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C. ALBERT SAUTER CO. v. RICHARD S. SAUTER CO.

October 5, 1973

C. Albert Sauter Co., Inc.
v.
Richard S. Sauter Co., Inc., Richard S. Sauter, John N. Park and Theodore Seidenberg


Broderick, J.


The opinion of the court was delivered by: BRODERICK

BRODERICK, J.:

 This matter comes before the Court on a series of post-trial motions after a finding by a jury, in a bifurcated trial, that the defendants conspired, agreed or had an understanding to engage in acts of unfair competition with the intent to injure the plaintiff as a competitor by impairing the plaintiff's ability to compete in interstate commerce, in violation of Section 1 of the Sherman Act, 15 U.S.C. ยง 1. The jury awarded plaintiff damages in the amount of $400,000, which the Court trebled, in accordance with Section 4 of the Clayton Act, and judgment was entered for the plaintiff on May 15, 1973 in the amount of $1,200,000.

 The following motions are now before the Court: (1) defendants' motion for judgment notwithstanding the verdict on the issue of liability, (2) defendants' motion for a new trial on the issue of damages, (3) plaintiff's motion for a permanent injunction, (4) plaintiff's motion for allowance of counsel fees, and (5) defendants' motion for a stay of execution of this Court's money judgment of May 15, 1973 and counsel fees, interest and costs.

 The Court will treat the motions separately.

 Plaintiff, C. Albert Sauter Company, Inc., is a Pennsylvania corporation engaged in the manufacture and sale of packages, packaging materials and equipment, primarily for use in pharmaceutical contract packaging. Defendant Richard S. Sauter Company, Inc. is a Pennsylvania corporation engaged in the same business as the plaintiff. Defendants Richard S. Sauter, Theodore Seidenberg and John N. Park are residents of the Commonwealth of Pennsylvania.

 Plaintiff asserted violations of Section 1 of the Sherman Antitrust Act in Counts I and II of the complaint *fn1" upon which the jurisdiction of this Court is based.

 In support of the allegations of violation of the Sherman Act, plaintiff alleged, inter alia, that defendants:

 (a) solicited and hired away plaintiff's key personnel for the purpose of injuring plaintiff's business;

 (b) solicited and hired away plaintiff's employees for the purpose of acquiring and using plaintiff's confidential information;

 (c) appropriated for their own use plaintiff's job orders, bid estimates and specifications;

 (d) intentionally confused customers, suppliers and the general public by the use of a deceptively similar corporate name;

 (e) falsely advised plaintiff's personnel that plaintiff would go out of business in order to frighten those employees into leaving plaintiff's employ; and

 (f) subverted plaintiff's employees to act in violation of their fiduciary duties to plaintiff.

 After a sixteen-day trial of the liability issue, on May 2, 1973, the jury answered "yes" to the following interrogatory:

 
Do you find that any of the defendants conspired, agreed or had an understanding to engage in acts of unfair competition with the intent to injure the plaintiff as a competitor by impairing plaintiff's ability to compete in interstate commerce?

 And after two days of testimony on the issue of damages, the jury awarded plaintiff $400,000 before trebling.

 Taking all of the evidence in the light most favorable to plaintiff for the purpose of considering these motions, there was an abundance of evidence to support the jury's verdict.

 Prior to January 1969, defendant, Richard Sauter, was the president and controlling shareholder of plaintiff; defendant, John Park, was a salesman for plaintiff. In January 1969, a plan of reorganization was executed by the shareholders of plaintiff and The Lehigh Press, Inc., whereby plaintiff became a wholly-owned subsidiary of Lehigh. Richard Sauter remained as president of plaintiff. In August 1969, Lehigh acquired the outstanding stock of the Sparks Corporation, which was also engaged in some phases of pharmaceutical packaging. After this acquisition, Richard Sauter became the executive vice president of Lehigh in charge of its packaging division; and, upon Richard Sauter's recommendation, John Park was named president of the plaintiff.

