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Supreme Graphics, Ltd. v. Color Logic, Inc.

A-0104-03T2 (N.J. Super. App. Div. 2005) (Unpublished)

EMPLOYER-EMPLOYEE; NON-COMPETITION—Where an employee has not signed a restrictive covenant, and forcing the employee to abide by one after termination would cause a hardship to the employee, a court will not enforce the covenant and where the new employer had been dealing with the covered customers even before hiring the individual, it has done nothing wrong by continuing to deal with those customers.

A printing company and a sales company entered into a sales representation agreement in which the printer promised to pay commissions to the sales company in exchange for the its solicitation of customers, selling of the printer’s services, and for a promise not to compete with the printer once the relationship was terminated. Over the course of the relationship, the printer never paid the sales company on time, and the sales company claimed that the payments that were made did not correspond to the sales company’s invoices. To compensate for the underpayment, the sales company hired another company to create marked-up, duplicate invoices so that the sales company could increase the amounts and secure the money it was owed. Almost three years later, the sales company terminated its relationship with the printer and sued, claiming that the printer owed it commissions and that the agreement’s restrictive covenant was unenforceable. The printer counter-sued, alleging that the sales company was in violation of the restrictive covenant and that the sales company had submitted fraudulent commission requests, which, in turn, caused the printer to overpay commissions; the printer also brought a third-party complaint against a separate graphics company, alleging that it had interfered with the restrictive covenant by employing two of the sales company’s employees and by stealing the printer’s business information.

At trial, the jury returned a money verdict in favor of the sales company despite the fact that the sales company acknowledged that its duplicate-invoices scheme resulting in over-billing the printer. In fact, the jury found this practice constituted fraud. The printer therefore appealed, arguing that the jury’s verdict was shocking to the conscience and required a new trial.

The Appellate Division disagreed with the printer, holding that the sales company only presented over-stated bills because the printer had acted imperiously by not paying the sales company in line with their contract, but instead paying it whenever and whatever it felt like. Therefore, the Court concluded that the jury’s findings were not so wrong and distorted that they manifested a clear miscarriage of justice. Additionally, since the parties agreed to a lesser judgment in favor of the sales company, this reflected a belief that what the sales company was owed was not very different from what the jury awarded.

The Court also dismissed the breach of covenant claim against one of the sales company’s employees since he did not sign the covenant, and forcing him to abide by it would cause him severe hardship. Finally, the Court held that neither the sales company nor any of its employees violated the restrictive covenant when pursuing business with other customers since these were the sales company’s clients before the agreement with the printer came about. Since neither the sales company nor any of its employees breached the restrictive covenant, no one could be liable for helping them partake in a breach of covenant. The Court therefore dismissed all the claims that had been founded on the restrictive covenant.

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