Summary
holding that service providers have a proprietary interest in keeping customer lists confidential
Summary of this case from Component Hardware Group, Inc. v. Trine Rolled Moulding Corp.Opinion
04-24-1939
ABALENE EXTERMINATING Co., Inc. v. OSER et al.
William N. Cooper, of Trenton, for complainant. J. Edward Bennett, of Newark, for defendant Nathan Oser.
Syllabus by the Court.
1. One engaged in the business of supplying goods or services to customers has a property right in the knowledge, information and records as to the names and addresses of his customers and the nature and provisions of their contracts with him.
2. An employee who by reason of, and in the course of, his employment, obtains such knowledge or information as to his employer's customers, rests under an implied obligation not to use such knowledge or information for his own individual use and benefit, nor for the use and benefit of a competitor of his employer, and not to disclose it to others; irrespective of any express contract against his so doing.
3. Violation of such obligation by such employee will ordinarily be restrained, except where such information is open to and readily ascertainable by the public in general.
4. A competitor (of such employer) who causes, induces or knowingly participates in such a violation by such employee is guilty of unfair competition and will be restrained from obtaining further benefit, profit or advantage of and from business obtained by such unfair competition.
5. Where a party to a suit makes allegations or denials in his pleadings which he knows to be unjustifiable in fact, such conduct is censurable and justifies, without more, the award of costs and counsel fee against him.
Suit by the Abalene Exterminating Company, Inc., against Jacob Oser and another to enjoin their activities in a competing business.
Decree for complainant.
William N. Cooper, of Trenton, for complainant.
J. Edward Bennett, of Newark, for defendant Nathan Oser.
BUCHANAN, Vice Chancellor.
Complainant, being in the business of servicing residences, stores and other buildings, in the matter of exterminating insect and rodent pests therefrom, engaged defendant Jacob Oser in its employ as a manager and supervisor. The employment contract contained a restrictive covenant by Jacob Oser against his engaging in any similar business in the State of New Jersey, either directly or indirectly, as an individual, partner, stockholder, director, employee, etc, for a period of five years after the termination of his employment with complainant.
He left complainant's employ about June 7, 1938, and immediately engaged in the same kind of business for himself, in the same territory, and solicited the former customers of complainant, and succeeded in obtaining the business of some of them. Complainant filed its bill to restrain him, and applied for restraint pendente lite. Such restraint was granted by order of August 23, 1938, for the reasons set forth in the conclusions filed at that time. No answer to the bill was filed by Jacob Oser; decree pro confesso was taken against him; the allegations of the bill have been duly proven on this final hearing. Complainant is entitled to final decree for the restraint prayed against Jacob, both for the enforcement of the covenant against competition, and against further disclosure of any confidential information obtained in the course of his employment by complainant.
As appears from the uncontradicted proofs on this hearing, Jacob Oser ceased his activities in this competing business, upon the entry of the order for pendente lite restraint, moved to New York City, and has since had no part or parcel in the competing business. That business,—which had been carried on by him under the name of Capital Exterminating Co,—had in fact been a partnership business, by a partnership consisting of himself and his brother Nathan. When Jacob moved to New York in August, the partnership was terminated; Nathan paid to Jacob a sum agreed upon as the value of Jacob's interest in the partnership, and Nathan took over all the assets and continued to conduct the business, under the same name, and to service the customers of the former partnership, including those who had been customers of complainant at the time Jacob left complainant's employ.
Complainant, learning of these activities by Nathan, filed supplemental bill and brought him in as a defendant, praying inter alia, that Nathan be restrained from servicing the former customers of complainant and from disclosing to anyone else the names of such former customers of complainant. Nathan answered, and contends that complainant is not entitled to any restraint against him as matter of law. There is little, if any, dispute as to the facts.
Nathan was not a party to the restrictive covenant made by Jacob, and complainant's cause of action against. Nathan is of course not grounded on the principle of enforcing specific performance of that negative covenant. The gravamen of complainant's right to relief against Nathan rests upon the commission of equitable tort by the latter.
The knowledge which Jacob possessed as to the names and addresses of complainant's customers and their contracts with complainant was confidential information obtained by him in and by reason of the course of his employment with complainant, including of course those customers whom he may himself have solicited and obtained for complainant during that employment. That information was a property right of complainant; it was not information that was available to or could readily be obtained by the public or any other individual as in the case of Newark Cleaning & Dye. Works v. Gross, 97 N.J. Eq. 406, 128 A. 789.
These customers had been obtained by complainant at the cost of time, trouble and expense in soliciting and obtaining them as customers; their business and contracts with complainant obviously were of value to complainant. Also this information concerning them was of value to any competitor of complainant; it gave to such competitor knowledge as to persons who desired to have exterminating service, and whom such competitor might the more readily expect to be able to procure as customers of his. This is apparent from the fact that Jacob's knowledge of this information was one of the factors discussed by the two brothers preliminary to the formation of the partnership and the institution of its competing business, and which led Nathan to enter into the same. It was a right as to which complainant wasentitled to the protection of this court by injunction against unauthorized divulgence thereof by Jacob, quite irrespective of any covenant by Jacob against competition with complainant. Golden Cruller & Doughnut Co. v. Manasher, 95 N.J.Eq. 537, 123 A. 150; Stone v. Grasselli Chemical Co., 65 N.J.Eq. 756, 55 A. 736, 63 L.R.A. 344, 103 Am.St.Rep. 794; and see also Louis Kamm, Inc., v. Flink, 113 N.J.L. 582, at page 589, 175 A. 62. The instant case is substantially, in all material respects, a duplicate of the situation in the Golden Cruller case, supra.
