USCA1 Opinion

August 6, 1992
August 6, 1992

____________________
____________________

No. 92-1594
No. 92-1594
FERROFLUIDICS CORPORATION,
FERROFLUIDICS CORPORATION,
Plaintiff, Appellee,
Plaintiff, Appellee,
v.
v.
ADVANCED VACUUM COMPONENTS, INC., ET ALS.,
ADVANCED VACUUM COMPONENTS, INC., ET ALS.,
Defendants, Appellants.
Defendants, Appellants.
____________________
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Martin F. Loughlin, U.S. District Judge]
[Hon. Martin F. Loughlin, U.S. District Judge]
___________________
____________________
____________________
Before
Before

Cyr, Circuit Judge,

Cyr, Circuit Judge,
_____________
Roney,* Senior Circuit Judge,
Roney,* Senior Circuit Judge,
____________________
and Pieras,** District Judge.
and Pieras,** District Judge.
______________
____________________
____________________
Edward W. Smithers, with whom Merrill & Broderick
Edward W. Smithers, with whom Merrill & Broderick
__________________
____________________
Dunn & Crutcher were on brief for appellants.
Dunn & Crutcher were on brief for appellants.
_______________
E. Donald Dufresne, with whom George R. Moore and
E. Donald Dufresne, with whom George R. Moore and
___________________
_______________
limet & Branch were on brief for appellee.
limet & Branch were on brief for appellee.
______________
____________________
____________________
____________________
____________________
*Of
*Of
**Of
**Of

the
the
the
the

Eleventh
Eleventh
District
District

Circuit, sitting by designation.

Circuit, sitting by designation.
of Puerto Rico, sitting by designation.
of Puerto Rico, sitting by designation.

and
and

Gibs
Gibs
____

Devine, M
Devine, M
_________

CYR,
CYR,

Circuit Judge.
Circuit Judge.
_____________

Plaintiff Ferrofluidics Corpora-

tion (Ferro) is a Massachusetts corporation which has its principal place of business in New Hampshire.
makes
for

and markets, an item

Ferro developed, and now

called a magnetic

fluid rotary seal

use in the manufacture of semiconductor chips.

The magnetic

fluid rotary seal is a state-of-the-art gadget, and Ferro invests

upwards

of a million dollars a year to refine the technology and

diversify its applications.

accounting for

Ferro dominates the American market,

about ninety-five

percent of the

magnetic fluid

rotary seals sold in the United States.

At one time, Nippon Ferrofluidics Corporation (NFC) was

Ferro's Japanese subsidiary.

In 1987, Ferro sold NFC to Japanese

investors.

is NFC's

Akira

Ferro gave NFC

fluid rotary

Yamamura

a license
seals,

product formulas.
to Japan and Asia.

and

chief executive

to manufacture and
has since

The license

delivered

sell its
to

magnetic

NFC

appears to limit NFC's

NFC, however, has disputed

officer.

updated

territory

that territorial

restriction and evidenced a desire to sell in the United States.

Ferro hired defendant Todd
a

product manager

in its

Sickles in December 1985 as

"Seals Division,"

which handled

manufacture and marketing of magnetic fluid rotary seals.

first

the

On his

day at work, Sickles signed a document that contained both

nondisclosure agreement

competing with Ferro for

and a

covenant prohibiting

five years after he left

him from

the company's

employ

(the

compete").

According

provision and
the

"restrictive

covenant"

to the

document, both

the restrictive covenant

laws of Massachusetts," and

or the

"covenant

not

to

the nondisclosure

were to "be

the parties were

governed by

to submit any

disputes for arbitration in Boston.

Sickles prospered

in

his work,

promoted him to general manager of the Seals

however,

eventually

Division.

By 1990,

Ferro was suffering, along with much of the New England

high-tech
had

and Ferro

industry, from a downturn in the economy.

The company

laid off employees and cut back salaries and other benefits.

Morale

was low, and many

where. Sickles was

employees were looking

among them.

His duties

for work else-

as general

manager

included maintenance of corporate relations with NFC, and on

occasions he

had been

told by

representatives of

two

the Japanese

company that if he ever decided to leave Ferro and wanted another

job, he should get in touch with them.

