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GAGLIARDI BROS. v. CAPUTO

February 12, 1982

GAGLIARDI BROS., INC.
v.
Dan J. CAPUTO



The opinion of the court was delivered by: WEINER

This is a diversity jurisdiction action for a preliminary and permanent injunction seeking enforcement of a restrictive employment covenant in a written employment contract. For the reasons which follow, we decline to enforce the employment restriction, and accordingly deny injunctive relief.

 Plaintiff, Gagliardi Bros. Inc. (Gagliardi), a Pennsylvania corporation with its principal place of business in Pennsylvania, is in the business of processing and marketing portion controlled meat products, including but not limited to a sliced sandwich steak marketed under the trade-name Steak-umm, for sale to retail, institutional, and restaurant outlets. Gagliardi was a family owned business until February, 1980, when it was sold to a subsidiary of H. J. Heinz Company (Heinz). Eugene Gagliardi, Sr., the founder of the business, remains active in its affairs, and his sons Nick and Ralph are Vice Presidents. The current President and Chief Executive Officer is Richard A. Blott (Blott), a Heinz manager.

 Defendant, Dan J. Caputo (Caputo), is a 53 year old individual residing in Delaware and was employed as a controller by Gagliardi from September 1972 until his termination on July 7, 1981. As its controller Caputo was one of Gagliardi's key employees, and attended all Board of Directors (pre-1980) and Management Board (1980 to 1981) meetings. As a result of his responsibilities at Gagliardi, Caputo became familiar with Steak-umm and its beef formula and fat content, information also obtainable by means of chemical analysis. He knew also that Gagliardi had spent hundreds of thousands of dollars developing modifications and improvements to Steak-umm, and to develop a new sophisticated steak slicing machine and an improved, innovative packaging. These developments are trade secrets of competitive value which Gagliardi has a financial interest in keeping confidential. Caputo also knew of valuable, confidential marketing research studies conducted on behalf of Gagliardi with regard to consumer rating of sandwich steak characteristics. At no time did Caputo deal with Gagliardi customers.

 When hired by Gagliardi in 1972, Caputo did not execute any employment contract. In November 1974, following rejection of its patent application for Steak-umm, Gagliardi required Caputo, as well as several other employees, to sign such contracts. Caputo thus executed a two-page document entitled "Reappointment as Comptroller and Raise in Salary", together with a written Addendum. If he had not, his employment would have been terminated. Neither Caputo's job title nor duties changed at that time. Caputo did receive a $50.00 per week, $2,600.00 annual increase in salary at approximately the time he executed the contract. Similar increases were paid him in May, 1974, May, 1975, and October, 1975. Furthermore, in pertinent part, the contract provided as follows:

 
You further agree that in the event of termination of your employment, with or without cause, you shall not, for a period of one year after termination of said employment, either directly or indirectly, enter into the portion controlled meat business, nor will you enter into the employ of anyone who is engaged in a similar business within one hundred miles of West Chester, Pennsylvania.
 
It is agreed that any breach of this agreement by the Employee shall entitle the Corporation... to apply to any court of competent jurisdiction to enjoin any violation of this agreement.
 
Addendum
 
Except for discharges for cause, either party may terminate this agreement upon 30 days written notice. If you are terminated without cause, you will receive one week's severance pay for every year you have been with the Company to a maximum of four weeks.

 Caputo was informed on July 7, 1981, by Blott, the Gagliardi President, that his employment would be terminated. Prior approval of the Board of Directors was not obtained. Caputo was fired because of Gagliardi's determination that he was unable to keep up with their new organization and because he was not that important in that new structure. At the July 7, 1981 meeting with Blott, Caputo signed a letter, dated June 29, 1981, which provided, in pertinent part, that he would continue to be employed by Gagliardi on a full-time basis until September 25, 1981, at full salary and benefits, and would be assigned to participate on a full-time basis to assist his personal career continuation through the services of Hay Career Consultants; that the employment contract would be strictly adhered to; and that the four weeks severance pay would not be paid because of the compensation to be provided as outlined in the letter. Accordingly, Caputo was paid his full salary and benefits through September 25, 1981. In addition, he received lump sum payments representing his previously awarded Merit Incentive bonus entitlement, and his Profit Sharing Plan interest. Caputo also received at Gagliardi's expense, the services of Hay Career Consultants.

 From July through September, 1981 Caputo sent approximately 150 resumes to prospective employers, answered several advertisements and contacted several placement services. He received no offers of employment. In the year prior to his termination, Caputo received three unsolicited offers of employment, each of which would have required relocation to other areas of the country. Neither Caputo nor his family want to move out of the area. Together with his wife, Caputo runs an independent accounting business in Wilmington, Delaware, incorporated as "Pat and Dan's Accounting Service."

 On October 6, 1981, Caputo began work with Devault Packing Company, Inc., (Devault), in Devault, Pennsylvania, within 25 miles of West Chester, Pennsylvania, for a salary of $28,500. per year. Devault is in the business of processing and marketing portion controlled meats, and produces a sliced sandwich steak product similar to Steak-umm. Devault's 1980 revenue from the sale of sandwich steak was approximately $5,000,000.00, which represents about 10% of its revenue. Thus, it is a competitor of Gagliardi. At least one dozen other companies produce and market a similar steak product.

 Gagliardi's sale of Steak-umm in 1980 was approximately $80 million, and its marketing area is not restricted to a 100 mile radius ...


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