The opinion of the court was delivered by: CLARY
This action, instituted under the Internal Revenue Laws of the United States, started with an application for receivership of all of the personal assets of Morris C. Goldberg, sole owner of the Pennsylvania Laundry Company, as well as the numerous corporations which he had assembled into a vast laundry complex. The owner, under circumstances herein related, was indicted, tried and convicted for willful income tax evasion. The claims of the government against the corporation exceeded $3,500,000 and the income taxes alleged to be due from Goldberg personally exceeded $5,000,000.
The present problem is whether this court has the right to enjoin Goldberg from engaging in competition with the Pennsylvania Laundry Company for a reasonable period of time after a Court directed sale of the physical assets of the company (plant equipment, etc.) and the good will of the company (routes, list of customers, trade secrets, etc.). The underlying facts of the case are as follows:
Morris C. Goldberg, sole owner of the Pennsylvania Laundry Company, was indicted in this Court under the indictment No. 20663 on nine counts, charging willful evasion of income taxes. After a lengthy trial, he was convicted on counts 2, 3, 4, 5, 7, 8 and 9 and sentenced on July 10, 1962, to three and one-half years on counts 2, 7 and 8 to run concurrently with each other, and to three and one-half years on counts 3, 4 and 9 to run concurrently with each other, but consecutive to the sentence under counts 2, 7 and 8. On count 5, he was given a suspended sentence with five years probation to be calculated upon his release from imprisonment. In addition, he was fined $10,000 on counts 2, 3, 4, 5, 7, 8 and 9, a total of $70,000.
The sentence was promptly appealed and after exhausting all appeal resources, the said Goldberg surrendered and started his sentence effective June 23, 1964. He served two years, six months and six days in the Federal Penitentiary at Lewisburg, Pa., and was paroled on November 28, 1966, the expiration of the parole to be June 22, 1971.
The vehicle through which Goldberg accomplished this wilful tax evasion was the Pennsylvania Laundry and its affiliated companies. All stock of the Pennsylvania Laundry was owned by Goldberg and is presently held by the Chase Manhattan Bank of New York under an agreement that the bank has the power to vote the stock and indeed has voted it and has elected a Board of Directors for the past few years.
On May 22, 1964, the United States, under the provisions of Section 7403(d) of the Internal Revenue Code filed the present suit in this Court against Goldberg and affiliated companies, asking for a receiver to take over all of the assets of Goldberg, as well as corporate assets, for the purpose of extinguishing the tax liability of Goldberg and of his companies to the United States. Receivers were appointed June 8, 1964.
Because of involvement with a South Carolina operation, known as Goldtex, wherein the Pennsylvania Laundry Company was a signator to a mortgage of some $650,000 and on which foreclosure proceedings had been instituted, it was impossible for the receivers who took charge of the businesses to accomplish more than a continued operation of the business. It soon became clear after several months that it was necessary, since Goldberg vehemently denied the tax amount of the lien, for the Court to appoint a tax counsel and tax attorney to negotiate with the government the tax liability of the Pennsylvania companies. After extended work by these appointees which lasted for a period of almost one year, the tax liabilities of the companies were set at $1,400,000, and a judgment for that amount was entered against the companies. In the meantime, because of a change in economic factors in the denim business, the receivers were able to extinguish the mortgage in the Goldtex matter amounting to some $650,000, the lien of which preceded that of the government for income taxes. This accomplishment of the receivers was indeed outstanding in that, up until a few weeks before the negotiation of this very advantageous sale, the highest price that could be obtained for the South Carolina plant was in the range of $250,000 to $300,000. Had the foreclosure been effected in ordinary course, all of the assets of the Pennsylvania Laundry would have been sold to satisfy the deficiency judgment. In other words, the trustees have preserved the most important assets of the Pennsylvania Laundry consisting not only of the plant equipment but also much more importantly the "good will" of the company consisting of routes, lists of customers, trade secrets, etc., which are the lifeblood of the laundry business.
On June 28, 1966, this Court, after conference with the trustees, directed them to prepare brochures and solicit bids for the purchase of the properties. At one time there was a very substantial offer accompanied by a check offering to purchase part of the Goldberg laundry complex consisting of routes, way-stations, etc. in the State of Pennsylvania. Because of the fears of the government, through the Assistant Attorney General and the attorneys for the Chase Manhattan Bank and a principal creditor whose combined claims against the corporations are about $900,000 that the sale of part might derogate against a more advantageous sale of the whole, the receivers reluctantly returned the deposit and negotiations were terminated.
The record of the hearings, all of which have been transcribed, indicates that these fears were justified. Goldberg's activities in the past in acquiring routes by rather unpleasant and devious procedures was well known to the trade and prospective purchasers, and they refused to make any bid with this "Sword of Damocles" hanging over their heads. In fact, one well-known Philadelphian visited this office and asked where he should submit a bid and with whom should he negotiate. He volunteered that the people he was speaking for had sufficient capital to "swing the deal" but that they were not interested in and would not submit any bid if Goldberg were allowed to compete with them. The gentleman was advised that the court was not interested in receiving any bids or hearing any statements concerning prospective purchasers and referred him to the receivers for any negotiations he might have in mind. Inquiry of the receivers reveals that no such approach was made.
The Court has been fully apprized of all proceedings in this case. As a matter of fact, the receivers and counsel for the receivers have held conferences at least once every two weeks during the progress of this litigation. The receivers have informed the Court of the activities of Mr. Goldberg in his attempt to regain control of his properties, and his counsel, Richardson Dilworth, Esq., and Judge Louis E. Levinthal have frankly stated to the Court the source from which he was attempting to get the fund, the Teamsters' Pension Fund.
To the fullest extent possible, Mr. Goldberg's attorneys have been furnished with data which would enable any lending institution to make a full appraisal of the situation. As time went on, it became increasingly evident to the Court that with Mr. Goldberg in the picture, no meaningful offer would ever be received for the assets of this company. In other words, the whole matter was on dead center. The receivers not only operated the plant but actually increased the business of the company, but they were limited in what they could do because of lack of working capital. The Court thereupon called a meeting of the receivers, their counsel, and attorneys for Goldberg and the bank, and advised them that the Court would issue on its own motion a Rule to Show Cause why the receivers should not sell the properties with a restrictive covenant restraining Morris C. Goldberg, directly or indirectly, from competing for a period of three years, with the purchasers of such assets, in the same categories of the commercial laundry business now being conducted by the Pennsylvania Laundry Companies, and put of record at the hearing held in chambers on June 21, 1967 its reason therefor.
Pursuant thereto, a Rule to Show Cause was issued on July 14, 1967, directed to the United States, Morris C. Goldberg, and all other parties in interest, to show cause why such an Order should not be issued. Hearing was set ...