Summary
refusing to uphold covenant not to compete for three years within local area
Summary of this case from Metcalfe Investments, Inc. v. GarrisonOpinion
No. 4603.
Argued October 1, 1957.
Decided December 18, 1957.
1. Where by the terms of a written employment contract the defendant agreed that upon termination of his employment he would not engage in competition with the plaintiff's real estate and insurance business within a certain area nor divulge any trade secrets or confidential information relating to plaintiff's business, the finding that it would be inequitable to restrain the defendant from engaging in a similar business, following termination of his employment, within the prohibited area was warranted under all the circumstances.
2. The failure of the plaintiff to establish in such case that any confidential information was divulged or that any trade secrets employed by the defendant were exclusively those of the plaintiff and not general secrets of the trade justified the refusal to grant an injunction.
3. An employer may not unreasonably or unnecessarily interfere with a former employee's engaging in any trade or calling for which he is fitted and from which he may earn his livelihood and may not preclude him from exercising the skill and general knowledge he has acquired through experience or instructions while in the employment.
4. In equity proceedings to restrain a former employee from engaging in a business similar to that of the plaintiff's, the ruling of the Trial Court that confidential information acquired by such employee prior to his employment could not properly be considered, was harmless, where the Court received evidence relative thereto and found that the plaintiff failed to establish that the employee had any such information which he could or did use to the detriment of the plaintiff.
5. Where the Trial Court ruled, in such case, that the employment contract was divisible and enforceable as to any part of the specified area reasonably necessary for the protection of the good will of the employer, but found it would be inequitable to grant injunctive relief, such findings implied the further finding that there was no occasion for such relief as to any part of the area and the findings were not erroneous as a matter of law.
BILL IN EQUITY, seeking injunctive relief to enforce the provisions of a convenant in restraint of competition contained in a written contract of employment executed by the parties.
The Court (Griffith, J.) granted a temporary ex parte injunction but after a hearing on the merits denied the prayer for damages and permanent injunctive relief.
On December 30, 1954, the parties executed an agreement by the terms of which the defendant was employed among other things to solicit and sell insurance and real estate. The contract was for a term of one year with provision for automatic renewal and by it the defendant agreed that for three years after the termination of his employment ". . . he will not engage in or participate in, or otherwise compete with the Employer, or the successors or assigns of the Employer, either directly or indirectly, in the fire, casualty, or life insurance business, or the real estate business, within the confines of Rockingham and Strafford Counties in the State of New Hampshire and that he will not divulge any of the trade secrets or confidential information relating to the business of the Employer."
Previous to the execution of this employment contract, the defendant had been employed by the plaintiff and since prior to 1952 by other corporations of the Dunfeys doing part and full time work. Beginning in 1952, defendant began to devote a substantial portion of his time to the insurance and real estate business. The plaintiff's business continued to grow between 1952 and 1954 and defendant was active and successful. He was given access to all the records of the plaintiff and was instructed and trained in the methods employed by the plaintiff in its real estate and insurance business. The written agreement of employment took effect January 1, 1955. From June through August, 1955, the defendant was employed almost exclusively in the restaurant business. In August, Fred Shaake, a co-owner with the Dunfeys of the Rockingham Investment Corporation, which was engaged primarily in building and selling houses in a Hampton development, bought the Dunfeys' interest in that corporation.
On October 17, 1955, defendant contacted Fred Shaake and made a tentative agreement to enter the insurance and real estate business with him. Defendant informed John Dunfey of his intention to sever his employment with them after disposing of any pending matters requiring his personal attention. Later the same day he was informed that his services were no longer required.
About November 1, 1955, the defendant commenced operations with Shaake under the trade name of the Rockingham Investment Corporation, with the understanding that the defendant would receive one-half of the net profits realized, including profits from the sale of houses constructed by the corporation. Other facts are stated in the opinion.
William W. Treat, Warren A. Seavey and Richard P. Dunfey (Mr. Seavey orally), for the plaintiff.
Perkins Holland and Robert B. Donovan (Mr. Donovan orally), for the defendant.
Richard P. Dunfey for the motion.
It is the defendant's contention that the restrictive covenant not to compete protects no legitimate business interests of the plaintiff and imposes undue hardship upon him and was executed without consideration.
The Trial Court found among other things that the parties entered into an employment contract freely and with full understanding of the terms thereof and for adequate and sufficient consideration, but refused to find that the limitations as to time and area were reasonable. In response to a request filed by the plaintiff, he found that such a contract would be enforced "as to any part of that district that is reasonably necessary for the protection of the good will of business of the employer there established," but found that it would be inequitable under all the circumstances to continue the injunction.
Our court on a number of occasions has observed that the law does not look with favor upon contracts in restraint of trade or competition (Eastern Express Co. v. Meserve, 60 N.H. 198) and that they are not to be extended by construction beyond the fair import of the language contained therein. Bowers v. Whittle, 63 N.H. 147; Saddlery Co. v. Mills, 68 N.H. 216. However, if the "limitations on defendant's freedom of action" are reasonable, they will not be held void, but competition will be restrained if it is reasonable to do so. Spaulding v. Mayo, 81 N.H. 85, 86. Such contracts not only inure to the benefit of the employer but to the employee as well, in that the latter may, by giving a restrictive covenant, be able to place himself in a more advantageous position economically. Under a reasonable contract the employer is entitled to be protected against an employee using trade secrets and personal influence with customers which he has gained in such employment. See 76 U. Pa. L. Rev. 244.
