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HomeMy WebLinkAbout98-0193 CivilTRUE TEMPER HARDWARE COMPANY, Plaintiff Vo HARDWARE SALES COMPANY and DANNY PYRON, Defendants · IN THE COURT OF COMMON PLEAS OF · CUMBERLAND COUNTY, PENNSYLVANIA · CIVIL ACTION -- EQUITY · No. 193-1998 CIVIL TERM INRE: AD~DICATID_N BEFDREOLER,J. D~I AND NOW, this 20th day of July, 1998, upon consideration of Plaintiff's complaint and of Defendants' counterclaim, following a trial and for the reasons stated in the o All other relief requested by either party is denied. BY THE COURT, accompanying opinion, it is ordered, adjudged and decreed as follows: 1. On Plaintiff's complaint, the court finds in favor of Defendants and declines to enforce in equity the restrictive covenant sub judice contained in the Sales Representative Agreement executed by Defendant Danny Pyron on behalf 6f Defendant Hardware Sales Company on June 4, 1995; 2. On Defendants' counterclaim, the court finds in favor of Defendant Hardware Sales Company and against Plaintiff in the amount of $1,500, with interest sec. leg. from December 15, 1997. Mark D. Bradshaw, Esq. ECKERT SEAMANS CHERIN & MELLOTT, LLC 213 Market Street P.O. Box 1248 Harrisburg, PA 17108-1248 Attorney for Plaintiff Glenn R. Davis, Esq. LATSHA DAVIS & YOHE, P.C. P.O. Box 825 Harrisburg, PA 17108-0825 Attorney for Defendants TRUE TEMPER HARDWARE COMPANY, Plaintiff Mo HARDWARE SALES COMPANY and DANNY PYRON, Defendants · IN THE COURT OF COMMON PLEAS OF : CUMBERLAND COUNTY PENNSYLVANIA · CIVIL ACTION -- EQUITY · NO. 193-1998 CIVIL TERM INRE:ADJUDICATION BEFORE OLER,_.L OPINION~nd DECREE NISI OLER, J., July 20, 1998. In this equity action, a manufacturer is suing a manufacturer's representative for specific performance of a restrictive covenant in a sales representative agreement) The manufacturer's representative has counterclaimed for certain commissions which allegedly remain unpaid by Plaintiff, inter alia.z Trial was held in this matter on Thursday, June 4, 1998, and Wednesday, June 10, 1998.3 For the reasons stated in this opinion, the court will decline to specifically enforce the restrictive covenant and will award damages in the amount of $1,500 on the counterclaim· FINDINGS OEFACT 1. Plaintiff is Tree Temper Hardware Company, an Ohio corporation, with offices at ~ Plaintiff's complaint seeks a declaratory judgment as to the enforceability of the parties' agreement and specific performance of the restrictive covenant. z Defendant's counterclaim contains misrepresentation and quasi contract. counts for breach of contract, negligent 3 Pursuant to an agreement of counsel, the record of proceedings relating to a preliminary injunction request were also incorporated into the trial record. 465 Railroad Avenue, Camp Hill, Cumberland County, Pennsylvania. 2. Defendant Hardware Sales Company is a Tennessee partnership, with offices at North Suite 6, Shelby Oaks Drive, Memphis, Shelby County, Tennessee. 3. Defendant Danny Pyron is an adult individual, residing at 3531 Harvest Lane, Bartlett, Shelby County, Tennessee; he is a partner in Defendant Hardware Sales Company. 4. In June of 1994, Plaintiff and Defendant Hardware Sales Company orally agreed that Defendant Hardware Sales Company would serve as Plaintiff's manufacturer's representative with an exclusive five-state territory consisting of Arkansas, Louisiana, Mississippi, Alabama and Tennessee. 5. Defendant Hardware Sales Company began selling for Plaintiff in July of 1994. 6. Under the commission schedule which the parties adhered to, Defendant Hardware Sales Company was able to earn about $70:000 per year on sales for Plaintiff; this represented about 15 percent of the business of Defendant Hardware Sales Company. 7. At the beginning of June, 1995, a written contract was forwarded by Plaintiff to Defendant Hardware Sales Company; this Sales Representative Agreement was executed on behalf of Defendant Hardware Sales Company on June 4, 1995, by Defendant Danny Pyron. 8. This written agreement included a commission schedule identical to that being utilized on an informal basis under the parties' oral agreement. 