Security Metal Products Co. v. Kawneer Co.

• Decision Date: 16 July 1926
• Docket Number: No. 7132.,7132.
• Citation: 14 F.2d 569
• Parties: SECURITY METAL PRODUCTS CO. et al. v. KAWNEER CO.
• Court: U.S. Court of Appeals — Eighth Circuit

14 F.2d 569 (1926)

SECURITY METAL PRODUCTS CO. et al. v. KAWNEER CO.

No. 7132.

Circuit Court of Appeals, Eighth Circuit.

July 16, 1926.

Raymond G. Barnett and James A. Reed, both of Kansas City, Mo. (John M. Cleary, of Kansas City, Mo., on the brief), for appellants.

Wallace R. Lane, of Chicago, Ill. (Ralph M. Snyder, of Chicago, Ill., and Henry L. McCune, of Kansas City, Mo., on the brief), for appellee.

Before STONE, KENYON, and BOOTH, Circuit Judges.

BOOTH, Circuit Judge.

This is an appeal from an order of the District Court for the Western District of Missouri, dated May 19, 1925, granting a preliminary injunction against appellants, defendants below. The order was based on the verified bill of complaint filed January 2, 1924, and a large number of affidavits and exhibits introduced by the respective parties.

There is evidence in the record tending to establish the following facts: About 1906, Plym, president of the plaintiff company, invented certain improvements in store front constructions, and obtained patents thereon, among them No. 852,450 May 7, 1907. A corporation was organized by Plym, called the Kawneer Manufacturing Company; and the manufacture of this patented construction was carried on for some time at Kansas City for this company by the Henry Weiss Cornice Company, of which the defendant Ross was foreman. In 1909 the defendants Ross and Rhoads purchased control of the Ritzler Metal Manufacturing Company (then known as the J. A. Ritzler Cornice & Ornament Company). That company in 1909 or early in 1910 began manufacturing a construction claimed by Plym to be an infringement of his patent. The Ritzler Company in 1910 made a five-year contract with the Pittsburgh Plate Glass Company for sale to it of the product so manufactured. Suit for infringement was brought by the Kawneer Manufacturing Company against the Pittsburgh Plate Glass Company in August, 1910, in the Northern district of Illinois; and on December 16, 1912, decree went for plaintiff. An appeal was taken. A similar suit was brought against the Ritzler Company in the Western district of Missouri. That suit went to decree for plaintiff by consent March 12, 1913.

Meanwhile, after the entry of decree in the Northern district of Illinois, Ross and Rhoads and the Ritzler Company entered into negotiations for an agreement with Plym and the Kawneer Manufacturing Company. Pending negotiations, a license was granted by the Kawneer Manufacturing Company to the Ritzler Company to continue the manufacture of the accused product. The result of the negotiations was the making of two contracts dated February 12, 1913; one between the Kawneer Manufacturing Company and the Ritzler Company, and the other between Plym, Ross, and Rhoads.

The former, called for convenience "the corporation contract," provided for the organization of a new corporation, to be called "The Kawneer Company," which should purchase the assets, tangible and intangible, of both the Kawneer Manufacturing Company and the Ritzler Company, including patents owned by the respective companies. Payment was to be made therefor in stock of the new company; preferred for the tangible assets, common for the intangible. The value of the physical assets was to be determined by agreement or appraisement. Manufacture of the product was to be carried on by the new company. Pending litigation was to be disposed of by agreement of counsel. This contract also provided that the new Kawneer Company should use its best efforts to acquire any and all improvements relating to store front constructions and United States letters patent therefor which should seem to be of commercial value in the business.

The second contract, called for convenience "the individual contract," provided as follows:

"Agreement made this 12th day of February, 1913, by and between Francis J. Plym, of Niles, Mich., Vernon Ross, of Kansas City, Mo., and Errett S. Rhoads of Kansas City, Mo., witnesseth:

"Whereas, the parties above mentioned are now interested in the business of the manufacture and sale of store front constructions, and it has been agreed that a corporation shall be organized to be known as the Kawneer Company, to purchase the interests of the said parties in said business, including all the assets and good will connected therewith:

"Now, therefore, it is mutually covenanted and agreed by and between the said parties jointly and severally that any and all improvements in store front constructions made by each, any, or all of them during the terms of any letters patent now in force or patents which may be obtained upon applications now pending in the name of either or any of them, shall without any further or additional consideration be assigned and transferred unto the said Kawneer Company, and each of the parties agrees to execute any papers or documents necessary for fully protecting such inventions or in consummating their transfer.

