Summary
stating that public policy supports "encouraging full, fair, and free economic competition"
Summary of this case from AGC, INC. v. BAILLARGEONOpinion
The plaintiff, E Co., sought damages from the named defendant, A Co., from the defendant J, A Co.'s president, and from the defendant M, the former president of a subsidiary of E Co., on allegations that A Co., J and M had breached their fiduciary duty not to try to induce E Co.'s employees to go to work for A Co. A Co. and E Co. had had discussions concerning a joint venture proposed by A Co. to M involving telephone cable recovery. When negotiations stalled, M accepted employment with A Co., and, thereafter, several E Co. employees left E Co. to work for A Co. on the cable recovery project. From the judgment for A Co., J and M, E Co. appealed to this court. Held: 1. Because no express joint venture existed between A Co. and E Co., and because the dealings between the two companies did not compel the conclusion that a relationship of trust existed between them, the trial court did not err in refusing to find that any fiduciary duty prohibited A Co. and J from inducing E Co. employees to leave E Co. to work for A Co. 2. Because M had already left his employment with the E Co. subsidiary when E Co. employees were contacted for jobs at A Co., no fiduciary duty restrained him from contacting those employees.
Argued May 14, 1981
Decision released July 21, 1981
Action to recover damages for breach of a fiduciary duty allegedly owed the plaintiff, brought to the Superior Court in the judicial district of New Haven and tried to the court, Dupont, J.; judgment for the defendants, from which the plaintiff appealed to this court. No error.
Michael P. Fuchs, of the New York bar, with whom was Pasquale Young, for the appellant (plaintiff).
Christine S. Vertefeuille, for the appellee (named defendant).
Richard F. Connors, for the appellee (defendant Alfred Merritt).
Socrates H. Mihalakos, for the appellee (defendant James J. Johnston).
The plaintiff alleges that the defendants breached a fiduciary duty not to solicit the plaintiff's employees to leave its employ and work for the defendant Automatic Equipment Development Corporation (AED). The trial court found that the plaintiff failed to sustain its burden of proof. We agree.
The plaintiff's original complaint contained thirteen counts. It has abandoned all except the thirteenth count.
In April, 1973, the defendant Alfred Merritt was the president of United States Electronics Corporation (USE), a wholly owned subsidiary of the plaintiff, Electronic Associates, Inc., a company with annual gross sales of forty million dollars. He learned from the defendant James Johnston, then the president of AED, of the existence of the cable recovery business.fn1 Johnston had invented various items which made it possible to refurbish used telephone cable on a production line, with the use of unskilled labor. AED had already secured active accounts to refurbish cables for operating companies in the Bell system. Except for Merritt, none of the plaintiff's employees or officers knew anything about such a business, had ever engaged in it before, or had any knowledge at that time of contracts for sales or competitors in it. Merritt's knowledge came exclusively from Johnston. At a meeting of the plaintiff's staff in April, 1973, Merritt indicated that a business opportunity existed if the plaintiff could combine with AED.
From April, 1973 through August, 1973, the plaintiff and AED engaged in negotiations, discussions, and planning to enter a joint venture. Merritt represented the plaintiff during the negotiations. The discussions envisioned a venture in which AED would provide know-how, supplies, training of personnel, service, and sales contracts in exchange for the plaintiff's administrative expertise. AED insisted that it receive from the plaintiff an initial cash payment of at least $50,000 under any arrangement between the two corporations. The plaintiff insisted that any agreement omit such a payment. The parties never resolved this disagreement and therefore never executed a written agreement among themselves. Nevertheless, while the negotiations continued, Johnston introduced his telephone system contacts to Merritt and to other employees of the plaintiff. As a result, the plaintiff did cable recovery work for Bell of Pennsylvania. In addition, AED shipped cable to the plaintiff for refurbishing and reshipment to a telephone system with which AED had a contract for cable recovery.
In August, 1973, when the negotiations were "dead in the water," Johnston offered Merritt a job with AED. Merritt accepted on September 4, 1973. Merritt was not a director or officer of the plaintiff corporation. He had not contracted to continue his employment with it, nor had he agreed to compete with it. After Merritt accepted employment with AED, several other of the plaintiff's employees left the plaintiff to work for AED. In doing so, none of the employees breached contracts with the plaintiff.
In the absence of fraud, misrepresentation, intimidation, obstruction, molestation, or malicious acts, courts generally recognize no liability for inducing an employee not bound by an employment contract to move to a competitor. Harley Lund Corporation v. Murray Rubber Co., 31 F.2d 932, 934 (2d Cir.), cert. denied, 279 U.S. 872, 49 S.Ct. 513, 73 L.Ed. 1007 (1929); Republic Systems Programming, Inc. v. Computer Assistance, Inc., 322 F. Sup. 619, 626-27 (D. Conn. 1970), aff'd, 440 F.2d 996 (2d Cir. 1971); Harry A. Finman Son, Inc. v. Connecticut Truck Trailer Service Co., 169 Conn. 407, 415, 363 A.2d 86 (1975); Skene v. Carayanis, 103 Conn. 708, 714, 131 A. 497 (1926); see Kecko Piping Co. v. Monroe, 172 Conn. 197, 201-202, 374 A.2d 179 (1977); annot., 24 A.L.R.3d 821. This general rule rests on the policies of encouraging full, fair, and free economic competition; Harry A. Finman Son, Inc. v. Connecticut Truck Trailer Service Co., supra; and allowing employees to obtain the full value of their services. Harley Lund Corporation v. Murray Rubber Co., supra, 934.
