Opinion
01-19-1903
FLECKENSTEIN BROS. CO. v. FLECK ENSTEIN.
Charles W. Fuller, for complainant. James A. Gordon, for defendant.
Suit by the Pleckenstein Bros. Company against Edward Pleckenstein. On motion for preliminary injunction restraining defendant from engaging in a certain business. Injunction granted.
Charles W. Fuller, for complainant.
James A. Gordon, for defendant.
STEVENSON, V. C. (orally). My conclusion is that the injunction should be granted in accordance, as I recall it, substantially with the prayer of the bill. That is to say, an injunction will go, restraining the defendant from committing any breach of the contract which he entered into; and, so far as I recollect the words of the contract, they may be followed in the injunction.
I laid this case aside to wait for the brief of counsel upon a single point, and during that period entered upon another case that crowded almost everything else from my mind. I shall only undertake now briefly to indicate some of the reasons—the main reasons, as I now recall them—that support the conclusion which I reached.
The defendant sold a business, including the good will of the business, and he backed up his sale by his personal covenant that he would not enter into the same business within three counties of the state for a period of 10 years. The defendant who made this sale had a short time before sold one-half of the business to another party, or at least another party acquired a half, and it was the remaining, half which was sold to the assignors of the complainant; and with these assignors he entered into this contract restraining himself from engaging in a competing business within a limited time, and within a limited area. At the same time the purchaser, the assignor of the complainant, entered into an engagement with the defendant not to sell the business until the purchase price should be paid, or until a portion of the purchase price, which, as I now recollect, was $5,000, was paid. At the time of this sale the business was being carried on in the name of E. Fleckenstein & Co.; E. Pleckenstein (Edward Fleckenstein) being the seller of the business. At that time there was being carried on what was manifestly a competing business by the brother of Edward Fleckenstein, a man named George Fleckenstein. There were thus two Fleckenstein establishments competing in this same bologna and provision business. The covenant of the defendant was intended to prevent him from competing with the one business which he sold. Of course, it could not interfere with competition on the part of the other Fleckenstein establishment. The purchasers from Fleckenstein entered first into a partnership with the person who had the other half of the business, and after a transfer, I think, of that one-half, finally the business was all transferred to a corporation; and, as was stated, and as I understood it was admitted by counsel, at the same time the rival Fleckenstein business was also conveyed to this same corporation. A corporation was organized under the name of Fleckenstein Bros., or Fleckenstein Bros. Co., and the Fleckenstein Bros. Co. are the complainants in this case: and by this consolidation they brought into one business the two rival Fleckenstein establishments.
It does not appear that when the original purchasers from Edward Pleckenstein transferred to the corporation the business, or their interest in it, they transferred, in terms, the covenant which Fleckenstein entered into with them, restraining him from carrying on a competing business. Nor was the covenant made by Fleckenstein with these sellers and their assigns. It is insisted, therefore, that it is a personal covenant, and not assignable. My conclusion, however, is that the covenant, if not intended to be assigned by the original covenantees when they made their transfer to the complainant corporation, about which the testimony, perhaps, is doubtful,—certainly unsatisfactory,—at least was subsequently assignable to the party who took the business. Such covenants have all their vitality and value from their association with the business. They are intended to protect a business, to keep it, and make it valuable to the purchaser; and, even if the transfer by the purchaser to the company was not accompanied by a transfer of this covenant, the corporation might well rely upon their getting the benefit of the covenant as long as it remained in the hands of the purchasers,—the original purchasers. These purchasers became interested in the corporation,— undoubtedly took stock in the corporation. I think they took stock in exchange for their interest, or at least in exchange for a part of their interest. The corporation got all the benefit of it without an actual assignment. Subsequently, in my judgment it was entirelycompetent to complete the whole transaction by a transfer to the corporation of this covenant; and the covenant was assignable in that way, and for the purpose for which it was assigned, and to the party to whom it was assigned. I am satisfied that that is the correct conclusion.
