Bancroft-Whitney Co. v. Glen

• Decision Date: 17 March 1966
• Docket Number: BANCROFT-WHITNEY
• Court: California Supreme Court
• Parties: , 411 P.2d 921, 24 A.L.R.3d 795 COMPANY, Plaintiff and Appellant, v. Ada GLEN, as Special Administratrix, etc., et al., Defendants and Respondents. S. F. 21627.

Page 825

49 Cal.Rptr. 825

64 Cal.2d 327, 411 P.2d 921, 24 A.L.R.3d 795

BANCROFT-WHITNEY COMPANY, Plaintiff and Appellant, v. Ada GLEN, as Special Administratrix, etc., et al., Defendants and Respondents.

S. F. 21627.

Supreme Court of California, In Bank.

March 17, 1966.

Charles E. Hanger and Brobeck, Phleger & Harrison, San Francisco, for plaintiff and appellant.

Bronson, Bronson & McKinnon, Edgar H. Rowe, San Francisco, Gibson, Dunn & Crutcher and Dean C. Dunlavey, Los Angeles, for defendants and respondents.

MOSK, Justice.

This is an action for breach of fiduciary duty by a corporate officer and for unfair competition. Plaintiff, Bancroff-Whitney Company, engaged in publishing law books, is a California corporation with its principal place of business in San Francisco. Defendants are Judson B. Glen, the former president and a director of plaintiff, ¹ Matthew Bender & Co., a New York corporation which also publishes law books (hereinafter called Bender Co.), and John T. Bender (hereinafter referred to as Bender), the president of Bender Co., who is sued individually and in his official capacity. ² The complaint alleges as follows:

Over the years plaintiff has spent large sums of money to develop a highly skilled staff of legal researchers and editors and, as of December 1, 1961, it employed more than 50 persons in these capacities in San Francisco. In July 1961 Glen, while ostensibly serving as president of plaintiff, and defendants Bender and Bender Co. commenced negotiations for the purpose of establishing a western division of Bender Co.

During November 1961, Glen, without resigning or giving notice to plaintiff or its officers, directors, or shareholders, signed a contract with Bender Co. to become president of the contemplated western division, commencing on or about January 1, 1962. Beginning in July 1961 and thereafter, defendants joined in a concerted effort to obtain a staff of editor and other personnel for the proposed new western division and, using misrepresentations and half-truths, intentionally interfered with plaintiff's advantageous contractual relationships and surreptitiously sought to entice away carefully selected members of plaintiff's executive staff and working force. Using to full advantage the inside knowledge and confidential business information provided by Glen, who continued to occupy a position of trust with plaintiff, defendants solicited more than 20 officers, directors, and trained employees of plaintiff. On and subsequent to December 15, 1961, more than 15 persons, including officers, directors, researchers, and editors left plaintiff's employ without notice and entered the employ of the newly created western division of Bender Co. When the company qualified to do business as a foreign corporation in California on January 5, 1962, the great majority, if not all, of its employees were persons who had just previously worked for plaintiff under the supervision of Glen.

The publishing schedules, including proposed formats, types, and titles of publications, dates of publication, planned future publications, as well as customer lists, relative value of customers, and other methods and techniques of doing business are closely kept secrets of law books publishers, and Glen, as the once-trusted fiduciary of plaintiff, became acquainted with its trade secrets and confidential business information. At the request of the other two defendants, Glen disclosed this valuable information to them, to the damage of plaintiff.

It is further alleged that the acts of Glen, including the enticement away of plaintiff's officers, directors, and trained employees, and the disclosure of trade secrets and confidential business information of plaintiff to its competitors, violated the fiduciary duties owed to plaintiff by him as an officer or director and that these acts were done for the purpose of crippling or destroying plaintiff and to provide advantage to defendants at the expense of plaintiff. The acts of the other two defendants, in subverting trusted officers and directors of plaintiff and using them and confidential and secret information provided by them to raid plaintiff's staff and entice away plaintiff's employees constitute unfair competition and were performed for the purpose of crippling and destroying plaintiff.

It is also alleged that defendants acted with malice, fraud, and oppression, and the complaint prays for general damages, punitive damages, and an injunction to restrain defendants from further approaching plaintiff's employees for the purpose of inducing them to leave plaintiff's employ and from disclosing trade secrets or confidential business information to Bender Co.

