On July 24, 1990, TCI brought suit against Aveda, Environ, Brancher, Gurnicz, Paladinetti, and Webb in the United States District Court for the Eastern District of Pennsylvania (Civil Action 90-4788) alleging, among other things, breach of contract, theft of trade secrets, infringement of U.S. Design Patent 322,970, and numerous violations of the RICO Act. Paragraph 13 of the complaint alleges that Mr. Webb agreed to and did "divert the business and funds of TCI to Aveda in exchange for an ownership interest in Aveda and other valuable items." Rescission of the settlement agreement and return of the four monthly payments was sought. DX 295.
On July 25, 1990, Mr. Webb advised TCI, through counsel, that the action constituted a breach of the mutual release provisions contained in the Settlement Agreement excusing him of any further obligation under the Agreement, including the restrictive covenant. DX 296. On July 29, 1990, Mr. Webb lent EPI $ 44,975.00, evidenced by two written notes. On August 1, 1990, TCI did not make the payment due under the Settlement Agreement. On August 9, 1990, TCI's counsel informed Mr. Webb's counsel, that no further settlement payments would be made for the reasons set forth in TCI's complaint. DX 323. On August 10 and August 21, 1990, Mr. Webb loaned EPI another $ 40,000, evidenced by written promissory notes. Some time in September, 1990, Webb became a consultant to EPI. NT 16:250:25.
On October 1, 1990, TCI brought suit against Aveda, Environ, Brancher, Gurnicz, Paladinetti, and Webb in the Chester County, Pennsylvania, Court of Common Pleas (Civil Action 90-08520) alleging, among other things, fraud and breach of contract. Rescission of the settlement agreement with Webb again was sought. DX 298.
About November 14, 1990, Aveda and TCI presented Mr. Webb with a proposal that would make him CEO and General Manager of EPI. The agreement also provided that EPI would pay any future legal costs for Mr. Webb stemming from lawsuits initiated by TCI, and that Mr. Webb would acquire 38% of the common stock of EPI. In December, 1990, Environ and Aveda merged to become what is now EPI. Mr. Webb became a major shareholder and CEO of the merged corporation.
On May 1, 1991, the federal court action was dismissed without prejudice, conditioned upon TCI's paying the defendants' attorneys' fees. Total Containment, 1991 U.S. Dist. LEXIS 6006, 1991 WL 75192.
a. Effect of Mr. Webb's Acts Prior to July 25, 1990
The Settlement Agreement was entered into in Pennsylvania by parties domiciled in Pennsylvania. Pennsylvania law applies to the counterclaim. Complaint of Bankers Trust Co., 752 F.2d 874, 881-882 (3d Cir. 1984). A settlement agreement is a contract, and is construed according to general contract principles. Fineman v. Armstrong World Industries, Inc., 980 F.2d 171, 215-216 (3d Cir. 1992); cert. denied, 507 U.S. 921, 113 S. Ct. 1285, 122 L. Ed. 2d 677 (1993). TCI bears the burden of establishing that Mr. Webb breached the condition precedent. Mellon Bank v. Aetna Business Credit, Inc., 619 F.2d 1001, 1007 (3d Cir. 1980).
TCI alleges that Mr. Webb breached the restrictive covenant of the Settlement Agreement because he applied for group health insurance through Aveda in February, 1990. Mr. Webb's employment agreement contained a restrictive covenant, but, in February, 1990, the restrictive covenant was no longer in effect. TCI breached the employment agreement by its failure to make the first severance payment on February 1, 1990, and by its refusal to provide Mr. Webb and his family continuing health insurance coverage, except as part of the proposed settlement agreement. In February, 1990, Mr. Webb was free to accept employment with Aveda or with anyone else in the secondary containment industry.
The Settlement Agreement also contained a mutual general release by which the parties released each other from all claims, known or unknown, which that could have had against each other up to the date of the agreement. This release is binding on the parties. General releases are binding in Pennsylvania, even as to claims unknown at the time of the execution of the release if that was their intended scope. Shlensky v. Dorsey, 574 F.2d 131, 144 (3d Cir. 1978). "Pennsylvania law is clearly that where the parties manifest an intent to settle all accounts, the release will be given full effect even as to unknown claims." Three Rivers Motors Co. v. Ford Motor Co., 522 F.2d 885, 896 (3d Cir. 1975).
"In Pennsylvania, the general rule of construction of releases is that the intention of the parties must govern, but the intention must be gathered from the language of the release." Id. at 892. The language is clear and comprehensive. The parties intended to release each other from "all claims, . . . known or unknown, which they now have or could have had against each other. . . ." DX 292, P V (emphasis added). The court finds that TCI released Mr. Webb from liability for any and all acts that occurred before March 9, 1990. Mr. Webb's application for health insurance, which occurred before March 9, 1990, is not a breach of the Settlement Agreement. Because Mr. Webb left TCI in January of 1990, nothing that he did while president and general manager of TCI, such as arranging for TCI to loan money to Aveda or making Aveda a supplier to TCI, can constitute a breach of the Settlement Agreement.
TCI also alleges that Mr. Webb's loan of $ 60,000 to Aveda on April 16, 1990, was a breach of the Settlement Agreement. The covenant provided that, for a period of two years, Mr. Webb would neither act "as a principal, agent, or employee" of any business "engaged in the marketing, manufacture, distribution or servicing of underground tank containment systems, underground piping containment systems, and leak detection systems" nor serve "as a principal, agent or employee of any such business in competition with TCI."
TCI has attempted to rewrite history. At the time, Mr. Webb made the loan, Aveda was a supplier to TCI, not a competitor. EPI did not exist in April, 1990. Aveda did not become a supplier to EPI until after the termination of its business relationship with TCI, in May, 1990, and the formation of EPI, in June, 1990. Further, the covenant only prevented Mr. Webb from acting as a "principal, agent, or employee," not from making business loans. The making of a business loan does not establish a fiduciary relationship between lender and borrower. Buczek v. First Nat. Bank, 366 Pa. Super. 551, 531 A.2d 1122, 1124 (Pa. Super. 1987); Federal Land Bank of Baltimore v. Fetner, 269 Pa. Super. 455, 410 A.2d 344, 348 (Pa. Super. 1979), cert. denied, 446 U.S. 918, 64 L. Ed. 2d 273, 100 S. Ct. 1853 (1980). The court finds that Mr. Webb's loan to Aveda on April 16, 1990, did not breach the restrictive covenant.
TCI has not presented any other evidence that Mr. Webb breached the restrictive covenant. It has not demonstrated that Mr. Webb acted as a "principal, agent, or employee" of Aveda during this period. The court finds that TCI has not demonstrated that Mr. Webb breached the restrictive covenant before July 25, 1990, when it brought suit against Mr. Webb alleging breach of contract and numerous RICO violations.
b. Effect of the Suit Filed on July 24, 1990
When performance of a duty under contract is due, any nonperformance is a breach. If the breach constitutes a material failure of performance, the non-breaching party is discharged from all liability under the contract. Oak Ridge Construction Co. v. Tolley, 351 Pa. Super. 32, 504 A.2d 1343, 1348 (Pa. Super, 1985). To determine if a failure of performance is material, the following factors are considered:
a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;