UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
September 28, 1977
SUPERIOR INVESTIGATIVE SERVICES, INC., ALBERT SCHWARTZ and EVELYN SCHWARTZ
The opinion of the court was delivered by: BRODERICK
Plaintiff, Herbert Rhodes, a citizen of New Jersey, brought this diversity action seeking judgment in the amount of $30,000, the balance allegedly due on a contract pursuant to which he sold his stock in a security guard business to the defendant, Superior Investigative Service, Inc. ("SIS"), a closely held Pennsylvania corporation with its principal place of business in Pennsylvania. Defendants, Albert and Evelyn Schwartz, citizens of Pennsylvania, were joined on the ground that they had guaranteed payment of the $30,000. The defendants claim that since the plaintiff has breached the contract by engaging in a competing security guard business, contrary to a covenant not to compete, they are not obligated to pay the $30,000. The case was tried before the Court, sitting without a jury, and for the reasons hereinafter set forth the Court will enter judgment for the defendants.
Plaintiff was a minority shareholder, president, and later chairman of the board of SIS from its incorporation in 1969. On May 13, 1974, he terminated his employment with SIS by entering into a written agreement wherein SIS agreed to pay him the sum of $80,000 for his stock. He was paid $50,000 on that date and SIS agreed to pay him the balance of $30,000 two years later. The contract contained the following covenant:
6. Covenant by Seller not to Solicit Buyer's Customers. Seller covenants and agrees that for a period of two (2) years from the date of this Agreement, he will not, within . . . a radius of fifty (50) miles . . . of City Hall, Philadelphia, Pennsylvania; directly or indirectly as a corporation or as an individual, nor will any business entity or corporation of which he is an owner, shareholder, officer, employee, representative, or otherwise, either directly or indirectly, own manage, operate, control or participate in the ownership, management, operation of or control of or be connected in any manner with or assist others in the security guard business.
The contract also provided:
7. Right of Set-Off and Injunction. Should Seller violate any of the provisions of this Agreement . . . then Buyer shall have the right to set-off the sums due to Seller hereunder.
The contract was accompanied by a document entitled "GUARANTY" wherein defendants, Albert and Evelyn Schwartz, jointly and severally guaranteed the $30,000 payment.
Plaintiff, who was his sole witness at trial, testified that after terminating his employment with SIS, he organized and became associated with Rhodes Investigative Services, Inc. ("RIS"), a Pennsylvania corporation which engaged solely in investigative work. He admitted that he was present at the time Hahn Security Service, Inc. ("HSS"), was organized as a Pennsylvania corporation, for the purpose of engaging in the security guard business. He also admitted that both corporations had their offices at 3800 Castor Avenue in Philadelphia, where they shared a common entrance, and that he had obtained the office space and the furniture used by the two corporations on a rent-free basis. Plaintiff admits that HSS engaged in the security guard business within the 50 mile radius described in the noncompetition covenant of the contract.
Plaintiff admitted that he entered into an agreement with Frank Hahn and Michael J. McAllister, dated December 26, 1974, which provided in pertinent part:
Whereas these parties have engaged in the business of Security Guard Service and Investigative Service and related services under the corporate names of Hahn Security Service and Rhodes Investigative Services . . . .
Therefore the parties have agreed to execute this agreement in order to clarify between themselves the respective interest of each parties [sic] in the aforementioned corporations.
That the capitalization of the corporations shall be by loans of a personal nature in the amount of $4,000.00 by each of parties and stock purchase of 1000 shares by each party at par value
. . . .
That because of the varied talents and on account of the projected participation of the parties the proprietary interest after the two year period from the date of incorporation shall be as follows:
That Mr. Herb Rhodes shall own 55% of the aforementioned corporations,
That Mr. Frank Hahn shall own 35% of the aforementioned corporations,
That Mr. Michael J. McAllister shall own 10% of the aforementioned corporations . . . .
Plaintiff also acknowledged that he and McAllister entered into an agreement to sell 188 shares of stock in HSS to Thomas and Margaret Grady. This agreement, dated November 25, 1975, provided in part:
WHEREAS, Sellers are the registered owners of 750 shares of Common Stock of Company; and
WHEREAS, Purchasers desire to purchase from Sellers 188 shares of Common Stock . . . .
2. Sellers hereby recognize that Thomas Grady has contributed valuable and unique service to Company and in consideration of continued valuable and unique services hereby transfer, sell, assign and/or release unto Purchaser 188 shares of Common Stock in Company now owned and held by Sellers so that as of November 25th, 1975, the effective date of this Agreement the respective shareholders interest for each party to this agreement is:
Thomas Grady 188 Shares Common Stock
Michael McAllister 180 Shares Common Stock
Herbert Rhodes 382 Shares Common Stock
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