"It is further agreed by and between the parties hereto that during the period above specified they will not, nor will any of them become or be connected with the manufacture or sale of store front constructions either directly or indirectly, otherwise than in connection with the business of the said Kawneer Company to be organized.

"Francis J. Plym. "Vernon Ross. "Errett S. Rhoads."

The patents and applications for patents, owned or standing in the names of either of the corporations or of the individuals, were assigned to a trustee to be assigned by him to the new corporation when formed.

March 9, 1913, the appeal of the Pittsburgh Company was dismissed by consent. About a week after the date of the two contracts, suggestion was made by the Kawneer Manufacturing Company or Plym or their attorney, that, instead of organizing a new corporation, use might be made of the Kawneer Manufacturing Company by changing its name and increasing its capital stock. This modification of the corporation contract was expressly acquiesced in by all of the stockholders of the Ritzler Company — three in number, Ross, Rhoads, and Cleary — at a special meeting of stockholders on April 28, 1913. The name of the Kawneer Manufacturing Company was changed to Kawneer Company on April 26, 1913; changed back to Kawneer Manufacturing Company May 20, 1913; changed again to the Kawneer Company January 16, 1920; but during all the times involved herein the identity of the corporation has remained unchanged. It will hereafter be called plaintiff.

On May 13, 1913, a contract was entered into between plaintiff and Ross and Rhoads personally (but recited to be supplemental to the corporation contract of February 12, 1913). It provided, among other things, for the employment by plaintiff of Ross and Rhoads at a salary of $300 per month each, the term of employment to terminate as soon as plaintiff should buy their preferred stock at par.

May 20, 1913, the final papers were passed, completing the transaction outlined in the corporation contract of February 12, 1913, as modified; bill of sale covering the personal property of the Ritzler Company was executed and delivered to plaintiff by Ross and Rhoads, who had previously had that company transfer the property to them; a second supplemental contract was made by plaintiff with Ross and Rhoads covering some details of the transaction; stock was issued and delivered to Ross and Rhoads as agreed upon; a special meeting of the stockholders was held; new by-laws were adopted; the bill of sale and the supplemental contract both of May 20, 1913, were ratified; Rhoads was elected a director. He was re-elected from time to time until 1916, when he declined re-election.

May 21, 1913, the Ritzler Company authorized Lane, as trustee, to file for record assignments of the patents, which he held as trustee, to the Kawneer Company.

Plaintiff continued to carry on the business, and Ross and Rhoads remained in its employment for several years. During this time there was no suggestion by any one that the individual contract of February 12, 1913, was not in force.

In January, 1914, Ross and Rhoads advised plaintiff that they were in need of money and asked whether it would be possible to dispose of part of their stock. April 28, 1914, a contract was made by plaintiff with Ross and Rhoads for the purchase of their preferred stock in installments.

In June, 1914, Rhoads wrote to Plym, president of plaintiff company, as follows:

"We take this opportunity to say that the arrangements, as they now stand, are entirely satisfactory with us, and it is, of course, to our mutual benefit to work in harmony and do our utmost to bring about the proper results. We feel that the fighting is now over between us, and that since we are associates that to do anything but our best would be working against our own interests, and you can rest assured that we will run this business, giving it the same efforts and services as we have heretofore."

In April, 1916, a contract was made by plaintiff with Ross to purchase the common stock owned by him; he apparently having bought the stock owned by Rhoads. The exact date when Ross and Rhoads left the employment of plaintiff is not disclosed in the record.

In 1921, Ross and Rhoads organized a corporation named Ross-Rhoads Company, which afterward changed its name to Security Metal Products Company, defendant herein. This company, in the same year, began the manufacture of store front constructions. Rhoads...