The question which perhaps might give more difficulty remains,—whether this original agreement which these purchasers made, that they would not transfer the business until the consideration was paid, had the effect to prevent the covenant from being assignable until the money was paid. But I do not think it is necessary to discuss that question, because the proof, it seems to me, is ample that Edward Fleckenstein was entirely conversant with this whole consolidation, and, so far from protesting against it, he approved it. He thought it was a good thing. His relations with the purchasers of his interest remained very friendly after the consolidation had been effected. And last of all, in order to protect the notes which he held, representing the $5,000, he took a pledge of stock which these purchasers received from the corporation, so that he holds a portion, apparently, of the consideration which the purchasers received when they transferred to the corporation, as security for his notes, for the debt due him. I think, under these circumstances, that he is not in a position to complain of the transfer either of the business or of the covenant.
The last question is as to the propriety of an injunction in this case, the right of the complainant to it, in view of the fact that the defendant disavows any intention to compete,—to enter into any competing business. Now, there is no doubt about it that, before this bill was filed, counsel had been engaged for the complainants to protect their rights. The defendant, Edward Fleckenstein, was threatening to establish a competing business. He had bought property, and was putting up a factory, and was making all his arrangements to go into the bologna and provision business in his own name, in violation of this covenant. When notified by counsel for the complainants, he conferred with his counsel; and the result was that he announced that he was not Intending to go into a competing business,—that he had abandoned that intention, and would let his property. In his answer, as I recall it, that is the defense—the main defense—which he presents. He said he had abandoned his purpose, and he proposed to let the property. He takes pains in this answer to conceal the most essential facts in regard to this letting, which were afterwards looked up by the complainant. It seems that, being afraid of litigation which would prevent him from going on with this competing business, he abandoned that project, and his wife, whose name is Rosina E. Fleckenstein, and her brother, a bologna manufacturer, named Nicklaus Kerber, of Jersey City, made up a partnership, and took possession of this property, under lease from the husband, Edward Fleckenstein. and got out their wagons with the name of "R. E. Fleckenstein & Co." upon them, and they propose to go on and do business; the wife boldly declaring (that is, as we are informed by the husband) that she has a right to go in business in her own name, that her name is R. E. Fleckenstein, and that she has a right to use it in business. The covenant in question restrained Edward Fleckenstein from doing business in the name of E. Fleckenstein & Co., and allowed the purchasers of the business to carry on business in that name. It, therefore, is apparent that the wife and her brother, if she goes into this business, under the name of R. E. Fleckenstein & Co., will simulate almost perfectly the title of the original business. Now, it may be that the husband cannot prevent this thing from being done. It is true that a married woman is independent of her husband, or may be, in relation to her business and her name. But the whole case is exceedingly suspicious. And when we find that this man had openly undertaken (the defendant, I mean,—Edward Fleckenstein) to violate his covenant not to establish a competing business; that he only desisted from doing that when threatened by a lawsuit, after this suit practically had been commenced (because, virtually, a suit was announced when counsel was engaged)— When we find that he only abandoned his threatened breach of this covenant after he had been notified by counsel, and when we find, after concealing the party to whom he proposed to let the premises, in his answer, that this party consists of his own wife and her brother, and that they propose to do business in her name, and that her name is R. E. Fleckenstein, the case is made out, in my judgment, where very properly an injunction should issue. This court is not obliged to take Mr. Fleckenstein's disclaimer after he has made this open threat to violate his covenant; nor is this court obliged to take his representation (for that is what it is) that he is innocent; that he has not directly or indirectly engaged, or proposed to engage, in this competing business in the name of his wife.
Of course, I do not mean to rule here, upon this motion, that the defendant Edward Fleckenstein has made a breach of his covenant, and that the breach consists in these transactions on the part of his wife and her brother. They may be doing these things independently of him; they may say that they have an opportunity to get the benefit of this name and a portion of this good will, and that, as they are not restrained by any covenant on his part, they are going to get it; and they may be doing this thing entirely independently of Mr. Fleckenstein; and, of course, any inquiry into that matter properly comes up upon a charge against him for contempt in violating the injunction. The only question that I decidenow is that this is a proper case in which an injunction should be laid upon him, restraining him from the violation of this covenant, which he threatened to violate openly, and which now, apparently, there is strong ground for suspecting he is undertaking to violate secretly and in the name of his wife. He may therefore be enjoined, and then the complainants can take such course as they see fit to have his operations restrained further, if they can bring sufficient evidence to show that those operations are in fact in violation of this covenant, and of the injunction which will now be put upon him.