After a lengthy trial, the court, sitting without a jury, found in favor of defendants. It refused injunctive relief and held that Glen did not breach his fiduciary duties, that defendants were not guilty of unfair competition, and that no trade secrets or confidential business information were disclosed by Glen or used by the other defendants. It also found that defendants were not guilty of any of the specific wrongful acts alleged in the complaint. ³

It may be helpful at the outset of this long and complex chronicle of events to describe the issues involved in the controversy. Plaintiff does not seriously contend that Glen acted improperly in seeking employment with Bender Co. or that the other defendants are liable because they hired Glen, and no damages are sought for the departure of Glen from plaintiff's employ. It is contended, however, that Glen breached his fiduciary duties by his conduct leading up to the employment of the other persons who resigned from positions with plaintiff, and the gravamen of the action against Bender and Bender Co. relates to their role in cooperating in Glen's breach for the purpose of obtaining the employment of these persons by Bender Co. We hold, for the reasons hereinafter stated, that the evidence shows as a matter of law that Glen violated his duties to plaintiff and that the other defendants, having cooperated in and reaped the fruits of his violation, are guilty of unfair competition. ⁴

The record in this case consists of several thousand pages. The facts leading up to the employment by Bender Co. of Glen and Gordon Baker, plaintiff's sales manager, form the backdrop against which the employment of plaintiff's other personnel occurred. The summary of these events is taken substantially from the trial court's findings, although a few additional details from the transcript have been inserted for the purposes of clarity. The court made very few factual findings concerning the employment of the other personnel of plaintiff by Bender Co., however, and the evidence concerning this significant phase of the case, together with those few findings which relate to it, is set forth separately.

The Employment of Glen and Baker by Bender Co.

The majority of the stock of plaintiff corporation is owned by the Lawyer's Co-Operative Publishing Co. (LCP), whose principal place of business is Rochester, New York. Glen was employed by the parent company as an editor from 1938 until 1949, and in 1949 he became the editor-in-chief of plaintiff. From 1958 until his resignation on December 15, 1961, he was also president of plaintiff, chairman of the executive committee of plaintiff, and chairman of the product planning committee of LCP. In April 1960, Thomas Gosnell became president of LCP and exercised direct control and domination over much of the actual business operations of plaintiff. Glen and Baker thereafter became dissatisfied with their employment.

Prior to 1961, Bender Co. desired to expand its operations in California. In May of that year Bender directed William Vanneman, a vice president of Bender Co., to attempt to verify circulating reports that Glen was unhappy in his position with plaintiff. On May 12, 1961, Vanneman reported orally and in writing to Bender that he had not been able to confirm the rumors of dissatisfaction in his discussions with Glen, but stated that he had heard from the president of another subsidiary of LCP that Bender could create a substantial western operation using plaintiff's personnel. Bender testified that he discarded this suggestion.

Nevertheless, on July 10, 1961, Bender instructed his assistant, Joseph Billo, to contact Glen in San Francisco privately to explore further the possibilities covered in the Vanneman report. After a meeting with Glen at his office in San Francisco, Billo reported to Bender that Glen had reached retirement age, that his pension had vested and he was open to offers, that he would consider a change of employment if he could build up his estate and direct the new operation himself, that he had been asked to stay on in plaintiff's employ for five to seven years, ⁵ and that, despite feelings of loyalty to plaintiff, he could be swayed. Bender wrote Glen at his home, arranged to meet him in San Francisco on September 19, and there they discussed the possibility that Glen might head a new western division of Bender Co. following his retirement. They also discussed the need for a sales manager for the new organization, and Glen suggested that Bender contact Goldon Baker, who was the Los Angeles regional sales manager and a director of plaintiff. Glen called Baker and arranged a meeting between Bender and Baker in Los Angeles. At that meeting Baker indicated that he might be interested in serving as sales manager for the new organization, but only if Glen also became associated with it. On October 10 the fact that Bender was interested in hiring Glen and Baker (and a number of editors employed by plaintiff, as will be discussed later) came to the attention of Gosnell, the president of LCP, and other LCP officers. Gosnell met Glen in San Francisco in a series of meetings beginning on October 23, 1961, to discuss the situation with him. Glen testified that at these meetings Gosnell did not ask...