Solari Industries, Inc. v. Malady

• Decision Date: 20 April 1970
• Citation: 55 N.J. 571,264 A.2d 53
• Parties: SOLARI INDUSTRIES, INC. and Solari America, Inc., Plaintiffs-Appellants, v. Joseph J. MALADY, individually, and doing business as Airport Products Company, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 571

55 N.J. 571

264 A.2d 53

SOLARI INDUSTRIES, INC. and Solari America, Inc. Plaintiffs-Appellants, v. Joseph J. MALADY, individually, and doing business as Airport Products Company, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Feb. 2, 1970.

Decided April 20, 1970.

Peyton H. Moss, New York City, for appellants (Ralph Neibart, Newark, attorney).

Francis P. Witham, Hackensack, for respondent (Markey & Witham, Hackensack, attorneys).

The opinion of the court was delivered by

JACOBS, J.

The Chancery Division held that the noncompetitive provision in the defendant's employment contract was void per se and therefore denied the plaintiffs' application for an interlocutory injunction against its breach. The Appellate Division denied leave to appeal but we granted such leave and have heard full argument on the issues submitted by the parties.

An Italian corporation called Solari & C./Udine s.p.a. manufactures informational boards which are known as teleindicators and are seen generally at airport and railroad terminals. Solari's representative in the United States was originally the Signaltron Corporation. On or about January 1, 1966 the plaintiff Solari America, Inc., a New York corporation, replaced Signaltron and shortly thereafter the defendant Malady entered into a contract with Solari America. The contract provided that Malady would devote his entire time to the business of Solari America and would receive a salary of $10,000 per annum plus commission based primarily on the sales of teleindicators to purchasers in the United States. Earlier, Malady had been active in the same field and he brought several prospective customers with him when he joined Solari America. He assigned these prospective customers to Solari America and received an additional payment of $1500 therefor. While associated with Solari America, Malady was its President, its Chief Executive Officer and a member of its Board of Directors.

In January 1969, Solari Industries, Inc., a New Jersey corporation, was created as part of the reorganization of Solari's corporate structure in the United States. In March 1969, Malady entered into a new contract with Solari Industries effective as of January 1, 1969. It provided that it 'shall be governed in all respects by the laws of the State of New York' and it fixed Malady's salary at $24,500 per annum plus a 1% Commission on teleindicator sales in excess of $250,000 to purchasers in the United States. It contained as did his prior contract with Solari America, a noncompetitive agreement reading as follows:

'Malady agrees that on the termination of his employment, for any reason whatsoever, he will not for one year thereafter engage, either directly or indirectly, without the prior consent in writing of the Board of Directors of Solari Industries, in promoting or selling equipment, products, appliances or systems similar to or competitive with any of those represented by Solari Industries or Solari America nor will he within said year divert or attempt to divert from Solari Industries or Solari America or any business represented by it any business whatsoever, particularly by influencing or attempting to influence any of the customers with whom he may have had dealings in connection with the promotion of equipment, products, appliances or systems hereunder.'

The new contract set forth, as did the old, that Malady would devote his entire time to Solari's business and would perform such services as the Board of Directors required. However, it contained a provision that Malady would report to the resident Vice President of Solari Industries who was a man named Civale and with whom Malady later developed serious differences. In April 1969, Malady wrote to the General Manager of the parent company in Italy, voicing his complaints about the manner in which he was being treated. He stated that, although he had been assured prior to the reorganization of Solari's corporate structure that his authority would not be reduced, actions taken under Civale's orders had left him with titles and little authority. He expressed the thought that he was being deliberately forced out and later, under date of April 25, 1969, he signed a letter agreement which actually terminated his employment. Under this agreement Solari paid Malady the sum of.$10,015.40 representing his salary through September 30, 1969 plus commission on sales through December 31, 1968. Solari expressly acknowledged the continued effectiveness of the commission arrangement and agreed to pay commission for teleindicator sales in the calendar year 1969 in excess of $250,000. Malady expressly acknowledged the continued effectiveness of the noncompetitive employment provision and agreed to abide thereby.

After the termination of his association with Solari, Malady went to Italy and obtained a franchise from Mischiatti for the distribution of its products in the United States and Canada. The Mischiatti products are competitive with Solari's teleindicators although Malady says they differ somewhat and are superior in operation. It is admitted that Malady recently visited customers and prospective customers of Solari although he says that before he did so he obtained a legal opinion from his attorney to the effect that the noncompetitive provision is unreasonable and void because it 'failed to define an area.' See Hudson Foam Latex Products, Inc. v. Aiken, 82 N.J.Super. 508, 512--515, 198 A.2d 136 (App.Div.1964); Creter v. Creter, 52 N.J.Super. 197, 201, 145 A.2d 149 (App.Div.), certif. granted, 28 N.J. 348, 146 A.2d 713 (1958), appeal dismissed by consent of parties, May 4, 1959; Magic Fingers, Inc. v. Robins, 86 N.J.Super. 236, 239, 206 A.2d 601 (Ch.Div.1965); but Cf. Blake, 'Employee Agreements Not to Compete,' 73 Harv.L.Rev. 625, 674--76 (1960); 5 Williston, Contracts, § 1660 at 4683-85 (Rev. ed. 1937); 6A Corbin, Contracts, § 1394 at 104--05 (1962); 13 Rutgers L.Rev. 393 (1958); 54 Mich.L.Rev. 416 (1956).

