Metal Lubricants Company v. Engineered Lubricants Co.

• Decision Date: 14 March 1968
• Docket Number: No. 68 C 7(1).,68 C 7(1).
• Citation: 284 F. Supp. 483
• Parties: METAL LUBRICANTS COMPANY, a corporation, Plaintiff, v. ENGINEERED LUBRICANTS CO., a corporation, Donald A. Wachter, Fred Fleschner, Mel Kohl, Jr., and Charles Weston, Jr., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

284 F. Supp. 483

METAL LUBRICANTS COMPANY, a corporation, Plaintiff, v. ENGINEERED LUBRICANTS CO., a corporation, Donald A. Wachter, Fred Fleschner, Mel Kohl, Jr., and Charles Weston, Jr., Defendants.

No. 68 C 7(1).

United States District Court E. D. Missouri, E. D.

March 14, 1968.

Donald W. Bird, Husch, Eppenberger, Donohue, Elson & Cornfeld, St. Louis, Mo., for plaintiff.

Alphonso H. Voorhees, Fordyce, Mayne, Hartman, Renard & Stribling, St. Louis, Mo., for defendants.

MEMORANDUM OPINION AND ORDER

HARPER, Chief Judge.

Plaintiff seeks an injunction against former employees of its St. Louis Sales Office who have resigned as a group and formed a competing company. The action is in three counts, alleging a conspiracy in violation of Section 1 of the Sherman Act, 15 U.S.C.A. § 1, unfair competition, and breach of fiduciary duties. Each count contains a prayer for injunctive relief as well as money damages.

Jurisdiction appears under 28 U.S. C.A. § 1332, 28 U.S.C.A. § 1337, and the doctrine of pendant jurisdiction. Applications for preliminary and final injunctions were consolidated and a hearing was held before the court commencing on January 18th. The testimony and depositions put in evidence reveal the following factual situation:

The plaintiff, Metal Lubricants Company, deals primarily in custom-made lubricating oils and compounds intended for specific applications in the field of machine metal work, such as cutting, grinding and drilling. It makes all of the oils it sells except one. The manufacturing plant and the main office are in Chicago and there are several sales and warehousing offices around the country. The St. Louis office sold to about 300 customers prior to the disruption of its business in December of last year. Yearly sales of the company at that time were approximately two million dollars, of which about one-sixth, or $300,000.00, was accounted or by the St. Louis office.

Sales depend to a large extent on the quality of service. Sixty to seventy percent of the company's sales are made to large plants and require visits by sales personnel to work out the exact needs of the machinery involved. It takes two or three years of experience before new salesmen are profitable to the company.

Defendant, Donald A. Wachter, was associated with Metal Lubricants for nine years prior to the acceptance of his resignation in December of 1967. For the first three years he was an independent distributor, and for the last six he was a commissioned salesman and St. Louis Division Manager, for which he was paid additional amounts reflecting his administrative duties. Before going with Metal Lubricants he had completed a sales engineering course with a major oil company and had sold the same type of product for that company in a territory including most of the St. Louis area. He had several large customers which became customers of Metal Lubricants. At that time it appears that Metal Lubricants had only one customer of consequence in the St. Louis area.

The other individual defendants, Fred Fleschner, Mel Kohl, Jr., and Charles Weston, Jr., comprised the rest of the sales and administrative force of the St. Louis office, with the exception of one additional salesman, Jack Thacker, who has remained with Metal Lubricants. When they resigned in December, 1967, Fleschner had been with Metal Lubricants for about three years; Weston and Kohl about one year. Fleschner and Kohl were salesmen, the former being remunerated essentially on a commission basis, the latter receiving salary plus expenses. Weston was a salaried employee with administrative duties. In addition, the St. Louis office included four girls who performed part time or full time secretarial work and who also resigned with Wachter. Engineered Lubricants Company is the new concern formed by Wachter and the other St. Louis employees of Metal Lubricants shortly after they resigned.

The resignations did not come suddenly, but were preceded by a considerable period of dissatisfaction with the status of the St. Louis office and negotiations respecting a change in that status.

