Standard Brands Inc. v. US Partition & Packaging Corp.

• Decision Date: 16 October 1961
• Docket Number: No. 57-C-235,58-C-82.,57-C-235
• Parties: STANDARD BRANDS INCORPORATED, Plaintiff, v. U. S. PARTITION & PACKAGING CORP., Milton Chernin, Donald F. Cunningham, Donald Engle and Earl F. Millard, Defendants. STANDARD BRANDS INCORPORATED, Plaintiff, v. Earl F. MILLARD, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

199 F. Supp. 161

STANDARD BRANDS INCORPORATED, Plaintiff, v. U. S. PARTITION & PACKAGING CORP., Milton Chernin, Donald F. Cunningham, Donald Engle and Earl F. Millard, Defendants.

STANDARD BRANDS INCORPORATED, Plaintiff, v. Earl F. MILLARD, Defendant.

Nos. 57-C-235, 58-C-82.

United States District Court E. D. Wisconsin.

July 27, 1961.

As Amended by Order Filed October 16, 1961.

On Post-trial Motion November 29, 1961.

COPYRIGHT MATERIAL OMITTED

John C. Butler and David R. MacDonald, Chicago, Ill., Lester S. Clemons, Adrian L. Bateman, Jr., and Quarles, Herriott & Clemons, Milwaukee, Wis., for plaintiff.

Marvin E. Klitsner, Lyman A. Precourt, Foley, Sammond & Lardner, Elwin A. Andrus and Andrus & Starke, Milwaukee, Wis., for defendants.

GRUBB, District Judge.

The above-entitled actions have been consolidated for purpose of trial to the court on plaintiff's causes of action for unfair competition and demand for equitable relief. Plaintiff's claim for patent infringement and the respective counterclaims of the parties in action 57-C-235, as well as the question of money damages, have been severed under Rule 42(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A. Jurisdiction is grounded on diversity of citizenship.

Plaintiff, Standard Brands Incorporated, hereinafter called "Standard Brands," is a Delaware corporation with its principal office in New York City, New York. It is licensed to transact business in the State of Wisconsin and is engaged principally in the business of food processing and packaging.

American Partition Company is an unincorporated division of Standard Brands. It is engaged in the business of manufacturing and selling chipboard partitions and other paper product partitions for cases, boxes, and containers. Its immediate predecessor was the American Partition Corporation, a Wisconsin corporation organized on December 19, 1946. Each is hereinafter sometimes called "American." On or about January 1, 1947, American began the manufacture and sale of partitions, succeeding to such business which had theretofore been operated by a partnership known as the Cream City Brewery Supply Co., whose partners had caused American's formation and had become its stockholders.

The business of American has been conducted at 3043 North 30th Street, Milwaukee, Wisconsin, originally under a sublease to it of such property from Cream City Brewery Supply Co. and later as assignee of the leasehold therein from such partnership, the lease being for a term of ten years, expiring on March 31, 1956.

In the early part of 1948, the outstanding stock of American was purchased by Clinton Industries, Inc., a Delaware corporation, which by subsequent change of name became Clinton Foods, Inc., and is hereinafter referred to as "Clinton." On October 9, 1952, American was merged into Clinton, and its business was thereafter conducted as the American Partition Company, an unincorporated division of Clinton. On November 22, 1955, two of Standard Brand's executive officers entered into a memorandum understanding with the chairman of the board of Clinton to purchase the property and business (as a going concern) of Clinton's Corn Products and American Partition Divisions, pursuant to which Clinton agreed to conduct the business of these two divisions after October 31, 1955, for the account of Standard Brands until the closing date of the sale. The memorandum understanding was formalized by a written contract dated December 8, 1955, between Clinton and Standard Brands. This contract was performed, and the sale of the two divisions to Standard Brands was closed on April 16, 1956. Thereafter, and continuously to the present, American conducted its business as a division of Standard Brands.

Defendants Milton Chernin, Donald F. Cunningham, and Donald Engle are citizens and residents of Wisconsin. Defendant Earl F. Millard is a citizen and resident of Illinois.

Millard began to work for Clinton in June of 1948. He was elected executive vice president in March of 1949 and president on April 4, 1949, of American, which at that time was Clinton's wholly-owned subsidiary. After American was merged into Clinton, Millard continued to use the title "president" while he was general manager of American until his resignation, effective January 7, 1957. In 1956, Millard was paid a salary of $25,000 and an annual bonus of $6,000.

