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MDC CORPORATION, INC. v. JOHN H. HARLAND COMPANY

September 30, 2002

MDC CORPORATION, INC. AND ARTISTIC GREETINGS, INC., PLAINTIFFS,
V.
JOHN H. HARLAND COMPANY, DEFENDANT.



The opinion of the court was delivered by: Michael B. Mukasey, United States District Judge

  OPINION AND ORDER

In this diversity action, plaintiffs Artistic Greetings, Inc. ("Artistic") and MDC Corporation, Inc. ("MDC") sue John H. Harland Company ("Harland"), seeking a judgment declaring that a covenant not to compete in an agreement between Harland and Artistic is enforceable against Artistic only and unenforceable against MDC or any other party. Harland counterclaims, alleging breach of contract against Artistic and tortious interference with a contract against MDC.*fn1 Artistic and MDC move to dismiss the counterclaims pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons stated below, the motion is denied.

I.

The following facts are alleged in the complaint and the amended answer and counterclaims ("Counterclaims"); the facts taken from the counterclaims are accepted as true for the purposes of this motion. Harland sells checks and other financial forms to financial institutions. Harland is a Georgia corporation and maintains its principal place of business in Decatur, Georgia. (Compl. ¶ 7) Artistic sells checks directly to consumers. Artistic is a Delaware corporation and maintains its principal place of business in Joppa, Maryland. (Id. ¶ 6) MDC, through its divisions and subsidiaries, prints and sells checks, postage stamps, credit cards, and transaction services. MDC is organized under the laws of Ontario, Canada and maintains its principal place of business in Toronto, Canada. (Id. ¶ 5)

Harland and Artistic entered into three written agreements on or about August 29, 1996 ("the Agreements") — a Master Agreement, a Fulfillment Agreement, and an Agreement to Purchase Equipment ("Equipment Agreement"). (Counterclaims ¶ 31) Under the Fulfillment Agreement, Artistic agreed to purchase its requirements of checks from Harland during the term of the Agreements and Harland agreed to supply Artistic's check requirements for direct sale to consumers. (Id. ¶ 32; Master Agreement § 3.3)

Section 8.2 of the Master Agreement bars Harland from competing with Artistic in the direct mail market. (Counterclaims ¶ 34) Section 8.2(a) provides that:

neither [Harland] nor any of its Affiliates shall engage, directly or indirectly, on its own account, or as a shareholder, agent, officer, director, partner or joint venturer in any corporation or business entity, in any business engaged in the direct mail marketing of checks and/or direct mail sale of checks from, at or into the United States (a "Competing Business"), nor within the same area to lend money or otherwise furnish services to any Competing Business . . .

(Master Agreement § 8.2(a)) Section 8.2(b) restricts Harland from entering the consumer check business by giving Artistic the right to buy any competing business acquired by Harland within 15 days of the acquisition. (Master Agreement § 8.2(b)) Section 8.2(c), in addition to granting Artistic an option to buy Harland's interest in The Check Store, Inc. ("CSI") for any price that a third party might offer Harland, also permits Harland to maintain its ownership interest in CSI provided that CSI:

place only such advertising as shall have been committed prior to the date of this Agreement, which in any event shall not exceed $500,000, any other advertising of any kind by CSI shall be prohibited and [Harland] will use its reasonable best efforts to cause CSI to cancel and/or terminate any committed advertising which can be terminated without penalty; and to not expand its business in any way beyond the servicing of initial orders and reorders . . .

(Master Agreement § 8.2(c))

In addition to placing restrictions on Harland, Section 8.2(a) also identifies certain Harland businesses that the Master Agreement does not cover:

Notwithstanding the foregoing, nothing in this Agreement shall restrict the right of [Harland] to continue to conduct its business as presently conducted which involves relationships with (a) catalog companies which place, and/or distribute catalogs containing, ads for distinctive, premium priced checks which are produced and designed by [Harland], (b) large affinity groups which sell ad space in their publications in which [Harland] advertises such affinity group's specialty checks, (c) third party marketing groups which promote distinctive, premium priced checks and whereby [Harland] provides entry, printing and customer service for such groups, (d) financial software companies where [Harland] provides private label order fulfillment and direct mail campaigns to those companies' customers and (e) direct mail companies where [Harland] provides order fulfillment and/or provides supplies.

(Master Agreement § 8.2(a))

Artistic and Harland also included the following "Covenant not to Compete" in Section 8.2 of the Master Agreement, which restricts Artistic's ability to enter supply relationships with banks:

For the period from the Closing Date to eighteen (18) months following the termination of the Fulfillment Agreement, [Artistic] agrees that, without the consent of [Harland], neither [Artistic] not any of its affiliates shall engage, directly or indirectly, on its own account, or as a shareholder, agent, officer, director, partner or joint venturer in any corporation or business entity, in any business engaged in the entering into of direct contractual relationships with ...

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