Mixing Equipment Co. v. Philadelphia Gear, Inc.

• Decision Date: 11 January 1971
• Docket Number: 18738.,No. 18737,18737
• Citation: 436 F.2d 1308
• Parties: MIXING EQUIPMENT CO., Inc. v. PHILADELPHIA GEAR, INC., Appellant, and George Leamy. Appeal of George LEAMY.
• Court: U.S. Court of Appeals — Third Circuit

436 F.2d 1308 (1971)

MIXING EQUIPMENT CO., Inc. v. PHILADELPHIA GEAR, INC., Appellant, and George Leamy Appeal of George LEAMY.

Nos. 18737, 18738.

United States Court of Appeals, Third Circuit.

Argued October 23, 1970.

Decided January 11, 1971.

Rehearing Denied March 10, 1971.

Edwin B. Barnett, Strong, Barnett & Grasberger, Philadelphia, Pa., for appellants.

John B. McCrory, Nixon, Hargrave, Devans & Doyle, Rochester, N. Y. (Bancroft D. Haviland, Michael R. Gardner, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., on the brief), for appellee.

Before McLAUGHLIN, FREEDMAN and VAN DUSEN, Circuit Judges.

OPINION OF THE COURT

McLAUGHLIN, Circuit Judge.

This is an appeal from an order of the United States District Court for the Eastern District of Pennsylvania granting appellee's motion for a preliminary injunction.

Appellee, Mixing Equipment Company, Inc. (Mixco), a New York corporation whose principal place of business is Rochester, New York, is a designer, manufacturer and seller of industrial mixing equipment. Appellant Philadelphia Gear, Inc. (Philadelphia Gear) is a Pennsylvania corporation, having its principal place of business in King of Prussia, Pennsylvania. It is a multi-faceted corporation and one of its major lines is industrial mixers, in which field it is one of Mixco's two principal competitors. Appellant George Leamy was employed by Mixco as an application engineer, i. e., an engineer dealing with problems of mixing technology, from March, 1965 until July, 1969. Shortly after his employment commenced, he executed an agreement which contained, inter alia, the following covenant:

"I also agree that I will never disclose or authorize anyone else to disclose without first getting written permission from the Company, any confidential information about the Company, its plans, its products, or its operations.

"I hereby agree that, during my employment and for one year after, I will not disclose or authorize anyone else to disclose, without first getting written permission from the Company, any information concerning the Company\'s plans, business or products except as is necessary in the ordinary course of the Company\'s business, even though such or similar information may have been made public before.

"I hereby further agree that, during my employment by the Company and for one year thereafter, I shall not, either as principal, agent, consultant, employee, partner or in any other capacity, engage in any work or other activity in the field or fields in which I have worked or shall work for the Company, and I shall not engage in any work or other activity in any way connected with the development, manufacture or sale of any product which competes with any product of the Company made or sold either during the term of my employment or within one year thereafter."

Leamy voluntarily left Mixco on or about July 4, 1969 and on July 7, 1969 he commenced employment with Philadelphia Gear as an application engineer. He was subsequently elevated to the position of technical director of Philadelphia Gear's mixing division. In November of 1969, Mixco discovered that Leamy was working in a competitive position. This suit was commenced shortly thereafter. The complaint sought, inter alia, injunctive relief and damages and was accompanied by a motion for a preliminary injunction.

A hearing was held in the district court, after which Judge Body made findings of fact and concluded that a preliminary injunction should issue. 312 F.Supp. 1269. A brief factual recital, incorporating the findings of the district court, will be helpful.

Mixco has been engaged in the business of designing, manufacturing and selling industrial mixing equipment since 1923. It is the acknowledged leader in this industry, having a share of the market estimated between 40 and 60 per cent. As a result of its activities in the field, Mixco has established a valuable and extensive trade name and goodwill for itself and its product. Much of Mixco's business involves the selection of mixing equipment to meet the specific needs of particular customers. Engineering design and manufacturing processes for much of this equipment, in the form of information, plans, specifications, drawings and models, tables, charts and other related materials have been developed at great expense to Mixco and are confidential and secret. This material is known by Mixco's employees and former employees to be of a confidential nature. It is contained, for the most part, in four technical reference books¹ and voluminous files developed for the use of Mixco's application engineers and other employees who have need of using this technical information. Mixco takes certain stringent precautions to insure the confidentiality of this data and the covenant previously noted is utilized by the corporation to prevent competitors from gaining access to this material.

