United States District Court, Eastern District of New York
February 13, 1990
BAKER'S AID, A DIVISION OF M. RAUBVOGEL CO., INC., PLAINTIFF,
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.
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
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
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
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
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.
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
Id. at 606 (quoting Eskimo Pie Corp. v. Whitelawn Dairies,
Inc., 284 F. Supp. 987, 994 (S.D.N.Y. 1968)) (applying New York
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.
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
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.
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, solicit, manufacture or cause to be
manufactured rack ovens for sale or distribution
in the United States or Canada.
Because covenants not to compete restrain trade, New York
courts rigorously examine such covenants before enforcing
them. American Inst. of Chem. Eng'rs. v. Reber-Friel Co.,
682 F.2d 382, 387 (2d Cir. 1982). Enforceability of the restrictive
covenant is a threshold question that must be resolved before
it can be determined whether the Agreement has been breached.
A. The Standard of Review
Covenants not to compete usually arise in two different
contexts: in connection with the sale of a business and as
adjunct to an employer-employee relationship. Each is given a
Defendants contend that their covenant not to compete should
be viewed through the prism of an employer-employee
Because enforcement of employee restrictive covenants may
result in the loss of an individual's livelihood, such
covenants are "rigorously examined" and enforced only to
protect an employer from unfair competition stemming from
— among other things — the disclosure of trade secrets.
American Inst. of Chem. Eng'rs v. Reber-Friel Co.,
682 F.2d 382, 387 (2d Cir. 1982). Defendants assert that there are no
trade secrets*fn3 in this case and, therefore, that the
covenant not to compete is unenforceable, even if it is
otherwise reasonable. (Def.Mem. at 31, 34).
Plaintiff, on the other hand, maintains that this case is
more analogous to a sale of business. Reasonable restrictive
covenants ancillary to the sale of a business are routinely
enforced to protect the goodwill paid for by the purchaser.
Chevron U.S.A., Inc. v. Roxen Serv., Inc., 813 F.2d 26, 28 (2d
It is noteworthy that this case, involving neither a
transfer of goodwill nor the loss of an employee's livelihood,
does not fall comfortably under the rules governing either
employment agreements or the sale of a business. The fallacy
of the parties arguments is that they create a false
dichotomy. There is, in fact, at least a third strain of cases
dealing with covenants not to compete that are made as a part
of an ordinary commercial contract. These latter covenants are
analyzed under a simple rule of reason.
When determining whether to enforce non-competition
agreements not involving employment relationships or the sale
of a business, courts must balance the competing public
policies in favor of robust competition and freedom of
contract. Mohawk Maintenance Co. v. Kessler, 52 N.Y.2d 276,
283, 437 N.Y.S.2d 646, 650, 419 N.E.2d 324, 328 (1981). The
seminal case is Hodge v. Sloan, 107 N.Y. 244, 17 N.E. 335
(1887) where the New York Court of Appeals upheld an agreement
by a buyer of land not to sell sand therefrom in competition
with the seller. The Court of Appeals reasoned that the
wanted to buy the land on the best terms and in
the most advantageous way, and in order to do
this it was necessary that he should preclude
himself from so using it . . . I cannot find that
such a covenant contravenes any rule of public
policy . . . It stands upon a good consideration,
and is not larger than is necessary for the
protection of the covenantee in the enjoyment of
Id. at 249-50, 17 N.E. 335.
In the instant case, as in Hodge, Toastmaster agreed to the
covenant so that it could render profitable manufacturing
services to Baker's Aid. (A-321, 747). Baker's Aid refused to
enter the Manufacturing Agreement without the restrictive
covenant. (A-320). Because the covenant is the result of a
bargained for exchange, it should be enforced so long as it is
reasonable and is no larger than necessary to protect
legitimate business interests of Baker's Aid. Hodge, 107 N.Y.