Numerous authorities in other jurisdictions have been cited by able counsel in their briefs to sustain their positions here. A detailed analysis of these authorities is not deemed necessary, since they all "boil down" to the general proposition that "the conclusion reached . . . is that the validity of the agreement depends upon the reasonableness of the restraint as applied to the particular circumstances of each case." Bancroft v. Company, 72 N.H. 402, 406; New England Tree Expert Co. v. Russell, 306 Mass. 504; Roy v. Bolduc, 140 Me. 103. See anno. 41 A.L.R. (2d) 15; 43 A.L.R. (2d) 94.
The Court found that the plaintiff failed to establish the presence of any trade or business secrets or that the defendant had any confidential knowledge which he could or did use to the detriment of plaintiff. The evidence did not compel a contrary finding.
The plaintiff in its brief agrees that Enwright "did not use or disclose trade secrets" but argues that he acquired certain confidential information about plaintiff's methods and procedures. These methods and procedures in general consisted of pre-appraisals prior to financing through a federal agency; acquiring a familiarity with certain F.H.A. and V.A. forms and general access to customers' listings and other methods of financing.
There are some twenty real estate agents in the Hampton area, and many of them are using these methods. The Dunfey methods were not unknown to Fred Shaake, who had access to the office files and forms before he purchased the Dunfey interests in Rockingham Investment Company. This company shared office space with the plaintiff and the files of both were kept in the same drawer.
The plaintiff must show more than that its methods and procedures were not known to the general public. It must establish that such secrets were exclusively its own and not general secrets of the trade. Arthur Murray Dance Studios v. Witter, (Ohio) 105 N.E.2d 685. Moreover, the plaintiff's undertaking was that he would not "divulge" confidential information, and there was no evidence that he did,
The Trial Court found that defendant did not actively engage in soliciting customers of the plaintiff, and the plaintiff does not dispute the fact that he did not go out specifically to deal with former customers. The most that can be said of his activities is that when he heard of a prospective sale or saw a sign on a building, whether bearing the plaintiff's or some other agent's name, he would solicit a listing, using similar methods employed by the plaintiff and standard in the business. An employer "has no right to unnecessarily interfere with the employee's following any trade or calling for which he is fitted and from which he may earn his livelihood and he cannot preclude him from exercising the skill and general knowledge he has acquired or increased through experience or even instructions while in the employment." Roy v. Bolduc, supra, 107.
It is contended that the Trial Court erred in ruling that confidential information acquired by the defendant before the execution of the employment contract could not properly be considered by the Court in reaching its decision. The Court received all of the evidence which the plaintiff offered concerning information available to the defendant before the contract was executed. We have previously sustained the finding that the plaintiff "failed to establish that the petitionee had any confidential knowledge which he could or did use to the detriment of the petitioner." The evidence concerning information made available before: the contract was executed would not support a different finding. There was no showing that any information then acquired was used by the defendant to the plaintiff's detriment, or that any of it was in the nature of a trade secret peculiarly the plaintiff's. If the Court erred in refusing to consider the evidence, the error was therefore harmless.
The Court found that the contract limitations as to time and area were not reasonable. While the period of time and extent of territory in such agreement is not decisive on the issue of reasonableness, they are important factors in such determination. Restatement, Contracts, s. 515, comment c. The Trial Court ruled that the contract was divisible and enforceable "as to any part of that district . . . reasonably necessary for the protection of the good will of . . . the employer." See New England Tree Expert Co. v. Russell, supra; V Williston, Contracts, (Rev. ed.) s. 1660. He found that the plaintiff had "a negligible amount of business in Durham, Dover and Exeter." His finding that it would be "inequitable under all the circumstances to continue the injunction" (Manchester Dairy System v. Hayward, 82 N.H. 193, 206, 207) was a finding that there was no occasion for injunctive relief as to any part of the district. 6 Corbin, Contracts, s. 1394. These findings cannot be held to have been erroneous as a matter of law.
The other exceptions have been considered, and it is our conclusion that the record supports the findings and rulings made.
Exceptions overruled.
All concurred.
ON MOTION FOR REHEARING. After the foregoing opinion was filed the plaintiff moved for rehearing upon the ground "that a decided ambiguity exists as to whether or not a contract to restrain an employee from competing with his employer can be enforced" and requested "a clarification of the Court's opinion with particular reference to the clause `not to compete,' as spelled out in this contract . . . ."
The plaintiffs argument suggests we have attached no significance to a covenant in restraint of competition where there are no trade secrets involved. The opinion cites with approval Spaulding v. Mayo, 81 N.H. 85, which is authority for the proposition that such a covenant will be enforced if it is reasonable to do so. In this case, however, the Trial Court was warranted in finding that the contract limitations as to time and area were not reasonable and that it would be "inequitable under all the circumstances to continue the injunction."
Motion denied.
February 4, 1958.