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Bimba Mfg. Co. v. Starz Cylinder Co.

DECEMBER 10, 1969.




Appeal from the Circuit Court of Cook County; the Hon. JOHN J. LUPE, Judge, presiding. Affirmed in part and reversed in part, judgment for damages reversed.


Rehearing denied and supplemental opinion March 11, 1970.

This appeal is from judgments in favor of plaintiff Bimba Mfg. Co., an Illinois corporation, and against defendants Starz Cylinder Co., a corporation, Harold C. Carlstead, Americo Amadio, Nicholas Fushi, Frank Starzyk, and John S. Tipler Company. The issues arise out of a controversy concerning the manufacture and sale of a disposable air cylinder.

Plaintiff's evidence showed that in 1954, Charles Bimba, Sr. conceived the idea of developing a sealed, nonrepairable air cylinder. He obtained the aid of a commercial machine shop. After almost two years of experiment, the cylinder was developed for production in large numbers. In 1956, 50 to 75 were sold. Production increased. By the end of 1959, Bimba was producing 10,000 cylinders per year. His business grew. He found it difficult to keep his own accounting records. He decided to hire an account to maintain his books; so in 1960, he employed Harold C. Carlstead, a certified public accountant.

Carlstead, in addition to keeping books, offered Bimba general business advice. He suggested the cylinder business be incorporated. As a result, in July 1961, Bimba Mfg. Co. was organized as a corporation with Bimba, his wife, and Carlstead as incorporators and the directors. Carlstead urged Bimba to expand his business. He made suggestions concerning finances, which Bimba consistently rejected.

At the time Carlstead became Bimba's accountant, he knew defendant Americo Amadio. Sometime in the end of 1961, Carlstead discussed with Amadio the possibility of a loan to Bimba. Amadio, however, wanted to invest in Bimba's business. Carlstead gave Amadio one of the 10,000 uncopyrighted catalogs plaintiff distributed throughout the United States. The catalog consisted of ten inside pages, with pictures of plaintiff's complete line of cylinders, together with drawings showing dimensions and size, internal and external, of plaintiff's cylinder products. None of plaintiff's cylinders were patented.

During the same period, Amadio knew defendant Nicholas Fushi, owner of a lounge in Harvey, Illinois. With the exception of one job during the war, Fushi had no experience in the field of manufacture. In the summer of 1962 Amadio mentioned to Fushi the possibility of investing money in a company that manufactured air cylinders. When this fell through, Amadio and Fushi began talking about their going into the cylinder manufacturing business.

Fushi knew the defendant Frank Starzyk, a man educated in economics and who had worked for several industrial companies. Fushi showed Starzyk one of plaintiff's catalogs. Fushi and Amadio asked Starzyk whether he could make a cylinder like one shown in the catalog. Starzyk said he could. He undertook to ascertain the costs of making disposable air cylinders. Starzyk reported to Amadio and Fushi. They then agreed to go into air cylinder manufacturing. A company was organized in June of 1962, and incorporated in July, named Disposable Air Cylinders, Inc., later renamed Starz Cylinder Co. Fushi and Amadio furnished the initial capital. Starzyk selected and purchased the necessary equipment. Production of cylinders began six months or so after the company was incorporated. The first sale was made December 8, 1962.

Starz Cylinder's only full-time employee was Starzyk. The first plant was in his garage. When deposed by plaintiff, Starzyk said he planned and supervised the design and construction of the first cylinder made by Starz without any information from Carlstead. Using plaintiff's literature as a guide, he said he obtained one of its cylinders, cut it, and attempted to induce companies that supplied plaintiff with its parts to furnish Starz with the parts it needed for production of its cylinders. He determined the price at which Starz Cylinder would sell its products. He purchased the supplies, arranged for distributors, obtained advertising and set the discount rates of the company. Until early in 1964, Starzyk was the company's bookkeeper. In October 1962, before the first sale was made, Starzyk solicited distributors by writing letters. Some of the distributors whom Starzyk reached were plaintiff's distributors. The distributorship discount Starzyk arranged on behalf of Starz Cylinder was higher than plaintiff's. Plaintiff's discount to its distributors was a straight 35% on all sales, without regard to quantity. In July 1963, because of the higher discount Starz was giving distributors, plaintiff changed its discount rate to 30% on orders under a certain amount, with an additional 15% on volume orders. The change in discount rate that plaintiff made was approximately an increase of 5 1/2%. Plaintiff never, in fact, matched the discount rate that Starz Cylinder gave its distributors.

The cylinder which Starz manufactured was the same size that plaintiff found most popular. This was the 1 1/16th inch one. The piston on the cylinder manufactured by Starz was not threaded, that of plaintiff was. Plaintiff anodized its piston rod; Starz did not. Plaintiff's tubing was burnished on the inside, Starz tubing was not. The air vent on plaintiff's cylinders of the same size was different from the cylinders manufactured by Starz. The depressions on the front of the two cylinders were different. The crimpers used by plaintiff and those used by Starz were different in construction. In general, the sales made by Starz were to the same trade served by plaintiff through distributorships at discount. Starz used the same method of sale that plaintiff had found profitable.