Now,

in 1990, Sickles

took up the

had not yet left Ferro's employ.

with Yamamura's lieutenant,
plan under

which he would

He met with Akira Yamamura, and

Dr. Goto,
set up

and began to

a company to

fluid rotary seals in the United States.

the financing and the

seals

offer, although he

NFC

work out

market magnetic

would provide both

seals manufactured, it

should be

noted, according to the formulas supplied to NFC by Ferro itself.

In other words, Sickles

intended not merely to compete

with his

soon-to-be-formeremployer,butto competewithitusingits ownproduct.

3

Sickles
four

did not scheme alone.

other Ferro employees were

Barton, the Northeast

sion;

Southeast, Southwest and

manager

of

members of the

Regional Sales Manager of

defendant Perry

Product Manager

At one time or another,

Barker,

Regional Sales

Rocky Mountain

of the Seals

Ferro's customer

cabal:

the Seals DiviManager for

regions; Mark

Division; and Robert

service

Timothy

department.

the

Granoff,

Kuster, then
At

length,

however, Granoff, afflicted by his conscience, dropped out of the

group

and quit his job

at Ferro; Sickles

rescinded the invita-

tions to Barton

and Kuster;

and only Sickles

and Perry

Barker

remained.
The
tactics.
the

planning was

marked

by a

number of

A few examples will illustrate.

underhanded

Sickles did much of

groundwork for the new venture on Ferro's company time using

company resources,

including business

Japan at Ferro's expense.

trips

In deciding where to trim his

ment's payroll during a second

involved

shown no

interest in

in the new venture.

and we have

leaving

and

depart-

round of layoffs, Sickles

Barton, Barker and Granoff and let the axe

who had

to California

spared

fall on two employees

Ferro and

who were

not

Finally, the district court found,

no reason to doubt, that when

Sickles left Ferro he

carried with him two copies of the company's customer list.

Sickles's

reflect his

awareness of

the covenant not to compete and his concern that it

might inter-

fere

with his

machinations also

ambitions.

He received

advice from

lawyers on

several

occasions,

some of

including the nugget that

which he

in

turn related

to NFC,

"[l]egal complications will be greatly

reduced by

incorporating [the

this state

strongly protects

new venture] in

the entrepreneur and,

in general,

agreements. . . ."

Not surpris-

does not recognize non-compete

ingly, then, when
1991

the new

venture finally took

as Advanced Vacuum Components,

rated

California since

shape in

April

Inc. (AVC), it was incorpo-

and headquartered in California.

Sickles owned 75% of the

voting stock in AVC; Barker the remaining 25%.

Advanced
though

there is

Vacuum Components
no

direct link

dwells

between

in

NFC's

shadow,

the companies.

AVC

obtains its magnetic fluid rotary seals from NFC through a second
Japanese company, Advanced Vacuum Seals.

A Hong Kong firm called

Advanced Materials Research Limited, termed

the district court,
AVC's legal fees
dollars

is AVC's source of

and provided it

in financing;

in

a "front" for NFC by

financing.

It has

paid

with several hundred

thousand

Advanced Materials

Research

return,

Limited receives 70% of AVC's operating income and owns preferred

stock

which

it can

convert

into a

controlling

percentage of

voting stock were AVC to go public.

Sickles
began operating
this case
magnetic
Ferro's

and Barker quit Ferro in late May 1991 and AVC

soon after.

in April 1992,
fluid rotary

Between

AVC sold

seals, a

May 1991 and

only about $34,000

minuscule amount

$7,400,000 in rotary seal

5

the trial of

worth of

compared with

sales during 1991.

The dis-

trict court found,

Ferrofluidics,"

however, that
noting that

"AVC is a

definite threat

AVC eventually expects

to

to capture

54% of a market in which Ferro currently enjoys a 95% share.

Under
inevitable.
containing

the

Ignoring

probably
in the

was

document

both sides filed lawsuits.

the race to

a declaratory judgment

The complaint

litigation

arbitration clause

Sickles won

trict Court for the

1991.

the

the restrictive covenant,

Seemingly, AVC and

filing

circumstances,

the courthouse,

action in the

by

United States Dis-

Northern District of California in

November

requested a judicial declaration invalidat-

ing the restrictive covenant under California law.

