mr. Shoup was actively engaged in developing a "3.2" voting machine. That machine has 3.2 inches between the centers of its vertical voting machine columns.

6. Subsequent to his discharge in May 1955, Ransom F. Shoup proceeded with great vigor to continue the development of the 3.2 machine and various improvements related thereto.

7. Mr. Shoup was re-employed by the SVMC in the fall of 1955, by an agreement dated September 22, 1955 (Exhibit D-1). That contract assured the employer of Shoup's continued services for sales and development and at the same time guaranteed against any competition from Mr. Shoup or companies with which he might otherwise have been associated. These benefits were assured to the company as long as it wanted them; it was only if the company severed the employment relationship that Mr. Shoup would have been able to go into competition with the employer and would have had the right to use the patent for the 3.2 machine. The contract also cleared up any obscurity that may have existed with respect to the company's rights to use the 3.2 machine and patents and improvements related thereto, and, of course, assured them of the exclusive right to use any subsequent patents or improvements.

8. In 1961, the Shoup Voting Machine Corporation of New York, by whom Mr. Shoup was employed, was sold to and became a subsidiary of General Battery & Ceramic Corporation.

9. The September 22, 1955 agreement was modified by a letter agreement dated August 4, 1965 (Exhibit D-3). The purpose of that agreement was to reduce to writing the terms and conditions of Mr. Shoup's commission arrangement with the Shoup Voting Machine Corporation as a subsidiary of General Battery & Ceramic Corporation. The modifications contained in this agreement are not inconsistent with the continued existence of the 1955 contract, for the latter dealt only with granting commissions in lieu of bonuses and did not purport to be an entirely new employment contract.

10. In August 1965, the Warden Corporation, a Pennsylvania corporation, purchased the Shoup Voting Machine Corporation of New York. In September 1965, the Warden Corporation changed its name to the Shoup Voting Machine Corporation (SVMC). That corporation was a Pennsylvania corporation.

11. In the fall of 1967, Joseph C. Lepanto, Esq., counsel for stockholders of plaintiff's predecessor, was asked to prepare a new employment contract between Ransom F. Shoup and the Shoup Voting Machine Corporation. Mr. Lepanto did prepare a contract bearing a date of November 1, 1967 (Exhibit D-4); that contract was never signed by either party.

12. The terms of the 1967 proposed new contract and the circumstances surrounding its drafting clearly recognized the continued existence of the 1955 contract as of that time.

13. On July 14, 1969, the Macrodyne-Chatillon Corporation (Macrodyne) purchased all of the stock of the SVMC.

14. In the written "Agreement and Plan of Reorganization," which memorialized the Macrodyne transaction, the selling stockholders stated that Ransom F. Shoup was employed under an oral year-to-year employment contract. It is important to note that defendant Ransom F. Shoup was neither a stockholder nor director of the SVMC at any time. It is obvious that Mr. Shoup himself was never consulted with respect to that transaction or with respect to any representations which may have been made in connection with it. It is also clear that Mr. Shoup had no knowledge of the details of the transaction, was not a participant in any of the negotiations, and had no knowledge of the representations which were made in connection with that transaction.

15. I find that at no time between 1955 and the spring of 1972 did the circumstances impose upon Mr. Shoup any obligation to speak up and assert the existence of the 1955 contract, as amended in later years, or to call it to anyone's attention.

16. Approximately three years prior to the purchase of the SVMC by Macrodyne, five employees of the SVMC were indicted on charges of conspiracy and other criminal...