9. The written agreement contained two provisions not previously included in the oral arrangement: 15. The Company reserves the right to change this Agreement, including the commission payable dates, the Products Schedule, the Area Schedule, the Excluded Customer Schedule, the Resident Sales Personnel Schedule, the Commission Schedule, and the Key Accounts Schedule at any time upon thirty (30) days advance written notice to the Representative. In the event the Company. elects to add any product to the Products Schedule, during the thirty (30) day advance notice Representative shall notify the Company in writing and in detail 2 10. 11. of any existing contractual commitments which Representative has with another manufacture[r] for the representation of products that compete with the product added by the Company to the Products Schedule pursuant to such notice. If Representative is obligated to notify the Company of any such contractual commitment pursuant to the preceding sentence, the Company's election to add such product to that Products Schedule shall be null and void as if the same had never been made. The Company may thereafter, at its option, nevertheless elect to add such product to the Products Schedule, but in such event, the Company shall be deemed to have waived the requirements of paragraph 19 of this Agreement to the extent that it requires Representative to refrain from representing products of other manufacturers which compete with the added product which was the subject of Representative's notification requirement. The Company may delete products from the Products Schedule at any time without notice. 16. Except as otherwise required by applicable law or unless superseded by a later-date Sales Representative Agreement between the parties, this Agreement shall continue in full force and effect until terminated without cause by either party upon thirty (30) days prior notice in writing to the other party. Except as otherwise required by applicable law, this Agreement may be terminated immediately upon default by either party hereto (the "defaulting party") by the other party (the "non-defaulting party") delivering written notice to the defaulting party of termination for default. Events of default shall include, but not be limited to, failure to observe, perform, or carry out any of the obligations hereunder, the defaulting party becoming a bankrupt or committing an act of bankruptcy or having a receiver or receiver/manager of its assets appointed or making an assignment for the benefit of creditors or otherwise. The parties operated harmoniously under this agreement? In its capacity as a manufacturer's representative for Plaintiff, Defendant 4 Under the agreement, commissions were payable on or before the fifteenth day of the month following the close of Plaintiff's monthly accounting period. 3 Hardware Sales Company was privy to Plaintiff's pricing information and comparisons of Plaintiff's products with those of competitors. 12. In June of 1997, Plaintiff adopted a change in the commission schedule, whereby commissions were based on the profitability to Plaintiff of sales. 13. Defendant Hardware Sales Company reasonably concluded that such a commission schedule would not be economically feasible for it; indeed, for one succeeding sales period the manufacturer's representative actually owed the manufacturer several thousand dollars for sales that had been made on behalf of the manufacturer. 14. After unsuccessfully seeking a return to the prior type of commission schedule based upon gross sales as opposed to profitability, Defendant Hardware Sales Company notified Plaintiff by letter dated November 12, 1997, that it would no longer serve as Plaintiff's manufacturer's representative. 15. Plaintiff still owes Defendant Hardware Sales Company $1,500 in commissions under the commission schedule imposed by Plaintiff in June of 1997. 16. Since the termination of the parties' relationship, Defendant Hardware Sales Company has become a manufacturer's representative for a competitor of Plaintiff. 17. Since the termination of the parties' relationship, Plaintiff has returned to a commission schedule based upon gross sales as opposed to profitability for its various manufacturer's representatives. DISCUSSION As Judge Cavanaugh of the Pennsylvania Superior Court has noted, the common law has traditionally regarded restrictive covenants in the nature of covenants not to compete by employees with some "disfavor." Davis & Warde, Inc. v. Tripodi, 420 Pa. Super. 