Opinion
Nos. A04-70, A04-147.
Filed: November 30, 2004.
Appeal from the District Court, Hennepin County, File No. Ct 00-13089.
Thomas J. Conley, Annie Littlefield, Leonard, Street and Deinard, (for Signergy Sign Group, Inc.).
Malcolm P. Terry, Nicholas J. Eugster, Messerli Kramer, (for Robert Adam, et al.).
Richard A. Beens, Felhaber, Larson, Fenlon Vogt, P.A., (for Robert Johnson).
Considered and decided by Hudson, Presiding Judge, Kalitowski, Judge, and Klaphake, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2002).
UNPUBLISHED OPINION
Appellants Robert Adam and Robert Johnson were former employees of respondent Signergy Sign Group, Inc. Adam and Johnson left Signergy to form a competing firm, appellant Innolam, Inc. Signergy sued appellants, alleging breach of fiduciary duty, duty of loyalty, duty of confidentiality, misappropriation of trade secrets, tortious interference with business, and civil conspiracy. Following trial, the jury awarded respondent damages for breach of duty of loyalty by Adam, breach of confidentiality by Adam and Johnson, and tortious interference with business by Adam and Innolam. Appellants challenge the district court's order denying their motion for a judgment notwithstanding the verdict (JNOV) on the issue of liability. Both parties raise a number of other issues, which we need not address because our opinion here is dispositive of those issues.
For ease of reference, appellants Adam, Johnson, and Innolam, Inc. will be referred to collectively as "appellants," despite the fact that they are both appellants and respondents in these consolidated appeals. Signergy will likewise be referred to as "respondent," despite the fact that it is also an appellant in one of the consolidated appeals.
Another employee, Michael Kelly, was also a defendant in the lawsuit, but is not a party in this appeal.
Signergy filed a separate appeal challenging the district court's order granting a new trial on damages and denying Signergy's motions for amended findings following the second trial on damages and for attorney fees. By order dated February 27, 2004, this court consolidated the two appeals.
Because we conclude that the verdict cannot be sustained on any reasonable theory of the evidence, we reverse the district court's order denying JNOV and remand for entry of JNOV in favor of appellants.
DECISION
A district court's decision regarding a motion for JNOV is reviewed de novo. Pouliot v. Fitzsimmons, 582 N.W.2d 221, 224 (Minn. 1998).
Where JNOV has been denied by the [district] court, on appellate review the [district] court must be affirmed, if, in the record, there is any competent evidence reasonably tending to sustain the verdict. Unless the evidence is practically conclusive against the verdict, this court will not set the verdict aside.
Id. (quotations omitted). The reviewing court examines the evidence in the light most favorable to the prevailing party and must not set aside the verdict if it can be sustained on any reasonable theory of the evidence. Id. 1. Breach of Duty of Loyalty
Employees have a common law duty of loyalty to their employers that prohibits them from directly soliciting their employers' customers or otherwise competing with them while still employed. Eaton Corp. v. Giere, 971 F.2d 136, 141 (8th Cir. 1992) (interpreting Minnesota law). But, while still employed, employees also have a right to make preparations to enter into competition with their employers. Rehab. Specialists, Inc. v. Koering, 404 N.W.2d 301, 304 (Minn.App. 1987). What is required is a balancing of the employer's legitimate interest in having its business advanced by an employee, and the employee's legitimate interest in bettering him or herself in a new business and providing for his or her continuing livelihood. See Sanitary Farm Dairies, Inc. v. Wolf, 261 Minn. 166, 174-75, 112 N.W.2d 42, 47-48 (1961).