After
action, however,
the

initiating

the California

AVC and Sickles hung fire.

complaint on Ferro until

lawsuit in the United

New Hampshire.
and Akira

breach of

They did not serve

after Ferro had

filed the instant

States District Court for the

Ferro's

Yamamura

misappropriation

declaratory judgment

complaint, naming AVC,

as defendants,

of trade

secrets

Sickles, Barker

contained six
by Sickles

Sickles's nondisclosure agreement and

District of

counts:

and Barker,

(1)

(2)

covenant not to

compete, (3) breach of Sickles's and Barker's fiduciary duties to

Ferro, (4) false representations
of the

Lanham Act, 15 U.S.C.

to Ferro customers in violation

1125(a),

(5) unfair competition,

and (6) tortious interference, by

employment contracts

with Sickles

Yamamura and AVC, with Ferro's

and Barker, and

by Yamamura,

AVC, Sickles and Barker, with the employment contracts of Barton,

Kuster and Granoff.
The district court heard
nary

injunction

on March 16,

Ferro's motion for a prelimi-

1992.

Rather

motion, the court set trial for March 25.

than rule

As service of

on the

process

could not be obtained on Yamamura during the short interval prior

to trial, he was
defendants

dropped as a defendant.

At the

same time, the

moved to dismiss under Fed. R. Civ. P. 19 for failure

to join an indispensable party (identified not as Yamamura but as

NFC).
The trial began on
April 22,

the district

conclusions of law.
was

not an

court issued

Briefly put,

indispensable

enforceability of the

March 25 and lasted five days.

its findings

of fact

the court ruled (1)

party under

Rule

19, (2)

restrictive covenant should

On

and

that NFC
that

the

be determined

under New Hampshire law, rather than either Massachusetts law, as

specified in the
defendants,
excessive,
year

document, or

(3) that

the

five-year term

of

urged by

the

the covenant

was

but that the covenant should be enforced for a three-

term, (4) that Sickles

that both Sickles and Barker

to Ferro.

California law, as

had violated the

covenant, and (5)

had violated their fiduciary duties

The court granted Ferro no relief on its other claims,

but issued a permanent injunction prohibiting the defendants from

engaging in

the magnetic fluid

rotary seal business

until June

1994.
affirm.

This appeal followed;

we expedited the

hearing, and now

DISCUSSION

DISCUSSION
__________
The defendants
that

the district

assert three claims on

court

erred when

Hampshire law; second, that

it

appeal:

decided to

first,

apply

New

it erroneously modified the term

the restrictive covenant; and

third, that it abused

of

its discre-

tion by denying defendants' motion to dismiss for failure to join

an indispensable party.
1.
1.

Choice of Law
Choice of Law
_____________

The district court actually made two choices concerning

the law governing the
nullify
then

the

restrictive covenant.

parties' contractual

to apply New Hampshire

the defendants had urged.

probably was

choice of

law, rather than

As

First, it

chose to

Massachusetts law,

California law as

we will explain, the first

erroneous, but any

error was harmless;

ruling

the second

ruling likely was unnecessary, but in any event entirely correct.

Where

the

contracting parties

particular jurisdiction

to govern their

Hampshire courts will honor

any

significant

Adjustment Service
__________________

select

affairs, as a

their choice "if the

relationship
v. Heney,
_____

to

that

484 A.2d

the

(2)(a), which

favors enforcing

rule New

jurisdiction."
1189, 1191

Allied
______

(N.H. 1984).

Hampshire

of Conflict of Laws

the parties'

contract bears

The Allied Adjustment Service court cited, and the New

_________________________
rule echoes, the Restatement (Second)

law of

187-

contractual choice

unless

"the chosen state has

no substantial relationship to the

9

parties or the transaction and there is no other reasonable basis

for the parties' choice. . . ."
The district
head-on,

but

court opinion

suggests that

the

did not address

court decided

to

the issue

nullify the

parties' choice of Massachusetts law because New Hampshire bore a

more significant

relationship to the parties

than Massachusetts.

New

Hampshire undeniably has stronger links

to the transaction than Massachusetts:

ters in

New Hampshire, the

there, and

Ferro has its

contract was executed

Sickles lived there

more significant

and their contract

relationship to

and performed

while he worked for

New Hampshire

headquar-

Ferro.

