Opinion
Hearing Granted Nov. 8, 1943.
Appeal from Superior Court, Los Angeles County; John Beardsley, Judge.
Action by Continental Car–Na–Var Corporation against L. C. Moseley and others to enjoin unfair competition and for damages. From a judgment for plaintiff, the defendants appeal.
Affirmed.
WHITE, J., dissenting.
COUNSEL
Loeb and Loeb, of Los Angeles (Norman Newmark, of Los Angeles, of counsel), for appellants.
Mills & Wood, of Los Angeles, for respondent.
OPINION
DORAN, Justice.
Plaintiff is an Indiana corporation engaged in a nation-wide business of manufacturing, producing, buying and selling compounds for finishing, cleaning and treatment of floors in buildings, and of tools and appliances designed for the same purposes. It has maintained an office and place of business in Los Angeles over a period of years. Prior to 1932 defendant L. C. Moseley had been employed by plaintiff in the states of Kentucky and Indiana. During the year just mentioned said defendant came to Los Angeles as the sales representative and district manager for plaintiff corporation. He terminated his employment with plaintiff on March 31, 1941.
During the course of defendant Moseley’s employment by plaintiff and under date of April 7, 1937, a new contract was entered into between himself and plaintiff corporation. Under the terms of such contract plaintiff granted to defendant Moseley the right and privilege to solicit and submit orders for merchandise manufactured and sold or held for sale by plaintiff corporation in Southern California, subject to the approval of plaintiff and subject to the published sales price list and policies of the company as might from time to time be published or outlined by it. Under the contract defendant Moseley was without authority to complete any sale of plaintiff’s products but was required to forward orders to the home office in the state of Indiana upon order blanks furnished him for such purpose. On his part defendant Moseley agreed to promptly forward various reports and copies of correspondence covering company business and to advise the latter on all matters of interest to it which might come to his attention. As full compensation for sales made by him under the agreement in question, defendant Moseley was to be paid a commission, fixed as to amount, by plaintiff corporation. The contract between them was to remain in full force and effect from year to year unless written notice was given by one party to the other at least ten days before the expiration date of any annual period. This contract was cancelled at the instance and request of defendant Moseley effective at the close of business March 31, 1941.
Defendant Edward S. Franzus had also been employed by plaintiff corporation at its home office in Indiana as a chemist, from September, 1934, to July, 1936. He came to Los Angeles about October, 1940, at which time he called upon defendant Moseley and they became mutually interested in the formation of the Gerson-Stewart Pacific Corporation, also named as a defendant in this action. In February, 1941, defendants Moseley and Franzus in conjunction with a Mr. Gerson, of Gerson-Stewart Corporation, an Ohio corporation, agreed to and did during the month of March, 1941, form the corporation named as defendant herein, and had commenced operations in the city of Los Angeles on April 1, 1941, the day after the cancellation of defendant Moseley’s contract with plaintiff corporation became effective. Just prior to April 1, 1941, the corporation named as a defendant herein purchased the business of Bobrich Manufacturing Corporation, a California corporation engaged also in the manufacture and sale of compounds for the renovation of floor treatments and cleaners.
The record discloses that prior to the effective date of the termination of his contract with plaintiff corporation the defendant Moseley on March 20, 1941, prepared a circular letter which was addressed and mailed to some 250 to 300 of the customers appearing on the books of plaintiff corporation. In this letter defendant Moseley advised plaintiff’s customers of the severance of his connection with plaintiff corporation and that on April 1, 1941, he would assume the position of sales manager of Gerson-Stewart Pacific Corporation. The closing paragraph of this letter read as follows: "As my business relations with you have been most pleasant during the past eleven years, I want to thank you sincerely for your kind patronage and assure you that in my new connection as Sales Manager of Gerson Stewart Pacific Corporation, I will bend every effort to assure you of the same conscientious treatment and careful attention to your future needs."
On and after April 1, 1941, defendant Moseley and the new corporation solicited 88 customers of plaintiff in an effort to sell them products in competition with those sold by plaintiff and the purposes of which products were the same as were the purposes of products manufactured and sold by plaintiff in the territory of Southern California referred to in defendant Moseley’s contract with plaintiff. 39 of the customers so solicited purchased the products of the newly formed corporation.
