Morlife, Inc. v. Perry

• Decision Date: 14 August 1997
• Docket Number: No. AO74958,AO74958
• Citation: 66 Cal.Rptr.2d 731,56 Cal.App.4th 1514
• Court: California Court of Appeals Court of Appeals
• Parties: , 13 IER Cases 291, 45 U.S.P.Q.2d 1741, 97 Cal. Daily Op. Serv. 6508, 97 Daily Journal D.A.R. 10,589 MORLIFE, INC., Plaintiff and Respondent, v. Lloyd PERRY et al., Defendants and Appellants.

Page 731

66 Cal.Rptr.2d 731

56 Cal.App.4th 1514, 13 IER Cases 291, 45 U.S.P.Q.2d 1741,

97 Cal. Daily Op. Serv. 6508,

97 Daily Journal D.A.R. 10,589

MORLIFE, INC., Plaintiff and Respondent, v. Lloyd PERRY et al., Defendants and Appellants.

No. AO74958.

Court of Appeal, First District, Division 2, California.

Aug. 14, 1997.

William D. Thomson, Estrada & Thomson, Livermore, for Defendants and Appellants.

James P. McBride, Hayward, for Plaintiff and Respondent.

RUVOLO, Associate Justice.

Respondent Morlife, Inc. (Morlife) brought this suit for damages and injunctive relief against its former employees, appellants Lloyd Perry and Carl Bowersmith, who had resigned and joined with appellant Donald R. Meyers to form Burlingame Builders, Inc. (Burlingame), a direct competitor of Morlife in the commercial roof repair market. Morlife claimed appellants unfairly competed with it by misappropriating confidential customer information in violation of the Uniform Trade Secrets Act (UTSA) Civ.Code, §§ 3426 et seq.) ¹ . After a nonjury trial, the court found for Morlife, awarded it $39,293.47 in monetary damages, and granted injunctive relief. Applying the appropriate standard of review to the evidence before the court, we uphold the trial court's finding that Burlingame used trade secrets to compete unfairly with Morlife. We further find the monetary and injunctive relief granted against Burlingame was warranted by the evidence. Therefore, we affirm.

FACTS

Morlife is in the business of inspecting, maintaining, and repairing roofs primarily for commercial properties. Before he terminated his employment with Morlife, Perry was its sales representative and had been with the company since its formation. During his employment, Perry signed an agreement not to use, duplicate, or disclose information about Morlife's customers in the event he terminated his employment. Bowersmith was employed by Morlife as its production manager. Perry and Bowersmith were in key positions at Morlife, and they necessarily had an intimate knowledge of the business and its customers.

In July 1993, appellants discussed the possibility of starting another roofing company. In October 1993, both Perry and Bowersmith resigned from Morlife. When Perry left Morlife's employ, he took his collection of customer business cards he had accumulated over his six years of employment. According to Perry's testimony at trial, the business cards represented approximately 75 to 80 percent of Morlife's customer base.

Burlingame began operations on November 1, 1993. Through letters, telephone calls, and personal visits, Perry contacted former Morlife customers seeking their business for his own newly-formed company. In doing so, Perry used the customer business cards he took when he left Morlife. At the time of trial, Morlife identified 32 former customers who had switched their business to Burlingame.

When Morlife personnel learned appellants were actively soliciting business from Morlife customers, Morlife's legal counsel sent a cease and desist letter dated November 18, 1993. Appellants discussed the letter but decided to disregard it.

This lawsuit was filed charging appellants with misappropriation of trade secrets in violation of the UTSA and unfair competition under Business and Professions Code section 17200 et seq. ² Morlife sought injunctive relief as well as compensatory and punitive damages. A nonjury trial was held during which the court heard highly controverted evidence. After the conclusion of trial, the court made several key findings:

1) Morlife's customer list constituted a trade secret as defined by the UTSA (Civ.Code, § 3426.1, subd. (d));

2) Appellants jointly misappropriated Morlife's trade secret by using knowledge of Morlife customers to solicit customers for Burlingame;

3) Morlife was entitled to $39,293.47 representing the unjust enrichment realized by appellants as a result of their misappropriation of Morlife's customer information.

