Appeal from Pennsylvania Court of Common Pleas, Philadelphia County. Den-Tal-Ez Inc. and its subsidiary Star Dental Manufacturing Co. Inc. brought unfair competition and misappropriation of business information action against Siemens AG and its subsidiaries Siemens Capital Corp., and Pelton & Crane Co. From trial court's entry of preliminary and permanent injunctive relief, defendants appeal. Affirmed; Cavanaugh, J., dissenting in separate opinion.
Arlin M. Adams, Philadelphia, Pa., for plaintiffs-appellees.
Stewart Dalzell, Philadelphia, for defendants-appellants.
Before Cavanaugh, Beck, and Hester, judges.
In the appeal, we are asked to decide numerous questions, all generally relating to the propriety of the trial court's entry of preliminary and permanent injunctions barring appellants from acquiring a competitor of appellees for three years. The purpose of the injunctions is the prevention of disclosure or other use by appellants of allegedly confidential business information regarding appellees' business. This information was obtained by appellants during ultimately unsuccessful negotiations between appellants and appellees regarding the sale of appellees' business to appellants.
The factual scenario giving rise to this appeal is complex. Our review of the record, limited as it is by our narrow standard of review in injunction matters, reveals that the chancellor's findings of fact are clearly supported by competent evidence. Thus, we accept those findings as adequately representing the facts of this case and provide the following summary thereof.
Plaintiffs-appellees are Den-Tal-Ez, Inc. and its subsidiary, Star Dental Manufacturing Company, both of which are American companies (hereinafter collectively referred to as "Star"). Syntex Corporation is the parent of Den-Tal-Ez. Defendants-appellants are Siemens AG (a German company), its subsidiary, Siemens Capital (hereinafter collectively referred to as "Siemens"). Siemens Capital and Pelton & Crane are both American companies.
Star Dental manufactures and distributes small dental instruments called dental handpieces in the United States. Siemens AG also manufactures dental handpieces and larger dental apparatus, which are largely distributed in the European market. Pelton & Crane manufactures and distributes large dental apparatus in the United States, but does not manufacture or distribute dental handpieces. In addition to the foregoing parties, several other entities and persons play prominent roles in this matter. They are:
1. Sybron Corporation, an American company with a division called the Midwest Dental Division ("Midwest") which manufactures and distributes dental handpieces in direct competition with Star.
2. Raymond Perelman, President of Star and Den-Tal-Ez beginning October 20, 1986, when he acquired both companies.
3. Goldman, Sachs & Co. ("G&S"), a New York investment banking firm representing Sybron in its efforts to sell its Midwest division to Siemens.
4. Arnhold & S. Bleichroeder, Inc. ("A&B"), a New York investment banking firm representing Siemens in connection with its purchase of Pelton & Crane and its efforts to acquire a dental handpiece manufacturer in the United States.
5. Stanford Warshawsky, Managing Director of A & B.
Simply stated, this saga began when Siemens decided to enter the dental apparatus business in the United States. It first purchased Pelton & Crane in 1985. Since Pelton & Crane did not manufacture dental handpieces, however, Siemens was still intent on acquiring a "stand alone" American facility that was in the dental handpieces business. The two targets of Siemens' interest were Star and Midwest. Midwest was the larger of the two manufacturers. It approached Siemens about a possible acquisition of Midwest in April 1986. Several meetings among the parties' representatives occurred through the spring and summer of 1986. The individuals involved included high level executives and other representatives of Siemens, Pelton & Crane and G & S.
Siemens detected difficulties with Midwest's operations and found their asking price of $20-21 million too high. Thus, in late summer of 1986, Siemens backed away from the Midwest deal. It then initiated discussions with Star through Warshawsky. The discussions were actually initially held with Perelman who was about to purchase Star. Perelman stated that he would not be interested in Midwest. Warshawsky stated that Siemens was no longer interested in Midwest and Perelman relied on that representation in commencing negotiations with Siemens.
On October 3, 1986, Perelman sent an offering memorandum, describing Star's operations and certain consolidation and other plans for the improvement of Star's operations, to Warshawsky, who forwarded it to Siemens. At an October 19th meeting of the parties, including several of the representatives of Siemens who had participated in the Midwest negotiations, they agreed that Siemens people would visit Star in the near future. On the same day, and at the same location (a dental convention in Miami), representatives of Siemens also met with the President of Midwest. Midwest's President informed Siemens that he was trying to correct Midwest's problems. Star did not know of the Midwest meeting; Midwest did not know of the Star meeting.
