United Aircraft Corp. v. Boreen, 17446-17454.

• Decision Date: 17 July 1969
• Docket Number: No. 17446-17454.,17446-17454.
• Citation: 413 F.2d 694
• Parties: UNITED AIRCRAFT CORPORATION, Appellant in No. 17,446, v. Henry I. BOREEN, Appellant in No. 17,447. (D. C. Civil Action No. 43563) UNITED AIRCRAFT CORPORATION, Appellant, v. Richard H. MOYER. (D. C. Civil Action No. 43586) UNITED AIRCRAFT CORPORATION, Appellant, v. Achille POLLINO. (D. C. Civil Action No. 43587) UNITED AIRCRAFT CORPORATION, Appellant, v. John H. KINDREGAN. (D. C. Civil Action No. 43588) UNITED AIRCRAFT CORPORATION, Appellant, v. Louis N. POMANTE. (D. C. Civil Action No. 43589) UNITED AIRCRAFT CORPORATION, Appellant, v. Stephen MARKOE. (D. C. Civil Action No. 43590) UNITED AIRCRAFT CORPORATION, Appellant, v. Eugene C. CONSER. (D. C. Civil Action No. 43591) UNITED AIRCRAFT CORPORATION, Appellant, v. Alvin ATTESON. (D. C. Civil Action No. 43598)
• Court: U.S. Court of Appeals — Third Circuit

413 F.2d 694 (1969)

UNITED AIRCRAFT CORPORATION, Appellant in No. 17,446, v. Henry I. BOREEN, Appellant in No. 17,447. (D. C. Civil Action No. 43563)

UNITED AIRCRAFT CORPORATION, Appellant, v. Richard H. MOYER. (D. C. Civil Action No. 43586)

UNITED AIRCRAFT CORPORATION, Appellant, v. Achille POLLINO. (D. C. Civil Action No. 43587)

UNITED AIRCRAFT CORPORATION, Appellant, v. John H. KINDREGAN. (D. C. Civil Action No. 43588)

UNITED AIRCRAFT CORPORATION, Appellant, v. Louis N. POMANTE. (D. C. Civil Action No. 43589)

UNITED AIRCRAFT CORPORATION, Appellant, v. Stephen MARKOE. (D. C. Civil Action No. 43590)

UNITED AIRCRAFT CORPORATION, Appellant, v. Eugene C. CONSER. (D. C. Civil Action No. 43591)

UNITED AIRCRAFT CORPORATION, Appellant, v. Alvin ATTESON. (D. C. Civil Action No. 43598)

Nos. 17446-17454.

United States Court of Appeals Third Circuit.

Argued March 4, 1969.

Reargued June 17, 1969.

Decided July 17, 1969.

Alan Y. Cole, Cole & Groner, Washington, D. C., for appellant, United Aircraft Corp. (Isaac N. Groner, Washington, D. C., LaBrum & Doak, Philadelphia, Pa., on the brief).

Bernard M. Borish, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., for appellees Henry I. Boreen and others (Judah I. Labovitz, Philadelphia, Pa., on the brief).

Before McLAUGHLIN, KALODNER and SEITZ, Circuit Judges.

OPINION OF THE COURT

SEITZ, Circuit Judge.

United Aircraft Corporation (plaintiff) brought these diversity actions in the district court against eight of its former employees. It charged the defendant Boreen with breach of a covenant not to compete. It also asserted claims against all the defendants, claiming wrongful interference with plaintiff's contract rights as well as breaches of fiduciary duty and conspiracy. After final hearing the district court determined that Boreen violated his covenant not to compete and granted injunctive relief, but it decided the other basic issues in favor of the defendants.¹ United Aircraft v. Boreen, et al., 284 F.Supp. 428 (E.D.Pa.1968). The district court, at the request of the parties, reserved jurisdiction over claims relating to trade secrets and damages. However, it made its judgment final as to the matters decided by incorporating the recitals required by F.R.Civ.P. 54(b). Plaintiff appeals and Boreen cross appeals. We turn to the basic facts.

After substantial negotiation plaintiff and Vector Manufacturing Company (Vector) entered into a Plan and Agreement of Reorganization (Plan) dated December 30, 1963, by the terms of which plaintiff acquired substantially all of Vector's assets as a "going concern" in return for shares of plaintiff's stock, having a then market value of $3,600,000. The Plan required Vector to dissolve. Boreen through his stockholdings in Vector was entitled to approximately one-third of the United shares to be distributed. The Plan also required Boreen, as one of the three principals of Vector, to deliver to plaintiff a covenant not to compete. After some changes were made in the terms of two earlier drafts, the covenant in issue was executed by Boreen on February 13, 1964.

Immediately following the acquisition of Vector, plaintiff employed Boreen under a contract at will as Chief Engineer of the Vector Department of the Norden Division as well as Assistant Secretary of plaintiff. When on May 1, 1965, the Vector Department became the Vector Division of plaintiff, Boreen became Vice President of that division. Plaintiff had six other divisions.