The

nevertheless is

not an adequate reason to nullify the parties' contractual choice

of Massachusetts
parties, the

law.

law of the

Absent

a mutual

choice of

jurisdiction with the

relationship to the contract normally applies.

law by

the

most significant

Consolidated Mut.
_________________

Ins. Co. v. Radio Foods Corp., 240 A.2d 47, 49 (N.H. 1968).
________
_________________

When

the parties take the trouble to make a contractual choice of law,

often it is

because they do not want to

have applied, by opera-

tion of the general rule, the law of some other jurisdiction with
the

"most significant" relationship to the contract.

If a court

can nullify a contractual choice of law merely on the ground that

another jurisdiction

has a more significant

transaction than the chosen

relationship to the

jurisdiction, the courts can nullify

virtually any contractual choice

and do so for the very reason

the parties chose to do otherwise.

10

The
focuses

nullification analysis, as noted earlier, properly

on the

nexus between

the

chosen jurisdiction

parties or their

contract; we inquire whether

diction

significant relationship,

has any
___

another jurisdiction has a

and the

the chosen juris-

rather than

more significant relationship.

____

whether

Ferro

was incorporated in Massachusetts and did a substantial amount of

business there.

The cases

bond

the

to sustain

indicate that this

contractual choice

of

is a
law.

sufficient
"A

party's

incorporation in a
parties to choose
Carlock v.
_______

state is

a contact sufficient

that state's

law to

to allow

govern their

the

contract."

Pillsbury Co., 719 F. Supp. 791, 807 (D. Minn. 1989).

_____________

See also Gray v. American Express Co., 743 F.2d 10, 17 (D.C. Cir.
___ ____ ____
____________________
1984); Hale v.
____

Co-Mar Offshore Corp., 588 F.

______________________

(W.D. La. 1984); Restatement (Second)

comment f (fact that

Supp. 1212,

1215

of Conflict of Laws,

187

one party is domiciled in

chosen jurisdic-

tion provides "reasonable basis" for their choice).

Although the preceding exposition

suggests that it may

have been appropriate to enforce the contractual choice of Massachusetts law, we need
as

the district court

with the

not determine the matter

found, New Hampshire

most significant relationship

explained below, this

is so because

definitively if,

is the jurisdiction

to the transaction.

As

both Massachusetts and

New

Hampshire law lead to the same result in the instant case.

The
district

defendants argue,

however, that

court correctly cast off

11

even though

from the mooring

the

of the par-

ties' contractual
relationship"
Hampshire.

choice, the currents of

the "most significant

test should have carried it to California, not New

Unlike the courts of New Hampshire and Massachusetts,

California courts almost invariably refuse to enforce restrictive

covenants.

See
___

Scott v.
_____

Supp. 1034,

1042-43 (N.D. Cal.

rather than New Hampshire,

"most significant
determine

Snelling and Snelling, Inc.,

____________________________
1990).

the

California,

the appropriate alternative under the

relationship" test,

whether

Thus, were

732 F.

it would be

necessary to

correctly

nullified the

district court

contractual choice-of-law provision.

It
trump New

is very

clear, however,

Hampshire.

Since the

that California

"most significant relationship"

test is intended to give "effect to the intention of

and

their reasonably justified

Ins. Co., 240

________

the parties

expectations," Consolidated Mut.

_________________

A.2d at 49, the court applying it must examine the

jurisdiction/contract relationship at the

executed.

does not

In this

case, Ferro

reasonably justifiable

time the contract

and Sickles

expectation in

could have had

December 1985

was

no

that their

agreement would be governed by California law, as California bore

no

relationship to the contract

have none
in 1991.
execution

at that time,

until Sickles breached the

and continued to

restrictive covenant there

New Hampshire, on the other hand, was both the place of

and the

place

of anticipated

performance.

If

the

parties had any reasonably justified expectation in December 1985

(other than that

their choice of Massachusetts law be enforced),

12

it would have been that the covenant be governed by New Hampshire

law.
Viewed in
that since

the best light, the

Sickles presently
_________

defendants' argument is

lives and works

there, California

has an interest in

how his rights are interpreted

and enforced.

Quite true, but of

course such an interest hardly

suggests that

California had a more significant relationship than New Hampshire

with an employment contract
Hampshire employer

and a

employment period.

