Course No. 9200-704 (& 804)-801
ID No. 85737 & 85736
Time: W 6:30 - 9:30 p.m.
Room Across from 231D (IP Alcove)
|Copyright © 2000, 2002, 2003, 2006, 2008, 2010 Jay Dratler, Jr. For permission, see CMI.|
179 Cal. App. 3d 124, 224 Cal. Rptr. 456 (1986)
March 26, 1986
Opinion by King, J., with Low, P. J., and Haning, J., concurring. [*126] [**457]
In this case we hold that professional employees of an accounting firm, as a matter of law, did not engage in unfair competition when they used a company rolodex to obtain the addresses of clients of the firm for whom they had provided professional services, in order to mail those clients an announcement of their formation of a new accounting partnership. The mailing of such an announcement does not constitute solicitation and therefore is not unfair competition.
* * *Shilling and Kenyon were managerial employees of Moss Adams, an accounting firm with offices in four western states. Both signed employment agreements stating that the names and addresses of Moss Adams' clients were trade secrets and could not be used to solicit those clients during employment or within one year thereafter.(1) [*127]
In 1982, Shilling and Kenyon decided to form their own accounting firm. Two weeks before they submitted resignation letters to Moss Adams, Kenyon removed a rolodex from the desk of a Moss Adams' receptionist and took it home. There she and Shilling used the rolodex, as well as Kenyon's personal collection of business cards, to address envelopes to Moss Adams' clients with whom they had had personal contact and to whom they had charged time during the previous year. In these envelopes they mailed the following announcement:
* * * [*129] [**458]Ordinarily whether information is a trade secret constitutes a question of fact; however, this is not so under the peculiar facts presented here. It is undisputed that Shilling and Kenyon simply used the rolodex to obtain some of the addresses of clients whose names they already knew from having personally provided accounting services during the previous year. Thus, two sub-issues are presented: (1) whether these clients' names were trade secrets even though they were already known to Shilling and Kenyon, and (2) whether the clients' addresses were trade secrets.
On the first sub-issue, under established case law the clients' names were not trade secrets. One may do business with a former employer's customers with whom one became personally acquainted and developed a business relationship while formerly employed. Avocado Sales Co. v. Wyse, [*129] 122 Cal.App. 627, 634, [10 P.2d 485] (1932); Theodore v. Williams, 44 Cal.App. 34, 37-39, [185 P. 1014] (1919).
Thus, in Avocado Sales Co. it was lawful for a salesman to sell avocados to retail customers whom the salesman had serviced for a former employer, "thereby making personal friends and acquiring a personal knowledge of his customers . . . ." 122 Cal.App. at 634. The court quoted a New York decision for the proposition that "Equity has no power to compel a man who changes employers to wipe clean the slate of his memory." Id., quoting Peerless Pattern Co. v. Pictorial Review Co., 147 App.Div. 715, 717, [**459] [132 N.Y.S. 37, 39] (1911). Similarly, in Theodore it was lawful for a laundry route driver to announce his new employer by driving along his old route in a truck marked with his name and the name of the new employer; the driver merely used his personal knowledge of the route and its customers to make the announcement.(2)
Under the rule of Avocado Sales Co. and Theodore, the names of Moss Adams' clients serviced by Shilling and Kenyon during the year preceding their resignations were not trade secrets, because the clients became known through personal contact and provision of accounting services. Shilling and Kenyon could not be compelled to "wipe clean the slate of their memories." The names of other Moss Adams' clients may have remained trade secrets, but Shilling and Kenyon did not record the names or addresses of those clients or mail announcements to them.
On the second sub-issue, whether the clients' addresses were trade secrets even though their names were not, the answer must be no. All of the clients were local, and their addresses were easily obtainable through normal resources (e.g., telephone directories).
The record is unclear as to precisely how many addresses were recorded from the rolodex. The rolodex contained almost 600 client names. In a declaration the managing partner of Moss Adams' San Jose office stated the firm contacted approximately 40 clients who received the announcement from Shilling and Kenyon. Shilling and Kenyon submitted declarations by 29 clients who switched firms, and Kenyon said in a subsequent declaration that these were "most" of the clients who switched. Shilling was quoted in [*130] a local newspaper article as stating about 35 percent of the clients they supervised for Moss Adams switched to the new firm. Thus, the record suggests no more than 100 or so announcements were sent to Moss Adams' clients, with an unknown number of the addresses obtained from Kenyon's personal collection of business cards rather than from the rolodex. At most, the use of the rolodex merely saved Shilling and Kenyon from the minor inconvenience of obtaining the desired addresses through generally available resources.
In short, we conclude that (1) former employees cannot use trade secrets to announce a change of employment to the former employer's customers, (2) the names of clients to whom Shilling and Kenyon mailed announcements were known to them from personally providing accounting services and therefore were not trade secrets, and (3) these clients'addresses could have been easily determined without use of the rolodex and thus were also not trade secrets. As a matter of law the use of the rolodex did not violate the common law of unfair competition.
Moreover, because there was no use of trade secrets, the use of the rolodex was not actionable under the employment agreements. Antisolicitation covenants [in California] are void as unlawful business restraints except where their enforcement is necessary to protect trade secrets.
* * *
The judgment is affirmed.
1. [court's foonote 1] Shilling's employment
agreement provided in pertinent part that (1) the names and addresses
of Moss Adams' clients "are ‘trade secrets' and proprietary to Moss-Adams,
and are not to be disclosed or to be used by Employee either during the
term of this Agreement or at any time thereafter," and (2) for a period
of one year following termination of employment the employee could not
use or make known to any other person the names or addresses of clients
or "[call] on, solicit, divert, take away or attempt to call on, solicit,
divert or take away any of the clients of Moss Adams . . . ." Kenyon's
employment agreement contained similar provisions.
2. [court's foonote 2] In contrast, the use
by memory of an extensive customer list to permit selective solicitation
was held to be unfair competition in Klamath-Orleans Lumber, Inc. v.
Miller, 87 Cal.App.3d 458, 462-66, [151 Cal.Rptr. 118] (1978). There,
unlike in Avocado Sales Co. and Theodore, the former employees
had not personally dealt with the customers; one was a former office manager
and the other was a former shop manager who had coordinated production.