Appeal from the Decree of the Court of Common Pleas, Philadelphia County, Civil Division, at No. 3720 April Term, 1987.
Stewart Dalzell, Philadelphia, for Siemens Capital and Siemens AG, appellants.
Arlin M. Adams, Philadelphia, for appellees.
Cirillo, President Judge, and Brosky, Rowley, McEwen, Olszewski, Tamilia, Popovich, Johnson and Melinson, JJ. McEwen, Tamilia and Popovich, JJ., concur in the result. Melinson, J., did not participate in the disposition or consideration of this case.
[ 389 Pa. Super. Page 225]
This is an appeal from an order in equity entered on the docket August 26, 1987, which denied post-trial exceptions to a decree nisi and entered the decree nisi as a final decree. The final decree upholds the decree nisi's grant of a permanent injunction, barring appellants from acquiring a competitor of appellees for a period of three (3) years.*fn1 The purpose of the injunction is to prevent the
[ 389 Pa. Super. Page 226]
disclosure or other use by appellants of allegedly confidential 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.
Appellants now raise the following questions for our consideration:
1. Where sophisticated parties, in merger and acquisition negotiations, enter into comprehensive written agreements governing their relationship and the confidentiality of information exchanged during the negotiations, may the trial court disregard those written agreements and impose other obligations of "confidentiality" unsupported by law or the evidence?;
2. Did the trial court err in granting appellees' requests for injunctive relief, in refusing to limit such relief to the minimum restraint necessary to address any legitimate concerns of appellees, and in thus enjoining appellants from acquiring a competitor of appellees for a period of three years?;
3. Did the trial court err in excluding evidence of appellants' statements, actions, and state of mind during the negotiations offered to show that, contrary to appellees' claims, appellants acted without wrongful intent and in good faith?; and
4. Did the trial court err in admitting in evidence and relying upon (a) testimony as to legal conclusions, and (b) unqualified and unsubstantiated guesses as to the effect of disclosure of unspecified items of "information" to appellees' competitors?
Upon review of the record and the briefs of counsel, we now affirm.
[ 389 Pa. Super. Page 227]
Our scope of review on an appeal from a final decree in equity, including a decree upholding the grant of a permanent injunction, is very limited. We are bound to accept the chancellor's findings of fact, and accord them the weight of a jury verdict where supported by competent evidence. As for the chancellor's factual and legal conclusions, we are not bound by the court's reasoning, and may reverse for an abuse of discretion or error of law.*fn2 See Walley v. Iraca, 360 Pa. Super. 436, 520 A.2d 886, 889 (1987); also see Jones v. Bonner, 107 Pa. Commw. 283, 523 A.2d 849, 851 n. 2 (1987).
As a starting point, our review of the record 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 Corporation, and Pelton & Crane Company, an indirect subsidiary of 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
[ 389 Pa. Super. Page 228]
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.
[ 389 Pa. Super. Page 229]
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 discussions with Siemens if it was still 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 not 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
[ 389 Pa. Super. Page 230]
acquisition, and a confidentiality agreement, obligating them not to use or disclose any 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, does 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 date of a confidential nature, including but not limited to propriety, 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 turning 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 provides that all confidential information exchanged pursuant to the Agreement will not be used by the receiving party for its own purposes.
[ 389 Pa. Super. Page 231]
Despite the fact that the Agreement was executed on December 5, 1986, Siemens wished to proceed in haste with its "due diligence" review of Star, and requested to proceed on December 8, 1986, a mere three (3) days later. As the records involved were voluminous, comprising a minimum of sixty-five (65) boxes of files, Star agreed to give Siemens unrestricted access to the records, to review and copy whatever they wished. Because of the haste with which Siemens wished to proceed, few, if any, of the materials obtained by Siemens in the course of its review were stamped "confidential" 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.
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 sales and profit margins on an individual product-by-product basis. 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
[ 389 Pa. Super. Page 232]
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.*fn3 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 exceptions, the court entered the decree nisi as a final decree, and upheld the permanent injunction as issued. This timely appeal followed.*fn4
[ 389 Pa. Super. Page 233]
With the factual scenario in place, we now proceed to the trial court's numerous conclusions of law, upon which the court based its decision to issue the permanent injunction herein. Those conclusions may 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 imposed upon Siemens an implied obligation to deal with Star in good faith.
3. 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 misappropriation 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.
[ 389 Pa. Super. Page 2348]
. 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 ...