at 249, 17 N.E. 335; see Mohawk Maintenance, 52 N.Y.2d at 284,
437 N.Y.S.2d at 650, 419 N.E.2d at 328; Handler & Lazaroff,
Restraint of Trade and the Restatement (Second) of Contracts,
57 N.Y.U.L.Rev. 669 (1982).
B. Reasonableness of the Covenant
In New York, a restrictive covenant is "reasonable" if it is
not excessive "as to time, scope and area and is not unduly
burdensome." Meteor Indus. v. Metalloy Indus., 149 A.D.2d 483,
539 N.Y.S.2d 972, 974 (2d Dep't 1989). I interpret the covenant
in this case as imposing distinct ten-year restrictions
prohibiting competition (i) based on the Specifications in the
rack or deck oven markets, and (ii) in the United States and
Canadian rack oven markets, whether or not such competition is
based on the Specifications.
1. Competition Based on the Specifications
Defendants contend that the restrictive covenant is
unenforceable even if it is tested
under the looser "reasonableness" standard. (Def.Mem. at 33
and note). Although the basis for this position is unclear,
defendants apparently assert that because the Specifications
are not trade secrets, the restrictive covenant cannot serve
a legitimate business purpose. (Def.Mem. at 34).
Several legitimate business interests other than protection
of trade secrets do, however, exist. Such interests include
prevention of unfair competition. American Inst. of Chem.
Eng'rs v. Reber-Friel Co., 682 F.2d 382, 387 (2d Cir. 1982).
Under New York law, unfair competition is a malleable tort that
includes any "misappropriation for commercial advantage of a
benefit or property right belonging to another." Marcraft
Recreation Corp. v. Frances Devlin Co., 459 F. Supp. 195, 199
As discussed above, the Specifications are the exclusive
property of plaintiff. Therefore, plaintiff has a legitimate
business interest in proscribing the unfair competition that
would result from defendants' use of the Specifications.
That defendants' could develop the same Specifications after
expending time, effort and money does not affect this
conclusion. The Specifications paid for by plaintiff are the
end product of several months' engineering effort. (A-355-56,
387-88). If defendants choose to reverse engineer another oven
they are free to do so; but they may not cut short this
process by converting plaintiff's property:
[i]t is unquestionably lawful for a person to
gain possession, through proper means, of his
competitor's product and, through inspection and
analysis, create a duplicate, unless, of course,
the item is patented. But the mere fact that such
lawful acquisition is available does not mean
that he may, through a breach of confidence, gain
the information in useable form and escape the
efforts of inspection and analysis.
Minnesota Mining & Mfg. v. Technical Tape Corp., 23 Misc.2d 671,
684, 192 N.Y. So.2d 102, 118 (N.Y.Sup.Ct.West.Cty. 1959)
(quoting Smith v. Dravo Corp., 203 F.2d 369, 375 (7th Cir.
1953)), aff'd, 15 A.D.2d 960, 226 N.Y.S.2d 1021 (2d Dep't
1962). Whether or not the Specifications purchased by plaintiff
embody trade secrets, such Specifications stand:
like a trade secret. The plaintiff has the right
to keep the work which it has done, or paid for
doing, to itself. The fact that others might do
similar work, if they might, does not authorize
them to steal the plaintiff's.
Board of Trade v. Christie Grain & Stock Co., 198 U.S. 236
250, 25 S.Ct. 637, 639, 49 L.Ed. 1031 (1905) (Holmes, J.);
Minnesota Mining & Mfg., 23 Misc.2d at 684, 192 N.Y.S.2d at
Accordingly, to the extent that the covenant not to compete
proscribes competition based on the Specifications, it is
reasonable and enforceable. The record is barren of any
evidence that the defendants have an independent source of
oven technology. The conclusion is irresistable that
defendants' competition is based solely on the Specifications.
Therefore, plaintiff's motion for summary judgment is granted
insofar as it relates to HFC's use of the Specifications.
2. Competition in the United States and Canada
The covenant not to compete also provides that, even if they
do not use the Specifications, Toastmaster, BIH and all
divisions of BIH shall not, for a period of ten years,
"directly or indirectly sell, distribute, solicit, manufacture
or cause to be manufactured rack ovens for sale or
distribution in the United States or Canada." (A-52).
