Unicon Management Corp. v. Koppers Company

• Decision Date: 07 September 1966
• Docket Number: 30125.,314,Dockets 30038,No. 313,313
• Citation: 366 F.2d 199
• Parties: UNICON MANAGEMENT CORP., Plaintiff-Appellant, v. KOPPERS COMPANY, Inc., Defendant-Appellee, Fletcher L. Byrom, Walter P. Arnold, H. A. Denny, R. G. Wilson, W. A. Anderson, Paul H. Titus and Harry W. Powell, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

366 F.2d 199 (1966)

UNICON MANAGEMENT CORP., Plaintiff-Appellant, v. KOPPERS COMPANY, Inc., Defendant-Appellee Fletcher L. Byrom, Walter P. Arnold, H. A. Denny, R. G. Wilson, W. A. Anderson, Paul H. Titus and Harry W. Powell, Defendants.

Nos. 313, 314, Dockets 30038, 30125.

United States Court of Appeals Second Circuit.

Argued April 11, 1966.

Decided September 7, 1966.

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Morris B. Abram, New York City (Thomas R. Farrell, Jr., Martin R. Gold, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, on the brief), for plaintiff-appellant.

William Piel, Jr., New York City (Robert E. Barnett, Sullivan & Cromwell, New York City, on the brief), for defendant-appellee.

Before LUMBARD, Chief Judge, and WATERMAN and ANDERSON, Circuit Judges.

LUMBARD, Chief Judge:

The question for decision is whether the district court abused its discretion in entering a temporary injunction against plaintiff which enjoined plaintiff and its officers from denying Koppers and its officers and employees the right to manage the offices of the defendant's Malan Department and to have access to the Malan offices at 2 Park Avenue, New York, and from destroying or mutilating or removing any records and papers relative to the Malan Department business; and from carrying on any Malan business except to the extent requested and authorized on behalf of Koppers by certain of its officers.

We find that Judge Bonsal's granting of the injunction, after hearing witnesses and upon the papers submitted, was not an abuse of discretion. He was well justified in concluding, on the record before him, that failure to safeguard Koppers by such an injunction might well have caused irreparable harm to Koppers while the granting of such relief could not cause irreparable harm to Unicon. We also find that the temporary restraining order, at the time it was issued by the district court, was a reasonable and necessary means of preserving the position of the parties as that was defined by their agreement and as clarified by the testimony at the hearing.

Koppers was and is a large company which had long engaged in heavy industrial work. In 1963, because of its interest in acquiring a company with experience in constructing water filtration and sewage disposal systems, it negotiated with the four Feldman brothers who had done such business through the Malan Construction Corporation, which they owned. In January 1964, Koppers and the Feldmans executed several agreements which resulted in the sale of the Malan business to Koppers and arrangements whereby the Feldmans, through the Unicon Management Corp., would continue to operate Malan as the Malan Department of Koppers for five years.

Koppers acquired the Malan name and part of its fixed assets for $75,000, and the "net contract assets" of two contracts on which Malan was then engaged, one for a water filtration system for Youngstown, Ohio, and a second for a sewage disposal plant at Newton Creek in New York City. For these two contracts Koppers paid $1,757,000 cash and also agreed to pay, on February 1, 1966, an additional $1,977,000, the amount of an outstanding loan owed by Malan to the Mellon National Bank in Pittsburgh, payment of which Koppers unconditionally guaranteed.

Under a "management contract," the four Feldmans, through Unicon, as its sole shareholders, officers and employees, agreed to provide management services to Koppers for five years for its Malan Department. Unicon's duties were specified to include the active daily management and administration, active solicitation of business and contracts, preparation of bids and estimates for customers, and supervision of all jobs undertaken by the Malan Department. In addition, Unicon was to render assistance in long-range planning, supply technical information and know-how relating to the construction business generally, and to assist Koppers in hiring Malan Corporation employees for the new Malan Department of Koppers. Unicon was permitted to use these new Koppers employees to complete certain work for a maximum of two years for which Unicon agreed to pay $50,000 each year.

Unicon would receive 50% of Malan's profits before taxes and also 10% of profits exceeding $1,500,000 in any year, in addition to $100,000 per year for five years as compensation for sundry expenses.

Apparently both parties were optimistic that with the Feldmans' experience and knowledge, especially in the area of lump sum bidding, and the name and resources of Koppers each party would benefit financially during the five years. Moreover, the Feldmans received large immediate cash benefits and Koppers hoped, after five years, to have an established department which it could then run itself.

Plaintiff's and defendant's versions of the relationship between the parties differ somewhat. Unicon claims that the first year "gave every indication" that the agreement would be a "resounding success." The district court found that during this period four new contracts were entered into, representing fifty million dollars of construction bids, including two contracts for 38 million which affect vital national interests. During this period, however, Koppers complained that profits on the purchased contracts were seriously deteriorating; that its hiring and firing procedures were not being followed, and as a result that the number of employees hired, as well as rate of employee turnover, was excessive. Moreover, the use of Koppers' employees by Unicon was alleged to be excessive. More serious differences of opinion between the parties arose in February 1965 regarding proper management of the Malan Department. Disagreement reached such a high pitch that Koppers' officers assigned to deal with Unicon were apparently threatened with physical expulsion from the Malan office.

Unicon claimed Koppers was interfering with its untrammeled right to manage the Malan Department for the five-year period. This untrammeled right, it is argued, flows from an interpretation of the "management contract," and from Unicon's right to receive most of the profits, which, Unicon claims, represents "the major consideration for the sale of Malan." In turn, Koppers claimed that it was denied access to its own department's files and personnel, and consequently Koppers' executives could not make informed judgments regarding the status of the work or of the problems involved. The unusual nature of this complaint is highlighted by the district court's findings that senior executives of Koppers Engineering and Construction Division were required to give personal assurances to its Malan customers that they would be directly concerned in the administration of contract performance, in bargaining to obtain the four new Malan contracts, and that at that time, some of the Malan contracts, including one contract of vital national concern with the U. S. Navy, were suffering from a lack of direction and control.

On June 29, 1965, Unicon commenced this action in the district court, seeking damages for $35,000,000 and an injunction against "further interference" by Koppers and its officers with its management rights under the contract. Koppers duly filed its answer, denying plaintiff's material allegations, and counterclaiming for an injunction to restrain Unicon from interfering with Koppers' management and control of the Malan Department, and damages of approximately $1,600,000. On July 26, 1965, following a hearing, Judge Bonsal granted a preliminary injunction in favor of Koppers against Unicon and the Feldmans which restrained them from destroying the files of the Malan Department, from denying access to...