 Plaintiff presented evidence that as early as July 9, 1971 defendants Richard Sauter and John Park began to conspire to leave plaintiff, to open a competing business and to eliminate plaintiff as a competitor by pirating its key employees. To this end, Richard Sauter, without prior notice to plaintiff, and contrary to prior indications to plaintiff's personnel and the president of Lehigh, submitted his resignation on October 22, 1971, effective in one week -- October 29, 1971. John Park did not then leave but remained as president of plaintiff. At some time prior to Sauter's leaving plaintiff on October 29, 1971, defendant Theodore Seidenberg joined the conspiracy. One month later, on November 29, 1971, Richard Sauter and Theodore Seidenberg incorporated the defendant, Richard S. Sauter Co., Inc., a company that was to be directly and completely competitive with plaintiff. Richard Sauter and Theodore Seidenberg became officers and principal shareholders of the corporation.

 There was evidence that in late September or early October 1971 Richard Sauter, while still in plaintiff's employ, solicited Philip Spector, production coordinator of plaintiff's four suburban plants, Daniel Gerner, production coordinator, and Matthew Nichols, vice president -- engineering, to join Sauter in the new competitive business he was planning. Once preliminary plans were completed and the formation of Richard S. Sauter Co. was announced, Richard Sauter, Seidenberg and Gerner intensified their efforts to hire away plaintiff's key management, supervisory, production and sales personnel. These employees included plaintiff's vice president -- sales, quality control managers, plant managers, estimators, customer service representatives, salesmen, commission brokers and skilled machine operators. By offering higher salaries and making statements that plaintiff was about to go out of business, defendants were able to hire away from plaintiff more than 30 key employees. These employees were individually of varying degrees of importance to plaintiff, but the cumulative effect of such a large number leaving within a relatively short period of time did great damage to plaintiff.

 There was evidence that as a result of the loss of key personnel plaintiff suffered an immediate and drastic reduction in sales caused by the defendants' solicitation of plaintiff's customers by former employees and plaintiff's own inability to service its remaining customers due to the loss of personnel to defendants. There was sufficient evidence from which the jury could find that the defendants solicited, hired or frightened away plaintiff's key employees for the purpose of eliminating plaintiff as a competitor.

 Defendants admitted selecting the name Richard S. Sauter Co. as the name of the corporate defendant in order to capitalize upon the goodwill attached to the name "Sauter" in the packaging industry. This goodwill, of course, was earned by plaintiff's business activity over the years. There was also evidence that in an effort to further confuse customers and suppliers, Richard Sauter instructed defendants' employees to refer to their company as the "Sauter Company", a name by which plaintiff was known in the industry. There was extensive testimony concerning the confusion caused by the similarity of names and, in at least one instance, plaintiff lost an opportunity to submit a bid because the "Sauter Company" had already submitted a bid. But the "Sauter Company" which had submitted the bid was the defendant company, not the plaintiff. There was sufficient evidence from which the jury could conclude that the defendants unfairly appropriated plaintiff's corporate name for the purpose of injuring plaintiff.

 Defendants' own witnesses admitted copying about 125 to 150 of plaintiff's job orders before leaving plaintiff's employ and subsequently using those documents to prepare bids competitive with plaintiff. Richard Sauter took copies of plaintiff's budgets, sales forecasts and other similar documents showing each of plaintiff's customers and the work being done for each of them. John Park admitted passing on to defendants' estimator copies of estimates taken from plaintiff by Frederick Kraus, plaintiff's former vice president -- sales, when he left C. Albert Sauter Co. to join defendants. These estimates were used by defendants to bid against plaintiff. The defendants' own admissions supplied substantial evidence of the misappropriation and use of plaintiff's confidential documents for the purpose of gaining an unfair competitive advantage and injuring plaintiff.