Plaintiff maintains that this covenant is reasonably necessary
to prevent disclosure of proprietary information and to insure
that the Manufacturing Agreement does not become "an
unintended vehicle to create, fund and educate a competitor."
(A-1149-50). I disagree.
The limited know-how and proprietary information imparted to
defendants, if any, is adequately protected by the
proscription of competition based on the Specifications.
Without the Specifications, the Manufacturing Agreement does
not provide defendants any significant vehicle for entering
the rack oven market. To the contrary, the record indicates
that defendants could have entered the rack oven market at any
time, provided that they invested enough time and money to
reverse engineer an existing rack oven.
Although plaintiff has had ample opportunity to do so, it
has failed to show that banning defendants from the United
States and Canadian rack oven markets is a narrowly tailored
restraint necessary to protect a legitimate business interest
of plaintiff. Therefore, after a review of the entire record,
I conclude that this portion of the covenant is overbroad.
Where a restrictive covenant contains both reasonable and
overbroad provisions, this Court may "make use of the tool of
severance, paring an unreasonable restraint down to
appropriate size and enforcing it." Karpinski v. Ingrasci, 28
N Y2d 45, 52, 320 N.Y.S.2d 1, 7, 268 N.E.2d 751, 757 (1971);
Meteor Indus. v. Metalloy Indus., 149 A.D.2d 483, 539 N.Y.S.2d
972, 974 (2d Dep't 1989). Accordingly, the proscription of
competition in the rack oven markets of the United States and
Canada is severed. The covenant, as reformed, is enforceable.
III. DEFENDANTS' ANTITRUST COUNTERCLAIMS AND DEFENSES
Defendants allege that the covenant not to compete violates
Sherman Act sections 1 and 2 and New York's Donnelly Act.*fn4
Plaintiff asserts that it is entitled to summary judgment as
to each antitrust allegation.
A. Sherman Act Section I and New York's Donnelly
Preliminarily, I reject defendants' contention that the
covenant not to compete constitutes a per se violation of the
Sherman Act. The per se rule is applied to arrangements which
"because of their pernicious effect on competition and lack of
any redeeming virtue are conclusively presumed to be
unreasonable . . ." Northern Pac. R. Co. v. United States,
356 U.S. 1
, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958); see White
Motor Co. v. United States, 372 U.S. 253
, 262, 83 S.Ct. 696,
701, 9 L.Ed.2d 738 (1963).
In Bradford v. New York Times Co., 501 F.2d 51 (2d Cir.
1974), the Second Circuit refused to apply the per se rule to
an employee covenant not to compete. Id. at 60. The Bradford
court reasoned that because employee restrictive covenants are
typically analyzed under state law, federal courts have not had
the considerable experience necessary to classify such
covenants as per se violations of the Sherman Act. Id. at 60.
As with the employee restraint in Bradford, covenants not to
compete ancillary to an otherwise legitimate contract are
typically analyzed under state law. See, e.g., Hodge v. Sloan,
107 N.Y. 244, 249-50, 17 N.E. 335 (1887). As a result, federal
courts have not had sufficient experience with such covenants
to conclude that they are so pernicious as to lack any
redeeming value. I conclude, therefore, that the restraint in
issue should be analyzed under the rule of reason. See Carvel
Corp. v. Eisenberg, 692 F. Supp. 182, 185 (S.D.N.Y. 1988)
(restrictive covenants are analyzed under the rule of reason).
The rule of reason requires the factfinder to weigh "all the
circumstances of a case in deciding whether a restrictive
practice should be prohibited as imposing an unreasonable
restraint on competition." Continental T.V., Inc. v. GTE
Sylvania Inc., 433 U.S. 36, 49, 97 S.Ct. 2549, 2557, 53 L.Ed.2d
568 (1977). Whether a particular restraint is unreasonable must
be determined "in light of its common law antecedents."
