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BAKER'S AID v. HUSSMANN FOODSERVICE CO.

February 13, 1990

BAKER'S AID, A DIVISION OF M. RAUBVOGEL CO., INC., PLAINTIFF,
v.
HUSSMANN FOODSERVICE COMPANY, AND HUSSMANN CORPORATION, DEFENDANTS.



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

MEMORANDUM AND ORDER

In March 1987 Baker's Aid, a division of M. Raubvogel Co., Inc. ("Baker's Aid"), moved in the New York State Supreme Court, Nassau County, for a preliminary injunction barring defendants Hussmann Corporation ("Hussmann") and Hussmann Foodservice Company ("HFC") from selling their ovens in competition with Baker's Aid and preventing defendants from misappropriating plaintiff's technology. After defendants removed the case from state court, this Court denied plaintiff's motion for a preliminary injunction in a decision dated April 30, 1987. That decision has been affirmed by the Second Circuit. Baker's Aid v. Hussmann Foodservice Co., 830 F.2d 13 (2d Cir. 1987).

Baker's Aid now moves for summary judgment pursuant to Fed.R.Civ.P. 56(a) for (i) breach of contract, (ii) breach of a covenant not to compete and (iii) conversion. Plaintiff also moves pursuant to Fed. R.Civ.P. 56(b) for summary judgment on defendants' antitrust counterclaims and defenses.

Defendants cross-move for summary judgment dismissing plaintiff's cause of action for breach of the covenant not to compete. Defendant Hussmann also moves pursuant to Fed.R.Civ.P. 56(b) for summary judgment dismissing all claims against it, asserting that it neither signed nor assumed the Manufacturing Agreement, dated June 11, 1985 (the "Manufacturing Agreement" or "Agreement"). For the reasons discussed below, plaintiff's motions are granted in part and defendants' cross-motions are denied.

FACTS

Plaintiff is a New York corporation with its principal place of business in Syosset, New York. The verified complaint alleges that defendant Hussmann, and its wholly-owned subsidiary, defendant HFC, are Delaware corporations with their principal places of business in Bridgeton, Missouri. This Court's jurisdiction is based upon diversity of citizenship.

This case concerns the design, production and sale of rack and deck ovens to volume-feeding facilities such as supermarket chains, restaurants, prisons and hospitals throughout the United States and Canada. The rack and deck ovens in issue are large commercial ovens designed for volume baking. Rack ovens have a single heating chamber in which objects are placed on rotating racks and heated by fanned air, creating a roughly uniform temperature. Deck ovens contain several smaller bottom-heated chambers in which objects are placed for stationary baking, and each chamber can be heated to a different temperature.

Baker's Aid is a distributor of rack and deck ovens manufactured by third parties. From 1977 until 1983, Baker's Aid purchased ovens manufactured by AB Svenska Bakugnsfabriken Fristad Sweden ("Sveba"). As a distributor, Baker's Aid re-sold these ovens under its own name throughout the United States and Canada. The relationship between Baker's Aid and Sveba dissolved in 1983 after Sveba replaced the rack and deck ovens previously sold to Baker's Aid with new models Baker's Aid found inadequate.

On June 11, 1985 Baker's Aid entered into the Manufacturing Agreement with Toastmaster, Inc., ("Toastmaster"), then a division of BIH Food Service Inc. ("BIH"). Under the Manufacturing Agreement, Toastmaster agreed to reverse engineer, or copy, the Sveba-made ovens previously purchased by Baker's Aid. This copying process was to be reduced to a series of working drawings, prints and specifications (collectively the "Specifications").

The Manufacturing Agreement also provided that the Specifications were to become the property of Baker's Aid after Baker's Aid purchased $1 million worth of Toastmaster ovens. Other significant provisions of the Manufacturing Agreement included an agreement on price and a covenant obligating Toastmaster not to compete with Baker's Aid.

After several months' engineering effort, Toastmaster first delivered ovens to Baker's Aid in August or September of 1985. These ovens did not function properly, and several months of engineering refinement were required. With the technical assistance of Baker's Aid, Toastmaster eventually developed suitable ovens.

In the fall of 1985 HFC acquired the assets of BIH, including the Toastmaster division. In July 1986 HFC acknowledged in writing that it assumed all of BIH's obligations under agreements entered into and guaranteed by BIH.

On October 31, 1986 Hussmann notified Baker's Aid that it intended to charge 32% more than the agreed Manufacturing Agreement price for future deliveries of rack and deck ovens. Not surprisingly, defendants' attempt to impose a price increase led to a rapid deterioration of the parties relationship.

On January 12, 1987 Baker's Aid notified defendants, in writing, that it considered the proposed price increase a breach of their contract. Baker's Aid also objected to defendants' alleged manufacture of ovens in violation of the covenant not to compete.

In a letter dated March 3, 1987, Baker's Aid notified defendants that it considered the Agreement terminated because of defendants' breach. In the same letter, Baker's Aid pointed out that it had purchased more than $1 million worth of ovens from Toastmaster and, therefore, that it was entitled to the original Specifications and all copies thereof. Shortly thereafter Baker's Aid brought the instant action.

