Opinion
Docket No. A-4906-01T3
Argued January 21, 2004
Decided February 9, 2004
On appeal from the Superior Court of New Jersey, Chancery Division, Bergen County, C-213-99.
David R. Strickler argued the cause for appellant/cross-respondent (Norris, McLaughlin Marcus, attorneys; Mr. Strickler, on the brief).
Merrill M. O'Brien argued the cause for respondents/cross-appellants (O'Brien Thornton, attorneys; Mr. O'Brien and Terry E. Thornton, on the brief).
Before Judges Pressler, Parker and Coleman.
This controversy arises out of the business relationship between plaintiff Joseph Stefanelli and defendants Thomas J. Credidio and Peter A. Warns, who were each equal one-third stockholders of defendant DFG Staffing Consultants, Inc., and by whom all three were employed. Plaintiff's employment was terminated pursuant to the two-thirds majority rule provision of their stockholders' agreement. Although he did not then or at any time thereafter tender his shares to defendants in accord with the buy-out provisions of the stockholders' agreement, plaintiff nevertheless commenced this action in the Chancery Division claiming that he was an oppressed stockholder within the intendment of N.J.S.A. 14A:12-7(1)(c) and seeking a statutory remedy. He filed this action about two weeks after defendants had commenced an action in the Law Division against him seeking damages for his alleged breach of their non-competition and confidentiality agreement. Plaintiff's new employer was joined in that action as well. The two actions were consolidated in the Chancery Division, and after a bench trial, both complaints were dismissed. Plaintiff appeals and defendants cross appeal. We affirm both dismissals substantially for the reason stated by Judge Escala in his letter opinion of April 16, 2002. We add, however, the following comments.
With respect to party designation, plaintiff in the Chancery Division action was, of course, defendant in the Law Division action, and plaintiffs in the Law Division action were defendants in the Chancery Division action. For ease of reference, we have retained the party designations in the Chancery Division action since that is where the consolidated action was tried.
These are the facts, both undisputed and as found by the trial judge based on substantial credible evidence. Credidio and Warns had an employment agency, DataFinders, which placed employees seeking permanent employment in positions in the information technology industry. They formed DFG in July 1993 as a complement to that business. DFG, which operated out of DataFinders' premises and whose start-up costs were borne by DataFinders, provided temporary employees to that industry. As is customary in the temporary-employee business, DFG paid the temporary employees, charging the temporary employers for their services. As originally formed, DFG had three employees, Credidio, Warns, and a former employee of DataFinders. Each was a one-third stockholder. The former DataFinders' employee left shortly after incorporation, and plaintiff, who had temporary employment agency experience, but not in information technology, was brought in in November 1993 to replace her. Plaintiff was given a one-third stock ownership although he contributed no capital. The scheme was for him to work full-time for DFG while Credidio and Warns would work half-time for DFG and half-time for DataFinders. Accordingly, Credidio and Warns each received half the amount of salary from DFG that plaintiff received. Plaintiff's title was vice-president.
Over the next several years, DFG prospered. Its revenues grew from $300,000 in 1994 to nearly $3.5 million in 1997, and plaintiff's income during that period increased from $50,000 to $367,000. In August 1997, however, the business started to decline and by August 1998 there was a decline of 35% in hours billed and of 26% in revenues. Credidio and Warns believed that plaintiff's managerial actions were prejudicial to the company, and the three stockholders met just before Labor Day 1998 to address the situation. Credidio and Warns, representing two-thirds of management and ownership, gave plaintiff a number of instructions respecting his future performance. Chief among them was that he would no longer set company policy or perform any essentially administrative functions but rather that he was to concentrate on sales. Tensions and dissatisfactions nevertheless continued. Defendants believed that plaintiff was violating his instructions, and at a meeting the three held in early March 1999, plaintiff was dismissed. According to Judge Escala's findings, to which we defer because they are evidentially supported, that action by defendants, within their prerogative as representing the majority, was a reasonable exercise of their business judgment made in good faith. Without necessarily ascribing fault, Judge Escala further noted that "it appears that Stefanelli's management decisions and style may well have contributed to his own demise at DFG." In any event, about a month later plaintiff was hired by The Hobart West Group, a direct competitor of defendants, to manage and develop its New Jersey division.
We address first the non-competition agreement. The stockholders' agreement, dated July 1997, included an extensive restrictive covenant barring each of the parties, for a two-year period following termination, from competing with DFG directly or indirectly. The covenant also required each party to maintain the confidentiality of DFG's proprietary information and trade secrets, defined as including, inter alia, "information relative to customers of the Corporation and their identities, locations and individual preferences. . . ." There is no question that plaintiff engaged in direct competition with DFG and that after his termination he solicited its customers. Nevertheless Judge Escala found that the identity of DFG's customers did not constitute protectible proprietary information or trade secret and that the non-competition agreement was unenforceable. With respect to the proprietary information-trade secret issue, Judge Escala found, with respect to customer identity, that
However, the information identifying companies needing temp workers in this field is readily available to the public, as is the data demonstrating who is looking for jobs, likewise easily ascertained. This is hardly the stuff of trade secrets or confidential information. Such basic information as names of companies and even contact persons in those companies do not include details peculiar and privileged to the key person's former company. . . .