Boreen left plaintiff on March 1, 1967. On May 9, 1967, Boreen caused a corporation known as Solid-State Scientific Corporation (Solid-State) to be formed. He became its president and all the defendants subscribed to its shares. Over the course of the next few months following Boreen's departure from plaintiff, the other defendants, who had also been employed at will in the Vector Division, terminated their employment with plaintiff and went to work for Solid-State. These actions were filed shortly thereafter.

DEFENDANT BOREEN'S APPEAL

Enforceability of Boreen's Covenant Not to Compete

We first consider Boreen's appeal attacking the correctness of the district court's finding that Boreen breached his covenant not to compete by working for Solid-State. The covenant provides:

"In order to induce you plaintiff to purchase the assets of Vector Manufacturing Company, Inc. ("Vector") pursuant to the provisions of the Plan and Agreement of Reorganization dated December 30, 1963, between you and Vector and in consideration of your agreement to employ the undersigned, the undersigned, being an officer, director and one of the principal stockholders of Vector, hereby agrees that, for a period of five years from the date hereof or from the date the employment of the undersigned by you shall cease, whichever is later, the undersigned will not, without your prior written consent, directly or indirectly, on a full or part-time basis, engage in or perform any services as a principal, partner, substantial stockholder, trustee, officer, director, employee, consultant or otherwise in connection with the manufacture or sale of any product competitive with the products being manufactured or under development by Vector on the date hereof or which at the time of the termination of the undersigned\'s employment with you are being manufactured or developed by that portion of your business being carried on with substantially the assets acquired by you pursuant to the said Plan and Agreement of Reorganization."

The district court concluded that Solid-State was manufacturing and selling Solid-State products competitive with those which Vector was manufacturing and developing on February 14, 1964, (covenant execution date), and which the Vector Division of plaintiff was manufacturing and developing on March 1, 1967 (termination date of Boreen's employment). Boreen contends that both conclusions are erroneous.

The parties and the district court directed a great amount of attention to the issue as to the meaning and effect of that portion of the covenant dealing with products being manufactured or developed by Vector at the date the covenant was executed (February 14, 1964). However, we deem it unnecessary to decide this issue if the portion of the covenant applicable to the termination of Boreen's employment is enforceable. We say this because with one exception the subject matter of the covenant relating to Vector products in competition or under development as of the covenant execution date is necessarily embraced by that part of the covenant relating to products in competition as of the termination date of Boreen's employment. The one exception is as to products in competition at the earlier date, but no longer in production at the later date. Since the covenant only speaks to competitive products, we do not understand plaintiff to be seeking relief as to this latter class of products. On this basis it would therefore seem reasonable to direct our attention now only to the restraint applicable at the termination date of Boreen's employment on March 1, 1967. That portion of the covenant reads:

"the undersigned will not without your prior written consent, directly or indirectly, on a full or part-time basis, engage in or perform any service * * * in connection with the manufacture or sale of any product competitive with the products * * * which at the time of the termination of the undersigned\'s employment with you are being manufactured or developed by that portion of your business being carried on with substantially the assets acquired by you pursuant to the said Plan and Agreement of Reorganization."

Boreen contends that under the "language of the covenant, which is written in the passive voice, the real question is whether the Vector Division of U. A. C. plaintiff was on March 1, 1967, being carried on with substantially the assets acquired from V. M. C. Vector." He says that plaintiff failed to prove that it was so being carried on. He argues that, to the contrary, such evidence as there is in the record clearly shows that the pertinent portion of plaintiff's business is being carried on with equipment, purchased by plaintiff after it acquired Vector and having a much greater value than that acquired from Vector; that this is so whether the focus is on plaintiff's Vector Division or the Micro-Lab portion thereof.²

As we analyze Boreen's argument, he seems to be contending that because plaintiff supplied the Vector Division with large amounts of capital after its acquisition that that Division was no longer "being carried on with substantially the assets acquired from Vector," and, accordingly, that portion of the covenant was no longer enforceable. In considering this contention we note at the outset that the need for new capital for expansion purposes was the very reason Vector approached plaintiff about the acquisition. Under these circumstances Boreen's argument does not commend itself as a prima facie reasonable reading of those words of the covenant.

We think there is an additional important circumstance which tends to negate Boreen's construction of this aspect of the covenant. Boreen was to be employed by plaintiff and, as the district court noted, would be expected to work in that portion of plaintiff's business which became the former Vector going concern. So viewed the covenant was in the nature of a covenant not to compete ancillary to an employment agreement, albeit at will. The plaintiff had a real business interest in preventing Boreen from later "competing" with products being manufactured or developed by that portion of plaintiff's business in which he would be employed at the time he left. This is even more so because of Boreen's admitted expertise in the product field embraced by the Vector Division.

Furthermore, we do not think a reasonable meaning of the language is controlled by the mere use of the passive voice. Rather we believe the evidence strongly suggests that the words of the covenant...