Bradford, 501 F.2d at 59; see Business Elec. v. Sharp Elec.,
485 U.S. 717, 108 S.Ct. 1515, 1524, 99 L.Ed.2d 808 (1988).
I have already discussed at length the reasonableness of the
proscription of competition based on plaintiff's
Specifications. The broader ban on competition in the rack
oven market is more problematical.
As as matter of state common law, I have severed that
portion of the restrictive covenant that is broader than
necessary to protect plaintiff's legitimate business
interests. As reformed, the covenant does not violate the New
York common law policy against restraint of trade; it is an
enforceable restraint ancillary to the Manufacturing
Similarly, under the Sherman Act a court may enforce the
reasonable portion of a restrictive covenant that is
overbroad, so long as the covenant is drafted in good faith as
a restraint ancillary to a legitimate business transaction.
See Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 267 (7th Cir.
1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1277, 71 L.Ed.2d
461 (1982); Alders v. AFA Corp. of Florida, 353 F. Supp. 654,
658 (S.D.Fla. 1973), aff'd without opinion, 490 F.2d 990 (5th
Cir. 1974). Clearly, the instant restraint is ancillary to
legitimate business purposes of the Manufacturing Agreement.
Good faith in drafting is suggested by the arm's length
negotiations of the covenant and the fact that the covenant is
geographically limited to the marketing area of Baker's Aid.
Alders, 353 F. Supp. at 659. It is also significant that Baker's
Aid acknowledges it is entitled to enforcement of the covenant
only to the extent the covenant is reasonable. See Lektro-Vend,
660 F.2d at 267. Moreover, enforcement of the reasonable
restraint embodied in the covenant not to compete is consistent
with the state common law antecedents of severance and
I conclude that the covenant not to compete, as reformed by
this Court, is a reasonable restraint that is permissible
under the Sherman Act. Accordingly, defendants' section 1
counterclaim is dismissed.
Defendants also counterclaim pursuant to New York's Donnelly
Act, N.Y.Gen. Bus.Law § 340 (McKinney 1988).The Donnelly Act is
"modeled after the Sherman Act . . ." Venture Technology Inc.
v. National Fuel Gas Co., 685 F.2d 41, 42 n. 1 (2d Cir.), cert.
denied, 459 U.S. 1007, 103 S.Ct. 362, 74 L.Ed.2d 398 (1982).
Like the Sherman Act, the Donnelly Act proscribes only
unreasonable restraints of trade. Business Foods Serv., Inc. v.
Food Concepts Corp., 533 F. Supp. 992, 996 (E.D.N.Y. 1982). In
the instant case, analysis under the Donnelly Act and the
Sherman Act is congruent. Venture Technology, 685 F.2d at 42 n.
1; H.L. Hayden Co. v. Siemens Medical Sys., 672 F. Supp. 724,
745 (S.D.N. Y. 1987), aff'd, 879 F.2d 1005 (2d Cir. 1989);
Hsing Chow v. The Union Cent. Life Ins. Co., 457 F. Supp. 1303,
1308 (E.D.N.Y. 1978). Accordingly, the reasoning which requires
dismissal of defendants' section 1 counterclaim equally
requires dismissal of defendants' Donnelly Act counterclaim.
See Hsing Chow, 457 F. Supp. at 1308.
B. Sherman Act Section 2
Defendants' third counterclaim is that plaintiff attempted
to monopolize the rack oven market in violation of section 2
of the Sherman Act. The three elements of an attempt to
monopolize are: "(1) anticompetitive or exclusionary conduct;
(2) a specific intent to monopolize; and (3) a 'dangerous
probability' that the attempt will succeed." Kelco Disposal v.
Browning-Ferris Indus., 845 F.2d 404, 407 (2d Cir. 1988),
aff'd, ___ U.S. ___,109 S.Ct. 2909, 106 L.Ed.2d 219 (1989)
(citations omitted). Because I conclude defendants cannot
demonstrate a "dangerous probability" of monopolization, I need
not consider whether defendants have demonstrated
anticompetitive conduct or an intent to monopolize.