DISCUSSION

I.  RETENTION OF THE SPECIFICATIONS

Plaintiff asserts that defendants' retention and use of the Specifications is both a breach of contract and a tortious conversion*fn1 of plaintiff's property. As previously noted, the Manufacturing Agreement provides that the Specifications become the "property of Baker's Aid" upon its purchase of $1 million worth of Toastmaster ovens. Defendants agree — enigmatically — that because such purchase has occurred, Baker's Aid is "give[n] the Specifications and the right to use them." (Def.Mem. at 67).

Despite this concession, defendants contend that they are entitled to produce ovens based on the Specifications. Defendants' position is principally based on the absence of an express provision in the Manufacturing Agreement prohibiting their use of the Specifications.

A.  Breach of Contract

Contracts generally must be interpreted so as to effectuate the intentions of the parties. Hunt Ltd. v. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989). If a contract is unambiguous, interpretation of such contract is a question of law. Id. Thus, as a threshold matter, this Court must determine whether the Manufacturing Agreement is ambiguous. Pantone, Inc. v. Esselte Letraset, Ltd., 878 F.2d 601, 605 (2d Cir. 1989). The Manufacturing Agreement phrase, "property of Baker's Aid", is ambiguous if such phrase:

  is one capable of more than one meaning when
  viewed objectively by a reasonably intelligent
  person who has examined the context of the entire
  integrated agreement and who is cognizant of the
  customs, practices, usages and terminology as
  generally understood in the particular trade or
  business.

Id. at 606 (quoting Eskimo Pie Corp. v. Whitelawn Dairies, Inc., 284 F. Supp. 987, 994 (S.D.N.Y. 1968)) (applying New York law).

The critical word at issue is "property." Property is ordinarily "[t]hat which is peculiar or proper to any person; that which belongs exclusively to one . . ." Black's Law Dictionary 1095 (5th ed. 1979) (emphasis added); 3 Bouvier's Law Dictionary 2750 (8th ed. 1914). Because the ordinary meaning of "property" implies exclusivity, the mere absence of an express provision prohibiting defendants' use of the Specifications does not render the Manufacturing Agreement ambiguous. Additionally, defendants offer no persuasive evidence of custom, usage or business practice that renders ambiguous the phrase "property of Baker's Aid." Thus, I conclude that the phrase "property of Baker's Aid" is unambiguous, and that interpretation thereof is a question of law for this Court. Hunt, 889 F.2d at 1277.

In addition to the plain meaning of the contract, the notion that defendants retained any interest in the Specifications is contradicted by Toastmaster's further agreement to execute any documents necessary to transfer ownership of the Specifications to Baker's Aid (A.51).*fn2 Accordingly, I conclude that Baker's Aid acquired the exclusive right to possession and use of the Specifications upon its purchase of $1 million worth of Toastmaster ovens. It follows, of course, that defendants are not entitled to retain or use the original Specifications or any copies thereof.

B.  Conversion

Plaintiff maintains that defendants' retention and use of the Specifications also constitutes a conversion. Under New York law, conversion is defined as "any unauthorized exercise of dominion or control over property by one who is not the owner of the property which interferes with and is in defiance of a superior possessory right of another in the property." Atlanta Shipping Corp. v. Chemical Bank, 818 F.2d 240, 249 (2d Cir. 1987) (quoting Meese v. Miller, 79 A.D.2d 237, 242, 436 N YS.2d 496, 500 (4th Dep't 1981)). In this case the property allegedly converted is a copy of the Specifications. Defendants argue that because they have furnished plaintiff with a copy of the Specifications, they have discharged all their obligations and are free to keep a copy and do whatever they wish with it. (Def.Mem. at 67). Merely to state the argument demonstrates its cynicism.

In Traveltown, Inc. v. Gerhardt Inv. Group, 586 F. Supp. 256 (N.D.N.Y. 1984), plaintiff was deprived of a copy of its blueprints, although it had another copy. The Traveltown court recognized this deprivation as a conversion, while limiting plaintiff's recovery to nominal damages absent a showing that defendant used or profited from the converted blueprints. Id. at 258.

In the instant case HFC admits retaining a copy of the Specifications. (Def.Mem. at 67). As in Traveltown, this is a conversion. The extent to which defendants used or profited from the Specifications is an issue for trial.

II. THE COVENANT NOT TO COMPETE

At the insistence of Baker's Aid, the following covenant not to compete was included in the Manufacturing Agreement:

  Toastmaster, BIH Foodservice, and all Divisions
  of BIH Foodservice are for a period of ten (10)
  years subsequent to the termination of this
  Agreement, for any reason, specifically
  prohibited from soliciting, distributing,
  manufacturing, selling or causing to be sold to
  Baker's Aid customers, any rack type ovens or a
  deck oven based on the specifications or any
  reasonable facsimile thereof and further they
  shall not directly or indirectly sell,
  distribute, ...

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