By its complaint plaintiff corporation alleged that by and through its efforts jointly with those of defendant Moseley the firm had established a lucrative business and a large demand for its products in Southern California and had accumulated a large and confidential list of customers and had built up a good will toward plaintiff and its products. The complaint further alleged that the business and lists of customers heretofore referred to were in large part acquired by defendant Moseley while in the employ of plaintiff corporation at great expense to the latter; was in the former’s possession and is a trade secret of great value. It was further alleged that by reason of his former employment by plaintiff corporation the defendant Edward S. Franzus became acquainted with the chemical composition and method of manufacture of plaintiff’s products. The complaint further charged that defendants Moseley and Franzus "connived together to unlawfully interfere with and to deprive the plaintiff of its trade and customers, and to induce the patrons of plaintiff to cease dealing and trading with plaintiff" and to destroy plaintiff’s good will and pursuant thereto said defendants "participated in the organization of the defendant Gerson-Stewart Pacific Corporation" as a corporation to deal in commodities and merchandise designed for like purposes as the products of plaintiff. It is then alleged that the defendants just mentioned and defendant Mrs. Edward S. Franzus agreed and confederated together to secure for themselves and defendant corporation confidential information and trade secrets of plaintiff corporation contained in the latter’s private and confidential lists of customers, as well as letters, mailing lists and correspondence, and toward the accomplishment of such purpose the last named defendants "read, examined and copied the confidential records of plaintiff". Defendant Moseley is then charged with secretly removing such confidential files and lists of customers and retaining the same for several days "all for the purpose of carrying out the alleged conspiracy to alienate from plaintiff its business, good will, customers and prospective customers". Finally by its complaint plaintiff corporation charged that all of the defendants since April 1, 1941, have solicited the customers and prospective customers of plaintiff for the purpose of selling to them products similar to those manufactured by and dealt in by plaintiff and had succeeded in securing for defendants the business and good will of such customers to the injury and damage of plaintiff’s business.
Defendants by their answer admitted the organization of the corporation named herein as a defendant; admitted that some of the commodities dealt in by defendant corporation are designed for like purposes as the products of plaintiff. It was admitted that defendants Moseley and Franzus and Mrs. Franzus visited plaintiff’s office, read and examined various records and addressed envelopes in plaintiff’s office. The removal of the record cards of customers and other office records from plaintiff’s office by defendant Moseley was admitted, but the return thereof upon demand of plaintiff was asserted. The solicitation of some of plaintiff’s customers was also admitted and the evidence showed that the letter heretofore referred to was mailed to a large number of plaintiff’s customers. The answer of defendants, however, expressly denied all allegations of the complaint relative to the alleged private or confidential nature of the customer lists in question; denied that the same was a trade secret; denied any alleged unlawful combination or conspiracy; and denied that any of them had made use of any trade secrets or confidential information belonging to plaintiff corporation. It was also denied that any of the defendants had made use of any knowledge acquired by defendant Edward S. Franzus as to any formula used by plaintiff in the manufacture of its products.
By its findings of fact after trial, the court found that all of the allegations of the complaint, except the allegation that defendant Mrs. Franzus participated in the organization of the defendant corporation, were true. The court made a special finding in support of its conclusion that plaintiff had suffered damage in the sum of $344.34 by the acts of defendants in selling to 18 of plaintiff’s customers merchandise of the amount of $3,433.42. This finding was based upon the conclusion reached by the trial court that the defendants’ net profit averaged ten percent of the amount of its sales.
In addition to the award of damages as heretofore noted, the decree entered by the trial court permanently enjoined and restrained the defendants: (a) From soliciting as a customer of defendants any person, firm or corporation within a designated territory "who was, on or prior to March 31, 1941, a customer of plaintiff" for specified goods, wares and merchandise. (b) From using or continuing to use "any information or knowledge concerning plaintiff’s customers, patrons, their addresses in connection with any plan, business or enterprise, and from in any manner soliciting, diverting or taking away any of such customers or patrons of plaintiff, or from in any manner attempting to induce any of said customers or patrons of plaintiff, either directly or indirectly, to withdraw any of their business or patronage from plaintiff, "and from doing any acts detrimental to plaintiff’s good will or likely to cause plaintiff’s injury. (c) From divulging to any person, firm or corporation the names, addresses or other information concerning any customers of plaintiff who were such on or prior to the 31st day of March, 1941. (d) From using or divulging any of the trade secrets or other knowledge of the composition of any products manufactured by plaintiff. From such decree defendants prosecute this appeal.
Although it is contended by appellants that appellant Moseley was an independent contractor, nevertheless the evidence in the case at bar supports the conclusion that a relation of employer and employee or principal and agent existed between appellant Moseley and respondent corporation during the time he was associated with the latter throughout the pendency of his contract which was terminated as of March 31, 1941.
