American Paper & Packaging Products, Inc. v. Kirgan

• Citation: 228 Cal.Rptr. 713,183 Cal.App.3d 1318
• Court: California Court of Appeals Court of Appeals
• Decision Date: 01 August 1986
• Parties: AMERICAN PAPER & PACKAGING PRODUCTS, INC., dba Cal Pack Industries, Plaintiff and Appellant, v. Afton KIRGAN, an individual, Cimbria Anderson, an individual, et al., Defendants and Respondents. Civ. B016405.

Page 713

228 Cal.Rptr. 713

183 Cal.App.3d 1318

AMERICAN PAPER & PACKAGING PRODUCTS, INC., dba Cal Pack Industries, Plaintiff and Appellant, v. Afton KIRGAN, an individual, Cimbria Anderson, an individual, et al., Defendants and Respondents.

Civ. B016405.

Court of Appeal, Second District, Division 6, California.

Aug. 1, 1986.

Certified for Partial Publication ^*

[183 Cal.App.3d 1320] Frank Anton Gunderson, Westlake, for plaintiff and appellant.

Kohlbrand, Suttora & Lambert and David J. Suttora, Westlake Village, for defendants and respondents.

BECK, Associate Justice. ^**

Appellant, American Paper & Packaging Products, Inc., (hereinafter appellant) appeals from an order denying application for preliminary injunction. Appellant sought to enjoin respondents, Afton Kirgan and Cimbria Anderson (hereinafter respondents), from soliciting appellant's customers and disclosing appellant's customer list and other business information to its competitors. And it is urged by appellant that

we issue an order enjoining the aforesaid conduct of respondents pending further action of the matter in the court below. For the reasons following, we will decline appellant's invitation.

STATEMENT OF FACTS

Respondents entered into written salespersons agreements with appellant in 1984 (Kirgan) and 1985 (Anderson). The agreements are identical and contain the following pertinent provisions:

"7. RESTRICTIONS ON USE OR DISCLOSURE OF CUSTOMER LIST AND OTHER INFORMATION.

For a period of 3 years immediately following termination of this agreement, S-C [subcontractor] shall neither call on or solicit, either for himself or for any other person or firm, any of the customers of CONTRACTOR whom S-C called, on whom S-C called, with whom S-C became acquainted, or of whom S-C learned during his retention hereunder, nor shall S-C make known to any other person or firm, either directly or indirectly, the names, addresses or telephone numbers of any such customers or any information relating in any manner to CONTRACTOR's trade or business relationship with such customers. All lists, books, records, and accounts relating in any manner to CONTRACTOR's customers, whether prepared by S-C or otherwise coming into S-C's possession, shall be the exclusive property of CONTRACTOR and shall be returned immediately to CONTRACTOR on termination of this agreement or on CONTRACTOR's request at any time."

On or about August 17, 1985, respondent Kirgan stopped working on behalf of appellant with respondent Anderson following suit on or about August 20, 1985. Respondents allege that a dispute arose over proper payments on commissions, and when they complained they were asked to leave appellant's employ.

Within a short time, both respondents secured employment with a competitor of appellant as salespersons.

Appellant alleges that respondents were soliciting customers from customer lists maintained by appellant. Appellant alleges further that the names, addresses and telephone numbers of its customers were obtained by respondents from the lists, books, records and accounts provided by Cal Pack prior to their termination and further that respondents have made such lists, books and records available to appellant's competitors in violation of the aforementioned agreement.

Respondents allege that any such customer lists were developed as fruit of their own labor and deny that, with the exception of three names of potential customers, they were given lists or files or other information on any actual or potential customers by appellant. Respondents further set forth in their respective declarations the means utilized to formulate and update such lists. These methods included visiting communities in their sales area and going into the areas zoned for industry in these communities. While driving in these zoned areas, they would locate what appeared to be manufacturing companies and make a list of these companies. They would then make "cold calls," described as an unscheduled visit to the company, in an attempt to talk to a representative and hopefully establish a buy/sell relationship. Respondents deny having any secret list of any specified customers of appellant and deny having been given any secret sales techniques or information by appellant.