Because Judge Escala's findings in this regard are supported by substantial credible evidence, we defer thereto. See, e.g., State v. Locurto, 157 N.J. 463 , 470, 474 (1999); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520 , 540 (1995). We are also satisfied that these findings support the conclusion that by soliciting DFG's customers after his termination, plaintiff did not violate the trade secret-confidential information covenant. See Rycoline Products, Inc. v. Walsh, 334 N.J. Super. 62 , 71-72 (App.Div.), certif. denied, 165 N.J. 678 (2000) (customer list will not constitute a trade secret if the information is generally known in the industry or is readily accessible to acquisition or duplication by others);Subcarrier Communications, Inc. v. Day, 299 N.J. Super. 634 , 641 (App.Div. 1997) (without proof that customer lists are held secret in the industry, the identity of customers with whom a former employee dealt is not a trade secret). See also National Tile Board Corp. v. Panelboard Manufacturing Co., 27 N.J. Super. 348 , 355 (Ch.Div. 1953).
We consider the enforceability of the non-competition agreement in the light of the finding that customer identity did not constitute a trade secret or protectible confidential information. As this court recently reaffirmed in Maw v. Adv. Clinical Communications, 359 N.J. Super. 420 , 434 (App.Div. 2003), overruled on other grounds only, Dzwonar v. McDevitt, 177 N.J. 451 (2003), "to subject an employee to a noncompete covenant in the first instance, the employer must demonstrate that it has legitimate interests which require protection through such an agreement." We further explained that
matters of general knowledge within an industry, the skills or experience an employee learned or developed during an employee's tenure with the employer, or the knowledge, skills, or abilities an employee brought with him to the employer, are not worthy of protection through a non-competition agreement.
. . .
If the employee does not have access to trade secrets or other confidential or proprietary information, then a non-competition agreement may not be enforced against the employee, regardless of its terms. [Id. at 435] (citations omitted)
It is for these reasons as well that we conclude that the noncompetition agreement was not enforceable.
With respect to the plaintiff's oppressed minority stockholder claims, we note first that a minority stockholder in a close corporation is entitled to relief if "the directors or those in control have acted fraudulently or illegally, mismanaged the corporation, or abused their authority as officers or directors or have acted oppressively or unfairly toward one or more minority shareholders in the capacities as shareholders, directors, officers or employees." N.J.S.A. 14A:12-7(1)(c). The basis of plaintiff's claim, as we understand it, is that when he was dismissed, the other two stockholders were obliged to have his shares evaluated and to buy them from him. We see no legal basis for that proposition. Moreover, the stockholders' agreement could have, but did not, require a reverse buy-out of a stockholder terminated from employment. The fact remains that although plaintiff had the right under the stockholders' agreement to offer his shares to the other two stockholders, he chose not to do so. There is absolutely nothing in the record to support the suggestion that an offer by plaintiff would have been futile because the other two would not have been prepared to pay fair value for his stock. Thus, absent any proof of mismanagement, fraud, or illegality, we see no reason why, having terminated an employee-stockholder as a matter of good faith exercise of business judgment, the remaining stockholders had the obligation to evaluate and buy the shares of the departing stockholder. Beyond that, as suggested by Judge Escala, the depreciation, if any, in the value of the shares after plaintiff's termination had two essential causes, namely, plaintiff's engaging in direct competition and his bringing of this lawsuit which, by including dissolution as a requested remedy, threatened the corporation's continued viability.
In sum, oppression within the intendment of the statute has been defined as including the frustration of a minority's reasonable expectations. See, e.g., Muellenberg v. Bikon Corp, 143 N.J. 168 , 179 (1996); Brenner v. Berkowitz, 134 N.J. 488 , 506 (1993). Moreover, an employee-stockholder's reasonable expectation of continuing employment must be balanced against the corporation's ability to exercise reasonable business judgment. Brenner, supra, 134 N.J. at 517 . See also Exadaktilos v. Cinnaminson Realty Co., Inc., 167 N.J. Super. 141 , 154 (Law Div. 1979), aff'd o.b., 173 N.J. Super. 559 (App.Div.), certif. denied, 85 N.J. 112 (1980); Grato v. Grato, 272 N.J. Super. 140 , 151 (App.Div.), certif. denied, 138 N.J. 264 (1994). While we recognize the potential for oppression in a situation such as this in which a minority employee-stockholder can be frozen out, we also agree with Judge Escala that plaintiff failed to demonstrate any circumstances that would overcome the priority here of the business judgment rule over the employee's reasonable expectations. As we have said, there was no obligation of the remaining stockholders to buy out plaintiff's shares in the absence of a request that they do so, and by directly competing with DFG and instituting this essentially dissolution action, it is plaintiff, not defendants, who is responsible for any depreciation in the shares he still retains.
The judgment appealed from dismissing both complaints from which both the appeal and the cross appeal are taken is affirmed.