In October 1962, one of plaintiff's distributors sent to Charles Bimba, Sr. a letter, dated October 12, 1962, in which Starz said it was a manufacturer "[o]f a quality line of economy priced, disposable cylinders. . . ." The letter proposed to assign exclusive territories for the distribution of Starz products. This letter informed Bimba that Starz Cylinder Co. was plaintiff's competitor. Either in November or December of that year, Bimba went to defendant Carlstead with a Mr. William Callahan, a lawyer who was also an accountant. Bimba told Carlstead he no longer was to work as plaintiff's accountant. Carlstead asked why. Bimba told him that one of the nice things he discovered about owning his own company was that whenever anything bothered him he eliminated it. "I am letting you go, and that is it." When Carlstead pressed him, Bimba said he thought Carlstead talked too much about clients.

After Carlstead was discharged, Bimba obtained samples of cylinders manufactured by Starz. He had tests made on them for comparison with those produced by plaintiff. Bimba came to the conclusion that the cylinders made by plaintiff were superior to those manufactured by Starz. Bimba then caused investigation to be made into the sale and distribution of Starz cylinders.

Until August 1964, one of plaintiff's distributors was the defendant John S. Tipler, d/b/a John S. Tipler Company. On August 27 of that year the sales manager of plaintiff wrote Tipler that plaintiff would no longer honor Tipler business. Shortly after this notice, Tipler made arrangements to be a distributor for Starz Cylinder.

From 1962 through 1964, one of the Tipler Company customers was Hi-Flier Manufacturing Company of Decatur, Illinois. This company remained a customer of Tipler after the end of its distributorship for plaintiff. The Upco Company of Chicago was also one of Tipler's customers. In October 1965, Charles Bimba, Jr., plaintiff's midwest sales manager, paid a visit to the Upco and Hi-Flier plants. At Upco, Bimba, Jr. obtained a copy of an invoice from Upco to Tipler ordering cylinders manufactured by plaintiff, although Tipler no longer was one of its distributors. At the Hi-Flier plant, Bimba, Jr. was shown a cylinder which was not manufactured by plaintiff. The cylinder was one manufactured by Starz. The Hi-Flier employee responsible for placing the order, thought his company was obtaining a cylinder manufactured by plaintiff, when in fact it received from Tipler a Starz cylinder. After the Tipler Company ceased distributing plaintiff's cylinders, it purchased Starz cylinders without marks or labels on them. On one occasion, in 1965, the Tipler Company sold Starz cylinders to the Motorola Company when it had ordered cylinders manufactured by plaintiff.

Plaintiff's cylinder business increased each year. Profits increased in 1964, 1965 and 1966. Even after defendant Starz Cylinder began the sale of its products, plaintiff's sales and profits increased. In 1963 Charles Bimba, Sr. learned the discount rate Starz was giving its distributors. In order to avoid losing business, plaintiff increased its discount although it never matched Starz's rate. If, from July 24, 1963, to December 31, 1966, plaintiff had retained its old discount rate, it would have made $50,653.54 more money than it, in fact, earned.

On July 22, 1965, plaintiff filed this suit against Starz Cylinder Co., Harold C. Carlstead, John Ballarini, Americo Amadio, Nicholas Fushi, Harry Fisher and Frank Starzyk. The original complaint contained one count. Plaintiff alleged that defendant Harold C. Carlstead, while its accountant and one of its directors, conspired with the other named defendants to appropriate the business and goodwill of plaintiff by having Carlstead make available to the named defendants, and others unknown, trade secrets and highly confidential information concerning plaintiff's business, its suppliers, and methods of manufacture. Plaintiff alleged that defendant Carlstead made available to the defendant corporation its trade secrets and confidential information so as to enable the defendant corporation to copy and use the cuts, mats, and designs used in plaintiff's catalogs. Plaintiff alleged that representatives of defendant Starz made false representations to plaintiff's exclusive distributors concerning the cyclinders manufactured and sold by Starz. Plaintiff prayed for injunctive relief, accounting and damages. The complaint was amended on January 19, 1966, to contain three counts. Count I realleged the substance of the original complaint. Count II added the defendant John S. Tipler, d/b/a John S. Tipler Company and alleged that the Tipler Company and defendant Starz conspired to palm off Starz cylinders for plaintiff's cylinders. In this count plaintiff prayed for general equitable relief. Count III sought recovery of the balance of a contract price. The subject of this count is not involved in this appeal.

The court, sitting in the Chancery Division, heard evidence on Counts I and II. On October 1, 1968, the trial judge found: "[T]hat the defendant Harold C. Carlstead agreed to and did make available to defendants Americo Amadio, Nicholas Fushi and Frank Starzyk, and to the corporate defendant Starz Cylinder Co. (formerly known as Disposable Cylinder Company), trade secrets and highly confidential information concerning plaintiff corporation's business, its suppliers, its methods of manufacture of cylinders and its customer lists. . . ." The court, for a period of twelve months from the date of entry, enjoined Starz Cylinder Co., Carlstead, Amadio, Fushi, and Starzyk, their agents, assigns, servants and employees from directly or indirectly producing, offering for sale or selling any nonrepairable air or hydraulic cylinder similar in design to the cylinders presently offered for sale by plaintiff. Defendants John S. Tipler and Starz Cylinder, their agents, assigns, servants and employees were enjoined permanently from substituting or palming off Starz cylinders as plaintiff's cylinders. On October 8 the court awarded plaintiff the sum of $50,653.54 as damages against defendants Starz, Fushi, Amadio, Starzyk and Carlstead, "jointly or severally." The damages were computed from sales figures of plaintiff which showed that if its sales had been made at the same discount ...

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