See
___

196 (contracts
law of state
rendered).

of services usually

contract requires that

businesses from

effects on in-state
strong

interest in

a New

throughout the

Restatement (Second) of Conflict

"While [California] certainly has

an equally

losses of

New Hampshire employee

for rendition

where the

in monitoring
has

performed in New Hampshire by

of Law

governed by

the services

be

a strong interest

competition, [New

Hampshire]

protecting [New

Hampshire]

breaches of employment agreements and consequent

good will."

Shipley Co. v. Clark, 728

____________
_____

F. Supp. 818,

826

(D. Mass. 1990).

In sum, even

properly could have nullified

these circumstances

assuming the district court

the contractual choice of

it could have done

law, in

so only in favor

of New

Hampshire law.
2.
2.

Enforcement of Restrictive Covenant

Enforcement of Restrictive Covenant
___________________________________

Massachusetts and New Hampshire will enforce reasonable

restrictive

covenants in employment

contracts under essentially

13

the same
tive

reasonableness standard.

covenant

"is not

invalid and

provided it is necessary

may

be enforced

interest."

Novelty Bias Binding Co.

__________________________

N.E.2d

374, 375 (Mass. 1961).

In New

is considered reasonable so
for the

in equity

employer, is

and space, and is consonant

public

than necessary

Massachusetts, a restric-

for the protection of the

reasonably limited in time

covenant

In

with the

v. Shevrin,
_______

175

Hampshire, a restrictive
long as it

protection of the

is "no greater

employer's legitimate

interest,

does not impose undue hardship on the employee, and is

not injurious to the public interest."

Moore v. Dover Veterinary

_____
________________

Hospital, Inc., 367 A.2d 1044, 1047 (N.H. 1976).

______________
The district court ruled that
in Sickles's

the restrictive covenant

employment contract was enforceable in

respect; the five-year term was found excessive.

ness of a covenant presents a question

The reasonable-

of law, see Technical Aid

___ _____________

Corp. v. Allen, 591 A.2d 262, 265 (N.H. 1991), but

_____
_____
entails the resolution of

all but one

issues of fact, a "mixed"

presented which we review only for "clear error."

insofar as it

question is

See DeGuio v.
___ ______

United States, 920 F.2d 103, 105 (1st Cir. 1990).

_____________
We agree with the

district court's assessment that the

restrictive covenant was reasonable in the circumstances,

for

its

five-year term.

The

closer

question is

except

whether the

district court permissibly modified the term of the covenant.

Courts presented with restrictive
unenforceable provisions

have taken
14

covenants containing

three approaches:

(1) the

"all

or

nothing" approach,

covenant entirely

if any

which

would

part is unenforceable,

pencil" approach, which enables the

able terms

tial

enforcement"

restrictive

the

which

covenant to the extent

__ ___ ______

"circumstances

(2) the

"blue

grammatically coherent

provisions are excised, and

approach,

restrictive

court to enforce the reason-

provided the covenant remains

once its unreasonable

void the

reforms

(3) the "par-

and

enforces

the

it is reasonable, unless the

__ __ __________

indicate bad faith or deliberate overreaching" on

part of the employer.

Durapin, Inc.
_____________

v. American Products,
__________________

Inc., 559 A.2d 1051, 1058 (R.I. 1989).

____

"partial

Massachusetts

and

enforcement"

camp.

invalidate

an

will enforce

New

Hampshire are

"Massachusetts courts

unreasonable noncompete
it to

firmly

the extent

covenant

that it

is

in

the

will

not

completely but

reasonable."

Balfour Co. v. McGinnis, 759 F. Supp. 840, 845 (D.D.C. 1991).

___________
________
New Hampshire,
covenant is
tled

"[e]ven if

enforcement of an

tract."

court determines that

unreasonable, the employer nonetheless

to equitable relief in

exercise

the trial

the form of

overly broad

of good faith in

In

the

may be enti-

reformation or partial

covenant upon a

the execution of

showing of

his

the employment con-

Smith, Batchelder & Rugg v. Foster, 406

________________________
______

(N.H. 1979).

