Morgan's Home Equipment Corp. v. Martucci

• Decision Date: 22 November 1957
• Docket Number: 2861
• Parties: MORGAN'S HOME EQUIPMENT CORP. v. John MARTUCCI, Harry Garber, Ray Convor and Dan Spiller, and also Morris Spiller, Individually and Trading as Variety Sales Corp.
• Court: Pennsylvania Supreme Court

136 A.2d 838

390 Pa. 618

MORGAN'S HOME EQUIPMENT CORP. v. John MARTUCCI, Harry Garber, Ray Convor and Dan Spiller, and also Morris Spiller, Individually and Trading as Variety Sales Corp.

No. 2861

Supreme Court of Pennsylvania

November 22, 1957

[Copyrighted Material Omitted]

Argued January 7, 1957

Appeals, Nos. 226-228, Jan. T., 1956, from decree of Court of Common Pleas No. 5 of Philadelphia County, June T., 1955, No 8869, in case of Morgan's Home Equipment Corp. v. John Martucci et al. Decree modified and, as modified, affirmed.

Equity. Before REIMEL, J.

Adjudication filed finding for defendants. Exceptions to adjudication sustained and decree entered for plaintiff. Defendants appealed.

The decree of the Court of Common Pleas No. 5 of Philadelphia County is modified in accordance with this opinion, and as modified affirmed. Costs to be paid by the appellants.

Franklin Poul, with him Bernard Wolfman and Wolf, Block, Schorr and Solis-Cohen, for appellants.

Joseph E. Gold, with him Jerome Charen and Edgar R. Einhorn, for appellee.

Before JONES, C.J., BELL, CHIDSEY, MUSMANNO, ARNOLD, JONES and COHEN, JJ.

OPINION

MR. JUSTICE COHEN

The Central Home Furnishing Co. was engaged in the installment selling of household articles through door-to-door salesmen-collectors. Each salesman was given a confidential route of customers to whom he sold and from whom he collected weekly payments. The contacts between salesmen and customers were on a regular and reoccurring basis.

In February, 1955, Morgan's Home Equipment Corporation purchased the assets of the Central Company. Of the $150,000 purchase price, only $25,000 was paid for merchandise inventory; the remainder was paid for accounts receivable, customer lists and "good will." Within a month after Morgan had purchased Central, a meeting was held at which those employes of Central who were to be retained by Morgan were requested to execute an agreement wherein each employe promised for a period of one year after termination of employment not to compete with Morgan within a radius of 100 miles from Philadelphia, and not to solicit, divert or take away customers whom he had been serving. The instrument further recited that the employe would keep confidential the names and addresses of Morgan's customers, and that he would not cause any customers to withhold their patronage. The consideration stated in the agreement for these employe covenants was the taking of employment with Morgan. Additionally, the contract contained the language: "I intend to be legally bound hereby." When each employe signed the agreement he was promised, and did receive various benefits incident to employment with Morgan including an insurance policy, a raise in wages and additional customers.

One salesman, Morris Spiller, voluntarily left Morgan's employ in April 15, without signing the contract, and immediately thereafter began a competing business under the name of Variety Sales Corporation. Two other salesmen, John Martucci and Dan Spiller, signed the restrictive agreement and continued as employes of Morgan. On May 22, Martucci left Morgan to go with Variety, and on July 30, 1955, Dan Spiller did likewise. They then began to solicit and serve the customers of Morgan on their former routes on behalf of Variety. Other collector-salesmen, all of whom had been former employes of Morgan, were hired by Variety and actively solicited the patronage of Morgan's customers.

Morgan's Home Equipment Corporation filed a complaint in equity in August, 1955, in the Court of Common Pleas No. 5 of Philadelphia County, charging Martucci and Dan Spiller with breading their restrictive covenants, misusing secret information obtained while employes of the plaintiff and misleading customers by using forms which gave the impression that the defendants were still soliciting on behalf of Morgan. Morris Spiller was charged with conspiring with the other defendants to divert Morgan's customers and entice away its employes.