The plaintiff is a New Jersey corporation. Some of the acts related to this litigation may have occurred in New Jersey. Because neither party argues that New Jersey law governs, we assume that Connecticut law does. Gorman v. Murphy Diesel Co., 42 Del. 149, 152, 29 A.2d 145 (1942); Mitchell v. Craft, 211 So.2d 509, 512 (Miss. 1968).
The trial court found none of the usual antecedents for the liability the plaintiff seeks to impose on the defendants. On appeal, the plaintiff does not point to evidence of fraud, misrepresentation, intimidation, obstruction, or malicious acts but argues that the breach of a fiduciary duty can also serve as a basis for such liability. We need not consider the merits of that proposition because the trial court did not find and the evidence did not compel it to find that AED, Johnston, or Merritt, at the relevant time, owed the plaintiff a fiduciary duty not to induce its employees to quit its employ and work for AED.
A joint venture is a special combination of two or more persons who combine their property, money, effects, skill, and knowledge to seek a profit jointly in a single business enterprise without any actual partnership or corporate designation. Lesser v. Smith, 115 Conn. 86, 89, 160 A. 302 (1932); Dolan v. Dolan, 107 Conn. 342, 349, 140 A. 745 (1928). The relationship between contracting parties cannot amount to a joint venture unless the parties so intend. Stone v. First Wyoming Bank, 625 F.2d 332, 340-41 (10th Cir. 1980); First Mechanics Bank v. Commissioner of Internal Revenue, 91 F.2d 275, 278 (3d Cir. 1937); Yonofsky v. Wernick, 362 F. Sup. 1005, 1031 (S.D.N.Y. 1973); Las Vegas Machine Engineering Works, Inc. v. Roemisch, 67 Nev. 1, 9-11, 213 P.2d 319 (1950). AED and Johnston never agreed to become joint venturers with the plaintiff.
As a matter of law, parties to joint ventures undertake fiduciary duties to each other concerning matters within the scope of the joint venture. During negotiations which the parties hope will lead to a joint venture, a fiduciary duty may arise as a matter of fact although the law Would not infer it merely from the relationship of the parties. Sime v. Malouf, 95 Cal.App.2d 82, 98, 212 P.2d 946 (1950); see Lucas v. Abbott, 198 Colo. 477, 601 P.2d 1376 (1979). The fact that AED subcontracted work to the plaintiff and allowed the plaintiff to service AED accounts during the negotiations, however, did not compel the trial court to conclude that a relationship of trust and confidence existed between the plaintiff and AED or Johnston or that the plaintiff allowed AED and Johnston to become acquainted with its employees only on the basis that a joint venture, partnership, or other entity would emerge. Thus we cannot find error in the trial court's refusal to find that a fiduciary duty prohibited AED and Johnston from inducing the plaintiff's employees to switch to AED.
The plaintiff points to three pages in the transcript of Merritt's testimony as evidence that he directly solicited Theodore Lund and Kenneth Stroebl to leave the plaintiff and work for AED. Nothing on those pages suggests that Merritt solicited Stroebl. Merritt testified that he directly contacted Lund. The plaintiff, however, concedes that this solicitation occurred after Merritt had left its employ. Once Merritt left the plaintiff's employment, no fiduciary duty restrained him from using ordinary methods to encourage his former coworkers or subordinates to follow him to its competitor. American Republic Ins. Co. v. Union Fidelity Life Ins. Co., 470 F.2d 820, 824 (9th Cir. 1972); Republic Systems Programming, Inc. v. Computer Assistance, Inc., supra; Standard Brands, Inc. v. United States Partition Packaging Corporation, 199 F. Sup. 161, 174 (E.D. Wis. 1961); see Knudsen Corporation v. Ever-Fresh Foods, Inc., 336 F. Sup. 241, 245 (C.D. Cal. 1971).
The plaintiffs makes no claim that any of the defendants increased the effectiveness of the solicitations by using the plaintiff's personnel records. See Bancroft-Whitney Co. v. Glen, 64 Cal.2d 327, 351, 411 P.2d 921 (1986).
The policy of allowing workers to secure the best terms for their services precludes a perpetual ban on attempts by their former coworkers and supervisors to solicit them to join a competitor. Thus we find inapplicable to the present controversy those cases that found a fiduciary duty not to use trade secrets even after the termination of employment.