Here, Adam clearly contemplated leaving Signergy's employ for several months before submitting his resignation, and took certain steps in contemplation of that resignation. But there is no evidence from which it can be shown or inferred that Adam actively solicited Signergy's customers before he left. While the evidence established that Adam spoke to at least two suppliers of equipment and material, there is no evidence to show that he interfered with Signergy's customer relationships. Adam testified that even as he planned to leave, he continued to work 50 hours per week for Signergy and that he spent only two hours per week planning his new business. Adam did not incorporate Innolam until after he resigned from Signergy, and Innolam did not receive and execute its first job until several months after Adam's resignation. Although Adam talked with Johnson and Kelly about leaving Signergy to work for him, these negotiations were not concluded until at least two months after Adam resigned. See Fleming Sales Co. v. Bailey, 611 F. Supp. 507, 513-14 (N.D. Ill. 1985) (stating that absent independent tort, it is permissible to hire competitor's personnel).
It is well understood that an employee may not "feather his own nest at the expense of his employer while he is still on the payroll." Sanitary Farm Dairies, 261 Minn. at 175, 112 N.W.2d at 48. But employer-employee relationships are generally terminable at the will of either party. Ruud v. Great Plains Supply, Inc., 526 N.W.2d 369, 371 (Minn. 1995). We are unwilling to uphold a verdict that interprets an employee's legitimate attempts to ensure a continuing livelihood as a breach of loyalty to his employer. In the absence of competent evidence of any action taken by Adam during employment that could be viewed as direct solicitation of Signergy's customers or as direct competition with Signergy while still employed, we conclude that the district court erred by refusing to grant JNOV on the breach of loyalty claim against Adam.
2. Breach of Confidentiality
The tort of breach of confidentiality is basically the common law version of misappropriation of trade secrets. See Jostens, Inc. v. Nat'l Computer Sys., Inc., 318 N.W.2d 691, 701 (Minn. 1982). Instead of focusing on whether the appropriated information was a trade secret, the "analysis centers on the misappropriation, the gist of which is breach of a confidential relationship, rather than on whether a property interest is involved, i.e., whether a trade secret exists." Id. (footnote omitted). Proof consists of three elements: (1) the existence of a trade secret or confidential information; (2) acquisition of this information through a confidential relationship; and (3) use of the confidential information. Id.
Signergy reasons that because Adam signed a confidentiality agreement covering, among other things, customer lists, customer contact information, price lists, pricing information, and product and service information, then any use of this information by Adam was a breach of his confidential relationship with Signergy. Signergy further argues that because Adam was privy to confidential information while employed by Signergy, he was able to use this information to prepare a budget, negotiate with suppliers, and compete for customers. As for Johnson, Signergy argues that his knowledge of customers' buying habits enabled Innolam to compete for Signergy customers.
The focus, however, is on whether the information used or acquired by Adam and Johnson constituted confidential information or trade secrets. Generally, customer lists, "including knowledge of contact persons, prior purchasing history, and product and service requirements do not constitute trade secrets." Lasermaster Corp. v. Sentinel Imaging, 931 F. Supp. 628, 637 (D. Minn. 1996). This type of information is "readily ascertainable by proper means over the course of time without efforts beyond those ordinarily exerted by salesmen in developing customers." Fleming Sales, 611 F. Supp. at 514 (quotation footnote omitted). A trade secret must meet four characteristics: (1) it is not generally known or readily ascertainable; (2) it provides a demonstrable competitive advantage; (3) it is gained at the expense of the owner of the information; and (4) it is intended to be confidential. Jostens, 318 N.W.2d at 698.
The evidence here undisputedly established that (1) the pool of printers who use outside laminating services is finite; (2) information about pricing is readily available and can be constructed by figuring labor and material costs; (3) the various competing firms often refer business to or share business with each other; and (4) contact information can be determined by calling the customer. None of this information, even if so labeled, falls within the ambit of "confidential" or "trade secret" information. The mere compilation and use of data that is readily known or available does not transform that compilation or use into confidential or trade secret information. See id. at 699.