L.G.
____

A.2d 1310, 1311

The defendants
sibly

reformed the

since

the prerequisite

argue that the district court impermis-

restrictive covenant
"good faith"

in Sickles's

had not

contract

been established.

15

Defendants cite the Smith, Batchelder and Technical Aid cases for
_________________
_____________
the

proposition that good faith cannot be found where, "as here,

the employee was presented with and required to sign the restrictive covenant only

after he

had accepted the

new position

and

left his former job in reliance on an earlier oral agreement

for

employment containing no such term."

ants

contend that

the

lack of

In other words, the defend-

advance

notice to

Sickles

so

tainted the restrictive covenant as to preclude a finding of good

faith.
The district

court did

find, however, that

Ferro had

given Sickles advance notice of the restrictive covenant.

disturb its

finding only if

"clearly erroneous."

We may

According to

the defendants, the finding of advance notice was clearly errone-

ous because (1) it was based on a letter sent to Sickles by Ferro

on November 18, 1985 (three

weeks before he began work

at Ferro

and

executed the

restrictive

covenant),

(2)

the

November 18

letter merely informed Sickles that he would be required to "sign

a nondisclosure agreement covering
the corporation," and
that

(3) the

the "nondisclosure

stricting

argument

determine whether we
with the definite
committed."

letter made

agreement" would

Sickles's ability

defendants'

the proprietary activities of

is not

to

contain a

compete with

without

mention

clause re-

Ferro.

some force,

are, "on the entire

and firm

no explicit

Although

we

need not

evidence[,] . . . left

conviction that a

mistake has

been

United States v. United States Gypsum Co., 333 U.S.

_____________
________________________
16

364,

395

(1948).

The

defendants' perspective,

we

think, is

juridical cranny, "[p]recedents are

of little

altogether too limited.

In this
value."

Reddy v. Community Health Foundation of Man, 298 S.E.2d

_____
__________________________________

906, 913

n.4 (W.

Va. 1982)

(quoting 54

Am.Jur.2d, Monopolies,
___________

Restraints of Trade, and Unfair Trade Practices,

_________________________________________________

543).

See
___

also
____

Novelty Bias Binding Co., 175

__________________________

reasonable

N.E.2d

at 376

depends on the facts in each case.").

("What

is

In urging that

we cleave reflexively to the narrow holdings of two New Hampshire

cases, which turned on the presence or absence of advance notice,

defendants
variety
which

ignore the breadth

of factors

of the "good

(including,

but not

faith" concept, the

only, advance

notice)

may be material to the "good faith" determination, and the

deference due a district court order for partial enforcement of a

restrictive covenant.
The New Hampshire courts
requirement in
and

the Restatement

such cases as

(Second) of

Raimonde v. Van Vlerah,

________
__________

1975), Insurance Center, Inc. v.

_______________________
1972),

and

have adopted the "good faith"

Contracts

325 N.E.2d 544 (Ohio

Taylor, 499
______

Solari Indus., Inc. v.

____________________

Malady,
______

P.2d 1252
264 A.2d

1970).

See Smith, Batchelder & Rugg, 406 A.2d

___ _________________________

cases).

These

notice"

are

faith" denotes

sources tell
not coextensive
a broader

us that "good
concepts,

but

and more complex

184(2),

(Idaho

53 (N.J.

at 1313 (citing

faith" and

"advance

rather that

"good

principle reflecting

the reformation doctrine's origin in the courts' "inherent equity

17

powers to modify and enforce covenants."

at 1058.

In order

to give

Durapin, Inc., 559 A.2d

_____________

form to this

principle, the

courts are charged

to examine and consider

stances,

then to

and only

those circumstances, it

in

all relevant circum___

determine whether,

in light

would be equitable to

nant in modified form.

trial

of all

enforce the cove-

See Raimonde, 325 N.E.2d at 547.

___ ________

The aim

each case must be to determine whether partial enforcement is

"the fair and reasonable course."

To be sure, the
the
er's

timing of the initial presentation

good faith.

The absence of notice may suggest overreaching

faith, insofar

as it

bargaining position with

have enjoyed
example,

had he known
before he

Technical Aid case,

______________
error

of

restrictive covenant to the employee may bear on the employ-

and bad

for

Solari Indus., 264 A.2d at 56.