Appellants concede that the courts will protect the employer against that unfair competition which consists of the use by the employee to the prejudice of his former employer, of the confidential information gained by the employee during his prior employment as to the business secrets of his former employer, but appellants urge that the "customers cards" utilized by appellants in making a business approach to respondent’s customers did not constitute what is known as a "confidential" or "trade secret", because such customers were readily known to all of respondent’s competitors as users of the particular products manufactured and sold by respondent; that the names of such customers and their addresses were listed in the telephone directory. It is further argued by appellants that the "customers" here in question were not the "exclusive" customers of respondent but dealt with other firms who were competitors of respondent; that therein the facts of the case at bar differ from the type of cases that have come before the courts and are known as the milk, ice, bread or laundry "route" cases, in which it would be difficult for anyone but a former route man or employee to know what particular homes are in the market for the particular commodity or service being offered, and wherein, nobody but a former employee of the ice, bread, milk or laundry concern could possibly know which homes within a given area are really potential customers. Although approximate examples are plentiful, nevertheless, whether the asserted acts and methods practiced by an individual engaging in competition with his former employer are fair and legitimate, within the application of the doctrines here involved, is not always easy to determine.
In that connection it has been held that "if a person establishes a trade or business which depends for its continuance upon keeping secret the names of customers, or other valuable information known to such person no agent or employé, having been intrusted with such secrets in the course of his employment, can thereafter utilize his secret knowledge against the interests or to the prejudice of such person." New Method Laundry Co. v. MacCann, 174 Cal. 26, 30, 161 P. 990, 991, Ann.Cas.1918C, 1022. And in the same case appears the following: "It cannot, indeed, be questioned that an employé, in a case such as this, retains the right to work for a rival laundry if he so chooses, or, having established a laundry business himself, to serve all persons who voluntarily offer him their trade. But in such competition, he must act with utmost fairness, resolving every doubt rather in favor of the interests of the former employer than against them, and exercising, at all times, every precaution to avoid violating, in letter or spirit, the confidence reposed in him." Id. 174 Cal. at page 31, 161 P. at page 992, Ann.Cas.1918C, 1022. To the same effect see Pasadena Ice Co. v. Reeder, 206 Cal. 697, 275 P. 944, 276 P. 995; also George v. Burdusis, 21 Cal.2d 153, 130 P.2d 399.
The situation presented in the case at bar appears to come squarely within the doctrines enunciated by the foregoing citation of authority, and in particular, the Burdusis case; and there can be no question but that the evidence supports the findings.
The judgment appealed from is therefore affirmed.
YORK, P. J., concurs.
WHITE, Justice (dissenting).
I find myself in accord with the claims urged by appellants when they challenge that portion of the decree which enjoins them from using or divulging any of the trade secrets or other knowledge of the composition of any product manufactured by respondent. The record herein discloses no evidence that appellants had made or might make use of respondent’s secret process. In fact both at the time of the hearing on the preliminary injunction and at the time of trial, appellants offered to permit a comparison between the formulas used by appellant Franzus for appellant Gerson-Stewart Company and the formulas used by respondent, but in each case the offer was rejected. Therefore the facts here present do not demand the relief provided for in this portion of the decree. There is nothing in the record with reference to the illicit use of respondent’s secret formulas except the opportunity for such use and a suspicion in the mind of respondent’s officers that wrong would be done them. Surely equity does not countenance the doctrine that when a man has worked for another and learned the latter’s secret formulas or business secrets, and then goes to work for another or engages in a rival business for himself, he must be harnessed with the injunctive mandate of a court of equity because he possesses the opportunity to do evil. Equity will not assume human nature to be essentially and inherently evil. Until the presumption is controverted by other evidence, it is presumed in law that a person is innocent of crime or wrong. Subdivision 1, section 1963, Code of Civil Procedure. While it might be urged that this provision of the decree is harmless if appellants do not impinge upon respondent’s secret formulas, I am impressed that under the facts here present appellants should not be stigmatized with the injunctive mandate and it should therefore have been omitted. That appellant Franzus was entitled to make use of his general knowledge of chemistry to manufacture floor wax and kindred commodities for appellant corporation so long as he did not transgress upon the "trade secrets" or "secret formulas" belonging to respondent can not be questioned. That he did any more than exactly that is not borne out by evidence of any character herein.
I am in accord with the statement made in the majority opinion to the effect that it is no easy task to draw the line between acts of a former employee engaging in business competition with his former employer, which are fair and legitimate, and those methods on his part which are denounced by law as unfair and illegitimate practices. From a reading of the cases it would seem that the distinction lies somewhere in the zone between "pirating" and "competing" for customers.