Cunningham was employed originally by Cream City Brewery Supply Co., American's predecessor, in 1944 as plant manager in charge of the manufacture of partitions. He continued in this capacity under American until October 6, 1947, when he terminated this employment.

Chernin was a partner in Cream City Brewery Supply Co. in charge of sales. Upon the organization of American, Chernin became its president and continued in the same sales function until October 4, 1947, when he resigned.

On May 16, 1949, Cunningham and Chernin were rehired by American.

From May 16, 1949 to January 7, 1957, when his resignation was accepted by Standard Brands, Cunningham was primarily responsible for American's production and machinery. During this period it was among his duties to supervise production and engineering at American's plants; to supervise all of American's production personnel; to supervise the repair and improvement of American's machinery and the development of new techniques and new machines; and to supervise the operation of American's plant and warehouse facilities.

In 1954 Cunningham was named as American's vice president in charge of production. As production head, he was in direct charge of American's several plant managers and plant superintendents. In this year his annual salary was established at $20,000, at which rate it was thereafter continued. Additionally, in every year following 1949, he was paid an annual bonus of $5,000 except in the year 1951 when he was paid a bonus of $10,000.

On his re-employment by American in 1949, Chernin was primarily responsible for the sale and promotion of American's partitions. He supervised or participated in the making of cost estimations, price quotations, and sales servicing.

In 1954 Chernin was named as American's vice president in charge of sales and advertising. He was in direct charge of all of American's sales and costing personnel except the manager, now deceased, of American's Bound Brook plant who had coordinate sales authority in respect to that plant. The remuneration for his services was identical to that of Cunningham.

Engle was initially employed by American in 1951 as a draftsman. In 1952 Engle was made the toolroom foreman of American's Milwaukee plant, which position he occupied until he left American's employment on November 15, 1956. As toolroom foreman, Engle was responsible for the repair of American's machines; for the maintenance of its dies and machine parts; for the preparation of its drawings; for the custody of such drawings and patterns; and for the scheduling of production. In the performance of these responsibilities, Engle supervised the work of American's draftsmen, its machinists, die repairmen, stock clerk, and mechanics.

In May 1956 Millard, Cunningham, and Chernin and Engle, who agreed to assist them, made plans to put themselves into a position to go into the partition manufacturing business should continued employment by Standard Brands become unavailable or undesirable. They chose to use U. S. Partition & Packaging Corp. as a vehicle for this purpose.

Defendant, U. S. Partition & Packaging Corp., was incorporated under the laws of Wisconsin on April 23, 1953, under the then name of U. S. Trading Corporation. Such company is hereinafter generically called "U. S. Partition." It has its principal place of business at 1640 West Silver Spring Drive, Glendale, Wisconsin, hereinafter referred to as the "Glendale property." At the time of its organization, its officers were Millard as president, Cunningham as vice president, and Chernin as secretary-treasurer. At all times these men have constituted its board of directors and, together with the wives of Chernin and Cunningham, have been its only stockholders. At the present time, Chernin is president, Cunningham is vice president, and Engle is assistant vice president of U. S. Partition. U. S. Partition has been since January 7, 1957, and is now engaged in the business of manufacturing and selling chipboard and other paper product partitions for cases, boxes, and containers. Since on or about January 24, 1957, U. S. Partition's operations have been in direct competition with those of American.

In support of its allegations of conspiracy to engage in unfair competition, Standard Brands claims that Millard, Cunningham, and Chernin, aided by Engle, used their positions and the opportunities thereby available to them at American secretly to plan and carry into effect the business operations carried on in the name of the corporate defendant, U. S. Partition, in competition with those of Standard Brands. Specifically it is claimed that defendants, in realizing their objectives, wrongfully engaged in the following activities: (1) They diverted to themselves a business opportunity in the acquisition of the Glendale property; (2) they made improper use of American's drawings and patterns; (3) while employed at American, as well as after terminating their employment with plaintiff, they solicited and used American personnel to work for U. S. Partition; and (4) they usurped the good will of American's customers.

Allegedly, these acts are wrongful because they were undertaken in breach of the fiduciary duty these agents owed their principal, Standard Brands. Additionally, it is claimed that there was wrongful appropriation of trade secrets. The facts in respect to these activities, as stipulated by the parties and as established by the evidence on the trial of the case, follow.

1. The Acquisition of the Glendale Property.

Under date of November 2, 1955, the board of directors of U....