In their complaint, the plaintiffs sought interlocutory and final relief enjoining the defendant from violating the terms of the noncompetitive provision of his contract. They obtained an order to show cause with ad interim restraint. The answer filed by the defendant admitted most of the essential factual allegations in the complaint but set forth that the provision was unreasonable and void, that the plaintiffs were by their own unfair conduct estopped from enforcing the provision, and that the plaintiffs were guilty of fraud and misrepresentation and did not come into equity with clean hands. See 6A Corbin, Supra, § 1394 at 89--93; Blake, Supra, 73 Harv.L.Rev. at 684--86. After argument, the Chancery Division vacated the order to show cause with its interim restraint and denied the plaintiffs' application for interlocutory relief. It rejected the plaintiffs' contention that since the employment contract was executed in New York and expressly provided that the law of New York was to be controlling, its meaning and validity are governed by New York rather than New Jersey law. See Award Incentives, Inc. v. Van Rooyen, 263 F.2d 173, 177 (3 Cir. 1959); Farris Engineering Corp. v. Service Bureau Corp., 406 F.2d 519, 520--521 (3 Cir. 1969); Colozzi v. Bevko, Inc., 17 N.J. 194, 202, 110 A.2d 545 (1955); Naylor v. Conroy, 46 N.J.Super. 387, 391, 134 A.2d 785 (App.Div.1957); Cf. Kievit v. Loyal Protect. Life Ins. Co., 34 N.J. 475, 491--93, 170 A.2d 22 (1961). The Chancery Division took the position that, assuming the provision is enforceable in the courts of New York, at least in reasonable part (See Interstate Tea Co. v. Alt, 271 N.Y. 76, 2 N.E.2d 51 (1936); Carpenter & Hughes v. De Joseph, 13 A.D.2d 611, 213 N.Y.S.2d 860, aff'd, 10 N.Y.2d 925, 224 N.Y.S.2d 9, 179 N.E.2d 854 (1961); Cf. Purchasing Associates, Inc. v. Weitz, 13 N.Y.2d 267, 246 N.Y.S.2d 600, 196 N.E.2d 245 (1963)), New Jersey's public policy is still determinative in this proceeding (Cf. Lobek v. Gross, 2 N.J. 100, 102, 65 A.2d 744 (1949)) and that under that policy a noncompetitive provision which, as here, contains no express geographical limitation is unreasonable and void per se and is not in any part enforceable in our courts. In support, it placed primary reliance on the Appellate and Chancery Division holdings in Hudson Foam, Supra, 82 N.J.Super. 508, 198 A.2d 136, Creter, Supra, 52 N.J.Super. 197, 145 A.2d 149, and Magic Fingers, Supra, 86 N.J.Super. 236, 206 A.2d 601.

Much has been written with regard to noncompetitive agreements and the books are filled with judicial decisions embodying varying holdings in varying contexts. They have been collected elsewhere and need not be recited here. See Arthur Murray Dance Studies of Cleveland, Inc. v. Witter, 62 Ohio Law Abst. 17, 105 N.E.2d 685 (C.P.1952); Blake, Supra, 73 Harv.L.Rev. 625; Annotations, 43 A.L.R.2d 94 (1955), 46 A.L.R.2d 119 (1956), 70 A.L.R.2d 1292 (1960); See also 5 Williston, Supra, § 1628 et seq.; 6A Corbin, Supra, § 1379 et seq.; Kreider, 'Trends in the Enforcement of Restrictive Employment Contracts,' 35 U.Cin.L.Rev. 16 (1966); Marcoux, 'Covenants Not to Compete in Common Law,' 10 C. de D. 251 (1969); Comment, 'Contracts in Restraint of Trade: Employee Covenants Not to Compete,' 21 Ark.L.Rev. 214 (1967); Comment, 'Covenants Not to Compete: The Tennessee Cases,' 31 Tenn.L.Rev. 450 (1964); 13 Rutgers L.Rev. 393, Supra; 54 Mich.L.Rev. 416, Supra. Though noncompetitive agreements were at one time flatly outlawed, it is now well recognized that they do have a proper place and are enforceable under appropriate circumstances. Thus a seller's incidental noncompetitive covenant, which is designed to protect the good will of the business for the buyer, is freely enforceable in the courts. And while a covenant by an employee not to compete after the termination of his employment is not, because of the countervailing policy considerations, as freely enforceable, it will nonetheless be given...