A dangerous probability of monopolization exists when
anticompetitive conduct is undertaken by a party enjoying
monopoly power. International Distrib. Center, Inc. v. Walsh
Trucking Co., 812 F.2d 786, 791 (2d Cir. 1987). In determining
whether monopoly power exists, market share is properly treated
as "strong, perhaps presumptive, evidence of the presence or
absence of market power, subject to bolstering or rebuttal by
Broadway Delivery Corp. v. United Parcel Serv., 651 F.2d 122,
128-29 (2d Cir.), cert. denied, 454 U.S. 968, 102 S.Ct. 512, 70
A trial judge may conclude that a particular record "permits
no reasonable inference other than that defendant lacks
monopoly power . . . if the defendant's share is less than
50%, or even somewhat above that figure, and the record
contains no significant evidence concerning the market
structure to show that defendant's share of that market gives
it monopoly power." Id. at 129 (emphasis in original). In a
recent attempted monopolization case, United Air Lines, Inc. v.
Austin Travel Corp., 867 F.2d 737 (2d Cir. 1989), the Second
Circuit held that a market share of 31% was "below the
threshold market share necessary for the antitrust violations
asserted." Id. at 742; see, e.g., United States v. Aluminum Co.
of Am., 148 F.2d 416, 424 (2d Cir. 1945) (33% of relevant
market not a monopoly).
According to defendants' expert, Baker's Aid has a market
share between 29 and 33 percent in a relevant market defined
as "the sale of rack ovens to supermarket bakeries." (Def.
Mem. at 46). I am not persuaded that defendants' definition of
the relevant market is correct. The relevant market is
properly defined only if "it includes all reasonable
substitutes for the product." Jefferson Parrish Hosp. Dist. No.
2 v. Hyde, 466 U.S. 2, 37-38, n. 7, 104 S.Ct. 1551, 1571-72 n.
7, 80 L.Ed.2d 2 (1984) (O'Connor, J., concurring). In the
instant case, whether other ovens are reasonable substitutes
for rack ovens is a matter of dispute. Nonetheless, for
purposes of the instant motions, I assume defendants'
definition of the relevant market is correct.
The mean of the market share range suggested by defendants
is 31% As in United Airlines, I conclude that a market share of
31% is below the "threshold market share necessary" to
establish a claim of attempted monopolization. United Air
Lines, Inc., 867 F.2d at 743.
This threshold conclusion is supported by the other relevant
evidence contained in the record. Excluding market share,
factors which may be considered when determining whether an
entity has monopoly power include "the strength of the
competition, the probable development of the industry,
barriers to entry, the nature of the anticompetitive conduct
and the elasticity of consumer demand." International Distrib.
Centers, Inc. v. Walsh Trucking Co., 812 F.2d 786, 792 (2d Cir.
This Court has previously determined that Baker's Aid faces
strong competition. (A-661). The nature of the alleged
anticompetitive conduct — enforcement of a covenant not to
compete ancillary to a legitimate business transaction — does
not suggest that. Baker's Aid will monopolize the rack oven
Plaintiff's expert testified that there are no significant
barriers to entering the rack oven market. (A-100, 101). This
testimony is not contradicted by defendants' expert or any
other evidence in the record.
Finally, defendants assert that monopoly power is shown by
plaintiff's ability to sell virtually the same ovens as HFC at
a higher price. (Def. Mem. at 51, 60). Evidence that an entity
is able to earn above normal profits may be an indication that
such entity has market power. Borden Inc. v. FTC, 674 F.2d 498,
511-12 (6th Cir. 1982), vacated on other grounds, 461 U.S. 940,
103 S.Ct. 2115, 77 L.Ed.2d 1298 (1983); ABA Antitrust Section,
Antitrust Law Developments, 120 (2d ed. 1984). The mere fact
that Baker's Aid is able to sell its ovens at a higher price
than HFC is not, however, evidence that Baker's Aid earns above
To the contrary, any suggestion that Baker's Aid earns above
normal profits through super-competitive pricing is
contradicted by the price survey prepared for defendants by
their experts, the Weller Company. This survey shows that nine
Baker's Aid competitors sell rack ovens at list prices ranging
from $10,000 to $35,160, and that Baker's Aid sells its rack
ovens for a list price of $23,758. This mid-range pricing is
inconsistent with defendants' allegations of super-competitive
Thus, a review of the entire record reveals no evidence
tending to rebut the lack of monopoly power suggested by
plaintiff's 31% market share. Accordingly, I conclude that the
record permits no reasonable inference other than that Baker's
Aid lacks monopoly power. Because monopoly power is necessary
to establish a dangerous probability that an attempted
monopolization will succeed, defendants' section 2
counterclaim must be dismissed.
