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United Aircraft Corp. v. Boreen

decided: July 17, 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)



Reargued June 17, 1969.

McLaughlin, Kalodner and Seitz, Circuit Judges.

Author: Seitz

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.*fn1 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 ...


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