The next day, Perelman closed on his acquisition of Star. Four days later, representatives from Siemens visited Star and were favorably impressed. Mr. Behne, Executive Director of the Dental Division of Siemens, attempted to get Perelman to drop the price of Star by stating that there was still a possibility that Siemens would purchase Midwest. Perelman repeated that he would continue to negotiate if Midwest was still in the picture. Behne represented that the Midwest deal was "dead" because of various labor, production and profitability problems Midwest had. He did not mention the October 19th meeting between Siemens and Midwest's President.
Siemens then asked to do a financial and operations "due diligence" review of Star. Perelman agreed, but required that Siemens first execute a Letter of Intent regarding the acquisition and confidentiality agreement obligating them not to use or disclose and confidential information they obtained regarding Star during the review. Such agreements were executed on December 5, 1986. They were prepared by Siemens' counsel.
There are two highly pertinent sections of these agreements. The Letter of Intent, expressly governed by Pennsylvania law, did not contain a "no-shop" clause preventing Siemens from negotiating with other companies with an eye to acquiring them. The Mutual Non-Disclosure Agreement, expressly governed by New York law, pertinently provides as follows:
1. For the purpose of this Agreement Confidential Information shall mean any information and data of a confidential nature, including but not limited to proprietary, developmental, technical, marketing, sales, operating, performance, cost, know-how, business and process information, computer programming techniques, and all record bearing media containing or disclosing such information and techniques which is disclosed pursuant to this Agreement.
3. All Confidential Information exchanged between the parties pursuant to this Agreement:
(a) shall, if in written form, be marked 'Confidential' or similarly legended by the disclosing party before being turned over to the receiving party. All oral disclosures of Confidential Information will be summarized, in writing, by the disclosing party and said summary will be given the receiving party within 30 days of the subject oral disclosure. The receiving party must make any objections to the contents of the summary, in writing, within 30 days of receipt;
The Agreement further provided that all Confidential Information exchanged pursuant to the Agreement would not be used by the receiving party for its own purposes.
Few, if any, of the materials obtained by Siemens in the course of its review were so stamped or summarized in writing. Nevertheless, representatives of Siemens, including a Mr. Vitt, who was involved in the review, testified that material did not have to be stamped confidential in order to be regarded as confidential. By mutual agreement of the parties, the review commenced only three days after the agreements were executed. The procedure utilized was that Star gave Siemens full access to Star's facility and records.
During the review, in the precise words of the trial court, Siemens obtained
critical business information regarding Star's past and present personnel, employee compensation, its manufacturing facilities, material suppliers, material costs, confidential license agreements, its product, marketing programs and price and cost information. This included confidential information on Star's inventories by product groups were also provided to defendants together with inventory projections for the next three years. Defendants acquired confidential information on Star's labor costs, suppliers and vendors. Technological confidential information was also disclosed; the German engineer [a Siemens employee] toured Star's entire manufacturing facilities and obtained details concerning Star's prophy syringe, optic fiber swivel handpiece and other research and development programs.
Importantly, just one day before these agreements were signed, and only three days before Siemens conducted its review of Star, Siemens and Pelton & Crane representatives again met at a prearranged meeting with Midwest's top officers, who produced further information concerning improvements in Midwest's situation. The purpose of the meeting was to enable Siemens to come to a final decision regarding the acquisition of Midwest. A follow-up meeting after the year-end holidays was arranged.
Siemens did not inform Star of any problems with the results of its review, and advised Perelman through Warshawsky that a definitive acquisition agreement was being prepared through Siemens' counsel. In fact, on December 18, only seven days after the review was completed, Siemens decided not to go forward with the purchase of Star.
On January 8, 1987, representatives of Midwest met with Siemens' representatives. Details regarding the reorganization of Midwest were conveyed to Siemens. On January 13th, Siemens formally terminated its Letter of Intent with Star. On February 9th, Midwest and Siemens again discussed the purchase of Midwest and such negotiations continued thereafter. Midwest did not know of the Star transaction until April 24, 1987, when Star secured its temporary restraining order barring Siemens' purchase of Midwest.
After the entry of the temporary restraining order, and following an expedited evidentiary hearing, the trial court issued a Preliminary Injunction once again enjoining the acquisition of Midwest. On July 31, 1987, the court entered its Adjudication and Decree Nisi, which granted a permanent injunction against the acquisition for a period of three years. Following the filing and denial of post-trial motions, the court entered the Decree Nisi as a Final Decree on August 18, 1987.
The trial court's grant of relief was based on numerous conclusions of law, all of which can be reduced to the following fundamental propositions:
1. Siemens and Star were in a confidential relationship implied in law and expressly created by the Mutual Non-Disclosure Agreement.
