General Bronze Corp. v. Schmeling , 213 Wis. 150 ( 1933 )

The following opinions were filed October 10, 1933 :

Wickhem, J.

The sole question in this case is whether the agreement between the defendants and the Badger Wire & Iron Works constitutes them employees, or whether they are in fact operating, conducting, or promoting as principals and enterprisers a competitor to plaintiff. It is the contention of the plaintiff that they are in fact promoting, as principals, competition against the plaintiff in violation of the contract and injunction; that in fact they have invested property in the Badger Wire & Iron Works, and own an interest in it, and that they are not bona fide employees.

While the matter is not free from difficulty, it is our conclusion that the trial court’s disposition was correct. The injunction required, rather than forbade, the dissolution of the Wisconsin Company, and the disposition of its assets by sale was a necessary and usual incident of the dissolution. The sale did not constitute an investment in the Badger Company in any forbidden sense, even though credit was given for the purchase price, for that transaction, unless colorable, created merely a relation of creditor and debtor between defendants and the Badger Company. It appears that the physical assets were sold for no more than their worth as such, and no attempt was made to include in the sale the good will of the Wisconsin Company.

The hiring of the defendants by, the Badger Company was not a violation of the injunction unless it was intended as a mere cloak for other and different relations, or unless the agreement to pay as a part of the compensation for services a portion of the net profits of the Badger Company, as a matter of law made defendants something other than employees. This court can take notice of -the fact that payment of portions of the net profits of a business as added compensation or as a bonus is not regarded by the business world generally as inconsistent with a relationship of employer and employee, and we know of no rule of law, and are cited to no case, holding that this manner of compensating employees raises the latter to the status of enterprisers. It is true that all of the defendants were taken over by the Badger Company, and that they assumed important and responsible duties with that company. These duties, however, were substantially the same which defendants had previously discharged for the Wisconsin Ornamental Iron & Bronze Company, and which they were expressly authorized to undertake for a rival concern. Nor do we think that the exploitation to the trade of the fact of their employment was a violation of the injunction. Certainly there was no express prohibition against a future employer getting whatever advertising and advantage he could out of the standing of defendants, or any of them, with the trade, and we see no justification for implying any, or any merit in the contention that the former decision restricted defendants not merely to a status as employees, but employees who would become silent and submerged cogs in the machine of a future employer. The contract specifies that defendants may become employees of a competitor, and they may act with impunity as long as they preserve this status.

Reliance is had by plaintiff upon certain statements in the decision of this court upon a former appeal. There it was defendants’ contention that the agreement was unreasonable and void in that it was so phrased as to be of no value in protecting plaintiff’s good will, and a mere source of annoyance to defendants. This contention was based upon the fact that the contract permitted defendants to be employed by competitors and thus to use their capacities and abilities to the detriment of plaintiff. The court sustained plaintiff’s contention that the restriction of the defendants’ activities was of value in protecting plaintiff’s good will, and took notice of the fact that the urge to compete ruthlessly and effectively is generally accelerated by ownership of a business and a consequent right to a share in its profits. The court has no desire to recede from this position, but it does not result in the conclusion that a form of employment which in some degree approaches ownership in incentive is forbidden, when the contract expressly authorizes any form of employment. It will thus be seen that no single act of defendants can be said to be inconsistent (1) with a bona fide sale of assets to the Badger Company, and (2) with a bona fide employment outside the prohibition- of the contract and injunction.

It remains to be considered whether the conduct of the defendants and their, dealings with the Badger Company, taken as a whole, indicate that defendants have used the cloak of an apparent or colorable sale and employment to accomplish an evasion of their contractual duties. Upon the former appeal it was held that the fact that defendants had so organized as to enable them to become employees of the corporation of which they were the organizers and principal stockholders, did not prevent a court from disregarding the corporate veil and treating the defendants as principals in a competing business. It is here claimed that some such principle should be applied with the same result. We fail to see how this can be done. The Badger Company has been a going concern since 1916, and a competitor of the General Bronze Company during that time, although concededly it was not an important competitor in the field of ornamental bronze, and had not the equipment presently to become one. It was not an entity created by the defendants as a cloak for their activities. If in fact its transactions with the defendants were not colorable, we fail to see how they can be disturbed. There is literally no evidence that they are sham or colorable unless it be considered that, taken together, they indicate a general purpose on defendants’ part to evade their duties under the contract, but there is no showing that would warrant this court in so concluding. The fact that defendants insisted upon an arrangement that went to the limits of their contractual rights is certainly not enough to support such a conclusion. ' Their obligation went no further than the discharge of these duties. It certainly is not shown that there was a secret understanding that the note was to be regarded by the parties as equivalent in rights to a sale of stock, or that the defendants, while nominally employees, were to have secretly accorded to them rights as stockholders. In other words, there is no ground for upsetting the conclusion of the trial court that the transactions were bona fide as contrasted with colorable, and we cannot consider the desire of the defendants to have the full measure of their contractual rights as a material fact.

Probably the strongest contention that may be made on behalf of the plaintiff is that the Badger Company was not an important competitor in bronze, and that its activity therein was promoted by defendants. There is evidence in the record, however, from which the trial court had a right to conclude that the Badger Company, for some time prior to the contracts in question, had contemplated the expansion of their business so that they might become equipped to cover the whole field of ornamental metal, and thus be able to fabricate, rather than sublet, such contracts as they obtained for large pieces of ornamental bronze. There is further evidence that these negotiations were initiated by the Badger Company with a view to acquiring both the equipment of the Wisconsin Company and the services of the defendants. This, taken together with the fact that the Badger Company had for years been a competitor of the General Bronze Company, seem to us to warrant the trial, court’s conclusion that defendants had not promoted a new competitor of plaintiff. In view of this determination it is unnecessary to consider further the relation of the Badger Company to this litigation.

One feature of this case apparently was overlooked by the trial court. So far as the record shows, the defendants were in contempt for conducting business as the Wisconsin Company, in violation of the injunction, between the period when the injunction went into force and effect and the dissolution of the Wisconsin Company. This branch of the controversy appears not to have been considered in the lower court, and it seems to be assumed that plaintiff’s damages for these activities were all that were involved. In form, at least, the order appears to have closed the matter: We think the question of whether or not .the defendants were in contempt for failure to obey the injunction is one which should not escape consideration by the trial court, since it involves something more than the mere interest of the parties in the subject matter of the litigation. From this it follows that in so far as the order completely exonerates' defendants from contempt, it should be sufficiently modified to permit the court to pass upon this question, and that in all other respects the order should be affirmed.

By the Court. — The order of the circuit court is modified, as indicated in the opinion, and as so modified is affirmed, and cause remanded for further proceedings according to law.