IV. DEFENDANTS' OTHER DEFENSES
Finally, defendants interpose a congeries of miscellaneous
defenses. Specifically, defendants assert that (i) the
Manufacturing Agreement is void for lack of mutuality and
considerations, (ii) defendants lack privity under the
Manufacturing Agreement and did not assume any obligations
thereunder, and (iii) plaintiff is not the real party in
A. Mutuality and Consideration
It is hornbook law that a contract which does not require
performance by each party is unenforceable for lack of
consideration. Joneil Fifth Ave., Ltd. v. Ebeling & Reuss Co.,
458 F. Supp. 1197, 1200 (S.D.N.Y. 1978) (applying New York law).
Defendants contend that the Manufacturing Agreement is
unenforceable due to lack of mutuality and consideration
because it does not expressly require Baker's Aid to purchase
any ovens. This contention is not well taken.
Baker's Aid was obligated to purchase and pay for ovens
under the Manufacturing Agreement, "even if the agreement did
not expressly say so." See Perma Research & Dev. Co. v. Singer
Co., 410 F.2d 572, 574 n. 8 (2d Cir. 1969). "A promise may be
lacking, and yet the whole writing may be 'instinct with an
obligation' imperfectly expressed." Wood v. Lucy, Lady Duff
Gordon, 222 N.Y. 88, 91, 118 N.E. 214 (1917) (Cardozo, J.);
Perma Research, 410 F.2d at 572 n. 8. In such a case, a good
faith agreement to purchase one's requirements is properly
The Manufacturing Agreement contains detailed provisions
concerning termination, price and design standards, and is
clearly "instinct with an obligation." Indeed, defendants
admit Baker's Aid has purchased more than $1 million worth of
ovens under the Manufacturing Agreement. Because the
Manufacturing Agreement impliedly obligated Baker's Aid to
make such purchases, I reject the suggestion that the
Manufacturing Agreement is unenforceable due to a lack of
mutuality or consideration.
B. Lack of Privity
The Manufacturing Agreement was originally entered into by
Baker's Aid, Inc., Toastmaster and BIH, as guarantor of the
obligations of Toastmaster. Defendants maintain that their
lack of privity under the Manufacturing Agreement shields them
from liability because they never validly assumed any
Manufacturing Agreement obligations.
I reject this argument out of hand as to defendant HFC,
which clearly assumed the obligations of BIH in a letter to
Baker's Aid dated July 21, 1986. (A-771). The contentions that
the Manufacturing Agreement is not a "legal contract" assumed
by the letter, and that HFC did not "enter into" the
Manufacturing Agreement, are frivolous.
It is not clear, however, that Hussmann is jointly liable
under the Manufacturing Agreement. A parent corporation is
generally not liable for the contracts of its subsidiary
unless the parent dominates the subsidiary to such a degree
that the subsidiary is a "mere instrumentality" of the parent
with no will of its own. American Protein Corp. v. AB Volvo,
844 F.2d 56, 60 (2d Cir.), cert. denied, ___ U.S. ___, 109
S.Ct. 136, 102 L.Ed.2d 109 (1988); Gorrill v.
Icelandair/Flugleidir, 761 F.2d 847, 853 (2d Cir. 1985). There
is a presumption of separateness between parent and subsidiary
"which is entitled to substantial weight." American Protein,
844 F.2d at 60.
Nonetheless, if Hussmann used its control of HFC to obtain
the Specifications for use in competition with Baker's Aid,
violated the rights of Baker's Aid under the Manufacturing
Agreement. Such use of control in violation of legal rights is
precisely the type of conduct which justifies a "piercing of
the corporate veil", which would in turn leave Hussmann liable
for breach of the Manufacturing Agreement. See Gorrill v.