When Leamy commenced his employment with Mixco, he had no prior experience in the industrial mixing field although he did have a general engineering background. He was formally trained for application engineering by Mixco for a six month period, after which he received additional on-the-job training. In connection with his employment by Mixco, Leamy had access to and utilized confidential materials developed by the corporation, with knowledge that such material was to be kept confidential and secret.

In the Spring of 1969, Leamy decided to leave the Rochester area and registered with several employment agencies. As a result he was put in touch with Philadelphia Gear. He had several interviews and was subsequently offered a position, as an application engineer in the Mixer Division. Prior to terminating his employment with Mixco, Leamy indicated to his superiors that he would be employed in Philadelphia Gear's Limitorque Division, which was engaged in the design and manufacture of valve control devices and did not compete with Mixco. In November, 1969 an employee of Mixco saw a Philadelphia Gear catalog at the Hercules plant in Hopewell, Virginia and, attached thereto, a card stating that Leamy, formerly of Mixco, was now with Philadelphia Gear. Subsequently, it was verified that Leamy was in fact working as an application engineer. In that capacity, Leamy had authored a sales presentation to Squibb Pharmaceutical, a known customer of Mixco, which resulted in a contract between Squibb and Philadelphia Gear.

The court below found that Leamy's conduct was false and deceptive and further found that Leamy had violated his agreement with Mixco in that he (a) worked for Philadelphia Gear in the field of application engineering and in connection with equipment directly competitive with Mixco; (b) approached known customers of Mixco on behalf of Philadelphia Gear; (c) disclosed confidential information of Mixco; and (d) copied or utilized Mixco's confidential designs, etc. on behalf of Philadelphia Gear.²

With regard to Philadelphia Gear, the court found that it employed Leamy as an application engineer because of his experience with Mixco and with knowledge of his prior employment and of facts putting it on notice of the agreement between Mixco and Leamy. It further found that Philadelphia Gear induced Leamy to violate his agreement and has conspired with him to secure for its own profit confidential information which was the property of Mixco, and that these acts constituted improper and unlawful competition. The court further found that Mixco had no adequate remedy at law to protect itself from appellants' violation of its rights and that Mixco was being subjected to irreparable harm, past, present and future. The court, therefore, entered an order preliminarily enjoining George Leamy from

a) directly or indirectly continuing in the employ of Philadelphia Gear;

b) directly or indirectly accepting employment from any other person or concern in any work, activity or capacity involving mixing equipment, including, but not limited to the designing, engineering, production or sale of mixing equipment; and

c) directly or indirectly conspiring or agreeing with Philadelphia Gear to breach the contract between Mixco and Leamy.

Philadelphia Gear was preliminarily enjoined from

a) directly or indirectly continuing Leamy in its employ;

b) directly or indirectly inducing Leamy or conspiring or agreeing with him, to engage in any activity in breach of his contract with Mixco.

Both Leamy and Philadelphia Gear were also enjoined from directly or indirectly securing or utilizing any trade secrets, confidential or proprietary information of Mixco and from competing unlawfully with Mixco. A bond was ordered posted in the amount of $12,000. This Court on March 23, 1970 granted appellant's motion for supersedeas staying, pending appeal, those portions of the injunction dealing with Leamy's employment with Philadelphia Gear but at the same time suspended the running of the period of one year fixed in the covenant not to engage in competitive employment.

We are urged to vacate the injunction and discharge the bond. Appellants argue that the covenant not to compete is unenforceable and that the court below abused its discretion in granting preliminary injunction in light of the facts presented.

The threshold question, of course, is the validity of the covenant not to compete, for if the covenant is found to be invalid, the district court erred in enforcing it through a preliminary injunction. That court properly applied New York law to determine the validity of the covenant in issue. The covenant was not a separate contract. It was part and parcel of an employment agreement, entered into between a person then residing in New York and a New York corporation, relating to employment in New York state. The execution of the covenant was in consideration of and ancillary to Leamy's employment by Mixco. Applying the choice of law rule of the forum state, Pennsylvania, it clearly appears that New York state is both the place of...