Universal Electric Corp. v. Golden Shield Corp., 6007.

• Decision Date: 22 April 1963
• Docket Number: No. 6007.,6007.
• Citation: 316 F.2d 568
• Parties: UNIVERSAL ELECTRIC CORPORATION et al., Defendants, Appellants, v. GOLDEN SHIELD CORPORATION, Plaintiff, Appellee.
• Court: U.S. Court of Appeals — First Circuit

316 F.2d 568 (1963)

UNIVERSAL ELECTRIC CORPORATION et al., Defendants, Appellants, v. GOLDEN SHIELD CORPORATION, Plaintiff, Appellee.

No. 6007.

United States Court of Appeals First Circuit.

April 22, 1963.

Alvaro R. Calderon, Jr., San Juan, P. R., with whom Newton A. Lane, Boston, Mass., Francisco Ponsa Feliu and Ponsa Feliu & Calderon, San Juan, P. R., were on the brief, for appellants.

Victor House, San Juan, P. R., with whom Wallace Gonzalez Oliver and McConnell, Valdes & Kelley, San Juan, P. R., were on brief, for appellee.

Before WOODBURY, Chief Judge, and MARIS^* and ALDRICH, Circuit Judges.

WOODBURY, Chief Judge.

The plaintiff below, Golden Shield Corporation, was organized in 1959 under the laws of Delaware. It established its principal office and place of business in Great Neck, Long Island, New York, and embarked in the business of designing, procuring and distributing lines of household articles and equipment such as radios, phonographs, television sets, vacuum cleaners, sewing machines, typewriters and so forth under the trade name and mark "Golden Shield." In April 1960 it qualified to do business in Puerto Rico where it established an office and warehouse, and where, under contracts with the manufacturers, it was the exclusive distributor of a number of well known products such as Sylvania television sets, Gibson refrigerators, Barton electric washing machines, Perfection gas and electric appliances, Smith-Corona typewriters and other products which it marketed under its own name, with or without identification of the manufacturer. It soon developed a substantial and profitable business in Puerto Rico selling to five or six hundred retail concerns for the most part in the credit furniture field.

Soon after the plaintiff corporation was organized it employed the defendant William Israel, at first as Credit Manager and later as Vice President and controller, and shortly afterward it employed the defendant Alvin Gross, at first as a commission salesman and later as its Sales Manager in Puerto Rico. Both were employed for calendar years under written agreements, the last of which were renewed on February 10, 1961, and as of January 3, 1961, respectively. In these contracts Israel and Gross agreed to faithfully serve and to devote their whole time, attention and energies to Golden Shield's business and they also agreed that within one year from the date of the termination of their employment they would not "work for or assist any persons, firm or corporation engaged in, nor himself engage, directly or indirectly, in any line of business carried on at the time of his termination of employment by the Company, nor furnish any information to anyone engaged or interested in such line of business concerning the business transactions or business secrets of the Company or a subsidiary thereof."

Israel and Gross voluntarily terminated their employment with plaintiff on January 31 and February 3, 1962, respectively, and their resignations were promptly accepted.¹

On February 9, 1962, Golden Shield, invoking jurisdiction under 48 U.S.C. § 863, filed a complaint in the court below in which it alleged that Israel and Gross, being in effect in charge of its business in Puerto Rico, had become well acquainted with its suppliers, customers and personnel and with its arrangements with all of them, and charged the two with violating the trust and confidence reposed in them as employees and with violating the restrictive covenants in their employment agreements by early in 1962 secretly and surreptitiously conspiring to set up a competitive business and in pursuance of that objective causing the incorporation under the laws of Puerto Rico on January 24, 1962, of the corporate defendant, Universal Electric Corporation.

The court below acting on the complaint and supporting affidavits first issued a temporary restraining order under Rule 65 of the Federal Rules of Civil Procedure and a few days later, on notice, held a hearing on the plaintiff's application for a temporary injunction. Following that hearing, at which both individual defendants testified, the court filed a memorandum in which it said: "It would be difficult to find in the field of equity a case more typical of piracy toward a former employer so successfully accomplished by its former trusted employee than that resulting from the evidence in this action on the own admission of the culprits." On the next day the court filed formal findings of fact, two of which are as follows:

"(2) The individual defendants secretively and unlawfully, prior to the termination of their employment by the plaintiff, organized the defendant corporation in Puerto Rico to operate a business competitive with the plaintiff, and in furtherance thereof wrongfully utilized the plaintiff\'s facilities and unlawfully appropriated records of the plaintiff, and while still in the plaintiff\'s employ or immediately following the termination thereof on or about January 31, 1962, wrongfully approached suppliers and dealers of the plaintiff to advise such suppliers and dealers of the establishment of such competitive undertaking and to solicit their termination of relations with the plaintiff and the transfer of their business arrangements to the corporate defendant, and also solicited and enticed salesmen and other employees of the plaintiff from its employ to enter the employ of the corporate defendant.

"(3) The said acts of the defendants were designed, intended and calculated to damage the plaintiff irreparably and were in fact calculated to destroy its business."

Then, brushing aside the defendants' contention that the plaintiff had come into court with unclean hands and ruling that a preliminary injunction was necessary to avoid irreparable injury to the plaintiff from the continuation or resumption of the acts complained of, the court issued a preliminary injunction restraining the defendants in sweeping terms from competing with or in any way interfering with the plaintiff's business in Puerto Rico until further order of the court.

The defendants thereupon appealed under Title 28 U.S.C. § 1292(a) (1).

It clearly appears from the testimony of the individual appellants themselves that early in January 1962 they conceived the idea, which they did not disclose to their superiors, of taking over the plaintiff's lucrative Puerto Rican business for themselves, and that in furtherance of their plan caused the incorporation of the corporate appellant.² And Gross testified that before he resigned he approached a number of Golden Shield's salesmen and service employees in Puerto Rico with the view of obtaining their services for the corporate defendant and also approached some of Golden Shield's retail outlets with the view of inducing them to do business with his new organization. Moreover, he also testified that immediately after he resigned he solicited the business of a number of Golden Shield's customers. In short, the appellants do not deny the conduct attributed to them by the court below. Their contention is that their conduct does not warrant the legal consequences applied by that court, which ruled that the "* * * acts of the defendants are improper and unlawful per se, as well as in violation of the individual defendants' express covenants with the plaintiff."

We quite agree with the court below. It seems to us clear that the conduct of the individual appellants as high officers of the plaintiff corporation who were in charge of its Puerto Rican business in joining forces to deprive their employer of its customers and employees in Puerto Rico not only violates the appellants' contracts of employment but also falls substantially below the standard imposed by law upon persons acting as agents or employees of others.

The contracts of employment were signed in New York. And performance by Israel was to be in New York. Although performance by Gross was contemplated in Puerto Rico, we are content, in the absence of any showing of a different legal rule in Puerto Rico, that New York law governs the interpretation of the contracts of employment, as the appellants contend. But in our opinion the appellants can draw no comfort from the law of that jurisdiction.

They strenuously contend that agreements not to compete should be looked upon with disfavor by the...