Icelandair/Flugleidir, 761 F.2d 847, 853 (2d Cir. 1985).
I cannot, however, determine the degree of control Hussmann
has exerted over HFC. Whether a parent's domination of its
subsidiary is so complete that the legal fiction of corporate
separateness is to be ignored is normally a question for the
jury. American Protein, 844 F.2d at 60. Therefore, whether
Hussmann is jointly liable for HFC's breach of the Agreement is
a question properly reserved for trial.
C. Real Party in Interest
The Manufacturing Agreement was executed in the name of
"Baker's Aid, Inc.," a currently inactive corporation with no
assets. This case is brought in the name of "Baker's Aid, a
division of M. Raubvogel Co., Inc." Defendants contend that
the instant dispute cannot be resolved because the case is
brought in the name of "Baker's Aid, a division of M.
Raubvogel Co., Inc.," rather than in the name of "Baker's Aid,
Inc.", the actual signatory to the Manufacturing Agreement.
In a prior proceeding in this case, the Second Circuit has
observed that "[a] division of a corporation is not a legal
entity with capacity to bring suit . . ." Baker's Aid v.
Hussmann Foodservice Co., 830 F.2d 13, 14 n. 1 (2d Cir. 1987).
While defendants are quick to point out this observation, they
fail to note that the Second Circuit also observed that this
deficiency is unlikely to be dispositive. Id.
In a similar case cited by defendants, Larido Corp. v.
Crusader Mfg. Co., 4 Misc.2d 231, 155 N.Y.S.2d 715 (Sup.Ct.N Y
Cty. 1956), defendant claimed it was not bound by the contract
in issue because the contract improperly designated defendant
as "Crusader Manufacturing Corp." rather than "Crusader
Manufacturing Company". 4 Misc.2d at 234, 155 N.Y.S.2d at 719.
The court rejected defendant's claim as meritless because the
parties performed the contract as if it were one between
plaintiff and defendant. 4 Misc.2d at 234, 155 N.Y.S.2d at 719.
As in Larido, the parties treated the Manufacturing Agreement
as a contract involving "Baker's Aid, a division of M.
Raubvogel Co., Inc." (A-748, 768, 772, 782). Therefore, M.
Raubvogel Co., Inc. is clearly the real party in interest under
the Manufacturing Agreement. See Larido, 4 Misc.2d at 234, 155
N YS.2d at 719.
The caption in the instant case lists as plaintiff "Baker's
Aid, a division of M. Ravbvogel Co., Inc." Because the current
caption already names the real party in interest, M. Raubvogel
Co., Inc., mention of Baker's Aid is merely surplusage.
American Jerex Co. v. Universal Aluminum Extrusions, Inc.,
340 F. Supp. 524, 528 (E.D.N.Y. 1972). Defendants' motion to dismiss
on the grounds of such surplusage must be denied. Id.
In summary, I find that defendant HFC's retention of the
Specifications is a conversion and a breach of contract for
which plaintiff is entitled to summary judgment. Further, I
conclude that the Manufacturing Agreement covenant not to
compete is enforceable to the extent it proscribes competition
based on the Specifications. I also find that HFC's admitted
competition is based on the Specifications. Therefore, I
conclude that plaintiff is entitled to summary judgment for
HFC's breach of the covenant not to compete.
I reserve for trial the issue of whether Hussmann controlled
its subsidiary, HFC, to such an extent that it is jointly
liable for HFC's breach and conversion. Accordingly, I deny
both plaintiff's motion for summary judgment against Hussmann
and Hussmann's motion to dismiss the claims against it.
Finally, I dismiss defendants' antitrust counterclaims and
defenses. I also dismiss defendants' defenses based on
real party in interest and, as to defendant HFC, privity.