2. This relationship imposes upon Siemens an implied obligation to deal with Star in good faith.
3. Because Siemens had represented to Star that it had no interest in acquiring Midwest when Siemens first began discussions with Star and thereafter repeated that representation, Siemens had a duty to disclose its continued and renewed interest in Midwest. Siemens' failure to do so constituted both misrepresentation and a breach of the duty of good faith.
4. The information Star provided to Siemens during its due diligence review of Star constituted trade secrets and confidential information both as a matter of law and pursuant to the Mutual Non-Disclosure Agreement. Siemens obtained this information pursuant to a confidential relationship with Star.
5. Any disclosure of the confidential information will constitute a breach of the Mutual Non-Disclosure Agreement and a misappropriation of Star's trade secrets.
6. Use of such information to Star's competitive detriment is inevitable if Siemens acquires Midwest.
7. Star will be irreparably harmed by Siemens' breach of the Mutual Non-Disclosure Agreement and misappropriateion of Star's trade secrets if a permanent injunction is not issued, since such an injunction is the only way effectively to prevent use of the confidential information.
8. There is no adequate remedy at law since the measure of economic harm Star might realize at the hands of Siemens is incalculable.
9. Issuance of the injunction results in less injury than would refusal to issue an injunction.
10. The public interest in corporate morality and fair dealing is promoted by the injunction.
In the course of reaching these conclusions, the trial court also resolved several sub-issues on which some of its major conclusions depend. These include:
1. The fact that the Mutual Non-Disclosure Agreement contains an integration clause, providing that it is the entire agreement of the parties regarding the subject matter thereof, does not exclude consideration of Siemens' representations regarding the subject matter of the Letter of Intent, which contains no integration clause, and throughout the negotiations.
2. The termination of the Letter of Intent on January 13, 1987 did not terminate Siemens' continuing obligation to keep Star's confidential information confidential under the Mutual Non-Disclosure Agreement, which by the terms of the Agreement continues for five years from the receipt of any such information.
3. Information did not have to be marked "confidential" for it to be protected under the Mutual Non-Disclosure Agreement.
Despite the apparent complexity of this case, the positions of the parties can be distilled into several fundamentally simple contentions. Although the facts as found by the trial court would appear to reveal a less than responsible course of conduct by Siemens throughout their dealings with Star, Siemens argued that its conduct was in accordance with normal commercial practice. It also argues that the trial court committed errors of law. First, Siemens contends that the trial court erred in imposing on Siemens an obligation of confidentiality under the Mutual Non-Disclosure Agreement itself, or on any common law basis like the law of unfair competition. Siemens also alleges that the trial court erroneously imposed on Siemens an obligation of negotiating with only one company at a time, which the Letter of Intent does not expressly require.
Star, on the other hand, is in the fortunate position of having convinced the trier of fact to accept Star's version of the facts. That version clearly casts Star as victim and Siemens as oppressor and deceiver. Thus, Star asks us to affirm the trial court's holding that both their confidentiality agreement with Siemens and Pennsylvania common law protect against such allegedly fraudulent conduct and misappropriation of trade secrets via the equitable tool of injunction.
Our scope of review in injunction matters is clear. As to the trial court's finding of fact, we must accord them the weight of a jury verdict, and reverse only where the finding are unsupported by any competent evidence of record. This is especially important where the trial court has been called upon to assess the credibility of witnesses. Felmlee v. Lockett, 466 Pa. 1, 351 A.2d 273 (1976) (citing Hankin v. Goodman, 432 Pa. 98, 246 A.2d 658 (1968)). As to the court's factual or legal conclusions, being simply the product of the court's reasoning, we may intrude further. As to these, we may reverse the abuse of discretion or error of law. Van Products Co. v. General Welding & Fabricating Co., 419 Pa. 248, 213 A.2d 769 [147 USPQ 221] (1965); Brenna v. Nationwide Ins. Co., 294 Pa. Super. 564, 567, 440 A.2d 609, 611 (1982).
Appellants' primary argument centers on the Mutual Non-Disclosure Agreement (the "Agreement") and the Letter of Intent (the "Letter") executed by the parties prior to Siemens' thorough review of Star's business in December 1986. In capsule form, the argument is that the Agreement and the Letter form the only basis for imposing any liability on Siemens and that they have no liability thereunder. In other words, they argue that the Letter and Agreement preclude Star's recovery under any other tort theory, including misrepresentation or misappropriation of trade secrets.
Specifically, Siemens argues that the Letter of Intent can only be construed to have obligated the parties to negotiate, but was terminable at will and gave rise to no obligation to continue to ...