I take no issue with the holding by my associates that equity will to the fullest extent protect the property rights of employers in their trade secrets and otherwise, but public policy and natural justice require that equity shall also be solicitous for the right inherent in all people, not fettered by negative covenants upon their part to the contrary, to follow any of the common occupations of life. Every individual possesses as a form of property the right to pursue any calling, business or profession he may choose. A former employee has the right to engage in a competitive business for himself and to enter into competition with his former employer, even for the business of those who had formerly been the customers of his former employer, provided such competition is fairly and legally conducted. New Method Laundry Co. v. MacCann, 174 Cal. 26, 33, 161 P. 990, Ann.Cas.1918C, 1022.
In consonance with the rule just announced, I think it must be held that appellant Moseley had the right to advise the customers of his former employer that he was severing his business relations with the latter and was engaging in business for himself. In Theodore v. Williams, 44 Cal.App. 34, 37, 185 P. 1014, it was held that a former employee of a laundry, who had associated himself with a rival employer, was justified in driving along the streets upon which customers of his prior employer resided, with his laundry wagon plainly labeled with a notice of his new business association, and also it was held that he had the right to advertise such fact in a newspaper.
Coming now to a consideration of the question whether appellants, and appellant Moseley in particular, were guilty of unfair competition in soliciting the customers of Moseley’s former employer for business in competition with the latter. It is now settled law that equity will intervene to restrain an employee from divulging confidential information gained in the course of his employment or using such information to his employer’s prejudice. Pasadena Ice Co., v. Reeder, 206 Cal. 697, 702, 275 P. 944, 276 P. 995. The courts regard as unfair competition and will therefore enjoin the use by an employee to the prejudice of his former employer, of the confidential information gained by the employee during his prior employment as to the business secrets of such employer. Pasadena Ice Co., v. Reeder, supra, 206 Cal. at page 703 275 P. 944, 276 P. 995. But we are not here confronted with a situation such as existed in most, if not all, of the cases in which injunctive relief has been granted and in which cases it appeared that the business of selling and serving the various customers of the employer was chiefly a matter of friendly feeling between the customer and the employee on the route delivering the commodities sold or serviced. A reading of the record in the instant case impresses me that appellant Moseley while employed by respondent solicited its customers in competition with other firms engaged in the business of selling floor wax and other commodities for the treatment of floors; that such sales were made not because of the employee Moseley’s "personal acquaintance with customers and knowledge of ‘their respective places of residence, their peculiar likes and fancies and other characteristics, a knowledge of which would greatly aid them in securing and retaining the business of said former customers’ " (George v. Burdusis, 21 Cal.2d 153, 160, 130 P.2d 399, 403; Dairy Dale Co. v. Azevedo, 211 Cal. 344, 346, 295 P. 10), but rather upon the ability of respondent, through its salesman Moseley, to meet or excel, in the judgment of the customers, the quality, price and adaptability of similar products offered for sale to such customers by competitors of respondent. In other words, there was nothing "exclusive" in the business relationship existing between such customers and either respondent or its sales representative, appellant Moseley. In New Method Laundry Co. v. MacCann, supra, 174 Cal. at page 33, 161 P. at page 993, Ann.Cas.1918C, 1022, our Supreme Court quotes with approval the language used in Boosing v. Dorman, 148 A.D. 824, 133 N.Y.S. 910, where, as in the instant case, the names of plaintiff’s customers, all potential buyers of compounds for finishing, cleaning and treating floors in buildings, were listed in public directories, and in which cited case it was said: " ‘The other knowledge which Dorman acquired by calling upon these customers in the course of his employment, with regard to their habits of buying, their financial worth, and their individual characteristics and preferences, can hardly be denominated "trade secrets" which an employéis prohibited from using for his own benefit after the termination of his employment, in the absence of an express contract.’ " I am therefore persuaded that the facts upon which the present action is based bring the appellants within the limitations of the rule promulgated in Avocado Sales Co., v. Wyse, 122 Cal.App. 627, 10 P.2d 485, as announced in George v. Burdusis, supra, and appellants were therefore free to solicit the former customers of respondent without restriction. The absence herein of those considerations present in the case of George v. Burdusis, supra, and cases therein cited, distinguished and reviewed in my opinion, takes this case out of the sphere of unfair competition and entitled appellants to solicit the customers of respondent by and through any legitimate means open to other competitors.
By reason of the foregoing, it is my opinion that the decree appealed from should be reversed and the cause remanded with directions to the court below to enter judgment for the defendants.