 Plaintiff produced direct evidence of defendants' intent to eliminate or cripple plaintiff's business. Richard Sauter told George Kline, Esq., counsel for Lehigh, "I will ruin John DePaul " and "I am going to get that glamour boy, I am going to ruin John DePaul." In addition, there was circumstantial evidence to support the jury's finding of the requisite intent. For example, the defendants set out to secure their executive and skilled employees from plaintiff. They solicited over 90% of such employees and obtained over 80% of them from plaintiff. Richard Sauter admitted that the defendants had hired about 30 of plaintiff's employees, that many of them were key employees and that he knew that this would hurt the plaintiff:

 
Q. If you got, in a relatively short span of time, a significant portion of your personnel, and particularly important personnel, from the plaintiff, do you think that that would help the plaintiff?
 
A. No, sir.
 
Q. It would hurt the plaintiff, wouldn't it, Mr. Sauter?
 
A. Yes, sir.
 
Q. If you got enough of the finest assets [employees] of the plaintiff it could ruin the plaintiff, couldn't it?
 
. . .
 
Q. If you wanted to ruin your second most important competitor wouldn't it be a good way to hire a substantial number of his important personnel?
 
A. If I wanted to ruin him, yes.
 
Q. Do you believe, Mr. Sauter, that your company did hire a substantial number of your production and administrative and sales personnel from the plaintiff?
 
. . .
 
A. Yes, we hired them.
 
(Testimony of Richard Sauter, April 19, 1973, at pages 1161-62)

 Thus, the jury was presented with substantial evidence from which it could and did find that the defendants were motivated by a desire to destroy plaintiff's business. The clandestine nature of defendants' approach to plaintiff's employees and defendants' failure to make any real effort to obtain employees elsewhere is further evidence on this point.

 Finally, there was substantial evidence from which the jury could and did find that a conspiracy existed. The agreement or understanding of defendants to obtain a substantial number of plaintiff's employees was admitted, as were the taking and use of plaintiff's confidential information. Further, there was extensive additional evidence of the conspiracy, both direct and circumstantial. As but one example, Arnold Kleinfeld, one of plaintiff's most important former customers, testified that he told Richard Sauter after he left plaintiff that he, Kleinfeld, could do no work for the defendants so long as he remained plaintiff's commission broker. Immediately thereafter, John Park, who was still president of plaintiff, fired Arnold Kleinfeld, and Mr. Kleinfeld promptly went over to the defendant, Richard S. Sauter Co., gave it all or most of the business he had previously given plaintiff, and was one of defendant's largest customers. Shortly thereafter, John Park resigned his position with plaintiff and himself joined the defendants.

 There is a preponderance of evidence in this record upon which the jury could base its finding of an antitrust violation by defendants. Starting with the stated intention to ruin John DePaul, the testimony, when viewed in a light most favorable to the plaintiff, supports the jury's finding of an intent to injure the plaintiff as a competitor by impairing plaintiff's ability to compete in interstate commerce.

 The evidence presented by the plaintiff was such that the jury could find that the defendants engaged in a clandestine plan to obtain all of the plaintiff's key employees. There is evidence of five separate solicitations of Mr. Spector, and in the case of some employees, all of the defendants were involved in the solicitation of one individual. The result was almost a complete exodus of plaintiff's key employees.

 There was evidence from which the jury could find that the defendants adopted a confusingly similar name and compounded the confusion by stressing the name "Sauter", copied plaintiff's job orders and related documents and used these documents to try to take business away from plaintiff, and almost completely relied on plaintiff's customers as a source of business. Each of these items constitutes unfair competition, and there was ample evidence from which the jury could find that each was done pursuant to an agreement, combination, or understanding among the defendants with the intent to injure plaintiff. In the aggregate, these acts clearly warrant the jury's finding of a violation of Section 1 of the Sherman Act.

 There was substantial testimony concerning both the fact of damage and the amount of damage to the plaintiff, C. Albert Sauter Co. Plaintiff's witnesses testified that the solicitation, hiring and frightening away of its employees by defendants produced crippling production problems, which in part were responsible for a loss of customers; required plaintiff to pay uneconomically higher salaries in an effort to retain personnel; forced plaintiff to pay large sums of money to employment agencies for replacements for pirated personnel; and required plaintiff to spend a great amount of time and money training replacement personnel. There was unrebutted testimony that the chaotic conditions in plaintiff's plants were caused by defendants' unlawful ...


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