The chancellor found that the restrictive covenants lacked consideration and, hence, were unenforceable. The chancellor also concluded that a conspiracy had not been proven, and that the defendants had neither misled customers, misused confidential information, nor enticed away any of Morgan's employes. Exceptions to this adjudication and to the decree nisi which followed it were filed. The court en banc, (including the chancellor), reversed unanimously, and entered a decree enjoining defendants Martucci and Dan Spiller for one year from the termination of their employment with the plaintiff from divulging the names and soliciting the patronage of customers who became known to them by reason of their former employment. The decree further enjoined the two defendants from attempting to divert any of plaintiff's business and from persuading plaintiff's customers to refrain from continuing their patronage. All of the defendants individually and trading as Variety Sales Corporation were prohibited from using customer lists, soliciting customers, persuading customers not to patronize, attempting to divert business, enticing employes, and using deceptively similar cards and records to the detriment of Morgan. Finally, all defendants were directed to account for profits obtained as a result of the violations of the agreement and the solicitation of plaintiff's customers. From the final decree of the court en banc the defendants prosecute these appeals maintaining that the covenants were unenforceable for lack of consideration, that the reversal of the chancellor's findings by the court en banc constituted an abuse of discretion and that the relief granted was oppressive.

I. The Disclosure Of Confidential Customer Information

In many businesses, permanent and exclusive relationships are established between customers and salesmen. The customer lists and customer information which have been compiled by such firms represent a material investment of employers' time and money. This information is highly confidential and constitutes a valuable asset. Such data has been held to be property in the nature of a "trade secret" for which an employer is entitled to protection, independent of a nondisclosure contract, either under the law of agency or under the law of unfair trade practices. ^[1] In Macbeth-Evans Glass Co. v. Schnelbach, 239 Pa. 76, 85-86, 86 A. 688 (1913), we had occasion to discuss the nature of "trade secrets" and the reasons underlying their judicial recognition: "It may now be accepted as settled law, under the authority of English and American cases, that courts of equity if the facts warrant will restrain an employee from making disclosure or use of trade secrets communicated to him in course of a confidential employment. The character of the secrets, if they be peculiar and important to the business, is not material. They may be secrets of trade, ... or any other secrets important to the business of the employer. They, however, must be the particular secrets of the complaining employer, not general secrets of the trade in which he is engaged. ... The duty of the servant not to disclose the secrets of the master may arise from an express contract, or it may be implied from their confidential relations.

"Where confidence is reposed, and the employe by reason of the confidential relation has acquired knowledge of trade secrets, he will not be permitted to make disclosure of those secrets to others to the prejudice of his employer." (emphasis supplied)

We agree that confidential customer data are entitled to protection as a trade secret within the meaning of the Macbeth-Evans rule. ^[2]

In the present case there is no dispute that the customer data of the plaintiff company was both confidential and highly valuable, and the court en banc so found. Whether this information was embodied in written lists or committed to memory is, we believe, of no significance; in either case in the data are entitled to protection. ^[3]

All the defendants were given customer data in the course of their employment with Morgan and its predecessor, ^[4] and all admit to using and divulging the information subsequently in their rival employment. We hold, therefore, that independent of the covenants executed between Morgan and its former employes, ^[5] the lower court properly directed Martucci, Dan Spiller, and Morris Spiller to account for all profits obtained from the disclosure of confidential customer information. ^[6] Macbeth-Evans Glass Co. v. Schnelbach, supra; Belmont Laboratories, Inc. v. Heist, 300 Pa. 542, 151 A. 15 (1930).

II. The Solicitation Of Morgan's Customers

The vice of an employe's divulgence of confidential information is that the rival businessman who receives the data is enabled thereby to compete unfairly with the former employer. But it is immaterial to the employer whether unfair competition comes at the hands of a third party or directly through an employe. For this reason the law will also prevent an employe from using customer contacts as well as confidential customer information to his own advantage by soliciting the customers of his former employer. ^[7] Cf. Belmont Laboratories, Inc. v. Heist, supra, 300 Pa. at 553. Accordingly, the decree of the court below correctly required all the defendants to account for profits obtained from the solicitation of those customers of Morgan who became known by reason of employment with plaintiff and its predecessor. ^[8] III.

The General Covenants Not To Compete For The Patronage Of The Public At Large

In the absence of an agreement between employer and employe to the contrary, the law does not prevent an employe from competing in business with his former employer after his service has terminated. However, the restrictive...