National Hearing Aid Centers, Inc. v. Avers

• Decision Date: 23 May 1974
• Parties: NATIONAL HEARING AID CENTERS, INC. v. Leonard AVERS.
• Court: Appeals Court of Massachusetts

Page 573

311 N.E.2d 573

2 Mass.App.Ct. 285

NATIONAL HEARING AID CENTERS, INC. v. Leonard AVERS.

Appeals Court of Massachusetts, Suffolk.

Argued April 12, 1973.

Decided May 23, 1974.

Robert A. Mulligan, for defendant.

M. Frederick Pritzker, Boston, for plaintiff.

Before HALE, C.J., and GOODMAN and GRANT, JJ.

GOODMAN, Justice.

The defendant appeals from a final decree which enjoined him from engaging in the sale of hearing aids and hearing aid accessories in four counties in Massachusetts and in the states of Maine and New Hampshire and which awarded the plaintiff liquidated damages of $5,000. That decree was entered on the basis of a master's report in which the master found that the plaintiff was 'entitled to protection against interference in its business relations by the (defendant) . . . by reason of the restrictive covenant agreement . . ..' The case was heard under the usual order of reference requiring the master to find the subsidiary facts on each issue and to report them and his findings based on the subsidiary findings. Rule 86 of the Superior Court, as amended effective July 1, 1961. Under such an order of reference we draw our own inferences from the subsidiary findings and reach our own conclusions. Corrigan v. O'Brien, 353 Mass. 341, 345--346, 231 N.E.2d 554 (1967). See Marine Contractors Co., Inc. v. Hurley, --- Mass. ---, ---, 310 N.E.2d 915 (1974).

We summarize the facts in the master's report. The plaintiff holds a franchise from a company in Minnesota for the sale of hearing aids and hearing aid accessories. It sells hearing aids only under two brand names which are variants of the name of its Minnesota franchisor. It also sells some audiometers and batteries. Its territory is eastern Massachusetts, Maine, New Hampshire, and Vermont, and it has offices in Boston; Manchester, New Hampshire; and Portland, Maine. It advertises in local newspapers and magazines and solicits through direct mail and leads supplied by a company the name of which indicates an affiliation with the franchisor and which was the plaintiff's prime customer supplier. The plaintiff also used a promotional give-away program which involved telephone amplifier attachments designed to induce potential customers to contact the plaintiff. There are about 200 other vendors of hearing aids in the area and about 25 different brands. They are, as the master found, 'general article(s) of commerce and sold through many specialty stores . . .. The business is a type where only one sale would be made to a customer rather than the repeated sale as in other type products.'

On November 8, 1968, the defendant, who had owned and operated a discount house and who had done some selling, but not of hearing aids, signed an employment contract with the plaintiff to sell the plaintiff's 'hearing aids and other related products.' The defendant was to be compensated on a commission basis, and the employment was terminable by either party on seven days' written notice. As the master's report put it, the sale or demonstration of hearing aids 'does not require extraordinary skill or experience. One of slight experience, can learn and be replaced at not too much expense.'

The employment contract included a coverant against disclosure of the plaintiff's customer list and a restrictive covenant which provided generally that the defendant would not, for two years after the termination of the contract, sell 'hearing aids or hearing aid accessories' in Maine, New Hampshire, Vermont, or six counties in Massachusetts. The contract also provided for liquidated damages of $5,000 for 'any . . . breach' of the nondisclosure clause or the restrictive covenant and that '(i)n addition . . . in the event of a breach or threatened breach by the Employee (of the nondisclosure clause or the restrictive covenant) . . . the Employer shall be entitled to an injunction restraining the Employee . . ..' The defendant was employed under that contract until March 28, 1969; on that date he voluntarily terminated his employment and formed a corporation ¹ with another former employee of the plaintiff in Providence, Rhode Island, for the purpose of selling hearing aids. At first the defendant sold primarily in Rhode Island, but in August of 1969 he transferred his activities to Massachusetts, and sales were made in territory restricted under the covenant. The defendant advertised in Boston and Maine newspapers and used 'the same advertising gimmick' as the plaintiff, offering a free telephone amplifier to those who sent in a coupon in Massachusetts and a free TV listening device to Maine residents who sent in a coupon. The defendant did not sell the same brands of hearing aids as either of those sold by the plaintiff.

