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decided: November 14, 1967.


Appeal from decree of Court of Common Pleas No. 6 of Philadelphia County, June T., 1965, No. 3896, in case of Jacobson & Company, Inc. v. International Environment Corporation and Richard H. Kiley.


Thomas Raeburn White, Jr., with him John Francis Gough, Richard W. Hopkins, and White & Williams, for appellants.

Allen J. Levin, with him Theodore R. Mann, and Goodis, Greenfield, Narin & Mann, for appellee.

Bell, C. J., Musmanno, Jones, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice O'Brien. Mr. Justice Cohen took no part in the consideration or decision of this case.

Author: O'brien

[ 427 Pa. Page 441]

This appeal follows the entry of a final decree in equity against the defendants, Kiley and International Environment Corporation (IEC), his present employer. The decree enforces a restrictive covenant not to compete, and requires an accounting from Kiley of his salary, and from IEC for profits garnered as a result of its participation in the breach.

Plaintiff-appellee, Jacobson & Company, Inc. (Jacobson), is a New York corporation engaged in the selling and installing of building materials in the states of Connecticut, New York, New Jersey, Pennsylvania, and Delaware. Approximately 20% of appellee's business is the sale and installation of radiant acoustical

[ 427 Pa. Page 442]

    ceilings, which are competitive with conventional heating and cooling systems.

Appellant, Kiley, was initially employed by Jacobson in 1957 as a salesman, working out of appellee's Philadelphia office, under an oral contract, containing no restrictive covenant, at a salary of $10,000. The Philadelphia office of appellee embraced a territory consisting of the eastern half of Pennsylvania, southern half of New Jersey, and New Castle County, Delaware. Prior to his employment with Jacobson, Kiley had had considerable experience in the field of temperature control, and had become acquainted with a number of architects and engineers.

On July 1, 1959, a new agreement, terminable by either party on thirty days' notice, was entered into between Kiley and Jacobson. This agreement provided for a reduction in salary to $9,000 and a profit-sharing arrangement. The chancellor found further that this agreement of July 1 contained a restrictive covenant: "Your employment shall be on a month to month basis and terminable by either you or by us, giving the other thirty (30) days' notice. If you should elect to terminate your employment as permitted in this paragraph, you shall not for a period of two years after such termination directly or indirectly within the states of New York, Conn., New Jersey, Pennsylvania and Delaware, represent or be employed by or otherwise become associated with any person, firm or corporation which shall engage in the radiant heating or acoustical or any other business engaged in by the company nor otherwise engage in any of such businesses."

Although the agreement was not signed until January 29, 1960, the chancellor found a written contract effective as of July 1.

Under the 1959 contract as a result of the profit-sharing arrangement, Kiley's compensation increased each year through 1963, in which year he received some

[ 427 Pa. Page 443]

$24,000. In April, 1964, the terms of Kiley's employment were substantially changed by oral agreement, making Kiley district supervisor for the Philadelphia area in charge of a full range of environmental control products and increasing his salary to $10,000. However, he was removed to a large degree from sales, and thus his earnings were reduced from approximately $24,500 in 1963 to approximately $12,500 in 1964. Moreover, the changeover eliminated higher positions in the radiant ceiling line to which Kiley aspired.

In October of 1964, Richard D. Rothschild, a substantial stockholder and executive of plaintiff in the acoustical ceiling division resigned from plaintiff's employ. The chancellor further found that in the same month, Rothschild and Kiley met and began discussions which led to the formation of the defendant corporation on December 14, 1964. It was found that at the time of the formation of defendant corporation, Rothschild and defendant Kiley had an understanding that Kiley would become a shareholder of defendant corporation. This he became in early March, 1965, when he purchased 25% of the stock of defendant corporation for $5,000, became a member of its Board of Directors, and lent it an additional $10,000. Rothschild purchased the balance of the stock of defendant corporation. Kiley did not leave plaintiff's employ until May 7, 1965.

This suit was brought to enforce the restrictive covenant, to compel Kiley to repay his salary taken since the formation of defendant corporation, and to compel defendant corporation to ...

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