Nor was there testimony that Adam or Johnson removed papers that included actual lists or a compilation of these materials. The only concrete item of customer information produced was a handwritten list made by Johnson, which he apparently offered to leave with his replacement to help her after his departure. Evidence at trial regarding the other information consisted of what Adam and Johnson learned during their tenures with Signergy. Although an employee can be required to hold confidential material that exists only in his or her own mind, he or she also acquires experience and skills while working that can be used to "ply his [or her] trade." Id. at 701-02. Such general knowledge is something "an employee is free to take and to use in later pursuits, especially if [that general knowledge does] not take the form of written records, compilations or analyses." Fleming Sales, 611 F. Supp. at 514. Here, both Adam and Johnson worked for a number of years in the field; it would be unfair and unrealistic to require them to forget what they learned and to "reinvent the wheel as the price for entering the competitive market." Id. at 515.
In the absence of any competent evidence to show that Adam and Johnson possessed and used confidential or trade secret information not generally known or readily ascertainable, we conclude that the district court erred by denying appellants' motion for JNOV on the claim alleging breach of confidentiality.
3. Tortious Interference with Business Relationships
Tortious interference with business or contractual relationships can involve either present or prospective relations. United Wild Rice, Inc. v. Nelson, 313 N.W.2d 628, 632 (Minn. 1982). This cause of action requires proof of an actual or a prospective contractual relationship, intentional interference with the relationship that is either unjustified or accomplished by unlawful means, and damages. Id. at 633. Similar to the duty of loyalty owed by an employee, part of this determination involves balancing a party's right to compete for business with an employee's duty to act in the employer's best interests. Blackburn, Nickels Smith, Inc. v. Erickson, 366 N.W.2d 640, 645 (Minn.App. 1985), review denied (Minn. June 24, 1985).
Proof of this claim thus requires evidence of an actual or prospective business relationship. The undisputed evidence presented here established that most of Signergy's jobs were by project and required a short turnaround time, and that Signergy employees, including Johnson before he left, spent their time estimating pricing and delivery for projects on a demand basis. No evidence was offered to show that appellants interfered with or caused a breach of a long-term contract existing between Signergy and a customer. While it may seem "unfair and unjust" for a former employee to solicit a former customer, an "employer has no exclusive right to the continued patronage of customers." Id.
In addition, any interference must be both intentional and unjustified. "An action for interference with contract does not lie where the alleged interferer has a legitimate interest, economic or otherwise, in the contract or expectancy sought to be protected and employs no improper means." Harman v. Heartland Food Co., 614 N.W.2d 236, 241 (Minn.App. 2000) (quoting Birdsong v. Bydalek, 953 S.W.2d 103, 112-13 (Mo.Ct.App. 1997)). Interference with a contract can be justified if it has a legitimate economic purpose, even if the former employee's purpose is at least in part to advance his or her own interest while causing the position of a former employer to worsen. See United Wild Rice, 313 N.W.2d at 633.
Here, Signergy argues that Adam's failure to obtain noncompete agreements from Johnson and Kelly while they were employed by Signergy is evidence of his use of unlawful means to interfere in Signergy's business. The evidence presented of Signergy's policy regarding noncompete agreements is at best contradictory. No witness was able to testify with authority that every employee was required to sign a noncompete agreement or that consideration was offered to current employees when asked to sign a noncompete agreement. Signergy's claim that Adam somehow concealed or removed agreements signed by Johnson and Kelly involves speculation and innuendo.
The gravamen of Signergy's complaint is that appellants entered into business in direct competition with Signergy and drew away a portion of Signergy's business by competing effectively in price and turnaround. "Competition is favored in the law." Id. While the record here is replete with evidence that Signergy struggled as competition for its services increased, not only from appellants but also from other competitors, there is no competent evidence that appellants wrongly interfered with Signergy's business relationships. We therefore conclude that the district court erred by denying appellants' motion for JNOV on the claim alleging tortious interference with business relationships.
We reverse the district court's order denying appellants' motion for JNOV and remand for entry of JNOV in favor of appellants. Because of our decision here, we need not address the other issues raised by Signergy, which include a challenge to the district court's orders permitting a new trial on damages and denying Signergy's motions for amended findings and attorney fees.