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March 8, 2000


The opinion of the court was delivered by: Katz, Senior District Judge.


On February 22, 2000 Plaintiff Vector Security, Inc. brought a motion for a temporary restraining order (TRO) and preliminary injunction before this court against defendants Dwayne Stewart, Jr., City-Wide Home Securities Services, Inc., and Cinnaminson Alarm Co. The court denied the motion for a TRO. See Order of Feb. 23, 2000. A hearing on the motion for the preliminary injunction was held on March 8, 2000. Although defendants were served with all papers, including the complaint, motion for the preliminary injunction, and notice of the hearing, neither they nor their counsel attended the hearing. Upon consideration of the submissions of plaintiff, and after the hearing, the court makes the following findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

I. Findings of Fact

Vector Security Systems, Inc. is a Pennsylvania corporation with its principal place of business in Pennsylvania. Dwayne Stewart, Jr. is a citizen of New Jersey. City-Wide Home Security Services, Inc. is a New Jersey corporation with its principal place of business in New Jersey. Stewart is an officer and director of City-Wide and owns all or substantially all of its stock. Stewart has also traded in the security alarm business under the name Cinnaminson Alarm Co., whose principal place of business is New Jersey. Vector seeks to enforce, through a preliminary and permanent injunction, a restrictive covenant in a dealer agreement entered into by Vector and City-Wide.

A. Vector's Dealer Program

Vector is a company which provides security alarm services. Through its employees, independent contractors, or authorized alarm dealers, Vector facilitates the installation of a security alarm system in a subscriber's*fn1 residence or business. Vector then provides services to the subscriber, generally alarm monitoring services, for a monthly fee in accordance with a subscriber agreement.

Vector's dealer program has been in existence for seven years. Authorized dealers are independent alarm businesses that have entered into agreements with Vector and that essentially act as independent sales representatives. Dealers solicit subscribers, install Vector-approved alarm security systems, and obtain an executed standard security services agreement from the subscriber which they then sell to Vector. Once Vector accepts and executes a subscriber agreement from a dealer, the agreement becomes binding upon Vector, and the dealer earns its right to receive a commission for that agreement. Vector calculates price of the subscriber agreements it purchases from its dealers by multiplying the monthly fee by a number previously agreed upon by both parties. The multiplier varies and is dependent on a number of factors.

Each subscriber agreement that Vector purchases from its dealers has a term of thirty-six months and an automatic renewal provision for an additional thirty-six months. Vector anticipates that it will not receive a return on its investment until it has provided approximately sixty months of service to the customer. Accordingly much of Vector's incentive to enter into these agreements is its expectation, based on past experience, that subscribers remain with Vector for a considerable amount of time; the average, in fact, is fifteen years. Vector also generates substantial revenue from additional equipment and services for which its subscribers contract, as well as referrals from its subscribers. Vector anticipated that the attrition rate for subscribers obtained through its dealer program would be 10% per year, although the actual rate it has experienced is somewhat lower. It's overall net attrition rate of subscribers it has obtained from all sources is 7.6% per year.

B. Dealer Agreement between Vector and City-Wide

In June 1999, Stewart submitted an application to become a Vector authorized alarm dealer to Ronald LiPari, a Vector senior vice-president. LiPari visited City-Wide's office in New Jersey and then met with Stewart in Philadelphia to negotiate a dealer agreement. On June 24, 1999, Stewart executed the dealer agreement, and LiPari executed the agreement on behalf of Vector on June 28, 1999.

The dealer agreement prohibited City-Wide from soliciting or accepting subscriber agreements from renters*fn2 and from modifying the standard subscriber agreement. The dealer agreement also specified that City-Wide was to handle all service calls received from the subscriber for the first twelve months following installation. The dealer agreement provided that Vector had the right to terminate the agreement for any or no reason upon thirty days written notice to City-Wide. During the ninety-day probationary period, Vector had the right to terminate the agreement on ten days notice. City-Wide also agreed that for five years after the dealer agreement's expiration or termination for any reason, neither it nor its employees would "solicit, directly or indirectly[,] or cause any other entity to do so, Vector customers to buy or install any products or services which are of a similar type or serve the same purpose or perform the same function as the products and services covered by this agreement." Dealer Agreement between Vector and City-Wide ¶ 13.1.

C. Termination of the Dealer Agreement by Vector

In September 1999, Vector learned that ITI, City-Wide's equipment supplier, refused to extend any additional credit to City-Wide. Vector only allowed its dealers to install equipment from ITI or DSC and believed that City-Wide lacked the expertise to install DSC alarm equipment. Thus, Vector was concerned that ITI's refusal to ship equipment would severely affect City-Wide's ability to sell and install security alarm systems. From late summer until the termination of the agreement on October 13, 1999, Vector also received a number of complaints about City-Wide from subscribers whose agreements it purchased from City-Wide. The complaints included allegations that City-Wide failed to service the systems it installed, that City-Wide failed to provide promised free products or services to the subscribers, and that the subscribers were unable to reach City-Wide. Vector itself was unable to contact anyone at City-Wide: telephone ...

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