_____________

in the trial

good faith where the

employee on his first

places the

respect to the

employee in

covenant than he

of the proposed
left his

the New

Hampshire Supreme

court determination that

Thus,
Court

in the

found no

an employer lacked

employer had presented the covenant

that the employee sign immediately.

might

restriction earlier;

previous job.

day on the job, and

a weaker

to the

the employer insisted

591 A.2d at 271.

See also
___ ____

American Credit Bureau, Inc. v. Carter, 462 P.2d 838 (Ariz. App.
_____________________________
______
1969) (no abuse of

discretion in trial court refusal

restrictive covenant

where employer had not

to enforce

told employee about

covenant until after employee quit former job).

18

These cases say

justify
cannot

a finding
find good

that the

of bad faith,
faith

lack of
but not

absent advance

advance notice
that the

notice.

may

trial court
An

exclusive

preoccupation with the timing of the presentation of the restric-

tive covenant, and more precisely with its effect on the bargaining-power balance

between

employer and

employee,

would

limit

unrealistically the broad equitable inquiry contemplated in these

matters.

The fact

whenever and
arrived

at by

is, of

course, that

however presented to
bargaining

normally presents

the employee, "often

between equals

the terms on a

restrictive covenants,

. . . [t]he

'take it or

Cheney v. Automatic Sprinkler Corp., 385 N.E.2d

______
__________________________

are not

employer

leave it' basis."

961, 965 (Mass.

1979).
The object
not so much

whether the employer has

gaining power, as
imbalance

of the appropriate

upset the balance in

is

bar-

whether the employer has exploited an inherent

by placing "deliberately

restraints on the

inquiry, therefore,

employee.

unreasonable and oppressive"

Solari Indus., 264 A.2d

_____________

at 57.

In

their pursuit of that inquiry, the courts may, and in appropriate

circumstances should, examine and weigh other
ations.
er's

These other considerations include

general practice

fair and

with respect

designed only to protect

relevant consider-

whether the employ-

to employee

legitimate interests," Blake,

Employee Agreements Not to Compete,

___________________________________

73 Harv. L.

(1960);

the

whether

the employer

restraints "is

gave

Rev. 625,

particular employee

683

19

reasonable opportunity
whether the employer
the

employee to

decline

to

read

and

understand

the

allowed (or, if asked, would

obtain

modifications of

to execute it altogether;

the

covenant;

have allowed)

covenant, or

and whether the

to

terms of the

restrictive covenant are so

operates, by

"savage . . . that their overbreadth

in terrorem effect, to
__ ________

subjugate employees unaware

of the tentative nature of such a covenant," Reddy, 298 S.E.2d at

_____
916,

or, conversely,

overbearing so as to

whether

the terms

are merely

marginally

suggest that the employer simply

lated the extent of the restrictions

miscalcu-

required for its reasonable

protection.
Intrinsic to any appellate assessment
is

the standard of review.

As

a trial court decision to modify

and enforce a restrictive covenant

of

of these factors

is undertaken in the exercise

its equitable powers, we review only for abuse of discretion.

Morgan
______

v. Kerrigan, 523
________

this deferential

F.2d 917, 921

standard, we

(1st Cir. 1975).

conclude that the

Under

district court

decision to modify Sickles's

restrictive covenant is sustainable

on

First, were we

the following

grounds.

to assume

that the

district court made a mistake when it found that explicit advance

notice

of the

covenant

not to

compete

was contained

in

the

November 18 letter, we nonetheless think it indisputable that the

letter alerted
upon

his

Sickles that Ferro would

post-employment

practice with

freedom.

expect some restriction

____
Second,

respect to restrictive covenants

20

Ferro's

general

does not display

the

kind

of "grasping

or

negligent" behavior

courts to decline partial enforcement.

Rev.

at 684.

Ferro

to the one

invariably gives the employee, as

nity

to read and to

Furthermore, Ferro
and

worker who

strictive

At least

instance, Ferro

covenant

before signing it.

once

to consider

in

the

Ferro hired and continued to

pocketed the document

least one other

and allowed

It

in Sickles's case, an opportu-

request, proven willing

accept modifications.

defendant Perry Barker

employees to accept

Sickles executed.

understand the document

has, on

may cause

Blake, supra, 73 Harv. L.

