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In re Uniservices Inc.

decided: May 14, 1975.

IN THE MATTER OF: UNISERVICES, INC., DEBTOR, ARTHUR A. FAIRBANKS, AS TRUSTEE, ETC., PETITIONER-APPELLEE,
v.
WILLIAM H. DUDENHOFFER, ET AL., RESPONDENTS-APPELLANTS



Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division - No. IP 70 B 3840 James E. Noland, Judge.

Fairchild, and Markey, Chief Judge, Stevens, Circuit Judge,*fn*

Author: Markey

MARKEY, Chief Judge.

This is an appeal from the judgment and order of the district court sustaining, with modification, the order of the bankruptcy judge declaring that Dudenhoffer had certain duties enforceable in equity by the trustee, Fairbanks. We affirm.

Background

On December 8, 1970, Fairbanks was appointed Trustee in Reorganization of a publicly held Delaware corporation, Uniservices, Inc. (Debtor), under Chapter X of the Bankruptcy Act, Crystal Industrial Services, Inc. (Crystal) is a Delaware Corporation wholly owned by Debtor. The business involved is that of providing industrial laundry, uniform rental, shop towel, and dust control services (industrial laundry) in central Indiana.

Dudenhoffer and certain members of his family had sold the assets and business of an Indiana corporation named Crystal Industrial Services Inc. to Debtor in 1966. At the time of the bankruptcy judge's order, Dudenhoffer et al. still held 20.77% of Debtor. Dudenhoffer served as a director, executive vice president and president of Debtor and of Crystal after the latter was organized to receive the assets sold by Dudenhoffer et al. From August 1, 1966, to December 8, 1970, Dudenhoffer was the full time general manager and chief executive officer of Crystal. When Fairbanks took over as trustee, he continued Dudenhoffer in that employment. On August 31, 1972, Fairbanks terminated Dudenhoffer's employment. Dudenhoffer does not challenge the bankruptcy judge's finding of good cause for his termination.

No written employment agreement between Dudenhoffer and Crystal, Debtor, or Fairbanks ever existed. Of the five members of the board of directors and executive committee of Debtor, all but Dudenhoffer and Herman Miller had executed employment contracts having covenants not to compete. Miller left Debtor's employ, resigned from the board of directors, and set up a business in Florida which apparently solicited customers and employees from Debtor's Florida subsidiary. At Dudenhoffer's urging, Fairbanks instituted court action in Florida against Miller which resulted in a consent order wherein Miller agreed to refrain from solicitation of customers and employees of Debtor's Florida subsidiary for a specified time.

At the time of his discharge, Dudenhoffer refused, until the matter could be settled by a court, to sign an agreement not to compete with Crystal. On September 25, 1972, Fairbanks petitioned for a declaration of rights in this regard. Whether Dudenhoffer had a duty not to compete with or to solicit customers of Crystal appeared to the bankruptcy judge to require such declaration in aid of a determination of whether a plan of reorganization was possible in the Chapter X proceedings.

After an evidentiary hearing and consideration of the briefs the bankruptcy judge entered the following:

Order

IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED that:

1. William H. Dudenhoffer has a duty and obligation, which is enforceable in equity by the Trustee or any assignee or successor in interest to the business of Crystal Industrial Services, Inc. not, for a period of two (2) years from and after August 31, 1972, to engage, directly or indirectly, either as a principal, officer, employee or otherwise, in the industrial laundry, uniform, garment, towel or dust control rental business within a radius of seventy-five (75) miles in any direction from a line drawn directly from the City of Indianapolis, Indiana, to the City of Fort Wayne, Indiana, except as an employee of the Trustee or any assignee or successor in interest to the business of Crystal Industrial Services, Inc.

2. William H. Dudenhoffer has a duty and obligation, which is enforceable in equity by the Trustee or any assignee or successor in interest to the business of Crystal Industrial Services, Inc., not, for a period of two (2) years from and after August 31, 1972, directly or indirectly, either as a principal, officer, employee or otherwise, serve or attempt to provide any industrial laundry, uniform, garment, towel or dust control services to any customers of Crystal Industrial Services, Inc., who were customers of Crystal Industrial Services, Inc. on ...


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