It is true that in Lewitter v. Adler, 101 N.J.Eq. 74, 137 A. 541, this court refused to restrain a former employee of a window cleaning concern from soliciting and obtaining for his own use and benefit the trade of the customers of his former employer; and that such refusal appears to have been based on the view of Vice Chancellor Backes that defendant's knowledge of the names and addresses of complainant's customers, and the frequency of their jobs and the prices paid, was not a confidential knowledge of secret individual information belonging to his employer. This determination is difficult to understand, because the same Vice Chancellor, in the Newark Cleaning Co. case, supra, recognized that such knowledge as to the customers of the former employer was the private property of the employer in similar cases (such as laundries, apron and towel supply companies, and the like), and rested the denial of restraint upon the fact that in the case then before him complainant's customers were middlemen, all known to the trade and whose names and addresses could be ascertained by any one from a city directory or telephone book, and hence did not constitute private or secret information.
In the case of the window cleaning company, however, just as in the case of the laundry or the towel supply or the milk or bread route, and of the exterminating company in the instant case,—the names and addresses, etc, of the complainant's customers are not open to and ascertainable by every one; they are the private information and property of the complainant. That knowledge, being obtained by the defendant, because of and in the course of his employment and services for complainant, cannot lawfully be used or imparted by the former employee (even though not bound by a covenant not to do so), for the benefit of the employee or the detriment of the complainant. Insofar as the Lewitter case may be deemed support for argument that the restraint should be denied in the instant case, it is in contravention of the principles established by the cases in this court both prior and subsequent thereto, and which principles seem corroborated by the decisions in the appellate court hereinbefore cited.
Complainant is not entitled to, and does not ask, restraint against Nathan's conducting a competing business of his own (Jacob being no longer a partner or having any interest therein). It is however entitled to restraint against Nathan to prevent him from making use, for his own benefit, of this knowledge and information wrongfully disclosed and imparted to him by Jacob. In the eyes of equity Nathan is in the position of a receiver of stolen goods, knowing that they were stolen. He has this information, the property of complainant, which he obtained from Jacob, knowing that it was wrongful for Jacob to give it to him or to utilize it for his own benefit.
Not only did Nathan knowingly participate, as a partner, with Jacob in the latter's violation of his negative covenant, but he also knowingly participated with him in the theft or piracy of the confidential information in question. This information, so acquired, he not only made use of, first, for the benefit of the partnership and himself as a member thereof, but subsequently for himself alone; he is still enjoying the benefit of this piracy. The prior existence of the partnership is of no materiality in the present situation, which is essentially this,—that Nathan acquired from Jacob information which is the property of complainant, knowing that Jacob had no right to give or sell it to him; that he utilized this knowledge to the detriment of complainant and the benefit of himself, in and by soliciting and obtaining for himself, and taking away from complainant divers customers of complainant; that he is still enjoying the fruits of that inequitable conduct and obtaining the profits from the business so obtained.
It is inequitable that he should be permitted so to do. Jacob's wrongful divulging of the information to Nathan has been completed and cannot be prevented or undone; but defendant can be, and should be, restrained from continuing to obtain the profit from his business with the customers he pirated. If he had obtained this information direct from complainant by fraudulent misrepresentation, he would berestrained from further obtaining the benefit of such fraud. That he obtained it, knowingly, through theft or embezzlement by his brother, certainly puts him in no better position.
Complainant is entitled to restraint against further servicing by Nathan Oser of any of his present customers who were customers of complainant at the time Jacob left complainant's employ; against soliciting any such customers of complainant other than by such means as general advertising solicitation of the whole public; and against divulgence to any other person of information as to the names and addresses of such customers of complainant or the nature and character of their contracts with complainant.
That Nathan might well have been able to obtain the trade or business of complainant's former customers by fair and honest competition if he had not entered into this partnership with Jacob, does not operate to prevent complainant's right to the restraint. Nathan did enter into the partnership; he did knowingly obtain these customers as the result of the unfair competition; and it would be impossible to determine in future that any future business by Nathan with these customers was not in whole or in part the result of the unfair competition. Cf. Stone v. Grasselli Chemical Co., 65 N.J.Eq. 756, at page 762 (middle of page), 55 A. 736, 63 L.R.A. 344, 103 Am.St.Rep. 794.
The result reached in the instant case is entirely in accordance with principles laid down in Fleckenstein Bros. Co. v. Fleckenstein, 66 N.J.Eq. 252, at page 260, 57 A. 1025, and Stone v. Grasselli Chemical Co., supra, 65 N.J.Eq. at pages 759, 760, 55 A. 736, 63 L.R.A. 344, 103 Am.St.Rep. 794, that where a person (who may be called a "secondary defendant") causes or induces the primary defendant to do an illegal act which equity will enjoin and the direct effect of such illegal act is advantageous to defendants or disadvantageous to complainant, he will be enjoined from continuing to make any gain resulting from such illegal act, notwithstanding he might have been able to obtain the same result by other fair and honest means entirely aside from such illegal act. In the instant case the "secondary" defendant, Nathan, did not "cause" or "induce" Jacob to do the illegal act, but he did knowingly participate and cooperate with him in so doing; and it is not perceived that there is any difference in principle.
Mention should further be made of the fact that defendant Nathan Oser, in his answer, either denied, or alleged he had no information concerning, every allegation in the bill and the supplemental bill, as the result of which complainant was put to the trouble and expense of bringing witnesses to prove such allegations; whereas it appeared at the hearing, from the testimony of the two Oser brothers themselves, that all of those allegations were true and were known by defendants to be true, and there was no attempt at contradiction of any material fact.
Such conduct moreover wastes the time of the court; is deserving of censure; and justifies, without more, the award of costs and counsel fee against the party guilty thereof.