_____

regularly requests new

restrictive covenants similar

that

and never

former

employ a

signed it.

waived its rights

a

case of

In

at

under a

employee to

re-

join

competitor where the employee

in marked contrast to Sickles

was forthright in

and made no

his dealings

Ferro about his intentions.

ly, the covenant was

attempt to

deceive

Finally, and perhaps most important-

flawed only as concerned the

remoteness of

its termination date, and the restrictions as a whole were not so

harsh as to warrant an

inference that Ferro meant to enserf

its

employee.
Considerations

of

"reasonableness"

and

"balance"

pervade the caselaw in "partial enforcement" jurisdictions.

See,
___

e.g., Reddy, 298 S.E.2d at 911 (discussing "rule of reason"); see

____ _____
___
also Arthur A. Corbin, Contracts,
____
_________
function of the law
in

1394 at 89 (1962) ("It is the

to maintain a reasonable balance").

these jurisdictions

must

be vigilant

to protect

Courts

employees

21

against overbroad and oppressive restrictions on their ability to

work and

earn a living, but must

temper their vigilance with an

awareness that employers, too, work for a living and are entitled
to reasonable
former

protection against the predations

employees.

N.E.2d at 547 ("Most

See id.
___ ___

at

1394;

of unscrupulous

see also
___ ____

Raimonde, 325
________

employers who enter contracts do so in good

faith, and seek only to protect legitimate interests").

Notwith-

standing the serious question defendants raise concerning advance

notice, and regardless whether Massachusetts or New Hampshire law

governs,

we conclude, in the

light of

its considerable

circumstances of this

discretion to mold

that the district court decision must stand.

case and in

equitable relief,

3.
3.

Joinder
Joinder
_______
We need

Defendants

not linger

contend

dismissed

that the

because NFC

was a

under Fed. R. Civ. P. 19.

"necessary party"

present

action

necessary and

final claim.

should have

been

indispensable party

First, defendants argue that NFC was a

under Rule

"claims an interest

over the defendants'

19(A)(2)(i)

that is,

that NFC

relating to the subject of the action and is

so situated that the

disposition of the action in

[its] absence

may . . . as a practical matter impair or impede [its] ability to

protect

that interest. . . ."

against AVC would

fluid

deprive NFC

They

insist that

of the ability

rotary seals to its American protege:

an injunction

to sell

magnetic

"NFC claims a right

22

to market seals [in

ment

[with

Ferro's

the United States] under the

Ferro], which

lawsuit .

. .

has

been

NFC's ability

'impaired

license agreeor impeded'

to market seals

by

would be

greatly curtailed by enjoining AVC."

Whatever abstract appeal

it may

have, their

argument

breeds an incongruity in the present case.

"necessary

party"

under Rule

practical ability to
could

been

19(a)(2)(i)

protect an

no need to resort

entitled to

that

interest was at

not be adequately represented

have been

If NFC actually was a

by AVC

if its

stake, and

it

then there would

to joinder, as NFC

intervene as a

is,

would also have

matter of right

under Fed. R.

Civ. P. 24(a).

See Pujol v. Shearson/American Express, Inc., 877

___ _____
_______________________________

F.2d

(1st Cir.

132, 135

1989), and

24(a)(2) is a "counterpart"
no attempt to intervene.

cases cited

to Rule 19(a)(2)(i)).

therein (Rule
Yet

NFC made

See Boston Car Co. v. Acura Automobile

___ _______________
________________

Division, American Honda Motor Co., 127 F.R.D. 434, 435 (D. Mass.
__________________________________
1989)

(party is

not "necessary"

where it

"has not

claimed an

interest" in outcome of action).

In any event, NFC's potential economic exposure did not

qualify it as an

"indispensable party" under Rule 19(b).

is generally recognized that a

able to an
because
separate

action to

that person's

"[I]t

person does not become indispens-

determine rights under

rights or

a contract

obligations under

simply

an entirely

contract will be affected by the result of the action."

Helzberg's Diamond Shops, Inc. v. Valley West Des Moines Shopping

______________________________
_______________________________
23

Center, Inc., 564 F.2d 816, 820 (8th Cir. 1977).

____________
Car Co., 127 F.R.D. at 435.
_______
Affirmed.
________

See also Boston

___ ____ ______

24