450, 465, 616 A.2d 1384, 1392 (1992) (Cavanaugh, J., dissenting), appeal denied, 536 Pa. Super. 624, 637 A.2d 284 (1993). "This heightened scrutiny stems from a historical reluctance on the part of our courts to enforce any contracts in restraint of free-trade, particularly where they restrain an individual from earning a living at histrade." Insulatton' Corporation of America v. Brobston, 446 Pa. Super. 520, 529, 667 A.2d 729, 733 (1995). "[A]s a general rule, covenants not to compete are unenforceable [in equity] if overly broad in time, territory, or protection or if they create an unreasonable hardship .... "Krauss v. M.L. Claster and Sons, Inc., 434 Pa. 403, 407, 254 A.2d 1, 3 (1969). With respect to this rule, the reason for termination of the relationship between the employer and the employee is an important factor to be considered by a court of equity in determining whether to specifically enforce such a covenant. Insulation Corporation of America v. Brobston, 446 Pa. Super. 520, 535 n.8, 667 A.2d 729, 736 n.8 (1995). Injunctive relief may be deemed inappropriate where the employee's termination was not the result of misconduct, choice or other circumstances within the employee's control. See All-Pale Inc. v. Johnson, 398 Pa. Super. 345, 694 A.2d 347'(1997). ' In the present case, Defendant Hardware Sales Company found itself unexpectedly in a position, due to a commission schedule change unilaterally adopted by Plaintiff, where it reasonably concluded it could no longer profitably work for Plaintiff. In this regard, the court does not believe that Defendant could fairly have been expected to continue the relationship in the hope that over the long run the arrangement might again become profitable. Nothing in the record suggests that Defendant's performance was improper, that its decision to terminate the parties' relationship was one of choice, or that the conditions which precipitated the decision were under its control. Defendant's relationship with Plaintiff was a significant part of its business, and the effect of precluding such a relationship with another hardware manufacturer would obviously have a substantial adverse effect upon its operation. Under these circumstances, and without suggesting that the restrictive covenant subjudice 5 would be unenforceable in an action at law,s the chancery court will decline to issue a decree compelling specific performance of the covenant. CONCLUSIONS OF LAW 1. The court has jurisdiction over the parties and subject matter of this litigation. 2. Under the circumstances of this case, the restrictive covenant in the sales representative agreement between Plaintiff and Defendant Hardware Sales Company should not be enforced by the equitable remedy of specific performance. 3. Defendant Hardware Sales Company is entitled to be paid for commissions earned but remaining unpaid under the commission schedule adopted by Plaintiff in June of 1997. DECREE NISI AND NOW, this 20th day of July, 1998, upon consideration of Plaintiff's complaint and of Defendants' counterclaim, following a trial and for the reasons stated in the accompanying opinion, it is ordered, adjudged and decreed as follows: 1. On Plaintiff's complaint, the court finds in favor of Defendants and declines to enforce in equity the restrictive covenant sub judice contained in the Sales Representative Agreement executed by Defendant Danny Pyron on behalf of Defendant Hardware Sales Company on June 4, 1995; 2. On Defendants' counterclaim, the court finds in favor of Defendant Hardware Sales Company and against Plaintiff in the amount of $1,500, with interest sec. leg. from December 15, 1997. 5 See Boyce v. Smith-Edwards-Dunlap Co. v. Franklin Printing Co., Inc., 398 Pa. Super. 345, 580 A.2d 1382 (1990). 6 o All other relief requested by either party is denied. BY THE COURT, /s/.$..WesleyOler,_Jr. J. Wesley Oler, Jr., J. Mark D. Bradshaw, Esq. ECKERT SEAMANS CHERIN & MELLOTT, LLC 213 Market Street P.O. Box 1248 Harrisburg, PA 17108-1248 Attorney for Plaintiff Glenn R. Davis, Esq. LATSHA DAVIS & YOHE, P.C. P.O. Box 825 Harrisburg, PA 17108-0825 Attorney for Defendants