Respondents assert they intend to call on every manufacturer that they can and are not singling out any specific customers or former customers of appellant. Respondents indicate that due to the highly competitive nature of the business, emphasis is placed on price, speed and quality of product. Long term relationships between manufacturers and shipping supply companies do not exist, and manufacturers generally do not order all their shipping supplies and containers from any one company. Thus, respondents argue, the need exists to call on as many customers as possible as often as possible or one cannot survive as a salesperson in this industry.

Appellant agrees that quality, reliable delivery and efficient service are factors used by customers in choosing a custom packaging material company. It asserts, however, that an equally important factor is the packaging material company's understanding of the special requirements needed to package a particular product.

Appellant claims that "[once] a customer relationship is established for some time a customer will often buy all of his packaging material from the same custom packaging vendor ...;" and alleges that 95 percent of Cal Pack's customers give them repeat business.

The court is called upon to balance the protections provided a former employee under Business and Professions Code section 16600 against the protections provided a former employer to confidential information and trade secrets.

With certain exceptions not relevant here, Business and Professions Code section 16600 provides that, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

This provision has been construed by the California Supreme Court as invalidating contracts not to compete unless their enforcement is necessary to protect an employer's confidential information or trade secrets. (Muggill v. Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242, 42 Cal.Rptr. 107, 398 P.2d 147.)

In 1984, California adopted the Uniform Trade Secrets Act (hereinafter UTSA) and codified same in Civil Code section 3426, et seq. California Civil Code section 3426.1, subdivision (d), defines trade secret as "information, including a formula, pattern, compilation, program, device, method, technique, or process, that: [p] (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 [p] (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."

As no court has specifically decided whether "customer lists" can qualify as trade secrets under the recently enacted UTSA, the respondents urge that the question is one of first impression. (The court is mindful of the recent First District Court of Appeal decision in Moss, Adams & Co. v. Shilling (1986) 179 Cal.App.3d 124, 86 Daily Journal D.A.R. 1054, wherein the court discussed the use of customer lists in a different context but did not deal squarely with the issue presented here.)

Respondents first argue that the Legislature was surely mindful of the massive volume of litigation concerning nondisclosure of customer lists. Thus, their failure to specifically encompass customer lists in their definition of trade secrets as set forth in Civil Code section 3426.1, subdivision (d), supra, must indicate their intent to exclude it.

Respondents argue further that the only noun set forth in section 3426.1, subdivision (d), that could possibly be reflective of a customer list is "compilation." Defining "compile" according to Webster's Ninth New Collegiate Dictionary (1983) at page 268, as: "1: to collect and edit into a volume 2: to compose out of materials from other documents," respondents assert that for appellant to prevail it must prove that its lists of customers were collected into volumes or composed out of materials from other documents. Thus, argue respondents, since factually appellant cannot do the latter, under either theory, Civil Code section 3426.1, subdivision (d), is inapplicable and the court should decide this case under post UTSA law.

Appellant argues that the case should be decided under the UTSA and the court below erred in not doing so. Appellant feels that had the court applied the two-prong test set forth in Civil Code section 3426.1, subdivision (d), rather than the five-prong test in Aetna Bldg. Maintenance Co. v. West (1952) 39 Cal.2d 198, 204, 205, 246 P.2d 11, or the three-prong test in Hollingsworth Solderless Terminal Co. v. Turley (9th Cir.1980) 622 F.2d 1324, it would have prevailed.

We cannot agree with respondents' argument that the Legislature's failure to include customer lists in its definition of trade secrets represents an intentional exclusion of same. The very language of Civil Code section 3426.1, subdivision (d), is inclusive, not exclusive. ("[I]nformation, including a formula, [etcetera]." (Emphasis added.)) The legislative intent was to codify the results of the better-reasoned cases concerning the remedies for trade secret misappropriation and thus provide for a more uniform application in the area of misappropriation through improper means of trade secrets. (UTSA, 14 U.L.A. 537, 538.)

Nor do we agree that in order for appellant to prevail, its interest must fit into the factual context of "compilation" as that word is defined by...