In addition, appellants were permanently enjoined from doing business with any of the 32 Morlife customers who subsequently did business with Burlingame after being unlawfully solicited. Appellants were also enjoined from soliciting any Morlife customer that Perry and Bowersmith became aware of while working at Morlife.

On appeal we do not examine the record to determine whether the trier of fact could have reached a conclusion other than the one reached. Rather, we focus on the conclusions of the trial court, as well as the method by which it arrived at those conclusions, to determine whether they are legally correct and supported by substantial evidence. (See generally Klamath-Orleans Lumber, Inc. v. Miller (1978) 87 Cal.App.3d 458, 464, 151 Cal.Rptr. 118; Greenly v. Cooper (1978) 77 Cal.App.3d 382, 390, 143 Cal.Rptr. 514.)

OVERVIEW

Appellants repeatedly argue that the crux of this case "involves the right of an employee to leave the employment of his or her employer, open his or her own business and compete against the previous employer." While it has been legally recognized that a former employee may use general knowledge, skill, and experience acquired in his or her former employment in competition with a former employer, the former employee may not use confidential information or trade secrets in doing so.

Our Supreme Court recognized the delicate balance between promoting unfettered competition and protecting business from unfair conduct in Continental Car-Na-Var Corp. v. Moseley (1944) 24 Cal.2d 104, 148 P.2d 9: "Equity will to the fullest extent protect the property rights of employers in their trade secrets and otherwise, but public policy and natural justice require that equity should also be solicitous for the right inherent in all people, not fettered by negative covenants upon their part to the contrary, to follow any of the common occupations of life. Every individual possesses as a form of property, the right to pursue any calling, business or profession he may choose. A former employee has the right to engage in a competitive business for himself and to enter into competition with his former employer, even for the business of those who had formerly been the customers of his former employer, provided such competition is fairly and legally conducted. [Citation.]" (Id. at p. 110, 148 P.2d 9.)

To be sure, we acknowledge the important legal right of persons to engage in businesses and occupations of their choosing. Some would count this freedom as one of the most cherished commercial rights we possess. Yet also fundamental to the preservation of our free market economic system is the concomitant right to have the ingenuity and industry one invests in the success of the business or occupation protected from the gratuitous use of that "sweat-of-the-brow" by others.

In the factual context of this case, the trial court found appellants had gone beyond reliance on their general skills and knowledge resulting from their years of experience in the roofing industry and had improperly capitalized upon Morlife's trade secrets. Thus, they were correctly enjoined from continuing to compete under these circumstances, and were found liable to compensate their former employer for the benefit derived from that use.

CONFIDENTIAL CUSTOMER LISTS AS TRADE SECRET

By enacting the UTSA in 1984, our Legislature added California to the long list of states ³ which have determined that the right of free competition does not include the right to use confidential work product of others. Of course, not all information generated during the course of a business enterprise is entitled to protection, and the UTSA limits the scope of statutory protection for such intellectual property as follows:

"(d) 'Trade secret' means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." (§ 3426.1, subd. (d).)

Appellants contend Morlife's customer list ⁴ did not satisfy the statutory definition of "trade secret" because the identity of prospective customers for roof repair and maintenance is the type of information which is generally known in the industry. Appellants claim the undisputed evidence demonstrates "there is nothing inherently secret or confidential about Morlife's customer base as all commercial buildings will need either repairs to an existing roof or a new roof." These arguments, which are framed as "legal arguments," ignore the trial court's factual finding on this issue.

In concluding Morlife's customer list fell within the definition of a trade secret under the UTSA, the court found that "Morlife provides a relatively unusual roofing service, namely, commercial roof repair and maintenance, as distinguished from replacement roofing." Its customer list was "a compilation, developed over a period of years, of names, addresses, and contact persons, containing pricing information and knowledge about particular roofs and roofing needs of customers using its services: as such, it has independent economic value. The identity of those particular commercial buildings using such services is not generally known to the roofing industry." The court further emphasized "Morlife made reasonable efforts to maintain the secrecy of its customers' identity by limiting circulation of its customer lists and by advising its employees, including [appellants] Lloyd Perry and Carl Bowersmith, through an employment agreement and an employee handbook, that Morlife considered the information valuable and confidential." This court must accept the trial court's finding that Morlife's customer list was a trade secret unless the record reveals no substantial evidence to support it. (Vacco...