Wachter first manifested dissatisfaction with the division sales office arrangement in an offhand remark made in Florida in April of 1967. The setting was a tennis match between Wachter and Art Hinkel, vice-president of Metal Lubricants and brother of Hull Hinkel, the president and founder. Wachter told Hinkel that he would prefer to see the St. Louis office turned into a jobber, as this measure of independence would obviate certain conflicts which had arisen between the St. Louis and Chicago offices. Hinkel testified that he offered no encouragement, that he did not take the idea seriously, and that he felt that it would be absurd to spin off the St. Louis office after the years of expense put into it. Wachter broached the subject again in July, with about the same effect. This time he wrote Art Hinkel and received a reply from the latter flatly rejecting such a change and stating that in view of the expense involved in creating the St. Louis office, "we would be naive, indeed, to revert to a Jobber-Distributor set up * * *."

It appears that the basic conflict underlying Wachter's desire for a change may have had to do with the manner of expanding sales, although other matters, such as product quality, were mentioned as having been important. Testimony by Wachter indicates that the St. Louis office was interested in conducting extensive surveys of industrial oil needs for certain large corporations, presumably with the object in mind of capturing a larger part of the business of these customers. Art Hinkel's July letter corroborates this, referring to Wachter as "the super salesman", but attempting to cool his ardor for increased sales at the expense of company profitability. Metal Lubricants was apparently in some financial difficulty, if only of the very mildest sort, and it may be inferred that the expansive attitude of the St. Louis office gave rise to friction.

Wachter remained unhappy about the situation and decided to bring it to a head. In the course of a routine telephone call to Chicago in late September he told Art Hinkel that he intended to resign, and was about to submit a letter for that purpose which he had prepared sometime before. Hinkel came to St. Louis at once to look into the situation. He learned in the course of discussions with Wachter and the other St. Louis employees that the former had been considering the move for some time, that he planned to compete with Metal Lubricants selling the same line of products and calling on the same customers, that he had contacted suppliers to determine whether it was feasible, and that the other St. Louis employees were aware of the situation and generally intended to follow Wachter. There was no mention at this time of the possibility of remaining with Metal Lubricants as a jobber or distributor. Wachter's letter of resignation was submitted with an effective date of November 30th, providing sixty days' notice pursuant to his employment contract.

A few days later the Hinkels asked Fleschner, the senior salesman in St. Louis next to Wachter, to come to Chicago, which he did on October 6th. Fleschner was offered the division managership, but declined, indicating his loyalty to Wachter and his intention to go with him in the new enterprise. At the close of the day's discussion Fleschner suggested that although the Hinkels would not consider a jobber arrangement, a distributorship might still be acceptable. Art Hinkel indicated that this was possible, but only if the distributorship sold Metal Lubricant's products exclusively.

When Fleschner returned to St. Louis, Wachter promptly wrote Hull Hinkel, indicating that he was anxious to talk over the distributorship idea. Hull Hinkel came to St. Louis on October 12th and two days of discussions followed. Apparently, Wachter and Fleschner were at first unwilling to accept an exclusive distributorship, but by the second day had relented. Notes were taken at a session on the second day with the intent of recording essential points on which the parties were agreed. After Hinkel had returned to Chicago, the notes were typed up and forwarded to him, and were submitted by him to his lawyers to be turned into a draft of an exclusive distributorship agreement. In the meantime it was orally agreed that the effective date of Wachter's resignation would be extended to December 31st.

The St. Louis office received a copy of the Chicago draft by November 18th. It contained the following recitation under the heading "Preambles":

"A dispute has arisen between Company and Sales Agent and Sales Agent has manifested his intention to resign from Company's employ for the purpose of competing against Company, using such of its other employees, confidential information, trade secrets and customer lists as he might be able to obtain."

Apart from the gratuitous inclusion of this comment by the Chicago office (there had been no mention of preambles at the conference in St. Louis), the draft appears to have presented no major stumbling blocks with the exception of a clause relating to termination of the agreement. The distributorship was to last for three years and then be terminable at the will of either party on ninety days' notice. However, there was a covenant not to compete for one year following termination for any reason. A revised draft sent to Chicago by Wachter's attorney on November 21st eliminated the covenant not to compete and added a provision for termination at the death of Hull Hinkel.

At the same time Wachter and Fleschner were attempting to continue negotiations on matters which were not fully covered by the initial Chicago proposal. Wachter wrote on November 18th acknowledging receipt of the draft and expressing some dismay that it did not fully reflect "the spirit of our St. Louis meeting." He went on to say that he would continue to attempt to negotiate and thought that...