The plaintiff brought a bill in equity on October 7, 1969, to enforce the restrictive covenant, for liquidated damages, and for other relief. A preliminary injunction was denied; and the final decree, from which this appeal was taken, was entered on October 7, 1970. The injunction in the decree expired on March 28, 1971, two years from the termination of the employment agreement, but the question of the validity of the restrictive covenant (as cut down by the Superior Court) is not moot since the provision for liquidated damages, which the court awarded, is enforceable only if the circumstances of this case are such that the plaintiff has sustained the burden of justifying as reasonable the imposition of any restraint on competition. Taylor v. Blanchard, 13 Allen 370, 373 (1866). Sherman v. Pfefferkorn, 241 Mass. 468, 135 N.E. 568 (1922). Club Aluminum Co. v. Young, 263 Mass. 223, 160 N.E. 804 (1928). We hold that it has not. ²

The Supreme Judicial Court has very recently had occasion to survey this area of the law and the welter of cases, many of which cannot be easily (if at all) related to one another. All Stainless, Inc. v. Colby, --- Mass. ---, ---, ^a 308 N.E.2d 481 (1974). Marine Contractors Co., Inc. v. Hurley, --- Mass. ---, --- - ---, 310 N.E.2d 915 (1974). In the All Stanless case the court limited the restriction which it would enforce, whether by injunction or by an award of damages, to the territory in which the employee had actually had contact with the employer's customers and was therefore in a position to interfere with the established relations between the employer and those customers. The court said (--- Mass. p. ---) ^b, 308 N.E.2d p. 486 'A former employer is not entitled by contract to restrain ordinary competition. Club Aluminum Co. v. Young, 263 Mass. 223, 226--227, 160 N.E. 804 (1928). Richmond Bros., Inc. v. Westinghouse Bdcst. Co., Inc., 357 Mass. 106, 111, 256 N.E.2d 304 (1970). Any restraint must be consistent with the protection of the good will of the employer. The former employee must be in a position where he can harm that good will, perhaps . . . because of his knowledge of some business secret or confidential information (see Club Aluminum Co. v. Young, supra, 263 Mass. 226, 160 N.E. 804; Slade Gorton & Co., Inc. v. O'Neil, 355 Mass. 4, 10, 242 N.E.2d 551 (1968)) or perhaps . . . because the former employee's close association with the employer's customers may cause those customers to associate the former employee, and not the employer, with products of the type sold to the customer through the efforts of the former employee. See Blake, Employee Agreements not to Compete, 73 Harv.L.Rev. 625, 658--659 (1960).' See Purchasing Associates, Inc. v. Weitz, 13 N.Y.2d 267, 272, 246 N.Y.S.2d 600, 196 N.E.2d 245 (1963). Neither of the factors mentioned in the All Stainless case and reiterated in the Marine Contractors case is present in this case. The master's report yields no basis for a conclusion that the defendant, as a result of his employment, was placed in a position to injure '(s)uch legitimate business interests . . . (as) trade secrets, other confidential information, or . . . the good will the employer has acquired through dealings with his customers.' Marine Contractors Co Inc. v. Hurley, --- Mass. ---, ---, 310 N.E.2d 915 (1974).

No confidential information, used by the defendant to the plaintiff's detriment, would appear to be involved in this case. The contract does indeed declare that the defendant 'recognizes and acknowledges that the list of the Employer's customers . . . is a valuable, special and unique asset' which the defendant agrees not to disclose, but the master's report is bare of any mention of such a list and there is nothing to indicate that the defendant has in any way appropriated or used in his business any confidential customer information belonging to the plaintiff. American Window Cleaning Co. of Springfield v. Cohen, 343 Mass. 195, 199, 178 N.E.2d 5 (1961), and cases cited. See Abramson v. Blackman, 340 Mass. 714, 715--716, 166 N.E.2d 729 (1960). The plaintiff also complains that the defendant used 'sales techniques' learned while in the plaintiff's employ, and the master found that the defendant used the 'same advertising gimmick' that the plaintiff had used. But that 'gimmick' was, so far as appears, nothing but a publicized give-away program using coupons printed in newspapers. It was not confidential, nor indeed was it treated as confidential by the parties. It is significant that the contract makes no mention of it, or anything other than the customer list, in the 'Disclosure of Information' clause. Jet Spray Cooler, Inc. v. Crampton, --- Mass. ---, ---, ^c 282 N.E.2d 921 (1972). Involved in this case is nothing more than a merchandising technique, in which the plaintiff has no proprietary interest. Club Aluminum Co. v. Young, 263 Mass. 223, 160 N.E. 804 (1928). Associated Perfumers, Inc. v. Andelman, 316 Mass. 176, 185, 55 N.E.2d 209 (1944). United Tool & Industrial Supply Co., Inc. v. Torrisi, 356 Mass. 103, 106, 248 N.E.2d 266 (1969). Contrast New England Overall Co., Inc. v. Woltmann, 343 Mass. 69, 77, 176 N.E.2d 193 (1961); Novelty Bias Binding Co. v. Shevrin, 342 Mass....